-----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, JfTMU+5gUuvs3v90taACEBKB8ljSqMd7+gfBGCfNVntaTT5bl82ihsP+u1WKgAEU C1c9imAzjOHHHxzCHLd8DQ== 0001068800-00-000138.txt : 20000417 0001068800-00-000138.hdr.sgml : 20000417 ACCESSION NUMBER: 0001068800-00-000138 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIFIED FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0001033926 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 351797759 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-22629 FILM NUMBER: 602309 BUSINESS ADDRESS: STREET 1: 431 N PENNSYLVANIA ST. CITY: INDIANAPOLIS STATE: IN ZIP: 46204-1873 BUSINESS PHONE: 3179177001 MAIL ADDRESS: STREET 1: 431 N PENNSYLVANIA ST CITY: INDIANAPOLIS STATE: IN ZIP: 46204-1873 FORMER COMPANY: FORMER CONFORMED NAME: UNIFIED HOLDINGS INC DATE OF NAME CHANGE: 19970218 10KSB 1 UNIFIED FINANCIAL SERVICES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the fiscal year ended December 31, 1999 Commission file number 0-22629 UNIFIED FINANCIAL SERVICES, INC. - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 35-1797759 - --------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 431 North Pennsylvania Street, Indianapolis, Indiana 46204-1873 - --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (317) 634-3301 -------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act Common Stock, $.01 par value Preferred Stock, $.01 par value ------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] For the fiscal year ended December 31, 1999, revenues totaled: $25,617,592. As of March 30, 2000, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $58,402,160. As of March 30, 2000, there were 2,878,462 shares of the Registrant's Common Stock, $.01 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE The following document is incorporated by reference into the indicated Part of this Report: Document Part of Form 10-KSB -------- ------------------- Proxy Statement for the 2000 Annual Meeting of Stockholders III Transitional Small Business Disclosure Format: Yes ; No X --- --- UNIFIED FINANCIAL SERVICES, INC. FORM 10-KSB TABLE OF CONTENTS PAGE ---- PART I Item 1. Description of Business 1 Item 2. Description of Property 11 Item 3. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 4A. Executive Officers of the Registrant 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 7. Financial Statements 20 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 45 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 45 Item 10. Executive Compensation 45 Item 11. Security Ownership of Certain Beneficial Owners and Management 45 Item 12. Certain Relationships and Related Transactions 45 Item 13. Exhibits and Reports on Form 8-K 46 SIGNATURES 47 PART I ITEM 1. DESCRIPTION OF BUSINESS ----------------------- CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Annual Report on Form 10-KSB are or may constitute forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Such forward-looking statements are based on current expectations, estimates and projections about Unified Financial Services' industries, management's beliefs and assumptions made by management. For example, a down turn in economic conditions generally and in particular those affecting bond and securities markets could lead to an exit of investors from mutual funds. Similarly, an increase in Federal and state regulations of the mutual fund, insurance or banking industries or the imposition of regulatory penalties could have an effect on our operating results. These uncertainties, as well as others, are present in the financial services industry and stockholders are cautioned that management's view of the future on which we price and distribute our products and estimate costs of operations and regulations may prove to be other than as anticipated. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include those set forth herein under "Risk Factors." Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. GENERAL Unified Financial Services, Inc., a Delaware holding company for various financial services companies that also does business as Unified.com, was organized on December 7, 1989. We distribute a vertically integrated financial services platform via the Internet and via the traditional industry channels of our subsidiaries. As of December 31, 1999, we maintained in excess of $1.5 billion of assets under management and $5.0 billion of assets under service. Our principal business is: (1) to provide and maintain vertical integration in the financial services industry for our subsidiaries, a platform that creates synergy and revenues among our subsidiaries from the fees associated with gathering, managing, maintaining and servicing assets under management; (2) to distribute our products and services platform via the Internet through a "plug in" marketing and distribution strategy to a number of compatible Internet channels via Unified.com; and (3) to distribute our platform through the traditional industry outlets of our subsidiaries' retail and institutional customers. Our subsidiaries concentrate their services over the following six business lines: investment advisory, trust and retirement services; administrative and back office support services; brokerage and brokerage services; finance; insurance brokerage; and corporate and start-up. We provide management services, working capital, systems support and development and equipment for our subsidiaries. Maintaining the vertically integrated platform is primarily accomplished through three strategies: (1) consolidating financial services companies that expand or deepen the integration by eliminating cost centers, increasing distribution and/or increasing products and services by means of tax-free, stock-for-stock transactions (This particular consolidation strategy is driven by our goal to protect, maintain, nurture and advance the entrepreneurial spirit of small businesses by providing capital, synergy and vertical integration in an "autonomous" subsidiary environment.); (2) the formation of new subsidiaries to - 1 - develop proprietary products and services that deepen the integration by eliminating cost centers, increasing distribution and/or increasing products and services that enhance and advance the synergy and revenues among our subsidiaries; and (3) consolidating small mutual funds into our mutual fund families by means of tax-free reorganizations (The mutual fund consolidation strategy is assisted by our mutual fund services capabilities and a highly qualified systems staff which provides innovative and flexible programming options, alternatives and solutions required by small mutual funds to compete against the larger capitalized mutual fund families.) Once a component of our vertically integrated network, each subsidiary then implements its individual business plan in an autonomous environment and achieves its growth and thereby increases earnings predominantly by: (1) distributing our products and services through the Internet and through its traditional retail and institutional "industry" outlets; (2) leveraging the existing infrastructure and utilizing the vertically integrated platform to fully realize and affect the synergy and the related earnings impact to our stock; (3) acquisitions by the subsidiary, using our stock and/or capital, to obtain important and critical business components that complement and enhance its operations; (4) utilizing our capital for necessary expansion; (5) traditional advertising, marketing and selling of the subsidiary's products and services; and (6) networking with our subsidiaries. Our principal executive offices are located at 431 North Pennsylvania Street, Indianapolis, Indiana 46204, and our telephone number is (317) 917-7001. We also maintain administrative offices at 2353 Alexandria Drive, Suite 100, Lexington, Kentucky 40504, telephone number (606) 296-4407; 220 Lexington Green Circle, Suite 600, Lexington, Kentucky 40512, telephone number (606) 245-2500; 1793 Kingswood Drive, Southlake, Texas 76092, telephone number (817) 431-2197; and at 36 West 44th Street, The Bar Association Building, Suite 1310, New York, New York 10036, telephone number (212) 852-8852; 36 East Fourth Street, Cincinnati, Ohio 45202, telephone number (513) 345-6800; and One Firstar Plaza, Suite 2605, St. Louis, Missouri 63101, telephone number (314) 552-6440. - 2 - ACQUISITIONS AND ASSET PURCHASES The following table lists the acquisitions and asset purchases completed by us during the years ended December 31, 1999, 1998 and 1997. No acquisitions or asset purchases were completed in 1996.
- --------------------------------------------------------------------------------------------------------------------- CONSIDERATION - --------------------------------------------------------------------------------------------------------------------- SHARES OF ACCOUNTING ACQUISITIONS AND ASSET PURCHASES COMPLETED DATE CASH COMMON STOCK METHOD - --------------------------------------------------------------------------------------------------------------------- Health Financial, Inc. 06/01/97 325,000 Pooling First Lexington Trust Company 12/31/97 80,008 Pooling Resource Benefit Planners, Inc. 03/10/98 12,000 Pooling Unified Investment Advisers, Inc. 03/31/98 Fiduciary Counsel, Inc. 08/21/98 $800,835 36,110 Purchase EMCO Estate Management Company, Inc. 08/21/98 11,000 Pooling Equity Underwriting Group, Inc. 12/17/98 241,745 Pooling Commonwealth Premium Finance Corporation 12/17/98 12,800 Pooling Strategic Fund Services, Inc. 12/22/98 7,500 Pooling AmeriPrime Financial Services, Inc. 12/31/98 410,000 Pooling M. Wilson & Associates, Inc. 01/01/99 3,636 Pooling First Insight Securities, Ltd. 05/06/99 $ 51,700 Purchase Commonwealth Investment Services, Inc. 06/01/99 27,500 Pooling Fully Armed Productions, Inc. 06/01/99 18,182 Pooling Unified Investment Advisers became our wholly owned subsidiary upon the surrender to Unified Investment Advisers by all of its stockholders (other than us) of their capital stock. We purchased certain of the assets and business and assumed certain of the obligations of The Patty Corporation (f/k/a EMCO Estate Management Company, Inc.). The acquisition company used by us to acquire such assets and obligations changed its name after the acquisition to EMCO Estate Management Company, Inc. Equity Underwriting Group, Inc. is a 100% shareholder of Equity Insurance Managers, Inc., 21st Century Claims Service, Inc. and Equity Insurance Administrators, Inc. Equity Insurance Managers is the sole member of Equity Insurance Managers of Illinois, L.L.C. (d/b/a/ Irland & Rogers). AmeriPrime Financial Services, Inc. is a 100% shareholder of AmeriPrime Financial Securities, Inc. We, through our wholly owned subsidiary, Archer Trading, Inc., purchased certain of the assets and assumed certain of the liabilities of First Insight Securities, Ltd. In connection with such acquisition we assumed liabilities of approximately $22,000 and paid an additional $51,700 in cash.
RECENT DEVELOPMENTS AND PENDING TRANSACTIONS On November 1, 1999, we received a charter from the Office of Thrift Supervision to operate Unified Banking Company, a Federal savings bank. Unified Banking Company is located at 2353 Alexandria Drive, Lexington, Kentucky and its accounts are insured by the Federal Deposit Insurance Corporation to the maximum limit permitted under Federal law. In connection with the organization of Unified Banking Company we contributed $7.3 million to Unified Banking Company as capital in exchange for all of the capital stock of Unified Banking Company. Unified Banking Company offers various bank products and services (including, but not limited to, certificates of deposit, residential mortgage loans and secured personal loans) to its banking customer base and to our subsidiaries' customer bases, including investors in the mutual funds managed, advised or administered by our subsidiaries. - 3 - On February 10, 2000, First Lexington Trust Company, a subsidiary of our company, filed applications with the Office of the Comptroller of the Currency to convert to a limited purpose national banking association. Upon consummation of the proposed conversion, First Lexington Trust Company would be renamed "Unified Trust Company, National Association." We believe that a national charter will more easily allow First Lexington Trust Company to pursue its business strategy of expanding its business outside of the Commonwealth of Kentucky. Subject to our receipt of the required regulatory approvals, we anticipate consummating the conversion during the second quarter of 2000. OUR AFFILIATED MUTUAL FUNDS As of December 31, 1999, the Unified Funds maintained approximately $54.3 million in total net assets, predominantly in its money market portfolio. The AmeriPrime Advisers Trust maintained approximately $167.8 in total net assets, and the AmeriPrime Funds maintained approximately $148.9 million in total net assets. The Unified Funds features its proprietary property, V.O.I.C.E. (Vision for Ongoing Investment in Charity and Education).(SM) - - - - - The Unified Funds' mission, largely due to its relationship with Unified Investment Advisers, is to capture existing small fund assets via: tax-free reorganizations; acquisitions; asset mergers; construction of portfolios for certain registered investment advisers; and the marketing of its V.O.I.C.E.(SM) concept. One of the three Unified Fund's equity portfolios is a fund-of-funds. Each of the AmeriPrime Funds and AmeriPrime Advisers Trust are administered by AmeriPrime Financial Services and distributed by AmeriPrime Financial Securities. The board of trustees of the Unified Funds consists of five disinterested trustees and one interested trustee, Timothy L. Ashburn, our chairman, president and chief executive officer. The board of trustees of each of the AmeriPrime Funds and AmeriPrime Advisers Trust consists of two disinterested trustees and one interested trustee, Kenneth D. Trumpfheller, a director and the president and secretary of AmeriPrime Financial Services and AmeriPrime Financial Securities. REGULATION OF OUR SECURITIES, PREMIUM FINANCE AND INSURANCE BROKERAGE BUSINESSES Under the Investment Company Act of 1940, as amended, the advisory, subadvisory shareholder servicing and distribution agreements between our subsidiaries and various mutual funds are subject to annual review by each fund's board of directors and the agreements must be approved annually to remain in effect. There are no assurances that the funds' boards of directors will renew each agreement with these funds. The non- renewal of those agreements by a fund's board of directors could have a material adverse effect on our business. We have no reason to believe that such approvals will not be granted and that the various mutual fund agreements will not 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 National Association of Securities Dealers, Inc. 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 Securities and Exchange Commission 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. Subject to certain preemptive Federal law, investment-related firms also are subject to regulation - 4 - and licensing by state securities commissions in the states in which they transact business. The Securities and Exchange Commission, state securities administrators and the self- regulatory organizations may conduct administrative proceedings that can result in censure, fine, suspension or expulsion of an investment adviser or broker-dealer, its officers or employees. The principal purpose of regulation and discipline of broker- dealers, investment advisers and transfer agents is the protection of customers and the securities markets rather than protection of creditors and shareholders of such firms. We also are subject to extensive regulation as to our duties, affiliations, conduct and limitations on fees. The insurance industry is highly regulated by state law. Our subsidiary, Commonwealth Premium Finance Corporation, must be licensed as a premium finance company in the states of Kentucky, Tennessee, Illinois and Ohio. Although Commonwealth Premium Finance Corporation, also conducts business in the states of West Virginia and Indiana, such states presently do not require premium finance licensure. Applicable regulations in all states in which Commonwealth Premium Finance Corporation conducts business require the approval of service charges, forms and applications used by Commonwealth Premium Finance Corporation in its business and also require compliance with certain recordkeeping and record inspection requirements. Our other insurance-related subsidiaries also are subject to state regulation. 21st Century Claims Service must be licensed as a claims adjusting company in all states in which it conducts business or, in the alternative, must employ licensed claims adjusters. Equity Insurance Managers, Inc. must be licensed as a managing general agent or broker in most states in which it conducts business and, in some instances, must employ licensed agents. Most insurance programs written by such companies are subject to some degree of regulation by state insurance departments. Violations of state regulations may subject these companies to civil and criminal penalties, including fines. DEPOSITORY INSTITUTION REGULATION GENERAL. Unified Banking Company is a Federally chartered savings institution, a member of the Federal Home Loan Bank of Cincinnati and its deposits are insured by the Federal Deposit Insurance Corporation through the Savings Association Insurance Fund. As a Federal savings institution, Unified Banking Company is subject to regulation and supervision by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation and to Office of Thrift Supervision regulations governing such matters as capital standards, mergers, establishment of branch offices and activities and general investment authority. The Office of Thrift Supervision periodically will examine Unified Banking Company for compliance with various regulatory requirements and for safe and sound operations. The Federal Deposit Insurance Corporation also has the authority to conduct special examinations of Unified Banking Company because its deposits are insured by the Savings Association Insurance Fund. Unified Banking Company must file reports with the Office of Thrift Supervision describing its activities and financial condition and must obtain the approval of the Office of Thrift Supervision prior to entering into certain transactions. REGULATORY CAPITAL REQUIREMENTS. Under the Office of Thrift Supervision's regulatory capital requirements, savings associations must maintain "tangible" capital equal to 1.5% of adjusted total assets, "core" capital equal to at least 4.0% or 3.0% (if the institution is rated composite 1 CAMELS under the Office of Thrift Supervision's examination rating system) of adjusted total assets and "total" capital (a combination of "core" and "supplementary" capital) equal to 8.0% of risk- weighted assets. In addition, the Office of Thrift Supervision has adopted regulations that impose certain restrictions on savings associations that have a total risk-based capital ratio that is less than 8.0%, a ratio of Tier 1 capital to risk- weighted assets of less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less than 4.0% (or 3.0% if the institution is rated composite 1 CAMELS under the Office of Thrift Supervision's - 5 - examination rating system). As of December 31, 1999, Unified Banking Company had a total risk-based capital ratio of 128.32%, a ratio of Tier 1 capital to risk-weighted assets of 127.73% and a ratio of Tier 1 capital to adjusted total assets of 49.26%. QUALIFIED THRIFT LENDER TEST. A savings institution that does not meet the Qualified Thrift Lender (QTL) test must either convert to a bank charter or comply with the following restrictions on its operations: (i) the institution may not engage in any new activity or make any new investment, directly or indirectly, unless such activity or investment is permissible for both a national bank and a savings institution; (ii) the branching powers of the institution shall be restricted to those of a national bank; (iii) the institution shall not be eligible to obtain any advances from its Federal Home Loan Bank; and (iv) payment of dividends by the institution shall be subject to the rules regarding payment of dividends by a national bank. In addition, any company that controls a savings institution that fails to qualify as a QTL will be required to register as, and to be deemed, a bank holding company subject to all of the provisions of the Bank Holding Company Act of 1956, as amended, and other statutes applicable to bank holding companies. To meet the QTL test, an institution's "Qualified Thrift Investments" must total at least 65% of "portfolio assets." Under Office of Thrift Supervision regulations, portfolio assets are defined as total assets less intangibles, property used by a savings institution in its business and liquidity investments in an amount not exceeding 20% of assets. At December 31, 1999, the percentage of Unified Banking Company's portfolio assets invested in Qualified Thrift Investments was in excess of the percentage required to qualify Unified Banking Company under the QTL test. PROMPT CORRECTIVE REGULATORY ACTION. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, the Federal banking regulators are required to take prompt corrective action if an insured depository institution fails to satisfy certain minimum capital requirements, including a leverage limit, a risk-based capital requirement and any other measure of capital deemed appropriate by the Federal banking regulators for measuring the capital adequacy of an insured depository institution. All institutions, regardless of their capital levels, are restricted from making any capital distribution or paying any management fees if the institution would thereafter fail to satisfy the minimum levels for any of its capital requirements. An institution that fails to meet the minimum level for any relevant capital measure (an "undercapitalized institution") may be: (i) subject to increased monitoring by the appropriate Federal banking regulator; (ii) required to submit an acceptable capital restoration plan within 45 days; (iii) subject to asset growth limits; and (iv) required to obtain prior regulatory approval for acquisitions, branching and new lines of businesses. The capital restoration plan must include a guarantee by the institution's holding company that the institution will comply with the plan until it has been adequately capitalized on average for four consecutive quarters, under which the holding company would be liable up to the lesser of 5% of the institution's total assets or the amount necessary to bring the institution into capital compliance as of the date it failed to comply with its capital restoration plan. Any company controlling the institution could also be required to divest the institution or the institution could be required to divest subsidiaries. If an institution's ratio of tangible capital to total assets falls below a "critical capital level," the institution will be subject to conservatorship or receivership within 90 days unless periodic determinations are made that forbearance from such action would better protect the deposit insurance fund. The Federal banking regulators will generally measure a depository institution's capital adequacy on the basis of the institution's total risk-based capital ratio (the ratio of its total capital to risk-weighted assets),Tier 1 risk-based capital ratio (the ratio of its core capital to risk-weighted assets) and leverage ratio (the ratio of its core capital to adjusted total assets). Under the regulations, a savings institution that is not subject to an order or written directive to meet or maintain a specific capital level will be deemed "well capitalized" if it also has: (i) a total risk- based capital ratio of 10% or greater; (ii) a Tier 1 risk-based capital ratio of 6.0% or greater; and (iii) a leverage ratio of 5.0% or greater. The Office of Thrift Supervision may reclassify a well capitalized savings institution as adequately capitalized and may require an adequately capitalized or undercapitalized institution to comply with the supervisory - 6 - actions applicable to institutions in the next lower capital category if the Office of Thrift Supervision determines, after notice and an opportunity for a hearing, that the savings institution is in an unsafe or unsound condition or that the institution has received and not corrected a less-than- satisfactory rating for any CAMEL rating category. As of December 31, 1999, Unified Banking Company was classified as "well-capitalized" under these prompt corrective action regulations. TRANSACTIONS WITH RELATED PARTIES. Generally, transactions between a savings bank or its subsidiaries and its affiliates must be on terms as favorable to the bank as transactions with non-affiliates. In addition, certain of these transactions are restricted to a percentage of the bank's capital. Affiliates of Unified Banking Company include Unified Financial Services and each of our other subsidiaries. Unified Banking Company's authority to extend credit to executive officers, trustees and 10% stockholders, as well as entities under such persons control, currently are governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated by the Board of Governors of the Federal Reserve System. Among other things, these regulations require such loans to be made on terms substantially similar to those offered to unaffiliated individuals, place limits on the amount of loans Unified Banking Company may make to such persons based, in part, on the bank's capital position, and require certain approval procedures to be followed. RECENTLY ENACTED LEGISLATIVE AND REGULATORY CHANGES. On November 12, 1999, President Clinton signed legislation that could have a far-reaching impact on the financial services industry. The Gramm-Leach-Bliley Financial Services Modernization Act authorizes affiliations between banking, securities and insurance firms and authorizes bank holding companies and national banks to engage in a variety of new financial activities. Among the new activities that will be permitted to bank holding companies are securities and insurance brokerage, securities underwriting, insurance underwriting and merchant banking. The Federal Reserve Board, in consultation with the Department of Treasury, may approve additional financial activities. National bank subsidiaries will be permitted to engage in similar financial activities but only on an agency basis unless they are one of the 50 largest banks in the country. National bank subsidiaries will be prohibited from insurance underwriting, real estate development and merchant banking. The Gramm-Leach-Bliley Act, however, prohibits future acquisitions of existing unitary savings and loan holding companies, like Unified Financial Services, by firms that are engaged in commercial activities and prohibits the formation of new unitary holding companies. We are unable to predict the impact of the Gramm-Leach-Bliley Act on our operations at this time. Although the Gramm-Leach-Bliley Act reduces the range of companies with which we may affiliate, it may facilitate affiliations with companies in the financial services industry. INDUSTRY REGULATIONS Our broker-dealer subsidiaries, Unified Management Corporation, Unified Investment Advisers, Inc. and AmeriPrime Financial Securities, Inc., are National Association of Securities Dealers members. The National Association of Securities Dealers is a self-regulatory organization that has prescribed rules with respect to maximum commissions, charges and fees related to sales of shares in any open-end investment company registered under the Investment Company Act. Each of Unified Investment Advisers, Health Financial and Fiduciary Counsel is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended. Unified Investment Advisers serves as the adviser to the Unified Funds. Under the Investment Advisers Act, 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 that is fraudulent, deceptive or manipulative. - 7 - We pursue a strategy of acquiring investment advisers to mutual funds. Once an investment adviser is acquired, its advisory agreement is assigned to us and automatically terminates under the Investment Company Act. Unified Investment Advisers' assumption of an advisory agreement must be approved by a majority of the fund's board of directors and a majority of its outstanding voting securities. An investment adviser purchased by us may not benefit from the sale of its advisory business to Unified Investment Adviser which results in the assignment of an advisory contract with a mutual fund unless, for a period of three years after the sale, at least 75% of the board of directors of the fund are not interested persons of the new adviser or the predecessor adviser, and no unfair burden is imposed on the fund as a result of the sale. This 75% requirement is stricter than the general requirement that only two-thirds of mutual fund's board of directors must be "disinterested" under the Investment Company Act. The effect of such transfer results in the assignment of the old investment advisory agreement, which requires the new agreement to be approved by the boards of trustees and the acquired fund's shareholders. There can be no assurances that a fund's board or its shareholders will approve an advisory agreement with Unified Investment Advisers after Unified Investment Advisers has acquired the former adviser to the fund. In addition, Unified Investment Advisers may be required to assume an advisory contract previously entered into under disadvantageous terms in order to convince the fund's board or its shareholders to approve Unified Investment Advisers' assumption of the agreement. Mutual fund directors and investment advisers to mutual funds are deemed to be "fiduciaries" of the fund. The Securities and Exchange Commission is authorized to initiate an action to enjoin a breach of fiduciary duties involving personal misconduct by any officers, directors, investment advisers and principal underwriters of a fund. Shareholders or the Securities and Exchange Commission also may bring an action against the officers, directors, investment adviser or principal underwriters for breach of fiduciary duty in establishing the compensation paid to the investment adviser or underwriter. An investment adviser or underwriter to a fund, its principals and its employees, also may be subject to proceedings initiated by the Securities and Exchange Commission to impose remedial sanctions for violation of any provision of the Federal securities laws and the regulations adopted thereunder, and the Securities and Exchange Commission may preclude a firm that has been sanctioned from continuing to act in such capacity. Investment companies such as the Unified Funds, the AmeriPrime Funds and AmeriPrime Insurance Trust are subject to substantive regulation under the Investment Company Act. 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 the next-determined net asset value plus any sales load. A fund's management agreement initially must be approved by the fund's board of directors and a majority of the outstanding shares and, after two years, must be annually approved, either by the board or by the outstanding voting shares. A fund's management agreement must automatically terminate in the event of assignment and typically is 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 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 are prohibited. REGULATORY PENALTIES FOR FAILURE TO MAINTAIN MINIMUM NET CAPITAL REQUIREMENTS The Securities Exchange Act imposes minimum net capital requirements for broker-dealer firms. A decrease below the minimum level of net capital required to be maintained by Unified Management Corporation, Unified Investment Services and AmeriPrime Financial Securities under the Securities Exchange Act could force Unified Management Corporation, Unified Investment Services and AmeriPrime Financial Securities to suspend activities pending recovery of net capital. Factors that may - 8 - affect Unified Management Corporation's, Unified Investment Services' and AmeriPrime Financial Securities' net capital include the general investment climate as well as our ability to obtain any assets necessary to contribute equity capital to Unified Management Corporation, Unified Investment Services and AmeriPrime Financial Securities. Information regarding regulatory minimum net capital is set forth in Note 11 of our consolidated financial statements included in this Annual Report on Form 10-KSB. RISKS OF BUSINESS Our investment advisory, banking, transfer agent, shareholder servicing and broker-dealer businesses are subject to various risks and contingencies, many of which are beyond our ability to control. These risks include: economic conditions generally and, in particular, those affecting the bond and securities markets; fluctuations in interest rates; discretionary income available for investment; customer inability to meet payment or delivery commitments; customer fraud; and employee fraud, misconduct and error. COMPLIANCE REQUIREMENTS AND REGULATORY PENALTIES FOR NONCOMPLIANCE Various aspects of our business are subject to Federal and state regulation as well as to oversight by self-regulatory organizations that, depending on the nature of any failure to comply with an applicable entity's rules, may result in the suspension or revocation of licenses or registration, including broker-dealer, investment adviser, transfer agent, premium finance and managing general agent licenses and registrations, as well as the imposition of civil fines and criminal penalties. Failure by us or any of our employees to comply with such regulations or with any of the laws, rules or regulations of Federal, state or industry authorities (principally the National Association of Securities Dealers, Securities and Exchange Commission, Kentucky Department of Financial Institutions, Office of Thrift Supervision and state insurance departments) could result in censure, imposition of fines or other sanctions, including revocation of our right to do business or in suspension or expulsion from the National Association of Securities Dealers. Any of the foregoing could have a material adverse effect upon us. Such National Association of Securities Dealers, Securities and Exchange Commission and Office of Thrift Supervision regulations are designed primarily for the protection of the investing customers of securities firms and financial institutions and not our stockholders. Finally, there is no assurance that we, along with other fund distributors, administrators and managers will not be subjected to additional stringent regulation and publicity that may adversely affect our business. COMPETITION Since inception, we have encountered substantial competition in the businesses in which we compete. Our principal competitors include mutual finds, investment advisers, investment counsel firms and financial institutions such as banks, savings and loan institutions and credit unions. Competition is influenced by various factors, including breadth, quality of service and price. All aspects of our business are competitive. Large national firms have much greater marketing capabilities, offer a broader range of financial services and compete not only with us and among themselves but also with commercial banks, insurance companies and others for retail and institutional clients. Our 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 Unified Funds, the AmeriPrime Funds or AmeriPrime Insurance Trust. 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 our geographical position cannot be deemed an advantage. Our 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 - 9 - these firms are larger and have access to greater resources than us. 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 us is a frequent occurrence. We directly compete with as many as several hundred firms that are of similar or larger size. Our ability to increase and retain clients' assets could be materially adversely affected if client accounts under-perform the market. The ability of our investment management subsidiaries to compete 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 and banks in competition with the Unified Funds, the AmeriPrime Funds and AmeriPrime Insurance Trust. Many of our competitors apply substantial resources to advertising and marketing their mutual funds, which may adversely affect the ability of the Unified Funds, the AmeriPrime Funds and AmeriPrime Insurance Trust to attract new assets. We expect that there will be increasing pressures among mutual fund sponsors to obtain and hold market share. Although we may expand the financial services we provide to our customers, we do not now offer as broad a range of financial services as national stock exchange member firms, commercial banks, insurance companies and others. Recent regulatory actions, which reduced certain restrictions on bank affiliates engaging in securities activities, increased competition from commercial banks and their affiliates for securities brokerage services. In addition, legislative proposals, calling for further reductions on restrictions for brokerage service, may lead to increased competition from commercial banks and their affiliates. DEPENDENCE ON KEY CLIENTS As of December 31, 1999, we provided mutual fund services, transfer agency, fund accounting, administration and distribution services to 25 mutual fund families consisting of 136 portfolios. Four of those portfolios, the Unified Funds, originally were organized and are sponsored by Unified Investment Advisers. The Unified Funds and those of the remaining parties, have entered into contracts with us that typically expire within one to three years. No assurance can be given that any of these third party funds will remain our clients upon expiration or termination of the various administration and distribution agreements. The loss by us of such mutual fund clients could have a material adverse effect on us. Additionally, Unified Management Corporation has entered into clearing agreements with its introduced broker-dealer clients that represent a substantial portion of the assets in the Unified Funds through the use of the Unified Taxable Money Market Funds as their brokerage sweep facility. The introduced broker-dealer relationships also represent a significant portion of Unified Management Corporation's revenues from trading commissions. The loss of clearing clients could have a material adverse effect on the Unified Funds and us. Unified Investment Advisers receives management fees from the Unified Funds. As the Unified Funds' manager and adviser, Unified Investment Advisers, and, therefore, Unified, are economically dependent on the Unified Funds for a portion of their revenue. Contracts for portfolio management performed by Unified Investment Advisers in the case of the Unified Funds are awarded annually by review and approval of the independent Boards of Trustee of the various Unified Funds. The boards of trustee consist of six trustees, five of whom are independent, and Timothy L. Ashburn who is affiliated with us. These Boards also are responsible for awarding our subsidiaries the various service agreements for the Unified Funds. - 10 - DEPENDENCE ON KEY PERSONNEL We are dependent in a large part on Timothy L. Ashburn, our president, chief executive officer and chairman, 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 us. Our success also will depend on our ability to attract and retain highly skilled personnel in all areas of our business. There can be no assurance that we will be able to attract and retain personnel on acceptable terms in the future. Other than a $1 million policy on the life of each of Timothy L. Ashburn and Dr. Gregory W. Kasten, the president of Health Financial and First Lexington Trust Company, each a wholly owned subsidiary of our company, we do not presently own insurance covering the lives of our senior management. There can be no assurance that the services of our senior management will continue to be available. EMPLOYEES As of December 31, 1999, we and our subsidiaries had 216 employees, of which 208 were full-time employees. None of our employees or the employees of our subsidiaries are subject to a collective bargaining agreement. We consider our relationship with our employees and those of our subsidiaries to be good. ITEM 2. DESCRIPTION OF PROPERTY ----------------------- We, through our subsidiary, Unified Management Corporation, lease our corporate headquarters and administrative office facilities located at 431 North Pennsylvania Street, Indianapolis, Indiana. This facility is comprised of approximately 10,820 square feet and is subject to a lease expiring in 2007. Unified Management Corporation also leases approximately 872 square feet at 2353 Alexandria Drive, Lexington, Kentucky pursuant to a lease expiring in 2002. Health Financial's, First Lexington Trust Company's and Unified Banking Company's administrative offices are located at 2353 Alexandria Drive, Lexington, Kentucky. The operating lease for Health Financial's and First Lexington Trust Company's offices expires in 2002 and such offices have approximately 4,500 square feet. We also lease a portion of such property for corporate offices. First Lexington Trust Company also leases approximately 1,530 square feet at 100 Browenton Place, Louisville, Kentucky pursuant to a lease expiring in 2005. Fiduciary Counsel's and EMCO Estate Management Company's administrative offices are located at 36 West 44th Street, New York, New York. The operating lease for such offices expires in 2002 and such offices have approximately 3,231 square feet. Equity Underwriting Group's administrative offices are located at 220 Lexington Green Circle, Suite 600, Lexington, Kentucky. The operating lease for Equity Underwriting Group expires in 2001 and such offices have approximately 20,080 square feet. AmeriPrime Financial Services' administrative offices are located at 175 Westwood Drive, Suite 500, Southlake, Texas. The operating lease for AmeriPrime Financial Services expires in 2000 and such offices have approximately 700 square feet. Our current offices are considered adequate to serve our foreseeable needs. Other than the administrative offices leases, we have no other significant property holdings. ITEM 3. LEGAL PROCEEDINGS ----------------- Various claims and lawsuits, incidental to our ordinary course of business, are pending against us and our subsidiaries. In the opinion of management, after consultation with legal counsel, resolution of these matters is not expected to have a material effect on our financial condition or results of operations. - 11 - ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- There were no matters submitted during the quarter ended December 31, 1999 to a vote of our stockholders, through the solicitation of proxies or otherwise. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------ The name, age and position with respect to each of our executive officers are set forth below: TIMOTHY L. ASHBURN, 49, has served as our chairman of the board since 1989, as our chief executive officer from 1989 to 1992 and 1994 to present, and as our president since November 1997. Mr. Ashburn was employed by Vine Street Trust Company, Lexington, Kentucky, a wholly owned subsidiary of Cardinal Bancshares, Inc., a Kentucky bank holding company, for the two-year period from April 1992 through March 1994. Mr. Ashburn also is a member of the executive committee of our board of directors. THOMAS G. NAPURANO, 58, a certified public accountant and a certified management accountant, has served as a director, our chief financial officer and an executive vice president since 1989. Mr. Napurano also is a member of the executive committee of our board of directors. JOHN S. PENN, 48, has served as a director since September 1999. Mr. Penn also has served as an executive vice president and our chief operating officer since July 1999. Mr. Penn served as a director and executive vice president of Area Bancshares Corporation, a bank holding company located in Owensboro, Kentucky from September 1997 to July 1999. Prior thereto, Mr. Penn served as the president, chief executive officer and a director of Cardinal Bancshares, Inc., a bank holding company located in Lexington, Kentucky. CHARLES H. BINGER, 43, has served as an executive vice president and our general counsel since December 1999. Prior thereto, Mr. Binger was a partner in the law firm of Thompson Coburn LLP, St. Louis, Missouri. ANTHONY J. GHOSTON, 40, has served as a senior vice president and our chief information officer since November 1997. Mr. Ghoston has been employed by us in various management positions since 1989. DAVID F. MORRIS, 38, has served as a senior vice president and our associate general counsel since December 1999. Prior thereto, Mr. Morris was an associate in the law firm of Thompson Coburn LLP, St. Louis, Missouri. The name, age and position of executive officers of certain of our subsidiaries are set forth below: DR. GREGORY W. KASTEN, 45, has served as a director since 1997. Dr. Kasten has served as a director and president and chief executive officer of Health Financial, Inc. and First Lexington Trust Company, each a wholly owned subsidiary of our company, since 1986 and 1994, respectively. Dr. Kasten has been awarded certified financial planner and certified pension consultant designations and received a Master of Business Administration degree with an emphasis on finance and investment management. Dr. Kasten also received a medical degree but has retired from medical practice. JACK R. ORBEN, 60, has served as a director since 1989. Mr. Orben also is a director and the chairman of the board, chief executive officer and treasurer of each of Fiduciary Counsel, Inc. and EMCO - 12 - Estate Management Company, Inc., each a wholly owned subsidiary of our company. For various periods during the past five years, Mr. Orben served as the chairman of the board, chief executive officer and treasurer of each of Venvestech Corp., Seward, Groves, Richards & Wells, Starwood Corporation, Fiduciary Alliance Inc., NUSTAR Inc., Intellectronic Management Systems Inc., Economic Analysts Inc., Ra X Productions Inc. and EMCO Nominees Inc. Mr. Orben also is a member of the audit, nominating and compensation committee of our board of directors. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED ------------------------------------------------- STOCKHOLDER MATTERS ------------------- There currently is no established public trading market for our common stock. We have not had any stock splits or paid any stock dividends during the periods presented. SALES PRICE ------------------ HIGH LOW ------ ------ 1998 ---- First Quarter $25.00 $25.00 Second Quarter 27.50 25.00 Third Quarter 27.50 25.00 Fourth Quarter 27.50 27.50 1999 ---- First Quarter $40.00 $40.00 Second Quarter 40.00 40.00 Third Quarter 40.00 40.00 Fourth Quarter 40.00 40.00 Because of our closely held nature, no representation is made that the foregoing prices are or are not reflective of a "market price." As of March 30, 2000, we reported approximately 350 stockholders of record holding our common stock. We have not paid any cash dividends with respect to our common stock during the disclosed time periods. For the three months ended December 31, 1999, the only sales of our securities were 24,720 shares of our common stock issued in connection with private offerings of our common stock at a price of $40.00 per share. All shares of our common stock issued by us during such period were issued pursuant to the exemption provided by Rule 506, as promulgated by the Securities and Exchange Commission. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- The following presents management's discussion and analysis of our 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 Annual Report on Form 10-KSB, including our audited, consolidated financial statements and the accompanying notes thereto. COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 Revenues for the year ended December 31, 1999 as compared to the prior year increased $2,169,000, or 9.3%, from $23,449,000 to $25,618,000. For such periods, investment advisory, trust and retirement services revenue increased $1,601,000, or 34.2%, administrative and back office support services revenue increased $1,191,000, or 38.4%, brokerage and brokerage services revenue decreased - 13 - $1,030,000, or 20.2%, finance revenue increased $229,000, or 57.9%, insurance brokerage revenue decreased $489,000, or 5.0%, and corporate and start-up revenue increased $667,000, or 141.7%. Investment advisory, trust and retirement services revenue increased principally due to the addition of a significant number of mutual fund clients, and an increase in the market value of assets being managed. Additionally, revenue reported for the year ended December 31, 1998 reflects only nine months of activity for Unified Investment Advisers, control of which was acquired by us on March 31, 1998. Administrative and back office support services revenue increased principally due to a growth in the number of mutual fund clients serviced, additional fees associated with assets under service and growth in assets under service. Mutual fund clients served increased to 183 at year-end 1999, up from 64 at year-end 1998. A component of administrative and back office support services revenue, claim service revenue, increased by $129,000 principally due to our acquisition of M. Wilson & Associates on January 1, 1999 and growth in claims services offered. The decrease in brokerage and brokerage services revenue principally was due to a decrease in trail commissions partially offset by $902,000 in commissions received by Unified Management Corporation and Unified Investment Services in connection with our private placement, as compared to $785,000 in commissions for 1998. Total trades processed by Unified Management Corporation increased by 2000 from 1998 due to our Internet brokerage website. Additionally, the number of registered representatives at Commonwealth Investment Services increased to 25 at year-end 1999 from nine at year-end 1998. Finance income increased due to an increase in commercial insurance contracts financed in 1999. Insurance brokerage revenue declined due to a reduction in insurance premiums written. Although commercial line insurance premiums rose $2,698,000, or 11.1%, to $27,035,000, overall insurance related revenues declined due to a decrease in personal line sales volume, which fell from $10,507,000 for 1999 to $7,350,000 for 1998. A new personal lines non-standard auto program was introduced during 1999, but did not perform as expected in the intensely competitive market. Corporate and start-up revenue increased primarily due to the $839,000 in revenues generated by certain companies that we started during 1999, $60,000 in consulting revenues earned by Unified Capital Resources during 1999, the acquisition of Fully Armed Productions, which contributed $313,000 of revenues during 1999 as compared to $191,000 during 1998, and interest income which totaled $352,000 during 1999 as compared to $245,000 during 1998. Gross profit for the year ended December 31, 1999 as compared to 1998 increased $3,397,000, or 22.7%, from $14,940,000 to $18,337,000. For such periods, gross profit as a percentage of revenue increased to 71.6% from 63.7%. Investment advisory, trust and retirement services gross profit increased to $5,908,000 for 1999 from $4,440,000 for 1998. The increase was due to the addition of mutual fund clients, an increase in the market value of assets and an increase in the number of retirement plans administrated and the amount of assets under management. Administrative and back office support services gross profit increased to $3,531,000 for 1999 from $2,536,000 for 1998 due to an increase in assets under service, additional fees for services performed and an increase in the number of mutual fund and trust clients served. Brokerage and brokerage service gross profit increased by $269,000 for the year ended December 31, 1999 from $1,995,000 for the prior year, which increase was due to an increase in private placement commissions, Internet trading fees and trail and underwriter dealer commissions and a decrease in costs of sales largely attributable to a decrease in intro-firm commissions. Finance gross profit increased from $395,000 to $484,000 due to a growth in the number of commercial insurance contracts financed during 1999. Insurance brokerage gross profit of $5,012,000 for 1999 was $91,000 less than 1998. The insurance brokerage gross profit decrease primarily was attributable to a decline in the personal line sales volume. Corporate and start-up gross profit increased by $667,000 during 1999 as compared to 1998. The increase was primarily due to $305,000 in gross profit contributed by certain companies that we started during 1999 as well as to an increase in interest income and consulting revenues and a growth in Fully Armed Production's business. - 14 - Income from operations for the year ended December 31, 1999 reflected a loss of $1,579,000, as compared to income from operations of $969,000 for the previous year. The increase in gross profit of $3,397,000 from year-end 1998 to year-end 1999 was more than offset by the increase in operating expenses of $5,945,000. Total expenses for the year ended December 31, 1999 were $19,916,000, or 77.7%, of total revenue, as compared to $13,971,000, or 59.6%, of total revenue for the prior year. For the year ended December 31, 1999, Fiduciary Counsel and Unified Investment Advisers, each of which was acquired by us during 1998, accounted for $929,000 of the increased expenses for 1999 when compared to 1998 ($614,000 of which was related to employee compensation and benefits). Expenses during the year ended December 31, 1999 were up significantly due to the following: (i) additional staffing at our administrative and back office support services and investment advisory operations, which have experienced significant growth in new clients and assets under services and assets under management, coupled with an increased marketing effort (represented a $1,059,000 increase for 1999 as compared to 1998); (ii) the re-engineering of trust services with the hiring of additional technical personnel and additional spending to improve recordkeeping and computer systems to provide clients with the highest quality services (represented $200,000 of total expenses for 1999 as compared to $30,000 for 1998); (iii) start-up of our Internet online brokerage service, which required additional staff, website development and other website cost (represented $106,000 of the total expenses for 1999 as compared to $30,000 for 1998); (iv) the ability for clients to view their accounts via the Internet and the development of Websites for us and each of our subsidiaries (represented $354,000 of total expenses for 1999 compared to $204,000 in 1998); (v) our management expansion program which started in late 1998 and which has resulted in the hiring of numerous individuals who should contribute significantly to our future results (represented an increase of $300,000 of the total expenses for 1999 as compared to 1998); and (vi) professional and legal fees related to our expansion program (represented an increase of $687,000 for 1999 as compared to 1998). Our start-up companies, VSX Technologies, Archer Trading, Unified Banking Company, Unified Capital Resources and Unified Employee Services added $1,716,000 in expenses to 1999 without comparable expenses in 1998. For the year ended December 31, 1999, we incurred a loss before income taxes of $1,743,000 as compared to income before income taxes of $1,063,000 for 1998. The loss in 1999 was due to the items summarized above as well as a $102,000 estimated loss on the closing of a location of the insurance brokerage business, a $12,000 realized loss on securities and a $24,000 loss incurred in connection with the write-off of a building lease. Net loss was $1,773,000 for the year ended December 31, 1999 as compared to net income of $912,000 for 1998. LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity historically have been and continue to be cash flow from operating activities, available borrowing capacity from capitalized leases and a loan from a regional bank to finance capital equipment. The net decrease in cash and cash equivalents at December 31, 1999 from December 31, 1998 was $4,687,000. The net decrease reflects the repayment of borrowings, the purchase of fixed assets and bond investments and our $7,300,000 capital contribution to Unified Banking Company in October 1999. We received $9,530,800 from the issuance of 238,270 shares of common stock in our private placement during the year ended December 31, 1999. In connection with the organization of Unified Banking Company, we contributed $7,300,000 as capital to Unified Banking Company on October 20, 1999. The source of funds for the capital contribution to Unified Banking Company was funds received by us in our private placement. Subject to the receipt of the required regulatory approvals, management anticipates that Phase I of the VSX.com business model will be completed by the end of the fourth quarter of 2000. We will begin taking the necessary actions to complete Phase II and Phase III of the business model upon completion of Phase I. We currently estimate that we will incur approximately $3.0-$5.0 million of costs (expenses and capital expenditures) in connection with Phase I of the project. Management estimates that an additional - 15 - $5.0-$10.0 million of costs will be incurred with Phase II and Phase III of the project. The anticipated costs to build the VSX.com "brand" are not part of the estimated expenditures of Phases I, II and III. Management currently is negotiating to obtain third-party financing with respect to Phase I of the project. Management believes that Phase II and Phase III will be funded from revenues generated by VSX.com upon completion of Phase I. There can be no assurance that we will be successful in securing the required financing, in launching any phase of the VSX.com project or that the project will be a commercial success. We believe that anticipated revenues from operations should be adequate for the working capital requirements of our existing core businesses over the next twelve months. In the event that our plans or assumptions change, or if our resources available to meet unanticipated changes in business conditions prove to be insufficient to fund operations, we could be required to seek additional financing prior to that time. IMPACT OF YEAR 2000 In prior years, we discussed the nature and progress of our plans to become Year 2000 ready. In late 1999, we completed our remediation and testing of systems. As a result of those planning and implementation efforts, we experienced no significant disruptions in mission critical information technology and non-information technology systems and believe those systems successfully responded to the Year 2000 date change. We expensed approximately $80,000 during 1999 in connection with remediating our systems. We are not aware of any material problems resulting from Year 2000 issues, either with our products, our internal systems, or the products and services of third parties. We will continue to monitor our mission critical computer applications and those of our suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. RISK FACTORS You should carefully consider the risks described below before making a decision to invest in Unified Financial Services. The risks and uncertainties described below are not the only risks that we face. If any of the following risks actually occur, our business, financial condition or results of future operations could be materially adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. NEED FOR ADDITIONAL CAPITAL; RISK RELATING TO ACQUISITIONS. Our pending and proposed projects have required and will continue to require substantial capital for investments in and development of such projects. There can be no assurance that we will be able to raise the capital necessary to fund our projects. The failure to raise or generate such funds may require us to delay or abandon some of our planned future expansion or expenditures, which could have a material adverse effect on our growth. To expand our markets and take advantage of the consolidation trend in the financial services industry, our business strategy includes growth through acquisitions. Although we believe that the operations of the companies we have acquired since June 1, 1997 are being successfully integrated with our operations, there can be no assurance that such integration will continue to be successful, that future acquisitions can be consummated on acceptable terms or that any acquired companies can be successfully integrated into our operations. We also are continually investigating opportunities for acquisitions. In connection with future acquisitions, we may incur additional indebtedness or may issue additional equity. - 16 - Our ability to make future acquisitions may be constrained by our ability to obtain such additional financing. To the extent we use equity to finance future acquisitions, there is a risk of dilution to holders of our common stock. In addition, acquisitions may involve a number of special risks, including: initial reductions in our reported operating results; diversion of management's attention; unanticipated problems or legal liabilities; and a possible reduction in reported earnings due to amortization of acquired intangible assets in the event that such acquisitions are made at levels that exceed the fair market value of net tangible assets. Some or all of these items could have a material adverse effect on us. There can be no assurance that businesses acquired in the future will achieve sales and profitability that justify the investment therein. In addition, to the extent that consolidation becomes more prevalent in the industry, the prices for attractive acquisition candidates may increase to unacceptable levels. ANTICIPATE TO INCUR OPERATING LOSSES FOR THE FORESEEABLE FUTURE. In connection with our shift from traditional distribution channels to an Internet distribution strategy and the development of new distribution channels, we anticipate that we will incur operating losses for the foreseeable future. We believe that our revenues will continue to increase but that operating expenses will increase significantly due to the costs associated with the implementation of our business plan. In addition, we will incur non-recurring costs in connection with exiting certain businesses that are not now part of our business strategy. REVENUE GROWTH FROM ELECTRONIC COMMERCE MAY NOT DEVELOP. Our growth strategy is based upon a shift from traditional distribution channels to distribution via the Internet. If we do not generate increased revenues from electronic commerce, our business, financial condition and operating results could be materially adversely affected. To generate significant electronic revenues, we will have to successfully implement our business plan. DEVELOPMENT OF THE ELECTRONIC COMMERCE MARKET IS UNCERTAIN. If electronic commerce does not grow or grows slower than expected, our business may suffer. Our Internet distribution strategy depends upon widespread market acceptance of electronic commerce. A number of factors could prevent such acceptance, including the following: * electronic commerce is at an early stage and buyers may be unwilling to shift their purchasing from traditional vendors to online vendors; * the necessary network infrastructure for substantial growth in usage of the Internet may not be adequately developed; * increased government regulation or taxation may adversely affect the viability of electronic commerce; * insufficient availability of telecommunication services or changes in telecommunication services could result in slower response times; and * adverse publicity and consumer concern about the security of electronic commerce transactions could discourage its acceptance and growth. THERE IS INTENSE COMPETITION FOR INTERNET PRODUCTS AND SERVICES, ADVERTISING AND SALES OF GOODS AND SERVICES. Competition for Internet products and services, advertising and electronic commerce is intense. We expect that competition will continue to intensify. Barriers to entry are minimal, and competitors can launch new Web sites at a relatively low cost. Our competitors may develop Internet products and services that are superior to, or have greater market acceptance than, our solutions. If we are unable to compete successfully against our competitors, our business, financial - 17 - condition and operating results will be adversely affected. Many of our competitors have greater brand recognition and greater financial, marketing and other resources than us. This may place us at a disadvantage in responding to our competitors' pricing strategies, technological advances, advertising campaigns, strategic partnerships and other initiatives. RISKS ASSOCIATED WITH RAPID GROWTH. We have experienced rapid growth in net revenues and expansion of our operations and anticipate that further significant expansion will be required to address potential growth in our customer base and market opportunities. Such growth has placed, and, if sustained, will continue to place, strain on our management, information systems, operation and resources. Our ability to manage any future growth will continue to depend upon the successful expansion of our sales, marketing, customer support, administrative infrastructure and the ongoing implementation and improvement of a variety of internal management systems, procedures and controls. Continued growth also will require us to hire more personnel, and expand management information systems. Recruiting qualified personnel is an intensely competitive and time-consuming process. There can be no assurance that we will be able to attract and retain the necessary personnel to accomplish our growth strategies or that we will not experience constraints that will adversely affect our ability to support satisfactorily our clients and operations. There can be no assurance that we will be able to attract, manage and retain additional personnel to support any future growth, if any, or will not experience significant problems with respect to any infrastructure expansion or the attempted implementation of systems, procedures and controls. If our management is unable to manage growth effectively, our business, financial condition and results of operations could be materially adversely affected. DEPENDENCE UPON TECHNOLOGY; PROPRIETARY RIGHTS. Our success and ability to compete is dependent in part upon our technology, although we believe that our success is more dependent upon our technical expertise than our proprietary rights. We principally rely upon a combination of copyright, trademark and trade secret laws and contractual restrictions to protect our proprietary technology. It may be possible for a third party to copy or otherwise obtain and use our products or technology without authorization or to develop similar technology independently, and there can be no assurance that such measures have been, or will be, adequate to protect our proprietary technology or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. We propose to operate a substantial portion of our business over the Internet, which is subject to a variety of risks. Such risks include, but are not limited to, the substantial uncertainties that exist regarding the system for assigning domain names and the status of private rules for resolution of disputes regarding rights to domain names. There can be no assurance that we will continue to be able to employ our current domain names in the future or that the loss of rights to one or more domain names will not have a material adverse effect on our business and results of operations. Although we do not believe that we infringe the proprietary rights of any third parties, there can be no assurance that third parties will not assert such claims against us in the future or that such claims will not be successful. We could incur substantial costs and diversion of management resources with respect to the defense of any claims relating to proprietary rights, which could have a material adverse effect on our business, financial condition and results of operations. In addition, we may become obligated under certain agreements to indemnify another party in connection with infringement by us of the proprietary rights of third parties. In the event we are required to indemnify parties under these agreements, it could have a material adverse effect on our business, financial condition and results of operations. In the event a claim relating to proprietary technology or information is asserted against us, we may seek licenses to such intellectual property. There can be no assurance, however, that licenses could be obtained on commercially reasonable terms, if at all, or that the terms of any offered licenses would be acceptable to us. The failure to obtain the necessary licenses or other rights could have a material adverse effect on our business, financial condition and results of operations. - 18 - RISKS TO PHYSICAL NETWORK; RISKS TO INTEGRITY OF DATA ON NETWORK. Our operations are partially dependent upon our ability to protect our network infrastructure against damage from fire, earthquakes, severe flooding, mudslides, power loss, telecommunications failures and similar events or to construct networks that are not vulnerable to the effects of these events. The occurrence of a natural disaster or other unanticipated problems at our network in the future could cause additional major interruptions in the services provided by us. In addition, some networks may experience interruptions in service as a result of the accidental or intentional actions of Internet users, current and former employees or others. Unauthorized use of our network could jeopardize the security of confidential information stored in our computer systems, which may result in liability to our customers or deter potential customers. Our failure to adequately manage service disruptions resulting from physical damage to our network or breaches of the network's integrity, could have a material adverse effect on our business, financial condition and results of operations. SECURITY RISKS. Despite the implementation of network security measures by us, such as limiting physical and network access to our routers, our Internet access systems and information services are vulnerable to computer viruses, break- ins and similar disruptive problems caused by our customers or other Internet users. Such problems caused by third parties could lead to interruption, delays or cessation in service to our customers. Furthermore, such inappropriate use of the Internet by third parties also could potentially jeopardize the security of confidential information stored in the computer systems of our customers and other parties connected to the Internet, which may deter potential subscribers. Persistent security problems continue to plague public and private data networks. Recent break-ins reported in the press and otherwise have reached computers connected to the Internet at major corporations and Internet access providers and have involved the theft of information, including incidents in which hackers bypassed firewalls by posing as trusted computers. Alleviating problems caused by computer viruses, break-ins or other problems caused by third parties may require significant expenditures of capital and resources by us, which could have a material adverse effect on us. Until more comprehensive security technologies are developed, the security and privacy concerns of existing and potential customers may inhibit the growth of the Internet service industry in general and our customer base and revenues in particular. Moreover, if we experience a breach of network security or privacy, there can be no assurance that our customers will not assert or threaten claims against us based on or arising out of such breach, or that any such claims will not be upheld, which could have a material adverse effect on our business, financial condition and results of operation. NO ASSURANCE OF FUTURE GROWTH. There can be no assurance that we will continue to achieve growth in assets or earnings. Our ability to achieve such growth will be dependent upon numerous factors including, but not limited to, general economic conditions, our ability to recruit qualified personnel, our ability to promptly and successfully integrate acquired businesses with our existing operations and our ability to execute our business plan. COMPETITION. We encounter substantial competition in the businesses in which we compete. Our principal competitors include mutual funds, investment advisers, investment counsel firms and financial institutions such as banks, savings and loan institutions and credit unions. Many of the institutions with which we compete are larger and have substantially greater financial resources than us. - 19 - ITEM 7. FINANCIAL STATEMENTS -------------------- To the Board of Directors and Stockholders of Unified Financial Services, Inc. INDEPENDENT AUDITORS' REPORT ---------------------------- We have audited the accompanying consolidated statements of financial condition of Unified Financial Services, Inc. and subsidiaries at December 31, 1999 and 1998, and the related consolidated statements of operations, comprehensive income, cash flows and changes in stockholders' equity for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 Financial Services, Inc. and subsidiaries at December 31, 1999 and 1998, 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, LLC Columbus, Indiana February 2, 2000 - 20 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1999 AND 1998 --------------------------
ASSETS ------ 1999 1998 ---- ---- Current Assets Cash and cash equivalents $ 5,709,082 $10,395,843 Due from banks 314,815 -- Federal funds sold 4,922,000 -- Bond investments 5,515,156 -- Investment in affiliated mutual funds 577,668 494,403 Investment in securities and non-affiliated mutual funds 639,295 231,728 Accounts receivable (net of allowance for doubtful accounts of $38,326 for 1999 and $2,041 for 1998) 9,138,688 8,910,623 Loans receivable (net of allowance for loan losses of $33,000 for 1999 and $0 for 1998) 2,810,876 -- Deferred tax asset 5,707 -- Prepaid assets and deposits 899,867 230,006 ----------- ----------- Total current assets 30,533,154 20,262,603 ----------- ----------- Fixed Assets, at cost Equipment and furniture (net of accumulated depreciation of $2,913,498 for 1999 and $2,472,022 for 1998) 2,944,610 1,590,081 ----------- ----------- Non-Current Assets Investment in debt securities 1,073,621 994,211 Equity investment in affiliates -- 565,566 Organization cost (net of accumulated amortization of $32,019 for 1999 and $6,900 for 1998) 641,688 562,776 Goodwill (net of accumulated amortization of $139,093 for 1999 and $34,773 for 1998) 1,214,701 1,902,691 Other non-current assets 341,220 620,649 ----------- ----------- Total non-current assets 3,271,230 4,645,893 ----------- ----------- TOTAL ASSETS $36,748,994 $26,498,577 =========== =========== (Continued on next page) See independent auditors' report and accompanying notes. - 21 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1999 AND 1998 -------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ 1999 1998 ---- ---- Current Liabilities: Current portion of capital lease obligations $ 30,073 $ 53,125 Current portion of long-term debt 2,343,965 -- Current portion of bank line-of-credit 1,727,003 3,886,612 Customer deposits 7,331,853 -- Accounts payable and accrued expenses 2,731,970 1,880,745 Accrued compensation and benefits 549,093 329,643 Payable to insurance companies 5,670,974 6,456,511 Payable to broker-dealers 255,158 596,509 Income taxes payable, current 136,630 1,857 Income taxes payable, deferred 83,157 90,318 Unearned fee income 330,692 -- Repurchase agreements 4,952 -- Other liabilities 262,002 1,218,855 ----------- ----------- Total current liabilities 21,457,522 14,514,175 ----------- ----------- Long-Term Liabilities Long-term portion of capital lease obligation 8,933 84,742 Long-term portion of debt 514,031 2,024,579 Other long-term liabilities 104,742 385,886 Deferred income taxes 85,779 33,361 ----------- ----------- Total long-term liabilities 713,485 2,528,568 ----------- ----------- Total liabilities 22,171,007 17,042,743 ----------- ----------- Commitments and Contingencies -- -- Stockholders' Equity Common stock, par value $.01 per share 33,294 27,668 Preferred stock Series C -- 1,672 Additional paid-in capital 16,050,189 8,345,555 Retained earnings (1,292,794) 1,080,939 Accumulated other comprehensive income (35,463) -- ----------- ----------- 14,755,226 9,455,834 Less: treasury stock, at cost (177,239) -- ----------- ----------- Total stockholders' equity 14,577,987 9,455,834 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $36,748,994 $26,498,577 =========== =========== See independent auditors' report and accompanying notes.
- 22 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999 AND 1998 --------------------------------------
1999 1998 ---- ---- REVENUES $25,617,592 $23,448,483 COST OF SALES 7,280,386 8,508,651 ----------- ----------- GROSS PROFIT 18,337,206 14,939,832 ----------- ----------- OPERATING EXPENSES Employee compensation and benefits 11,435,539 6,803,739 Brokerage operating charges 733,439 415,665 Investment administration expenses 233,008 537,879 Occupancy 1,044,066 718,904 Telephone 438,399 264,269 Depreciation and amortization 830,606 949,349 Mail and courier 425,967 500,327 Equipment rental and maintenance 500,752 159,189 Professional fee 1,711,186 730,797 Travel and entertainment 925,630 378,276 Business development cost 637,765 504,924 All other 1,000,122 2,007,249 ----------- ----------- Total operating expenses 19,916,479 13,970,567 ----------- ----------- Income (loss) from operations (1,579,273) 969,265 OTHER INCOME (LOSS) Unrealized gain on securities 16,023 23,947 Realized gain (loss) on securities (11,826) 13,496 Loss on sale/disposal of fixed assets (24,093) (8,752) All other (144,016) 65,313 ----------- ----------- Income (loss) before income taxes (1,743,185) 1,063,269 Income taxes 29,730 151,108 ----------- ----------- NET INCOME (LOSS) $(1,772,915) $ 912,161 =========== =========== Per share earnings (loss) Basic $ (.62) $ .39 Basic common shares outstanding 2,869,862 2,316,767 Fully diluted $ (.60) $ .35 Fully diluted common shares outstanding 2,975,823 2,580,013 See independent auditors' report and accompanying notes.
- 23 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 ---------------------------------------------- 1998 - ---- Net income $ 912,161 Other comprehensive income, net of tax Unrealized gain on securities, net of reclassification adjustment 99 ----------- Comprehensive income $ 912,260 =========== 1999 - ---- Net loss $(1,772,915) Other comprehensive income, net of tax Unrealized loss on securities, net of reclassification adjustment (35,463) ----------- Comprehensive loss $(1,808,378) =========== See independent auditors' report and accompanying notes.
- 24 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 ----------------------------------------------
1999 1998 ---- ---- CASH FLOW FROM OPERATING ACTIVITIES Net income (loss) $ (1,772,915) $ 912,161 Adjustments to reconcile net income to cash provided by (used) in operating activities: Deferred income taxes 214,905 125,343 Provision for depreciation and amortization 830,606 949,349 Net appreciation on investments (7,783) (23,946) Results of affiliated company -- (59,197) Loss on disposal of fixed assets 342 22,832 Cash value of officers' life insurance -- (12,500) Deferred startup cost (105,622) (643,169) Loss on disposal of business segment 129,487 -- (Increase) decrease in operating assets Due from banks (314,815) -- Receivables (694,912) (2,317,320) Net loans receivable (2,605,676) -- Prepaid and sundry assets (648,163) 28,824 Increase (decrease) in operating liabilities Customer deposits 7,331,853 -- Accounts payable and accrued expenses 99,266 1,069,207 Other liabilities (1,181,429) (253,929) Accrued income taxes 118,766 47,788 ------------ ----------- Net cash provided (used) by operating activities 1,393,910 (154,557) ------------ ----------- CASH FLOW FROM INVESTING ACTIVITIES Purchase of equipment (2,027,635) (512,023) Proceeds from sale of fixed assets -- 9,220 Investment in securities and mutual funds (97,874) 224,634 Investment in debt securities (33,148) (21,034) Federal Funds sold (4,922,000) -- Bond investments (5,515,156) -- Repayment of note receivable -- 4,502 Investment in other assets (57,480) -- Appreciation of debt securities -- (531) ------------ ----------- Net cash used by investing activities (12,653,293) (295,232) ------------ ----------- CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 7,012,656 10,222,635 Proceeds from issuance of Preferred C stock 100,900 210,000 Redemption of Preferred A and B stock -- (1,706,900) Dividends on common and preferred stock (35,252) (352,107) Repurchase of common stock (873,000) (2,921,024) Proceeds from reissuance of treasury stock 1,501,800 -- Acquisition of subsidiaries -- (413,026) Proceeds from borrowings 2,667,450 3,373,770 Repayment of borrowings (3,753,457) (81,537) Repayment of capital lease obligations (48,475) (92,755) ------------ ----------- Net cash provided by financing activities 6,572,622 8,239,056 ------------ ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,686,761) 7,789,267 CASH AND CASH EQUIVALENTS - Beginning of the year 10,395,843 2,606,576 ------------ ----------- CASH AND CASH EQUIVALENTS - End of the year $ 5,709,082 $10,395,843 ============ =========== See independent auditors' report and accompanying notes.
- 25 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999 AND 1998 --------------------------------------
ACCUMULATED ADDITIONAL OTHER COMMON PREFERRED PAID-IN RETAINED COMPREHENSIVE TREASURY STOCK STOCK CAPITAL EARNINGS INCOME STOCK TOTAL ----- ----- ------- -------- ------ ----- ----- Balance at December 31, 1997 $21,728 $ 17,069 $ 2,199,921 $ 603,749 $ (99) $ -- $ 2,842,368 1998 net income 912,161 912,161 Other comprehensive income 99 99 Redemption of preferred stock (17,069) (1,689,831) (1,706,900) Issuance of preferred stock 2,100 207,900 210,000 Issuance of common stock 4,507 10,218,128 10,222,635 Conversion of preferred stock to common stock 578 (428) (150) -- Acquisition of Unified Investment Advisers (683,210) (31,387) (714,597) Acquisition of Fiduciary Counsel 361 902,389 902,750 Acquisition of Fully Armed Productions 183 1,743 1,461 3,387 Acquisition of Commonwealth Investment Services 275 109,725 (52,937) 57,063 Acquisition of M. Wilson & Associates 36 (36) -- Repurchase of common shares at Equity Underwriting Group (2,921,024) (2,921,024) Dividends to stockholders (286,264) (286,264) Dividends on preferred stock (65,844) (65,844) ------- -------- ----------- ----------- -------- --------- ----------- Balance at December 31, 1998 27,668 1,672 8,345,555 1,080,939 -- -- 9,455,834 1999 net loss (1,772,915) (1,772,915) Other comprehensive loss (35,463) (35,463) Issuance of common stock 2,007 7,010,649 7,012,656 Sale of preferred stock 1,009 99,891 100,900 Repurchase of stock for treasury (873,000) (873,000) Reissuance of treasury stock 806,039 695,761 1,501,800 Reduction of goodwill (211,007) (211,007) Conversion of preferred stock to common stock 3,619 (2,681) (938) -- Acquisition of minority interest (565,566) (565,566) Dividends to stockholders (35,252) (35,252) ------- -------- ----------- ----------- -------- --------- ----------- Balance at December 31, 1999 $33,294 $ - $16,050,189 $(1,292,794) $(35,463) $(177,239) $14,577,987 ======= ======== =========== =========== ======== ========= =========== See independent auditors' report and accompanying notes.
- 26 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 1 - NATURE OF OPERATIONS Unified Financial Services, Inc. (the "Company" or "Unified"), a Delaware holding company for various financial services companies that also does business as Unified.com, was organized on December 7, 1989. The Company distributes a vertically integrated financial services platform via the Internet and via the traditional industry channels of its subsidiaries. As of December 31, 1999, the Company maintained in excess of $1.5 billion of assets under management and $5 billion of assets under service. Through its subsidiaries, all of which are wholly owned, the Company provides services primarily in six lines of business: investment advisory, trust and retirement services; administrative and back office support services; brokerage and brokerage services; finance; insurance brokerage; and corporate and start-up. The investment advisory, trust and retirement services operations, which are conducted through the Company's registered investment advisory firms and trust company, provide professional financial management to individuals, institutions, including private pension plans and foundations, and the Unified Mutual family of funds. Such operations also provide professional investment management to individuals and institutions on a customized basis. The Company's non-bank trust subsidiary specializes in retirement plans and is regulated by the Kentucky Commissioner of Banking under the Department of Financial Institutions, Commonwealth of Kentucky. The Company's third party professional services firm provides consulting, recordkeeping and trust accounting services for qualified retirement and cafeteria plans. The Company, through its subsidiaries, provides administrative and back office support services to mutual funds, qualified retirement and cafeteria plans, wealth management service providers and property and casualty insurance carriers and also provides claim adjusting services for insurance companies. The mutual fund administrative subsidiaries provide services such as: transfer agency; fund accounting; and administrative, regulatory, compliance and start-up services for mutual funds, investment advisors, banks and other money managers in their proprietary mutual fund efforts. In addition, such subsidiaries provide all of the mutual fund services for the Unified Funds portfolios, and perform other clerical functions to the Unified Funds in addition to typical mutual fund services. Other subsidiaries provide administrative claims services on a contractual basis for property and casualty insurance carriers and claims adjusting services for various insurance companies in the private passenger and commercial trucking lines. The professional staff at our wealth management subsidiary based in New York City assists clients in a variety of disciplines, including the following: financial, tax and estate planning; family office services such as budgeting, bill paying and payroll administration; trust administration; and income tax return preparation and filing for individuals, trusts, partnerships and small businesses. The brokerage and brokerage services operations consist of registered broker-dealers under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that also are members of the National Association of Securities Dealers, Inc. ("NASD"). - 27 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 1 - NATURE OF OPERATIONS (continued) Our finance operation is headquartered in Lexington, Kentucky. The operation is a premium finance company that is governed by the laws under Subtitle 30 of the Commonwealth of Kentucky Insurance Code, is licensed under applicable governing regulations in the states of Kentucky, Tennessee, Illinois and Ohio and conducts business in the states of West Virginia and Indiana, which do not require licensing of premium finance companies. The finance company provides financing for the payment of premiums on insurance coverage placed by the Company's insurance brokerage operation. The Company's insurance brokerage subsidiaries are headquartered in Lexington, Kentucky and provide specialty insurance products as a general agent or a broker in the states of Kentucky, Tennessee, West Virginia, Ohio, Indiana and Illinois. The operations write insurance products for primarily niche areas in the insurance marketplace that are considered more "non-standard," representing a higher risk of insured. The insurance brokerage operations are licensed managing general agencies operating as a wholesaler/broker of property and casualty insurance products in the states of Kentucky, Illinois, Tennessee, Virginia, West Virginia, Ohio and Indiana. The Company, through its subsidiaries, operates as managing general agents between a number of admitted as well as excess and surplus line insurance companies. The Company's corporate and start-up operations provide management services, working capital, systems support and equipment and development for its subsidiaries. The Company organized Unified Internet Services, Inc. in February 1998 to develop the Company's websites and its proprietary search engine for the financial services industry. On November 1, 1999, Unified Banking Company, a Federal savings bank, commenced operations. Unified Banking Company is located in Lexington, Kentucky and its accounts are insured by the Federal Deposit Insurance Corporation to the maximum limit permitted under federal law. In connection with the organization of Unified Banking Company, the Company contributed $7.3 million to Unified Banking Company as capital in exchange for all of the capital stock of Unified Banking Company. On May 6, 1999, the Company acquired from First Insight Securities, Ltd. assets for cash and assumed certain liabilities through the Company's wholly owned subsidiary, Archer Trading, Inc. Archer Trading provides stock trading services and has the staff to assist in the training of various financial service firms that could increase volume and vertical integration. On June 1, 1999, the Company acquired Fully Armed Productions, Inc. Fully Armed Productions, Inc. provides creative and technological services for the television, radio and Internet industries through its specialty production capabilities and performs programming and production services for numerous cable, satellite and television stations. Effective in January 1998, Unified Holdings, Inc.'s name was changed to Unified Financial Services, Inc.; Unified Advisers, Inc.'s name was changed to Unified Fund Services, Inc.; and Vintage Advisers Inc.'s name was changed to Unified Investment Advisers, Inc. - 28 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation --------------------- The Consolidated Financial Statements include the accounts of the Unified Financial Services, Inc. and its subsidiaries after elimination of all material intercompany accounts and transactions. The Consolidated Financial Statements give retroactive effect to the Company's pooling-of-interest transactions. As a result, the Consolidated Statements of Financial Condition, Statements of Operations, Statements of Comprehensive Income, Statements of Cash Flows and Statements of Changes in Stockholders' Equity are consolidated for all periods presented. As required by generally accepted accounting principles, the Consolidated Financial Statements become the historical consolidated financial statements upon issuance of the financial statements for the periods that include the date of the transaction. The Consolidated Statements of Changes in Stockholders' Equity reflect the accounts for the Company as if the shares of common stock, $0.01 per value, of the Company (the "Common Stock") issued in the pooling- of-interests transactions had been outstanding during all periods presented. The Consolidated Financial Statements, including the notes thereto, should be read in conjunction with the historical consolidated financial statements of the Company. Fees and Commissions -------------------- The Company records revenue on the accrual basis of accounting. For the brokerage operations, commissions and clearing revenue are recorded on the settlement date of the related security transactions. This does not materially differ from recording commissions based upon trade date. The investment administration business revenue, as well as the investment adviser fees earned by third party advisers, is recorded on the accrual basis. The fees earned by the operation and paid to the sub-advisers are based on established fee schedules and contracts. Generally, fees may be collected from the invested assets. Thus, collection of the fees is reasonably certain. The financial services portion of the investment administration operation provides administrative services to investment companies and separate accounts. Revenue is recorded as it is earned each month based upon accounts and account balances. In connection with this, the Company earns income on the accounts established to transfer these funds for customers. For the insurance operations, commission income and expense are recorded on the effective date of each policy; return commissions are recorded when a policy cancellation occurs. All other revenue is recorded as earned. Property and Equipment ---------------------- Property and equipment is stated at cost. Depreciation, including the depreciation of capital leased equipment, is provided on the straight-line or accelerated methods over the estimated useful life of the assets for financial statement purposes. Investments and Investment in Debt Securities --------------------------------------------- Investments, which consist primarily of an investment in mutual funds (affiliated or non-affiliated), are recorded and adjusted to the fair market value as of the date of the financial statements and reported on the Statement of Operations as unrealized gain or loss on - 29 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) securities. Investment in debt securities are recorded at cost and amortized over the period to maturity for the premium or discount from par value under generally accepted accounting principles. Income Taxes ------------ The Company files consolidated Federal and state income tax returns with its subsidiaries. Subsequent to its acquisition by the Company, each of M. Wilson & Associates, Commonwealth Investment Services and Fully Armed Productions will be included in the consolidated tax returns of the Company, which uses the accrual method of tax and accounting reporting. The Company has adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires use of the liability method of accounting for deferred income taxes. Other Non-Current Assets ------------------------ Included in other non-current assets are intangible assets for non-compete covenants, the value of acquired companies' names and the present value of building leases below fair market value. For financial reporting basis, these assets are amortized on a straight-line basis over a three-, eight- or fifteen- year period. Goodwill -------- The Company, in acquiring certain businesses, acquired goodwill. The Company has determined the value of the goodwill, which is amortized over the estimated economic lives on a straight-line basis over a period of 10 to 15 years for financial reporting basis. For tax purposes, goodwill is amortized on a straight-line basis over 15 years. Organization Cost ----------------- Cost related to the organization of the various operations have been capitalized and amortized over a sixty-month period on a straight-line basis. As required by Statement of Position 98-6, the Company, in 1999, adopted an accounting policy to expense certain costs incurred in start-up activities as defined by SOP 98-5. The accounting change was retroactively applied to 1998. The effect on the net income for 1998 was $335,251. 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. - 30 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Statement of Cash Flows ----------------------- For purposes of the Statements of Cash Flows, the Company considers all liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains money market investments that are not insured by the Federal Deposit Insurance Corporation (the "FDIC") and bank accounts that periodically exceed the FDIC insurance limit during the year. Recent Accounting Pronouncements -------------------------------- In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes new accounting and reporting standards for companies to report information about derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of SFAS 133." This statement amended the effective date of SFAS 133, which will now be effective for financial statements issued for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not expect that this statement will have a material impact on the Company's results of operations, financial position or liquidity. Financial Statement Presentation -------------------------------- Certain amounts in the 1998 financial statements have been reclassified to conform to the 1999 presentation. Note 3 - ACQUISITIONS, DISPOSALS AND SALES On March 31, 1998, Unified Investment Advisers, Inc. became a wholly owned subsidiary of the Company upon surrender to Unified Investment Advisers of all the capital stock of Unified Investment Advisers by all stockholders of Unified Investment Adviser (other than the Company). Prior to the surrender of the capital stock to Unified Investment Advisers, the Company accounted for its 33.3% ownership in Unified Investment Advisers pursuant to the equity method of accounting. Unified Investment Advisers reported gross revenue for the four months (Unified Investment Adviser's fiscal year end was November 30) ended March 31, 1998 of $146,519 and a loss for the period of $195,967. Unified Investment Advisers reported total assets as of March 31, 1998 of $617,773 and shareholders' equity of $(469,548). On March 10, 1998, the Company acquired Resource Benefit Planners, Inc. in a transaction accounted for under the pooling-of-interests method of accounting. The Company issued 12,000 shares of Common Stock in exchange for all the outstanding capital stock of Resource Benefit Planners. As of March 10, 1998, Resource Benefit Planners reported total assets of $282,724 and shareholder's equity of $37,543. - 31 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 3 - ACQUISITIONS, DISPOSALS AND SALES (continued) On August 21, 1998, the Company acquired EMCO Estate Management Company, Inc. in a transaction accounted for under the pooling-of-interests method of accounting. The Company issued 11,000 shares of Common Stock in exchange for all of the assets and certain of the liabilities of EMCO Estate Management Company. As of August 21, 1998, EMCO Estate Management Company reported total assets of $67,230 and stockholder's equity of $(110,212). On August 21, 1998, the Company acquired Fiduciary Counsel, Inc. in a transaction accounted for under the purchase method of accounting. In connection with such acquisition, the Company issued 36,110 shares of Common Stock and paid $800,835 in cash. The results of operations of Fiduciary Counsel have been included in the Company's consolidated financial statements since its date of acquisition. On December 17, 1998, the Company acquired Equity Underwriting Group, Inc. in a transaction accounted for under the pooling-of-interests method of accounting. The Company issued 241,745 shares of Common Stock in exchange for all of the outstanding capital stock of Equity Underwriting Group. On December 17, 1998, the Company acquired Commonwealth Premium Finance Corporation in a transaction accounted for under the pooling-of-interests method of accounting. The Company issued 12,800 shares of Common Stock in exchange for all of the outstanding capital stock of Commonwealth Premium Finance Corporation. On December 22, 1998, the Company acquired Strategic Fund Services, Inc in a transaction accounted for under the pooling-of-interests method of accounting. The Company issued 7,500 shares of Common Stock in exchange for all of the outstanding capital stock of Strategic Fund Services. On December 31, 1998, the Company acquired AmeriPrime Financial Services, Inc in a transaction accounted for under the pooling-of-interests method of accounting. The Company issued 410,000 shares of Common Stock in exchange for all of the outstanding capital stock of AmeriPrime Financial Services. On January 1, 1999, the Company acquired M. Wilson & Associates, Inc. in a transaction accounted for under the pooling-of-interests method of accounting. The Company issued 3,636 shares of Common Stock in exchange for all of the outstanding capital stock of M. Wilson & Associates. As of December 31, 1998, M. Wilson & Associates reported total assets of $3,308 and shareholder's equity of $3,308. On May 6, 1999, the Company, via its subsidiary, Archer Trading, Inc., purchased certain of the assets and assumed certain of the liabilities of First Insight Securities, Ltd. In connection with such acquisition, the Company assumed liabilities of approximately $22,000 and paid an additional $51,700 in cash. This transaction is accounted for under the purchase method of accounting. - 32 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 3 - ACQUISITIONS, DISPOSALS AND SALES (continued) On June 1, 1999, the Company acquired Fully Armed Productions, Inc. in a transaction accounted for under the pooling-of-interests method of accounting. The Company issued 18,182 share of Common Stock in exchange for all of the outstanding capital stock of Fully Armed Productions. As of June 1, 1999, Fully Armed Productions reported total assets of $77,200 and shareholder's equity of $28,813. On June 1, 1999, the Company acquired Commonwealth Investment Services, Inc in a transaction accounted for under the pooling-of-interests method of accounting. The Company issued 27,500 shares of Common Stock in exchange for all of the outstanding capital stock of Commonwealth Investment Services. As of June 1, 1999, Commonwealth Investment Services reported total assets of $56,240 and shareholder's equity of $28,980. At year-end 1999, the Company agreed to sell an insurance contract segment of business of Equity Insurance Mangers of Illinois, L.L.C. (d/b/a/ Irland and Rogers). The sale price is determined on continued contract revenue and the Company anticipates receiving payment for the sale of the contracts over a two-year period. The Company has recorded this transaction in 1999 based upon the estimated revenue and costs to the Company of closing the location where the business was conducted: Sale price $205,200 Value of fixed assets and goodwill $192,205 Costs to close the location 142,482 (334,687) -------- --------- Loss on the sale $(129,487) ========= Equity Insurance Managers of Illinois, L.L.C. was formed to acquire insurance contracts from an existing business in 1996. A subsidiary of Equity Underwriting Group owned 55% of this new limited liability company. The transaction was reported under the purchase method of accounting and this continued with the Company's acquisition of Equity Underwriting Group in December 1998. In 1999, the seller agreed to a reduction of the unpaid balance of the note resulting from the sale in the amount of $255,628. The reduction of this price reduced the goodwill reported under the original purchase. The minority owner of the new limited liability company turned in stock certificates and gave up all rights to ownership during 1999. The receivable from the minority owner of $565,566, due to its share of operating losses, has been adjusted and recorded as a reduction of retained earnings in 1999. Note 4 - INVESTMENTS IN DEBT AND EQUITY SECURITIES First Lexington Trust Company, a subsidiary of the Company, was required by the Kentucky Department of Financial Institutions to maintain a minimum of $800,000 capital while trust assets under management did not exceed $100,000,000. When trust assets under management exceeded $100,000,000, the capital requirement increased by $350,000. Each incremental increase of $25,000,000 in assets under management over $100,000,000 requires the capital requirement to increase by $90,000. First Lexington Trust Company's capital requirement as of December 31, 1999 and 1998 was $1,510,000 and $800,000, respectively. - 33 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 4 - INVESTMENTS IN DEBT AND EQUITY SECURITIES (continued) It is the Company's intention to hold the required capital in debt securities and cash accounts to conform to 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, 1999 and 1998 were as follows:
MATURITY AMORTIZED UNREALIZED MARKET DEBT SECURITY DATE FACE VALUE COST GAIN (LOSS) VALUE ------------- ---- ---------- ---- ----------- ----- December 31, 1999 ----------------- Federal Home Loan Mortgage: REMIC 1675-P 10 15 2023 $ 100,000 $ 71,609 $ (4,301) $ 67,308 REMIC 1646-N 03 15 2023 200,000 190,824 (2,556) 188,268 REMIC 1681-B 10 15 2023 220,000 212,024 (1,768) 210,256 REMIC 1663-L 08 15 2023 40,000 39,208 (1,486) 37,722 Note 06 30 2014 50,000 50,899 (3,633) 47,266 Federal National Mortgage Association: REMIC 94-23-0 10 25 2007 97,000 89,733 807 90,540 Note 11 10 2005 125,000 128,948 (7,932) 121,016 Note 07 28 2008 75,000 75,414 (5,102) 70,312 Note 07 02 2000 75,000 74,660 (4,983) 69,677 Cleveland Electric Illumination Company 07 01 2013 60,000 64,833 (4,571) 60,252 Wells Fargo Capital Bonds 12 01 2026 50,000 50,469 (3,625) 46,844 TVA Subordinated Debenture 04 24 2002 25,000 25,000 (2,000) 23,000 ---------- ---------- -------- ---------- Totals $1,117,000 $1,073,621 $(41,150) $1,032,471 ========== ========== ======== ========== December 31, 1998 ----------------- Federal Home Loan Mortgage: REMIC 1675-P 10 15 2023 $ 100,000 $ 94,472 $ 534 $ 95,006 REMIC 1646-N 03 15 2023 200,000 189,653 11,661 201,314 REMIC 1681-B 10 15 2023 220,000 211,690 5,329 217,019 REMIC 1663-L 08 15 2023 40,000 39,174 (676) 38,498 Federal National Mortgage Association: REMIC 94-23-0 10 25 2007 97,000 89,426 6,074 95,500 Note 11 10 2005 125,000 129,615 (1,803) 127,812 U.S. Treasury Note 02 28 1999 100,000 99,655 470 100,125 Cleveland Electric Illumination Co. 07 01 2013 60,000 65,040 980 66,020 Wells Fargo Capital Bonds 12 01 2026 50,000 50,486 3,993 54,479 TVA, Subordinated Debenture 04 24 2002 25,000 25,000 813 25,813 ---------- ---------- -------- ---------- Totals $1,017,000 $ 994,211 $ 27,375 $1,021,586 ========== ========== ======== ==========
- 34 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 4 - INVESTMENTS IN DEBT AND EQUITY SECURITIES (continued) Marketable investments in mutual funds as of December 31, 1999 and 1998 were as follows:
1999 1998 -------------------- -------------------- MARKET MARKET COST VALUE COST VALUE -------- -------- -------- -------- Globalt Growth Fund $ 52,174 $ 57,815 $ 31,287 $ 51,677 AIT Vision Fund -- -- 35,346 50,922 Carl Domino Equity Income Fund 51,124 41,017 28,771 42,190 Newcap Contarian Fund -- -- 25,526 10,637 Shepherd Values Fixed Income Fund 1,001 1,001 -- -- Shepherd Values International Fund 1,001 1,001 -- -- Shepherd Values Small Cap Fund 1,000 1,000 -- -- Shepherd Values Growth Fund 1,750 1,904 -- -- Shepherd Values Market Neutral Fund 1,000 1,017 -- -- Shepherd Values VIF Equity Fund 251 251 -- -- Wescott Nothing But Net Fund I 1,000 985 -- -- King Fountainhead Kaliedoscope Fund 1,000 1,380 -- -- Vanguard Municipal Bond Fund-- Long-term Portfolio 7,519 7,268 7,132 7,533 Vanguard Tax Managed Fund-- Balanced Portfolio 12,150 21,684 11,663 18,776 Vanguard Wellesley Income Fund 5,422 5,331 4,806 5,561 Vanguard Wellington Fund 39,533 46,038 35,484 44,096 Vanguard Equity Income Fund 4,961 7,596 4,486 7,611 Vanguard Index Trust 500 Portfolio 15,170 54,057 14,221 44,650 Vanguard Windsor Fund 6,086 7,554 5,224 8,020 Vanguard Horizon Fund Global Asset Allocation Portfolio 7,848 8,251 6,987 7,378 Vanguard Horizon Fund Global Equity Portfolio 6,701 8,997 6,097 7,143 Vanguard International Growth Fund 4,234 6,689 3,907 5,294 Vanguard Index Trust Extended Market Portfolio 7,849 11,577 6,714 8,496 Vanguard Explorer Fund 42,048 66,355 35,007 48,344 -------- -------- -------- -------- $270,822 $358,768 $262,658 $368,328 ======== ======== ======== ========
- 35 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 5 - OPTIONS On May 20, 1998, the stockholders of the Company adopted the Unified Financial Services, Inc. 1998 Stock Incentive Plan, which plan subsequently was amended by the stockholders on May 27, 1999. The Stock Incentive Plan provides for the granting of stock options and other stock-based awards. The total number of shares of Common Stock issuable under the Stock Incentive Plan is not to exceed 500,000 shares, subject to adjustment in the event of any change in the Company's outstanding shares by reason of a stock dividend, stock split, capitalization, merger, consolidation or other similar changes generally affecting stockholders of the Company. Of these 500,000 shares of stock, no more than 250,000 shares may be issued to participants in the Stock Incentive Plan in any plan year. Under the terms of the Stock Incentive Plan, employees, directors, advisors and consultants of the Company and its subsidiaries will be eligible to receive the following: (a) Incentive Stock Options; (b) Nonqualified Stock Options; (c) Stock Appreciation Rights ("SAR"); (d) Restricted Stock; (e) Restricted Stock Units; and (f) Performance Awards. As of December 31, 1999 and 1998, the Board of Directors of the Company had granted options to acquire 105,961 and 37,526 shares, respectively, of Common Stock to certain employees, directors and advisers of the Company. Such options have exercise prices as follows: For the year ended December 31, 1999: 6,400 share at $25.00 per share 19,551 share at $27.50 per share 500 share at $30.25 per share 79,010 share at $40.00 per share 500 share at $44.00 per share For the year ended December 31, 1998: 6,800 shares at $25.00 per share 20,051 shares at $27.50 per share 10,675 shares at $40.00 per share As of December 31, 1999 and 1998, 103,661 and 36,226, respectively, of such options, were intended to qualify as incentive stock options pursuant to Section 422 of the Internal Revenue Code of 1986, as amended. - 36 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 6 - DEBT AND RELATED MATTERS Debt at December 31, 1999 and 1998 consisted of the following:
1999 1998 ---- ---- Bank notes payable: ------------------ Payable in monthly installments including interest at prime plus .5%, final payment due December 31, 2001, collaterized by communication and computer hardware and software $ 183,418 $ 321,576 Payable in monthly installments including interest at 8.5%, final payment due June 30, 2000, secured by assignment of receivables 2,293,750 -- Payable at maturity, June 30, 2000, interest at prime, secured by assignment of receivables 1,710,000 1,350,000 Payable in monthly installments including interest at 8.25%, final payment due March 31, 2014, collateralized by equipment 364,827 -- Payable in monthly installments including interest at 10.4%, final payment due April 26, 2002, collateralized by equipment 16,001 21,922 Payable in monthly installments including interest at 10.576%, final payment due September 24, 2002, collateralized by equipment 17,003 23,749 Payable at maturity, June 30, 1999, interest at prime, secured by certain company assets -- 400,000 Payable at maturity, January 30, 1999, interest at prime secured by certain company assets -- 1,800,000 Payable at maturity, January 30, 2001, interest at prime secured by certain company assets -- 1,250,000 Note payable, individual, Payable in six annual installments of $150,952, interest at prime plus 1%, final payment due January 1, 2004, unsecured -- 743,944 ---------- ---------- 4,584,999 5,911,191 Less current maturities 4,070,968 3,886,612 ---------- ---------- Long-term portion $ 514,031 $2,024,579 ========== ==========
The maturities of long-term debt maturity for each of the succeeding five years subsequent to December 31, 1999, are as follows: 2000--$4,070,968; 2001--$53,085; 2002--$49,838; 2003--$48,731; 2004 and beyond--$362,377. - 37 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 7 - CAPITAL LEASE OBLIGATIONS The Company leases both computer and office equipment under capital leases. The lease obligations are payable over a 60-month period. The following is a summary of future minimum lease payments under capitalized lease obligations as of December 31, 1999: YEAR ENDED DECEMBER 31, AMOUNT ----------------------- ------ 2000 $32,385 2001 8,355 2002 724 2003 483 ------- 41,947 Less: amount representing interest 2,941 ------- Total $39,006 ======= Note 8 - RENTAL AND LEASE INFORMATION The Company leases certain office facilities and equipment. Rental expense for the years ended December 31, 1999 and 1998 was $973,820 and $704,977, respectively. At December 31, 1999, the Company was committed to minimal rental payments under certain noncancellable operating leases. Generally, these leases include cancellation clauses. As of December 31, 1999, the minimum future rental commitments for each of the succeeding five years subsequent to December 31, 1999 were as follows: 2000--$1,704,894; 2001--$1,647,897; 2002--$968,159; 2003--$564,013; and 2004 and thereafter--$1,651,346. Note 9 - COMMITMENTS AND CONTINGENCIES The Company is a party to various lawsuits, claims and other legal actions arising in the ordinary course of business. In the opinion of management, all such matters are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on the Company's financial position or results of operations for the years ended December 31, 1999 and 1998. Note 10 - EMPLOYEE BENEFIT PLANS The Company and its subsidiaries provide a defined contribution retirement plan that covers substantially all employees. The Company's Board of Directors determines contributions to the plan. For 1999 and 1998, the Board of Directors made contributions to the plan in the amount of $-0- and $10,851, respectively. The Company also maintains a section 401(k) plan as part of the defined contribution retirement plan. The plan includes a matching for funds contributed into the Unified family of mutual funds. The Company will match the employee's contribution up to fifty percent of the first six percent of the employee's pre-tax contribution. - 38 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 11 - CASH SEGREGATED UNDER FEDERAL REGULATION AND NET CAPITAL REQUIREMENTS Unified Management Corporation, Commonwealth Investment Services and AmeriPrime Financial Securities are 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 the greater of (i) 6-2/3% of aggregate indebtedness or (ii) $50,000 for Unified Management Corporation, and $5,000 for Commonwealth Investment Services and AmeriPrime Financial Securities, whichever is greater, and a ratio of aggregate indebtedness to net capital of not more than 15 to 1. At December 31, 1999 and 1998, the net capital and ratio of aggregate indebtedness for each of these entities was as follows:
1999 1998 ---- ---- Net Capital: Unified Management Corporation $ 424,177 $ 548,703 Commonwealth Investment Services 54,946 34,928 AmeriPrime Financial Securities 268,551 160,895 Ratio of Aggregate Indebtedness: Unified Management Corporation 1.19 to 1 .506 to 1 Commonwealth Investment Services .65 to 1 .75 to 1 AmeriPrime Financial Securities .18 to 1 0 to 1
Pursuant to Rule 15c3-3 as promulgated by the Securities and Exchange Commission, Unified Management Corporation, Commonwealth Investment Services and AmeriPrime Financial Securities calculate their reserve requirement and segregate cash and/or securities for the exclusive benefit of their customers on a periodic basis. The reserve requirement for Unified Management Corporation, Commonwealth Investment Services and AmeriPrime Financial Securities was $-0- at December 31, 1999 and 1998. Balances segregated in excess of reserve requirements are not restricted. Note 12 - COMMON AND PREFERRED STOCK Common Stock: Acquisitions ------------ The Company has 20,000,000 authorized shares of Common Stock. In connection with the acquisitions consummated during 1999 and 1998, the Company issued shares of Common Stock as follows:
COMPANY ACQUIRED DATE ACQUIRED SHARES ISSUED ---------------- ------------- ------------- 1999 ---- M. Wilson & Associates January 1, 1999 3,636 Commonwealth Investment Services June 1, 1999 27,500 Fully Armed Productions June 1, 1999 18,182 1998 ---- Resource Benefit Planners March 10, 1998 12,000 EMCO Estate Management Company August 21, 1998 11,000 Fiduciary Counsel August 21, 1998 36,110 Equity Underwriters Group December 17, 1998 241,745 Commonwealth Premium Finance Corporation December 17, 1998 12,800 Strategic Fund Services December 22, 1998 7,500 AmeriPrime Financial Services December 31, 1998 410,000
- 39 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 12 - COMMON AND PREFERRED STOCK (continued) Private Placement Offerings --------------------------- Effective December 10, 1998, the Company commenced a private placement offering to sell a maximum of 1,750,000 shares of Common Stock. Effective September 27, 1999, the size of the offering was reduced to 750,000 shares of Common Stock, which shares are being offered at a price of $40.00 per share. The offering will terminate on the earlier occurrence of (1) subscriptions for 750,000 shares having been accepted or (2) March 31 2000; provided, however, the Company reserves the right to terminate the offering at any time, without notice. As of December 31, 1999, the Company had issued 238,270 shares of Common Stock. For the year ended December 31, 1999, aggregate brokerage fees of $901,780 were paid to Unified Management Corporation and Commonwealth Investment Services in connection with this private placement offering, which amount is inclusive of $2,400 paid to external brokerage firms. Effective January 22, 1998, the Company commenced a private placement offering to sell a maximum of 600,000 shares of Common Stock. The first 400,000 shares offered were offered at a price of $25.00 per share and, upon acceptance by the Company of subscriptions for such 400,000 shares, the remaining 200,000 shares in the private placement were offered at a price of $27.50 for share. The offering terminated on June 30, 1998. As of December 31, 1998, the Company issued 450,738 shares of Common Stock pursuant to such offering. For the year ended December 31, 1998, aggregate brokerage fees of $772,000 were paid to Unified Management Corporation in connection with the private placement offering, which amount is inclusive of $140,000 paid to external brokerage firms. In the Company's two private placements, all shares of Common Stock were offered by the Company on a best efforts basis. There is no public market for any of the Company's securities and there can be no assurance that a market will develop in the future. The securities offered and sold by the Company in its private placements will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Preferred Stock: As of December 31, 1999 and 1998, the total preferred shares authorized for the Company was 1,000,000 with a par value of $.01 per share, of which 200,000 and 102,100 shares, respectively, were designated at December 31, 1999 and 1998 as follows:
PREFERRED SHARES SHARES SHARES STATED PAR STOCK DESIGNATED ISSUED OUTSTANDING VALUE VALUE ----- ---------- ------ ----------- ----- ----- 1999: Series D 200,000 -- -- $200 $0.01 1998: Series C 2,100 2,100 1,672 100 0.01 Series D 100,000 -- -- 200 0.01
- 40 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 12 - COMMON AND PREFERRED STOCK (continued) Series C Preferred Stock ------------------------ In 1999 and 1998, the Company issued 1,009 and 2,100 shares, respectively, of Series C 6.75% Cumulative Convertible Preferred Stock to certain directors, executive officers and agents of the Company for total consideration of $310,900. Each share of Series C Preferred Stock was convertible, at any time at the option of the holder thereof and without the payment of any additional consideration with respect thereto, into 135 shares of Common Stock. During the years ended December 31, 1999 and 1998, 2,681 and 428 shares of Series C Preferred Stock were converted into 361,935 and 57,780 shares, respectively, of Common Stock. As of November 30, 1999, all outstanding shares of Series C Preferred Stock had been converted to Common Stock and, on December 23, 1999, the Company filed a Certificate of Elimination with respect to the Series C Preferred Stock with the Office of the Delaware Secretary of State. Series D Preferred Stock Authorized ----------------------------------- In July 1998, the Company authorized 100,000 shares of Series D Convertible Junior Participating Preferred Stock. This amount was increased to 200,000 in May 1999. The Company has reserved all of the shares of Series D Preferred Stock for issuance under a Rights Agreement dated August 26, 1998 between the Company and Unified Fund Services, as rights agent. On August 26, 1998, the Board of Directors of the Company declared a dividend distribution of one Preferred Stock Purchase Right for each outstanding share of Common Stock. The dividend distribution was payable to the stockholders of record at the close of business on August 26, 1998. Generally, each Preferred Stock purchase right, when exercisable, entitles the registered holder to purchase from the Company one one-hundredth of a share of Series D Preferred Stock at a price of $200.00 per one one-hundredth of a share. Series A and Series B Preferred Stock Redemption ------------------------------------------------ On April 25, 1998, the Company redeemed the outstanding Series A and Series B Preferred Stock of the Company. Total consideration of $1,738,326, consisting of principal and accrued interest, was paid to the holders of the Series A and Series B Preferred Stock in connection with the redemption of such shares. On September 14, 1998, the Company filed Certificates of Elimination with respect to the Series A and Series B preferred Stock with the Office of the Delaware Secretary of State. Note 13 - RELATED PARTY TRANSACTIONS Commonwealth Premium Finance Corporation employees are paid through the Equity Insurance Managers payroll system, which serves as a common paymaster. Commonwealth Premium Finance Corporation's employees are eligible for all benefits that Equity Insurance Managers offers, although these benefits are paid for by Commonwealth Premium Finance Corporation. As of December 31, 1999 and 1998, Commonwealth Premium Finance Corporation's balance in unfunded contracts payable of $171,746 and $448,040, respectively, was owed to Equity Insurance Managers for the amount due on the insurance policy premiums that Equity Insurance Managers and Equity Insurance Managers of Illinois sold and Commonwealth Premium Finance Corporation financed. At December 31, 1999 - 41 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 13 - RELATED PARTY TRANSACTIONS (continued) and 1998, Equity Underwriting Group had $0 and $421,992, respectively, receivable from Commonwealth Premium Finance Corporation. Commonwealth Premium Finance Corporation also owed Equity Insurance Managers $0 and $21,911 for various expenses paid by Equity Insurance Managers in 1999 and 1998, respectively. Equity Underwriting Group paid various expenditures on behalf of 21st Century Claims Service throughout 1999 and 1998. Equity Underwriting Group had $845,603 and $318,129 due from 21st Century Claims Service as of December 31, 1999 and 1998, respectively. Equity Underwriting Group paid various expenditures on behalf of Equity Insurance Administrators throughout 1999 and 1998. Equity Underwriting Group had $52,409 and $202,728 due from Equity Insurance Administrators as of December 31, 1999 and 1998, respectively. Equity Underwriting Group had $362,046 and $0 due from Equity Insurance Managers as of December 31, 1999 and 1998, respectively. Note 14 - INCOME TAXES Consolidated net operating loss carryforwards at December 31, 1999 amounted to approximately $13,700,000, expiring through 2008. Consolidated State of Indiana net operating loss carryforwards at December 31, 1999 amounted to approximately $13,000,000, expiring through 2008. The Company (increased) utilized approximately $(1,600,000) and $800,000 of net operating loss carryforwards during 1999 and 1998, respectively, to reduce current consolidated income tax expense to zero. The Company records deferred income taxes in accordance with Financial Accounting Standard ("FAS") No. 109. The deferred tax assets and liability in the consolidated financial statements as of December 31, 1999 and 1998 were as follows: 1999 1998 ---- ---- Deferred tax assets $(5,707) $(51,062) Deferred tax liability 83,157 90,318 ------- -------- Net deferred tax liability $77,450 $ 39,256 ======= ======== The components of income tax expense for the years ended December 31, 1999 and 1998 were as follows: 1999 1998 ---- ---- Current income tax: Federal $ 48,083 $ 62,848 State and local 32,470 7,433 -------- -------- Total current income tax $ 80,553 $ 70,281 ======== ======== Deferred income tax: Federal (37,863) 19,080 State and local (12,960) 61,097 -------- -------- Total deferred (50,823) 80,177 -------- -------- Total income tax $ 29,730 $150,458 ======== ======== - 42 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 Note 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair value of the Company's financial instruments at December 31, 1999 and 1998. Financial Accounting Standards Board 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, ----------------------------------------------------- 1999 1998 ----------------------- ------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- --------- --------- --------- (IN THOUSANDS) Financial assets: Cash and cash equivalents $5,709.1 $ 5,709.1 $10,395.8 $10,395.8 Investment in: Debt securities Mutual funds 1,216.9 1,216.9 726.1 726.1 Notes receivable 2,810.9 2,810.9 -- -- Receivables (trade) 9,138.7 9,138.7 8,910.6 8,910.6 Prepaid and sundry 899.9 899.9 230.0 230.0 Financial liabilities: Current liabilities 17,356.5 17,356.5 10,574.5 10,574.5 Capital lease obligation 39.0 39.0 137.9 137.9 Long-term debt 4,585.0 4,585.0 5,911.2 5,911.2
Note 16 - DISCLOSURES ABOUT REPORTING SEGMENTS The Company has six reportable segments: investment advisory, trust and retirement services; administrative and back office support services, brokerage and brokerage services; finance; insurance brokerage; and corporate and start-up. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before income taxes, not including recurring gains and losses. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as a unit and the management at the time of the acquisition was retained. Reportable segment revenues, gross margin, total assets, capital expenditures and depreciation and amortization were as follows for the years ended December 31, 1999 and 1998: - 43 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 -------------------------- Note 16 - DISCLOSURES ABOUT REPORTING SEGMENTS (continued)
1999 1998 ---- ---- (IN THOUSANDS) Revenues: Investment advisory, trust and retirement services $ 6,286.9 $ 4,686.0 Administrative and back office support services 4,292.1 3,100.9 Brokerage and brokerage services 4,074.0 5,103.8 Finance 623.7 395.0 Insurance brokerage 9,202.8 9,691.9 Corporate and start-up 1,138.1 470.9 --------- --------- Total $25,617.6 $23,448.5 ========= ========= Gross margin: Investment advisory, trust and retirement services $ 5,907.6 $ 4,439.9 Administrative and back office support services 3,531.4 2,536.0 Brokerage and brokerage services 2,263.7 1,994.9 Finance 484.1 395.0 Insurance brokerage 5,012.3 5,103.1 Corporate and start-up 1,138.1 470.9 --------- --------- Total $18,337.2 $14,939.8 ========= ========= Total assets Investment advisory, trust and retirement services $ 5,982.9 $ 5,226.2 Administrative and back office support services 2,148.0 1,256.7 Brokerage and brokerage services 1,641.5 1,311.2 Finance 2,173.4 1,914.4 Insurance brokerage 7,642.3 9,144.5 Corporate and start-up 16,949.4 7,645.6 --------- --------- Total $36,537.5 $26,498.6 ========= ========= Capital expenditures: Investment advisory, trust and retirement services $ 108.5 $ 92.7 Administrative and back office support services 97.5 244.9 Brokerage and brokerage services 27.6 42.6 Finance 40.3 54.2 Insurance brokerage 131.7 -- Corporate and start-up 1,622.0 77.6 --------- --------- Total $ 2,027.6 $ 512.0 ========= ========= Depreciation and amortization: Investment advisory, trust and retirement services $ 204.8 $ 431.1 Administrative and back office support services 76.2 130.9 Brokerage and brokerage services 36.1 26.4 Finance 69.8 69.6 Insurance brokerage 227.1 199.9 Corporate and start-up 216.6 91.4 --------- --------- Total $ 830.6 $ 949.3 ========= =========
- 44 - ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ------------------------------------------------ ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------- Not applicable. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL ---------------------------------------------------- PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ---------------------------------------------------------- Information regarding our directors is contained in our Proxy Statement for the 2000 Annual Meeting of Stockholders under the caption "Proposal 1: Election of Directors" and is incorporated herein by reference. Information regarding our executive officers is contained in this report under Item 4A--"Executive Officers of the Registrant" and is incorporated herein by reference. Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is included in our Proxy Statement for the 2000 Annual Meeting of Stockholders under the caption "Section 16(a) Beneficial Ownership Reporting Compliance," and is incorporated herein by reference. ITEM 10. EXECUTIVE COMPENSATION ---------------------- Information regarding executive compensation is contained in our Proxy Statement for the 2000 Annual Meeting of Stockholders under the captions "Board of Directors and Committees" and "Compensation of Executive Officers," and is incorporated herein by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND --------------------------------------------------- MANAGEMENT ---------- Information regarding security ownership of certain beneficial owners and management is contained in our Proxy Statement for the 2000 Annual Meeting of Stockholders under the caption "Security Ownership of Certain Beneficial Owners and Management," and is incorporated herein by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- Information regarding certain relationships and related transactions is contained in our Proxy Statement for the 2000 Annual Meeting of Stockholders under the captions "Certain Relationships and Related Transactions" and "Board of Directors and Committees," and is incorporated herein by reference. - 45 - ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits: See Exhibit Index on pages 49-52 hereto. (b) Reports on Form 8-K. During the three months ended December 31, 1999, we did not file any Current Reports on Form 8-K. - 46 - SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of the 13th day of April 2000. UNIFIED FINANCIAL SERVICES, INC. (Registrant) By /s/ Timothy L. Ashburn ------------------------------------------- Timothy L. Ashburn, Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY We, the undersigned officers and directors of Unified Financial Services, Inc., hereby severally and individually constitute and appoint Timothy L. Ashburn and Thomas G. Napurano, and each of them, the true and lawful attorneys and agents of each of us to execute in the name, place and stead of each of us (individually and in any capacity stated below) any and all amendments to this Annual Report on Form 10-KSB and all instruments necessary or advisable in connection therewith and to file the same with the Securities and Exchange Commission, each of said attorneys and agents to have the power to act with or without the others and to have full power and authority to do and perform in the name and on behalf of each of the undersigned every act whatsoever necessary or advisable to be done in the premises as fully and to all intents and purposes as any of the undersigned might or could do in person, and we hereby ratify and confirm our signatures as they may be signed by our said attorneys and agents or each of them to any and all such amendments and instruments. In accordance with the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date /s/ Timothy L. Ashburn Chairman of the Board, President April 13, 2000 - ------------------------------ and Chief Executive Officer Timothy L. Ashburn /s/ Thomas G. Napurano Executive Vice President, April 13, 2000 - ------------------------------ Chief Financial Officer Thomas G. Napurano and Director - 47 - /s/ John S. Penn Executive Vice President, April 13, 2000 - ------------------------------ Chief Operating Officer John S. Penn and Director /s/ Weaver H. Gaines Director April 13, 2000 - ------------------------------ Weaver H. Gaines /s/ Jack R. Orben Director March 29, 2000 - ------------------------------ Jack R. Orben /s/ Dr. Gregory W. Kasten Director April 13, 2000 - ------------------------------ Dr. Gregory W. Kasten
- 48 - EXHIBIT INDEX Ex. No. Description - ------- ----------- 3.1(a) Amended and Restated Certificate of Incorporation of the Company, filed as Exhibit 4.1(a) to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997, is incorporated herein by reference. 3.1(b) Certificate of Amendment of Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999, is incorporated by reference herein. 3.2 By-laws of the Company, filed as Exhibit 4.2 to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997, is incorporated herein by reference. 4.1 Certificate of Designations, Preferences and Rights of Series D Junior Participating Preferred Stock of the Company, filed as Exhibit 4.2 to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1998, is incorporated herein by reference. 4.2 Rights Agreement, dated as of August 26, 1998, between the Company and Unified Fund Services, Inc., filed as Exhibit 1 to the Company's Registration Statement on Form 8-A dated September 3, 1998, is incorporated herein by reference. 10.1 Employment Agreement dated as of June 1, 1997 by and between Health Financial, Inc. and Dr. Gregory W. Kasten, filed as Exhibit 10.1 to Amendment No. 1 to the Company's Registration Statement on Form 10-SB, is incorporated herein by reference. 10.2 Employment Agreement dated as of December 16, 1998 by and between Equity Underwriting Group, Inc. and John R. Owens, filed as Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.3 Agreement and Plan of Merger, dated as of July 10, 1998, by and among the Company, Fiduciary Acquisition Corporation, Fiduciary Counsel, Inc., Associated Family Services, Inc., Intellectronic Management Systems, Inc., Jack R. Orben, Andrew E. Beer and Charles C. Hickox, filed as Exhibit 2 to the Company's Current Report on Form 8-K dated August 21, 1998, is incorporated herein by reference. 10.4 Agreement and Plan of Merger, dated as of October 16, 1998, by and among the Company, AmeriPrime Acquisition Corporation, AmeriPrime Financial Services, Inc. and Kenneth D. Trumpfheller, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated October 16, 1998, is incorporated herein by reference. - 49 - 10.5 Agreement and Plan of Merger, dated as of October 16, 1998, by and among the Company, Equity Acquisition Corporation, Equity Underwriting Group, Inc., John R. Owens and D. Richard Meyer, filed as Exhibit 2.2 to the Company's Current Report on Form 8-K dated October 16, 1998, is incorporated herein by reference. 10.6 First Amendment to Agreement and Plan of Merger, dated as of December 14, 1998, by and among the Company, Equity Acquisition Corporation, Equity Underwriting Group, Inc., John R. Owens and D. Richard Meyer, filed as Exhibit 2.2 to the Company's Current Report on Form 8-K dated December 17, 1998, is incorporated herein by reference. 10.7 Amended and Restated Unified Financial Services, Inc. 1998 Stock Incentive Plan, filed as Annex A to the Company's Proxy Statement for the Company's 1999 Annual Meeting, is incorporated herein by reference. 10.08 Third Amendment to Loan Agreement, dated as of July 23, 1998, by and among Commonwealth Premium Finance Corporation, John R. Owens, D. Richard Meyer and Bank One, Kentucky, NA, filed as Exhibit 10.21 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.09 Renewed Revolving Credit Note, dated as of June 18, 1998, issued by Commonwealth Premium Finance Corporation in favor of Bank One, Kentucky, NA, filed as Exhibit 10.22 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.10 Fourth Amendment to Loan Agreement, dated as of February 25, 1999, by and among Commonwealth Premium Finance Corporation, the Company and Bank One, Kentucky, NA, filed as Exhibit 10.23 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.11 Guaranty of Payment and Performance, dated February 25, 1999, by the Company, filed as Exhibit 10.24 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.12 Stock Pledge and Security Agreement, dated as of February 25, 1999, by and among the Company and Bank One, Kentucky, NA, filed as Exhibit 10.25 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.13 First Amendment to Loan Agreement, dated as of July 23, 1998, by and among Equity Underwriting Group, Inc., Equity Insurance Managers, Inc., 21st Century Claim Service, Inc., John R. Owens, D. Richard Meyer and Bank One, Kentucky, NA, filed as Exhibit 10.31 to the Company's Annual - 50 - Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.14 Amended and Restated Revolving Credit Note, dated as of July 23, 1998, issued by Equity Insurance Managers, Inc. in favor of Bank One, Kentucky, NA, filed as Exhibit 10.32 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.15 Second Amendment to Loan Agreement, dated as of February 25, 1999, by and among Equity Underwriting Group, Inc., Equity Insurance Managers, Inc., 21st Century Claim Service, Inc., the Company and Bank One, Kentucky, NA, filed as Exhibit 10.33 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.16 Amended and Restated Term Note, dated as of February 25, 1999, issued by Equity Underwriting Group, Inc. and Equity Insurance Managers, Inc. in favor of Bank One, Kentucky, NA, filed as Exhibit 10.34 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.17 Term Note, dated as of February 25, 1999, issued by Equity Underwriting Group, Inc. and Equity Insurance Managers, Inc. in favor of Bank One, Kentucky, NA, filed as Exhibit 10.35 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.18 Renewal Term Note, dated as of January 30, 1999, issued by 21st Century Claim Service, Inc. in favor of Bank One, Kentucky, NA, filed as Exhibit 10.36 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.19 429 Pennsylvania Building Office Lease, dated as of November 7, 1997, by and between 429 Penn Partners and the Company, filed as Exhibit 10.37 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.20 First Addendum to Lease, dated as of June 25, 1998, by and between 429 Penn Partners and the Company, filed as Exhibit 10.38 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.21 Office Lease Agreement, dated as of November 4, 1996, by and between MIF Realty L.P. and Equity Insurance Managers, Inc., filed as Exhibit 10.39 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.22 Addendum, dated as of November 4, 1996, by and between MIF Realty L.P. and Equity Insurance Managers, Inc, filed as Exhibit 10.40 to the - 51 - Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.23 Amendment and Extension of Lease, dated as of March 1, 1999, by and between Equity Insurance Managers, Inc. and Nashville Mini Storage, L.P., filed as Exhibit 10.41 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998, is incorporated herein by reference. 10.24 Employment Agreement, dated as of December 31, 1998, by and between the Company and Charles H. Binger, is filed herewith. 10.25 Employment Agreement, dated as of December 31, 1998, by and between the Company and David F. Morris, is filed herewith. 10.26 Loan Agreement, dated as of December 28, 1999, by and between Bank One Kentucky, NA, the Company and Commonwealth Premium Finance Corporation, is filed herewith. 10.27 Security Agreement, dated as of December 28, 1999, by and between Commonwealth Premium Finance Corporation and Bank One Kentucky, NA, is filed herewith. 10.28 Stock Pledge and Security Agreement, dated as of December 29, 1999, by and between the Company and Bank One Kentucky, NA, is filed herewith. 10.29 Guaranty of Payment and Performance, dated as of December 28, 1999, by the Company in favor of Bank One Kentucky, NA, is filed herewith. 10.30 Renewal Revolving Credit Note, dated as of December 28, 1999, by Commonwealth Premium Finance Corporation in favor of Bank One Kentucky, NA, is filed herewith. 10.31 Term Note, dated as of December 28, 1999, by the Company in favor of Bank One Kentucky, NA, is filed herewith. 11.1 Computations of Earnings per Share, is filed herewith. 21.1 List of Subsidiaries is filed herewith. 23.1 Consent of Larry E. Nunn & Associates, LLC with respect to its report dated February 2, 2000 regarding the consolidated financial statements of the Company as of and for the years ended December 31, 1999 and 1998 is filed herewith. 24.1 Power of Attorney (included on signature page hereto). 27.1 Financial Data Schedule (December 31, 1999) is filed herewith. 27.2 Restated Financial Data Schedule (December 31, 1998) is filed herewith. [FN] - ------------- Management contract or compensatory plan or arrangement. - 52 - EX-10.24 2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This agreement ("Agreement") has been entered into as of this 31st day of December, 1999, by and between Unified Financial Services, Inc., a Delaware corporation ("Unified"), and Charles H. Binger, an individual ("Executive"). RECITALS The Executive, various members of the Board of Directors of Unified (the "Board"), and various senior executives of Unified negotiated the terms of Executive's employment and this Agreement over a period of five months. Executive has and is representing Unified on significant portions of its legal matters other than the negotiation, drafting and execution of this Agreement. Unified acknowledges that it is aware of Executive's representation of himself in connection with this Agreement, and it is aware that Executive has not represented Unified in connection with this Agreement. Unified acknowledges that the Executive encouraged Unified to consult with legal counsel in connection with this Agreement, and Unified represents that it has done so. The Executive has represented Unified for a number of years, and both the Board and Unified's senior executives are very familiar with the Executive's talents. Unified offered the terms in this Agreement in order to entice Executive to accept employment with Unified, which acceptance will require that Executive resign his current position as an equity partner of his law firm. Unified and Executive acknowledge that Executive's acceptance of the terms of this Agreement and resignation from his law firm will result in a disposition of Executive's current law practice without compensation from those who succeed to such practice, and Executive acknowledges that Unified is not purchasing such practice. Unified acknowledges that Executive has been a partner in a large and respected law firm, has advanced rapidly while there, and has achieved a substantial amount of economic and employment security. Unified acknowledges that Executive would not have accepted employment with Unified and surrendered his current law practice but for the protections and enticements provided in this Agreement, including certain mandatory salary increases and certain payments upon termination or a Change in Control (as defined below). Executive acknowledges that the protections and enticements provided in this Agreement, including certain mandatory salary increases, certain payments upon termination or a Change of Control and certain stock benefits, are adequate, acceptable and sufficient for Executive to resign from his current position and accept the position and terms and conditions provided herein. The Executive Committee of the Board of Directors of Unified (the "Committee") desires to provide for the employment of the Executive on the terms hereof, and the Executive is willing to commit himself to serve Unified. The Executive Committee has determined that it is in the best interests of Unified and its stockholders to reinforce and encourage the attention and dedication of the Executive to Unified as a member of Unified's management and to assure that Unified will have the continuing dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control of Unified. Additionally, the Executive Committee believes it is imperative to encourage the Executive's attention and dedication to Unified currently and in the event of any threatened or pending Change in Control, and to provide the Executive with compensation and benefits arrangements upon certain breaches of this Agreement by Unified or upon a termination of employment after a Change in Control, which ensure that the compensation and benefits expectations of the Executive will be satisfied. Because of the Executive's high position at Unified and his access to information pertaining to the business of Unified (as conducted by its affiliates), Unified believes it is imperative that the Executive neither compete against Unified and any of its affiliates or subsidiaries nor share certain confidential information of either during the Executive's employment and for the three-year period thereafter, as provided below. Therefore, in exchange for the mutual promises and covenants set forth herein, and in order to accomplish these objectives, the Committee has caused Unified to enter into this Agreement. IT IS AGREED AS FOLLOWS: SECTION 1: DEFINITIONS AND CONSTRUCTION. 1.1 DEFINITIONS. For purposes of this Agreement, the following words and phrases, whether or not capitalized, shall have the meanings specified below, unless the context plainly requires a different meaning. Terms not set forth in this Section 1.1 but defined elsewhere in this Agreement shall for all purposes of this Agreement have such defined meaning, whether or not capitalized, unless the context plainly requires a different result. 1.1(a) "BOARD" means the Board of Directors of Unified. 1.1(b) "CHANGE IN CONTROL" means a change in control of Unified of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act; provided that, for purposes of this Agreement, a Change in Control shall be deemed to have occurred if: (i) any Person (other than Unified or any wholly owned subsidiary of Unified) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Unified that represent 20% or more of the combined voting power of Unified's then outstanding securities; (ii) during any period of two (2) consecutive years beginning on or after March 1, 2000, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election, by Unified's stockholders, of each new director is approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period, but excluding any individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such term is 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; (iii) there is consummated any consolidation or merger of Unified in which Unified is not the continuing or surviving corporation or pursuant to which shares of Unified's Common Stock are converted into cash, securities or other property, other than a merger of Unified in which the holders of Unified's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (iv) there is consummated any consolidation or merger of Unified in which Unified is the continuing or surviving corporation in which the holders of Unified's Common Stock immediately prior to the merger do not own fifty percent (50%) or more of the stock of the surviving corporation immediately after the merger; (v) there is consummated any sale, lease, exchange or other transfer (in one transaction or a series of transactions) of all or substantially all of the assets of Unified (provided, however, that for purposes of this subsection (v) any sale lease, exchange or other transfer between subsidiaries that are directly or indirectly wholly owned by Unified shall not be deemed a Change of Control); (vi) Timothy L. Ashburn ceases to serve as the Chairman of the Board or as the Chief Executive Officer of Unified; or (vii) the stockholders of Unified approve any plan or proposal for the liquidation or dissolution of Unified. 1.1(c) "CHANGE IN CONTROL DATE" shall mean the date of the Change in Control. -2- 1.1(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended, including all regulations proposed or promulgated thereunder, and administrative interpretations and judicial precedents relating thereto. All citations to the Code shall include any amendments or any substitute or successor provisions thereto. 1.1(e) "COMMON STOCK" shall mean the common stock, $0.01 par value, of Unified. 1.1(f) "CUSTOMER" shall mean any Person from which or from dealings with which any member of the Unified Group is earning or has earned revenue in the ordinary course of its business. Dealings shall include, for example and without limitation, distribution arrangements, revenue or income sharing arrangements, commission arrangements and any other arrangement or contract. 1.1(g) "EFFECTIVE DATE" shall mean January 1, 2000. 1.1(h) "EMPLOYMENT PERIOD" shall mean the period that begins on the Effective Date and ends on the earlier of: (i) twelve (12) months after the date on which Unified shall have delivered to Executive written notice (in accordance with the provisions of Section 9.3 hereof) of termination of the Employment Period, which notice shall not be delivered prior to the fourth anniversary of the Effective Date (and the parties agree that the term described in this clause (i) shall be for a period of not less than sixty (60) months); or (ii) the Date of Employment Termination (as defined in Section 3.6 hereof). 1.1(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. All citations to the Exchange Act shall include any amendments or any substitute or successor provisions thereto. 1.1(j) "EXPECTED EMPLOYMENT PERIOD" shall mean the period of time beginning on the Effective Date and ending on the date described in Section 1.1(h)(i). If no written notice terminating the Employment Period (as required in Section 1.1(h)(i)) shall have been delivered to Executive on or before the Date of Employment Termination (as defined in Section 3.6 hereof) or such notice is delivered prior to the fourth anniversary of the Effective Date, then for all purposes of this Agreement such notice shall be deemed to have been delivered on the later of such Date of Employment Termination and the fourth anniversary of the Effective Date. For example and without limitation: (i) if Unified were to terminate the Executive without Cause (as defined in Section 3.3 hereof) at the end of the eighteenth (18th) month of the Employment Period, the Expected Employment Period for purposes of Section 4.1 would end on the fifth (5th) anniversary of the Effective Date; (ii) if Unified were to terminate the Executive without Cause on the fourth (4th) anniversary of the Effective Date and no written notice of termination of the Employment Period had previously been delivered, such notice would be deemed delivered on such fourth (4th) anniversary, and the Expected Employment Period for purposes of Section 4.1 would end on the fifth (5th) anniversary of the Effective Date; and (iii) if Unified were to deliver written notice of termination of the Employment Period on the fourth (4th) anniversary of the Effective Date, and thereafter Executive's employment is terminated by Unified or Executive (whether without Cause, for Good Reason or otherwise), the Expected Employment Period for purposes of Section 4.1 would end on the fifth (5th) anniversary of the Effective Date. 1.1(k) "FAIR MARKET VALUE" means, for any particular date, (i) for any period during which Common Stock shall be listed for trading on a national securities exchange, the closing price -3- per share of Common Stock on such exchange as of the close of such trading day; (ii) for any period during which Common Stock shall not be listed for trading on a national securities exchange, but when Common Stock is authorized as a Nasdaq National Market security, the last transaction price per share as quoted by The Nasdaq Stock Market (the "Nasdaq"); (iii) for any period during which Common Stock shall not be listed for trading on a national securities exchange or authorized as a Nasdaq National Market security, but when Common Stock shall be authorized as a Nasdaq SmallCap Market security, the closing bid price as reported by the Nasdaq; (iv) for any period during which the Common Stock shall be listed for trading on an electronic communications network (an "ECN"), an alternative trading system (an "ATS") and/or on-line order matching system or auction system, the closing bid price as reported by such ECN, ATS and/or on-line order matching system or auction system; or (v) the market price per share of Common Stock as determined by an investment banking firm or certified public accountant selected by the Board in the event neither (i), (ii), (iii) nor (iv) above shall be applicable. If Fair Market Value is to be determined as of a day when the securities markets are not open, the Fair Market Value on that day shall be the Fair Market Value on the preceding day when the markets were open. 1.1(l) "PERSON" shall include an individual, firm, trust, estate, association, joint venture, partnership, corporation, limited liability company, organization or other entity. 1.1(m) "UNIFIED" shall mean Unified Financial Services, Inc., a Delaware corporation. 1.1(n) "UNIFIED GROUP" means, jointly and severally, Unified and any Person more than twenty percent (20%) of which (by value and not by voting power) is directly or indirectly owned by Unified at any time during the Employment Period, and any successors or assigns of Unified or any other Person included in the Unified Group. 1.2 GENDER AND NUMBER. When appropriate, pronouns in this Agreement used in the masculine gender include the feminine gender, words in the singular include the plural, and words in the plural include the singular. 1.3 HEADINGS. All headings in this Agreement are included solely for ease of reference and do not bear on the interpretation of the text. Accordingly, as used in this Agreement and except where expressly provided to the contrary, the term "Section" means the text that accompanies the specified Section of this Agreement. For example and without limitation, a reference to "Section 3" would mean all the text under the headings numbered 3.1 through 3.6. 1.4 INCORPORATION OF RECITALS; WAIVER OF DEFENSES. The Recitals set forth on the first page of this Agreement are hereby incorporated in this Section 1.4 as if fully set forth herein and are binding upon the parties to this Agreement. Unified shall not, directly or indirectly, raise as a defense to enforcement or excuse for any nonperformance under this Agreement Executive's prior representation of Unified, Executive's representation of himself in connection with this Agreement, or any failure on the part of Unified to secure adequate legal representation in connection with this Agreement. Moreover, Unified represents and warrants that this Agreement is duly authorized and binding upon Unified in accordance with its terms; and Unified shall take no action inconsistent with, and shall raise no objections or defenses to the enforcement of this Agreement based in whole or part upon, those grounds. Executive shall not, directly or indirectly, raise as a defense to enforcement or excuse for any nonperformance under this Agreement Executive's representation of himself in connection with this Agreement. No provision of this Agreement shall be construed against any party on the ground that such party drafted the provision or caused it to be drafted or the provision contains a covenant of such party. -4- 1.5 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Kentucky, without reference to its conflict of law principles. SECTION 2: TERMS AND CONDITIONS OF EMPLOYMENT. 2.1 PERIOD OF EMPLOYMENT. Throughout the Employment Period, the Executive shall serve in the employ of Unified in accordance with the terms and provisions of this Agreement. 2.2 POSITIONS AND DUTIES. 2.2(a) Throughout the Employment Period, the Executive shall be the General Counsel and an Executive Vice President of Unified. The Executive shall render legal and administrative services to Unified as are customarily performed by persons situated in similar executive legal positions including, among other things, retention and oversight of inside and outside legal counsel for Unified and the other members of the Unified Group, and may have such other powers or authority as may from time to time be prescribed by the Board or any other executive officer of Unified or any other member of the Unified Group (collectively, "Positions and Duties"). The Executive shall report to the Chief Executive Officer of Unified. 2.2(b) Throughout the Employment Period (but excluding any periods of vacation and sick leave to which he is entitled), the Executive shall devote reasonable attention and time during normal business hours to the business and affairs of Unified and shall use his reasonable best efforts to perform faithfully and efficiently such responsibilities as are assigned to him under or in accordance with this Agreement; provided that, it shall not be a violation of this paragraph for the Executive to: (i) serve on corporate, civic or charitable boards or committees; (ii) deliver lectures or fulfill speaking engagements; (iii) manage personal investments for the Executive's own account or those of family members; or (iv) render legal services in an "of counsel" or similar role to or for the benefit of Persons who are not members of the Unified Group, so long as such activities described in clauses (i) through (iv) do not materially interfere with the performance of the Executive's responsibilities as a senior executive officer of Unified in accordance with this Agreement. The parties agree that an "of counsel" or similar relationship will be beneficial to Unified and will not conflict with Executive's Positions or Duties and will not present a conflict of interest to Executive or Unified. 2.3 COMPENSATION. The Executive's annual compensation and other benefits described in this Section 2.3 shall be provided by Unified. 2.3(a) ANNUAL BASE SALARY. From the Effective Date, the Executive shall receive an annual base salary of $250,000.00, which shall be due and paid in equal or substantially equal installments, to be paid at the same frequency as other employees of Unified but no less often than monthly. The Annual Base Salary (as hereinafter defined) payable to the Executive shall be increased on each January 1 occurring during the Employment Period by no less than an amount equal to the Annual Base Salary for the immediately preceding calendar year multiplied by the Adjustment Percentage. The Adjustment Percentage shall equal the sum of (A) the CPI Percentage, plus (B) if such January 1 falls during the first sixty (60) months of the Employment Period, fifteen percent (15%), or if such January 1 falls after the first sixty (60) months of the Employment Period, seven percent (7%). The CPI Percentage shall mean the greater of (i) zero and (ii) the remainder of (x) the quotient of the CPI-U for September of the year preceding such January 1 divided by the CPI-U for the immediately preceding September, minus (y) one (1), and any such -5- remainder shall be expressed as a percentage. By way of example and not limitation, the CPI Percentage for January 1, 2002 shall be (assuming such amount exceeds zero) the remainder of (x) the quotient of the September 2001 CPI-U divided by the September 2000 CPI-U, minus (y) one (1); in addition, had this Agreement been in effect on January 1, 1999, the actual CPI Percentage for 1999 would have been the quotient of 163.6 (the September 1998 CPI-U) divided by 161.2 (the September 1997 CPI-U) minus one (1), the remainder of which is 1.488 percent (0.01488). The CPI-U shall mean the United States Department of Labor's Consumer Price Index, All Items, All Urban Consumers (CPI-U) (1982-84=100), All Cities (or the successor of such CPI-U, should such index be no longer published by the Department of Labor). The Annual Base Salary shall never be reduced during the Employment Period. "Annual Base Salary" as used herein shall mean the annual base salary in respect of a calendar year in the Employment Period, as increased from time to time hereunder, and in respect of 2000 shall mean $250,000.00. 2.3(b) INCENTIVE BONUSES. In addition to Annual Base Salary, the Executive shall be awarded incentive bonuses on a basis commensurate with those provided through the incentive compensation plans available to other senior executive officers of Unified. 2.3(c) SAVINGS AND RETIREMENT PLANS. Throughout the Employment Period, the Executive shall be entitled to participate in and receive cash and/or stock-based benefits commensurate with the savings and retirement plans available to other senior executive officers of Unified. In addition, Executive shall be granted on the Effective Date, and on each January 1 during the first sixty (60) months of the Expected Employment Period an option, which option shall be fully vested on the date of grant, to acquire such number of shares of Common Stock as shall equal one-half of the Annual Base Salary (after giving effect to the annual increase required by Section 2.3(a) hereof) divided by the Fair Market Value of the Common Stock on the date of grant, at an exercise price per share equal to the Fair Market Value of the Common Stock on the date of grant. 2.3(d) FRINGE BENEFITS. Throughout the Employment Period, the Executive shall be entitled to such fringe benefits as are provided to other senior executive officers of Unified or shall receive cash benefits commensurate therewith. 2.3(e) WELFARE BENEFIT PLANS. Throughout the Employment Period (and thereafter, subject to Section 4.1(c) hereof), the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under, or receive cash benefits commensurate with, all welfare benefit plans, practices, policies and programs provided by Unified (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent available to other senior executive officers of Unified. 2.3(f) EXPENSES. Throughout the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures applicable to other senior executive officers of Unified. 2.3(g) OFFICE AND SUPPORT STAFF. Throughout the Employment Period, Unified shall provide the Executive with reasonable office space and equipment (including furnishings, books and reasonable access to research services) no less than equal to those generally provided to other senior executive officers of Unified, and to personal secretarial and other assistance; provided, that -6- the parties contemplate that the Executive and David Morris (while he is employed by Unified) will share secretarial and other staff assistance to the extent feasible. 2.3(h) VACATION. Throughout the Employment Period, the Executive shall be entitled to four (4) weeks paid vacation per year. 2.3(i) LICENSES AND LEGAL EDUCATION. Throughout the Employment Period, Unified shall pay any and all state licensing fees required to be paid by Executive to practice law in any state in which Executive currently is licensed as a practicing attorney and in any state in which Executive is required to be licensed in order to represent Unified and its subsidiaries as a practicing attorney. In addition, throughout the Employment Period, Executive shall be entitled to attend two (2) national continuing legal education seminars annually, and Unified shall pay any and all fees, including, among other things, registration, travel and lodging, related thereto. 2.3(j) EXECUTIVE'S RIGHTS NONASSIGNABLE. The right to receive the Annual Base Salary (as further provided in Section 4) and other benefits hereunder shall be a personal right of the Executive and shall not be extinguished by the death of the Executive. Such right shall not be transferable by the Executive other than pursuant to the laws of descent and distribution. 2.4 SITUS OF EMPLOYMENT. The Executive's services shall be performed in St. Louis, Missouri during the Employment Period, except to the extent (and under the terms and conditions) that each of the Executive, Unified and (if he shall then be employed by Unified) David Morris shall agree to a different location. During the Employment Period, each of the Executive and the Associate General Counsel shall be located at the same office. SECTION 3: TERMINATION OF EMPLOYMENT. Unified may only terminate Executive's employment for reasons constituting Disability (as defined in Section 3.2 hereof) or Cause (as defined in Section 3.3 hereof). Any termination by Unified for reasons failing to constitute Cause or Disability is a breach of this Agreement having the remedies set forth herein. Executive may terminate his employment by reason of death or Good Reason (as defined in Section 3.4 below). Any termination by Executive during his life for reasons failing to constitute Good Reason is a breach of this Agreement having the remedies set forth herein. In the case of any breach of the provisions of this Agreement that does not entitle the aggrieved party to terminate Executive's employment, the aggrieved party shall remain entitled to any other remedy or monetary damages as elsewhere provided in this Agreement (see, for example, Section 5.7 and Section 8). 3.1 DEATH. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. 3.2 DISABILITY. If Unified determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 9.3 of its intent to terminate the Executive's employment. In such event, the Executive's employment with Unified shall terminate effective on the thirtieth (30th) day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of his duties. For purposes of this Agreement, "Disability" shall mean that the Executive has been unable to perform the services required of the Executive hereunder on a full-time basis for a period of one hundred eighty (180) consecutive business days by reason of a physical and/or mental condition. "Disability" shall be deemed to exist when certified by a physician selected by Unified or its insurers and -7- acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). The Executive shall submit to such examinations and tests as such physician deems reasonably necessary to make any such Disability determination. 3.3 TERMINATION FOR CAUSE. Unified may terminate the Executive's employment during the Employment Period for "Cause," which for purposes of this Agreement shall mean termination based upon, and only upon: (i) the continued failure of the Executive to perform substantially, during the Employment Period, the Executive's Positions and Duties with Unified (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of Unified which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's Positions and Duties, or (ii) the willful engaging by the Executive during the Employment Period in gross misconduct that directly causes material injury to Unified, or (iii) conviction of the Executive of a felony (or a guilty or nolo contendere plea by the Executive with respect thereto) willfully committed by the Executive in the course of performance of his Positions and Duties with Unified during the Employment Period. For purposes of this paragraph, no course of conduct, action or omission on the Executive's part shall be considered to be grounds for Cause unless such course of conduct, action or omission (x) was done without reasonable belief that the course of conduct, action or omission was in the best interests of Unified, and (y) is inconsistent with standards of conduct consistently applied to other senior executive officers of the Unified Group. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, or based upon the instructions of the Chief Executive Officer or any other senior officer of Unified or any other member of the Unified Group, or based upon the advice of counsel for Unified shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of Unified. Termination for Cause may be effected by, and only by, written notice to Executive in accordance with the provisions of Section 9.3 hereof stating with particularity each action or condition constituting Cause, sufficient in detail such that the corrective measures necessary to cure such action(s) or condition(s) may be readily inferred from the face of the notice. During the ninety-day period following receipt of such notice by Executive, Unified shall use its best efforts to cooperate with Executive to cure the action(s) or condition(s) set forth in Unified's notice. If a cure is commercially reasonable and the Executive fails to take sufficient steps within such ninety-day period to effectuate a cure, then and only then may Unified terminate his employment for Cause. Failure of Unified to set forth in such notice any material fact or circumstance (then known or that should be then known by Unified) that contributes to a showing of Cause shall waive any right of Unified to assert such fact or circumstance in enforcing its rights under this Agreement in connection with such notice, but shall not waive Unified's right pursuant to any subsequent notice to terminate the Executive on grounds of any then unknown material fact or circumstance. 3.4 GOOD REASON. The Executive may terminate his employment with Unified for "Good Reason," which shall mean termination based upon, and only upon: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's Positions and Duties (including status, offices, titles and reporting requirements), as contemplated by Section 2.2 or any other action by Unified that results in a material diminution in such Positions and Duties, excluding for this purpose any action not taken in bad faith and which is remedied by Unified promptly after receipt of notice thereof given by the Executive in accordance with the provisions of Section 9.3 hereof; or -8- (ii) (a) the failure by Unified to provide any of the benefits enumerated in Section 2.3 hereof; or (b) the taking of any action by Unified that would adversely affect the Executive's participation in, or materially reduce the Executive's benefits under, any plans described in Section 2.3(e) hereof; or (iii) Unified requiring the Executive to be based at any office or location other than that described in Section 2.4 hereof; or (iv) (a) (1) an attempt by Unified or any other member of the Unified Group to cause the Executive to engage in conduct that could result in the suspension of his license to practice law, or (2) the taking of any course of conduct by Unified and/or any member of the Unified Group that would require the Executive to resign his employment with Unified under the ethical rules of any jurisdiction in which the Executive is licensed to practice law; in each case based upon the determination or written advice of the agency or other body having authority to suspend such license, or (b) the refusal of Unified to submit or permit the submission of facts and/or other statements to such agency or other body for purposes of obtaining such determination or written advice pursuant to subsection (a) hereof; or (v) any purported termination by Unified of the Executive's employment otherwise than as expressly permitted by this Agreement; or (vi) any failure by Unified to comply with and satisfy the provisions of Section 7.2; or (vii) within a period ending at the close of business on the date three (3) years after the Change in Control Date, the Executive, in his sole and absolute discretion, determines and notifies Unified in writing, that he does not wish to continue his employment with Unified. Other than a Termination for Good Reason pursuant to Section 3.4(v), 3.4(vi) or 3.4(vii), Termination for Good Reason may be effected by, and only by, written notice to Unified in accordance with the provisions of Section 9.3 stating with particularity each action or condition constituting Good Reason, sufficient in detail such that the corrective measures necessary to cure such action(s) or condition(s) may be readily inferred from the face of the notice. During the ninety-day period following receipt of such notice by Unified, the Executive shall use his best efforts to cooperate with Unified to cure the action(s) or condition(s) set forth in the Executive's notice. If a cure is commercially reasonable and Unified fails to take sufficient steps within such ninety-day period to effectuate a cure, then and only then may the Executive terminate his employment for Good Reason. Failure of Executive to set forth in such notice any material fact or circumstance (then known or that should be then known by Executive) that contributes to a showing of Good Reason shall waive any right of Executive to assert such fact or circumstance in enforcing his rights under this Agreement in connection with such notice, but shall not waive Executive's right pursuant to any subsequent notice to terminate his employment on grounds of any then unknown material fact or circumstance. 3.5 NOTICE OF TERMINATION. Any termination by Unified or by the Executive (including terminations in breach of this Agreement) shall be communicated by Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" means a written notice given in accordance with Section 9.3 that: (i) indicates the specific termination provision in this Agreement relied upon (including reliance upon Section 1.1(h)(i), if the Notice of Termination is delivered to terminate the Employment Period); (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; -9- and (iii) if the Date of Employment Termination (as defined below) is other than the date such notice is given, specifies the Date of Employment Termination (which date shall be not more than ninety (90) days after the giving of such notice), provided that no such date need be specified if such notice relates to a termination for Cause or Good Reason. The failure by the Executive or Unified to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall waive any right of the Executive or Unified to assert such fact or circumstance in enforcing the Executive's or Unified's, as the case may be, rights hereunder. 3.6 DATE OF EMPLOYMENT TERMINATION. "Date of Employment Termination" means: (i) if the Executive's employment is terminated by Unified for Cause or by the Executive for Good Reason, the later of the day specified in the Notice of Termination and the last day of the cure period specified in Section 3.3 or 3.4; (ii) if the Executive's employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be; (iii) if the Executive's employment is terminated by Unified other than for Cause or Disability, the date the Notice of Termination is given or any later date (within the ninety-day limit provided in Section 3.5) specified therein, as the case may be; (iv) if the Executive shall terminate employment with Unified for any reason other than for Good Reason, the date the Executive shall terminate his employment with Unified or, if not more than ninety (90) days later, the date specified in the Notice of Termination; and (v) in any other case, the date on which the Expected Employment Period ends. SECTION 4: CERTAIN BENEFITS UPON TERMINATION. 4.1 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If during the Employment Period (i) Unified shall terminate the Executive's employment without Cause or (ii) the Executive shall terminate employment with Unified for Good Reason, the Executive shall be entitled to the benefits provided below: 4.1(a) "ACCRUED OBLIGATIONS": On or before the fifth (5th) business day following the Date of Employment Termination, Unified shall pay to the Executive the sum of: (1) the Executive's Annual Base Salary through the Date of Employment Termination to the extent not previously paid; (2) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon); and (3) any accrued vacation pay; in each case to the extent not previously paid. 4.1(b) "ANNUAL BASE SALARY CONTINUATION": For the remainder of the Expected Employment Period that occurs after the Date of Employment Termination, Unified shall pay to the Executive the same Annual Base Salary as would have been paid to the Executive had the Executive remained in Unified's employ during the remainder of the Expected Employment Period. Unified at any time may elect to pay the balance of such payments then remaining in a lump sum, in which case the total of such payments shall be discounted to present value as determined according to Code Section 280G(d)(4); provided, however, in the event of termination of employment by Executive pursuant to the provisions of Section 3.4(vi) or (vii) hereof, Unified shall pay on the Date of Employment Termination to the Executive all amounts due pursuant to this Section 4.1 and Section 4.5. 4.1(c) "OTHER BENEFITS": To the extent not previously paid or provided, Unified shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement or under any plan, program, policy or practice or agreement of Unified provided to other senior executive officers and their families during the ninety-day period -10- immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally after the Effective Date to other senior executive officers of Unified and their families. Over the remainder of the Expected Employment Period, the Executive also shall receive health insurance benefits as maintained by Unified for the benefit of its senior executive officers. 4.2 DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for timely payment of Accrued Obligations (as provided in Section 4.1(a)). 4.3 DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for timely payment of Accrued Obligations (as provided in Section 4.1(a)). 4.4 TERMINATION FOR CAUSE; TERMINATION OTHER THAN FOR GOOD REASON. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than for timely payment of Accrued Obligations (as provided in Section 4.1(a)). If the Executive terminates employment with Unified during the Employment Period (excluding a termination for death or Good Reason), this Agreement shall terminate without further obligations to the Executive, other than for timely payment of Accrued Obligations (as provided in Section 4.1(a)). 4.5 ANNUAL NONCOMPETE AND SEVERANCE PAYMENTS. Except in the case of a termination of the Executive's employment by Unified for Cause, by Executive without Good Reason or upon the death or Disability of the Executive, on or before the thirtieth (30th) day following the Date of Employment Termination (as defined in Section 3.6 hereof), and on each of the first and second anniversary dates of the Date of Employment Termination, Unified shall pay to the Executive an amount equal to the Annual Base Salary as was (or would have been) determined for the final calendar year of the Expected Employment Period, and if the termination or purported termination shall be by Unified without Cause or by Executive for Good Reason pursuant to Section 3.4(v), each such payment shall be increased by one-half as liquidated damages (and not as a penalty) in recognition of damage to Executive's reputation and the enhanced difficulties inherent in finding replacement employment while being removed from the marketplace. The payments and arrangements in this Section 4.5 constitute further consideration for the Executive's covenants set forth in Section 5, and the Executive agrees that he shall abide by the terms of Section 5 in their entirety and acknowledges that Section 5 continues to apply after any termination of employment (other than a termination described in Section 4.2). 4.6 EXCISE TAXES. The parties recognize that termination of Executive's employment in connection with any change of control or other payments made in connection with any change in control could result in excise taxes to the Executive, and the parties provide for payment of such taxes as follows. (i) Anything in this Agreement to the contrary notwithstanding, in the event: (A) it shall be determined that any payment or distribution by Unified to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed by Code Section 4999; or (B) any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an -11- additional payment (a "Gross-Up Payment") in an amount equal to the Excise Tax imposed on the Payment and on the Gross-Up Payment as well as any additional income tax, employment tax and Excise Tax payable with respect to such additional payment (including any interest or penalties imposed with respect to such excise tax). The Gross-Up Payment shall not include any amount for the payment of any income or employment taxes imposed on the Payment, but shall include any income or employment taxes payable with respect to any Gross-Up Payment (and any interest and penalties imposed with respect thereto). (ii) Subject to the provisions of Section 4.6(iii), all determinations required to be made under this Section, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by an independent accountant jointly selected by Unified and the Executive which shall provide detailed supporting calculations both to Unified and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by Unified. All fees and expenses of the independent accountant shall be borne solely by Unified. Any Gross-Up Payment, as determined pursuant to this Section 4.6, shall be paid by Unified to the Executive within five (5) days of the receipt of the independent accountant's determination. If the independent accountant determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable Federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the independent accountant shall be binding upon Unified and the Executive. As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the independent accountant hereunder, it is possible that Gross- Up Payments which will not have been made by Unified should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that Unified exhausts its remedies pursuant to Section 4.6(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the independent accountant shall determine the amount of the Underpayment that has occurred and any such Underpayment, as well as any interest and penalties imposed thereon, shall be promptly paid by Unified to or for the benefit of the Executive. (iii) The Executive shall notify Unified in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by Unified of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise Unified of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which the Executive gives such notice to Unified (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If Unified notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (a) give Unified any information reasonably requested by Unified relating to such claim; (b) take such action in connection with contesting such claim as Unified shall reasonably request in writing from time to time, including, without limitation, -12- accepting legal representation with respect to such claim by an attorney reasonably selected by Unified; (c) cooperate with Unified in good faith in order to effectively contest such claim; and (d) permit Unified to participate in any proceedings relating to such claim; provided, however, that Unified shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 4.6, Unified shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as Unified shall determine; provided, however, that if Unified directs the Executive to pay such claim and sue for a refund, Unified shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, Unified's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by Unified pursuant to Section 4.6(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to Unified's compliance with the requirements of Section 4.6(iii)) promptly pay to Unified the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Unified pursuant to Section 4.6(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and Unified does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 4.7 NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by Unified and for which the Executive -13- may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement with Unified. Vested benefits which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, Unified at or subsequent to the Date of Employment Termination, shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 4.8 FULL SETTLEMENT; EXECUTIVE HAS NO DUTY OF MITIGATION. Unified's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Unified may have against the Executive or others, other than any set-off for monies improperly taken by Executive (including any funds embezzled). In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 4.1(c), such amounts shall not be reduced whether or not the Executive obtains other employment. Unified agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by Unified, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Code Section 7872(f)(2)(A). The payments and arrangements in this Section 4 constitute further consideration for the Executive's covenants set forth in Section 5, and the Executive agrees that he shall abide by the terms of Section 5 in their entirety and acknowledges that Section 5 continues to apply after any termination of employment (other than a termination described in Section 4.2). SECTION 5: NON-COMPETITION. 5.1 NON-COMPETE AGREEMENT. It is agreed that during the Employment Period and until the date three (3) years after the Date of Employment Termination (such period of time, the "Restricted Period"), the Executive shall not, directly or indirectly, render services of any nature within the Relevant Market Area (as defined herein) as an employee, agent, representative, consultant, partner or otherwise, to or for the direct or indirect benefit of any business that competes with any member of the Unified Group; provided however, nothing in this Section 5 shall prohibit Executive from engaging in the private practice of law. The Relevant Market Area is the area within the fifty-mile radius of: (i) each office maintained by Unified at any time during the Employment Period; and (ii) each office maintained by any other member of the Unified Group at any time during the Employment Period. In addition, during the Restricted Period, the Executive shall not, directly or indirectly, either as an individual, partner or a joint venturer, or in any other capacity, invest in, own or have any arrangement to acquire (whether by option or otherwise) an interest in any Person or business that is competitive with any member of the Unified Group, excluding any interest in a publicly traded company which constitutes not more than one percent (1%) by value of the equity securities of such company. 5.2 NON-SOLICITATION OF EMPLOYEES. It is agreed that during the Restricted Period, Executive shall not, either directly or indirectly, approach or solicit: (i) any Person employed by Unified at any time during the Employment Period; and (ii) any Person employed by any other member of the Unified Group at any time during the Employment Period, with a view towards enticing such Person to work for the Executive or any other Person. 5.3 NON-SOLICITATION OF CUSTOMERS. It is agreed that during the Restricted Period, Executive shall not, either directly or indirectly, approach or solicit: (i) any Person who was a Customer of Unified at -14- any time during the Employment Period; and (ii) any Person who was a Customer of any other member of the Unified Group at any time during the Employment Period and in respect of which the Executive had direct or indirect contact or gained Confidential Information during such period, if such direct or indirect approach or solicitation (x) is made with a view towards diverting or attempting to divert business from Unified or any other member of the Unified Group; or (y) consists of any action or communication that disparages or depreciates, or tends to disparage or depreciate, the reputation, business practices, future business prospects, policies or personnel (including officers, directors and employees) of any member of the Unified Group. 5.4 CONFIDENTIAL INFORMATION. For purposes of this Agreement, "Confidential Information" shall mean any communication disclosed to the Executive or known by the Executive as a consequence of or through his past, present or prospective employment or business relationship with the Unified Group, not generally known and available in the Unified Group's industries, which constitutes the Unified Group's (including Unified's) proprietary and non-public method(s) of doing business, including, but not limited to, any information related to trade secrets, pricing formulas, know-how, test data, Customer lists, vendor lists, training and operating manuals, software and reporting systems. Unified and the Executive acknowledge that during the Executive's period of employment by Unified, the Unified Group will furnish the Executive with Confidential Information. The Executive agrees both during his employment with Unified, whether under this Agreement or otherwise, and at all times thereafter, that the Executive, his officers, directors, partners, employees, affiliates, agents, representatives or assigns (collectively "Representatives") shall keep all Confidential Information in the strictest confidence and shall not discuss, publish, communicate, transmit, reproduce or otherwise disclose such Confidential Information, in any manner whatsoever, in whole or in part, without the prior written consent of Unified, unless and until such time as the Confidential Information becomes generally known in the Unified Group's industries other than through breach of this Agreement. Any written consent by Unified to the Executive's disclosure of Confidential Information, if given, shall in no way operate as a waiver of the Executive's obligation to maintain the confidential nature of the material disclosed or to protect and preserve that Confidential Information from disclosure so that it will receive confidential treatment thereafter. The Executive agrees to reimburse Unified for any damages sustained and costs and expenses, including attorneys' fees, incurred in connection with an unauthorized disclosure of Confidential Information by the Executive, his Representatives or any other person or persons to whom the Executive or his Representatives previously had disclosed Confidential Information. 5.5 REASONABLENESS OF COVENANTS. The Executive acknowledges and agrees that the covenants and agreements contained in this Section 5 are reasonable, and the Executive agrees he shall not raise any issue of their reasonableness in any proceeding to enforce such covenants and agreements. 5.6 BLUE PENCILLING. In the event any court or other body having appropriate jurisdiction (including any panel of arbitrators) shall determine that the area where competition is prohibited, the time period during which competition is prohibited, the nature or duration of prohibitions on solicitation of Customers or employees, or any other term of this Section 5 is overbroad, then the area or time or other term shall be reduced appropriately as the court or other body may determine is necessary to make this Section 5 enforceable. The parties acknowledge that the purpose of this Section 5 is to protect the goodwill and going concern value of Unified and the Unified Group, and the parties intend that this Section 5 shall be enforced to the maximum extent allowed by law. 5.7 SPECIFIC ENFORCEMENT. The Executive agrees that any violation or breach by the Executive and/or his Representatives of any provision of this Section 5 would cause immediate and irreparable harm to the Unified Group, the exact amount of which will be impossible to ascertain, and for that reason further agrees that the Unified Group shall be entitled, as a matter of right, to an injunction out of the appropriate -15- court of competent jurisdiction (as set forth below), restraining any further violation or breach of this Agreement by Executive and/or his Representatives, either directly or indirectly, such right to an injunction being cumulative and in addition to whatever remedies the Unified Group may have under applicable law and/or this Agreement. The Unified Group and the Executive hereby irrevocably consent to the jurisdiction of the Circuit Court of Fayette County, Kentucky or, if there is federal jurisdiction, the United States District Court for the Eastern District of Kentucky. The Unified Group and the Executive waive any defense of an inconvenient forum to the maintenance of any action or proceeding brought in such courts in connection with this Agreement, any objection to venue with respect to any such action, and any right of jurisdiction on account of the place of residence or domicile of any party to such action. The remedies of the Unified Group under this Section 5.7 are not exclusive, and shall not prejudice any other rights under this Agreement or otherwise. SECTION 6: OWNERSHIP OF PAPERS AND INTELLECTUAL PROPERTY RIGHTS. 6.1 PAPERS AND PROPERTY. Executive acknowledges the Unified Group's (including Unified's) exclusive right to ownership, possession and title to all papers, documents, tapes, drawings, notebooks, formulas, Customer lists, software, hardware, trademarks, trade names, service marks, processes, data, intellectual property, or other records, information or products prepared by the Executive during the Employment Period or provided by Unified, or which otherwise come into the Executive's possession by reason of employment with Unified. Executive agrees not to make or permit to be made, except in pursuit of Executive's Position and Duties hereunder, any copies of such items. Executive further agrees to deliver to Unified upon request all such items in Executive's possession and without request to immediately deliver such items upon the termination, voluntarily or involuntarily, of Executive's employment. 6.2 INVENTIONS. The term "Inventions" means all ideas, inventions and discoveries, whether patentable, copyrightable or not, made or conceived by the Executive, whether or not during the hours of his employment or with the use of Unified Group's facilities, materials or personnel, either solely or jointly with others, during the term of his employment (past, present or future) with any member of the Unified Group that relates to any present or prospective business of Unified or any other member of the Unified Group, including, but not limited to, software, algorithms, designs, devices, processes, methods, formulae, techniques, data storage systems, networks, servers and any improvements to the foregoing. 6.2(a) REPORT. Executive agrees to promptly disclose all Inventions to Unified. Executive shall inform Unified promptly and fully of such Inventions by a written report, setting forth in detail the structures, procedures and methodology employed and the results achieved. A report also shall be submitted by the Executive upon completion of any study or research project undertaken on behalf of Unified or any other member of the Unified Group, whether or not in the Executive's opinion a given study or project has resulted in an Invention. 6.2(b) ASSIGNMENT AND PATENT. Executive hereby assigns and agrees to assign to Unified all of his rights to such Inventions and to all proprietary rights therein, based thereon or related thereto, including, but not limited to, applications for United States and foreign letters patent and resulting letters patent. Upon Unified's request and at Unified's expense, the Executive shall execute such documents and provide such assistance as may be deemed necessary by Unified to apply for, prosecute, obtain, defend or enforce any United States and foreign letters patent based on or related to such Inventions. The Executive agrees to execute all documents reasonably requested by Unified to assist Unified in perfecting or protecting any or all of its rights in the Inventions. -16- 6.2(c) COPYRIGHT. Executive acknowledges that all copyrightable Inventions are "works made for hire" and consequently that Unified owns all copyrights thereto, including, but not limited to, 17 U.S.C. Sections 101 and 210. Unified and its successors and assigns shall have the sole and exclusive right to register the copyright(s) in all such work in its name as the owner and author of such work and shall have the exclusive rights conveyed under 17 U.S.C. Sections 106 and 106A, including, but not limited to, the right to make all uses of the works in which attribution or integrity rights may be implicated. Additionally, without in any way limiting the foregoing, the Executive hereby assigns, transfers and conveys to Unified, and its successors and assigns, all right, title or interest that Executive may now have, or may acquire in the future, to the work including, but not limited to, all ownership, patent (United States and foreign letters patent), trade secret, trade names and trademarks, copyright moral, attribution and/or integrity rights. The Executive hereby expressly and forever waives any and all rights that Executive may have arising under 17 U.S.C. Section 106A, and any rights arising under any federal, state, territorial or foreign laws that convey rights which are similar in nature to those conveyed under 17 U.S.C. Section 106A. Notwithstanding any provision of the Copyright Act, any and all copyrightable works constituting Inventions or prepared either in whole or in part by the Executive in connection with his employment are, shall be, or shall become, owned by Unified. SECTION 7: SUCCESSORS. 7.1 SUCCESSORS OF EXECUTIVE. This Agreement is personal to the Executive, and without the prior written consent of Unified, amounts receivable hereunder shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. 7.2 SUCCESSORS OF UNIFIED. Unified shall require any Person(s) that acquires (whether directly or indirectly, in one or more transactions, whether by purchase, merger, consolidation or otherwise) all or substantially all of the business and/or assets of Unified to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Unified would be required to perform it if no such transaction had taken place. Failure of Unified to obtain such agreement on or before thirty (30) days prior to the effectiveness of any such transaction shall be a breach of this Agreement and such breach (i) shall entitle the Executive to terminate this Agreement at his option at any time during or after such thirty (30) day period for Good Reason, and (ii) shall entitle Executive to immediate payment of all amounts that are then or that would become due from Unified hereunder. As used in this Agreement, "Unified" shall mean Unified as hereinbefore defined and any Person that assumes and agrees to perform (or is required to assume and perform) this Agreement by operation of law, the provisions of this Section 7.2 or otherwise. SECTION 8: ARBITRATION. Notwithstanding any other provision of this Agreement to the contrary, and excluding the rights of the Unified Group to pursue injunctive relief pursuant to Section 5.7, any controversy or claim regarding, arising under or pertaining to this Agreement which cannot be resolved among the parties themselves shall be resolved solely by binding arbitration in Lexington, Kentucky. The arbitration panel shall consist of three arbitrators selected from list(s) of candidates provided by the American Arbitration Association. Unified shall be entitled to appoint one arbitrator and the Executive shall be entitled to appoint one arbitrator. The third arbitrator, who shall be an attorney in good standing who is licensed to practice law in the Commonwealth of Kentucky and devotes more than one-half of his or her professional time to the practice of employment law, shall be chosen by the two arbitrators so appointed. If any Person fails to appoint its arbitrator or to notify the other Person of such appointment within thirty (30) days after the institution of arbitration proceedings, such other Person may request the President of the American Arbitration Association to appoint such arbitrator on behalf of the Person who so -17- failed. If the two arbitrators appointed by (or on behalf of) the parties fail to appoint such third arbitrator, or fail to notify the parties to such proceedings of such appointment, within thirty (30) days after the appointment of the later of such two arbitrators to be appointed by (or on behalf of) the parties, any party may request such President to appoint such third arbitrator. The President of the American Arbitration Association shall appoint such arbitrator or such third arbitrator, as the case may be, within thirty (30) days after the making of such request. The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (which rules may be modified by a majority of the arbitrators serving), except that the parties shall be allowed to take depositions as provided under applicable state and federal laws, and the arbitration award, decree and/or order may grant any remedy or relief that is in accordance with the provisions of this Agreement and applicable Kentucky law. No awards of punitive damages shall be made. The arbitration award, decree and/or order shall be final and binding on all parties to such arbitration. Judgment and/or decree shall be entered (in conformity with such award, decree and/or order) in the Circuit Court of Fayette County, Kentucky or, if there is federal jurisdiction, the United States District Court for the Eastern District of Kentucky. The Executive and each member of the Unified Group irrevocably submit to the exclusive jurisdiction of the Circuit Court of Fayette County, Kentucky or, if there is federal jurisdiction, the United States District Court for the Eastern District of Kentucky, for the purpose of (a) entry of any such judgment and/or decree; or (b) entry of an order to proceed with arbitration. Any such judgment, decree and/or order entered by the Circuit Court of Fayette County, Kentucky, or the United States District Court for the Eastern District of Kentucky and any related order(s) of such court, may be endorsed as any other judgment, decree or order of such court. SECTION 9: MISCELLANEOUS. 9.1 ABILITY TO PERFORM. The Executive warrants that the Executive's execution and performance of this Agreement is not restricted or prohibited by any agreement to which the Executive is subject. 9.2 TIME PERIODS. Any period of time measured under this Agreement by days shall refer to calendar days and not business days, unless otherwise provided. If the last day of any such period falls on a Saturday, Sunday or holiday observed by commercial banks in the city of Lexington, Kentucky, the last day of such period, for all purposes of this Agreement (including the determination of the first day of each succeeding period of time measured by days), shall be deemed to be the next succeeding business day after such Saturday, Sunday or holiday. Any period of time measured under this Agreement shall end at midnight, Lexington, Kentucky time, on the last day of such period. 9.3 NOTICE. For all purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given and received when (i) delivered; or (ii) mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses as set forth below, or to such other address as may have been furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. Notice to Executive: ------------------- Charles H. Binger 8 Danfield Road St. Louis, Missouri 63124 -18- Notice to Unified: ----------------- Unified Financial Services, Inc. 1104 Buttonwood Court Lexington, Kentucky 40515 Attention: Chairman, President and Chief Executive Officer 9.4 VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 9.5 WITHHOLDING. Unified may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. 9.6 WAIVER. The Executive's or Unified's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or Unified may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3.4, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 9.7 ENTIRE AGREEMENT. All prior negotiations and agreements between the parties hereto regarding Executive's employment are superseded by this Agreement, and there are no representations, warranties, understandings or agreements other than those expressly set forth herein, except as modified in writing concurrently herewith or subsequent hereto. 9.8 AMENDMENT. This Agreement may be amended or modified in whole or in part only by an agreement in writing executed by all parties hereto and making specific reference to this Agreement. 9.9 PRIORITY OF AGREEMENT. In case of any conflict or ambiguity in connection with or between this Agreement and any policy manuals, including, but not limited to, any employee manuals, employment applications, management instructions or promises, etc., this Agreement shall control. 9.10 ASSIGNMENT. Subject to the provisions of Section 7.2, Unified shall have the right to assign this Agreement to its successors or assigns (collectively, "Permitted Assignees"). The terms "successors" and "assigns" shall include for all purposes of this Agreement (except Sections 1.1(d) and 2.3(a)), any Person that acquires all or substantially all of Unified's assets or of Unified's stock, or with which or into which Unified merges or consolidates. 9.11 INTENDED BENEFICIARIES. This Agreement shall be binding upon the Executive, Unified and their respective successors and assigns, and shall inure to the benefit of the Executive, Unified, each member of the Unified Group, their respective successors and assigns and Permitted Assignees. Nothing herein expressed or implied is intended to confer upon any Person not named or described in the preceding sentence any rights, remedies, obligations or liabilities under or by reason of this Agreement. 9.12 COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument. A signature transmitted by facsimile shall be deemed a delivery of an original, manually executed counterpart. [remainder of this page intentionally left blank] -19- IN WITNESS WHEREOF, the Executive and Unified, pursuant to the authorization from its Executive Committee of the Board, have executed or caused this Agreement to be executed in its name, all as of the day and year first above written. THIS CONTRACT IS GOVERNED BY KENTUCKY LAW AND CONTAINS A BINDING ARBITRATION PROVISION. ALL DISPUTES ARISING IN CONNECTION WITH THIS AGREEMENT ARE SUBJECT TO BINDING ARBITRATION IN LEXINGTON, KENTUCKY. EACH OF THE EXECUTIVE AND UNIFIED HAS REVIEWED THESE AND THE OTHER PROVISIONS OF THIS AGREEMENT WITH LEGAL COUNSEL OF HIS OR ITS, RESPECTIVELY, OWN CHOOSING. "EXECUTIVE" /s/ Charles H. Binger ---------------------------------------- Charles H. Binger UNIFIED FINANCIAL SERVICES, INC. By: /s/ Timothy L. Ashburn ------------------------------------- Timothy L. Ashburn, Chairman, President and Chief Executive Officer -20- EX-10.25 3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This agreement ("Agreement") has been entered into as of this 31st day of December, 1999, by and between Unified Financial Services, Inc., a Delaware corporation ("Unified"), and David F. Morris, an individual ("Executive"). RECITALS The Executive, various members of the Board of Directors of Unified (the "Board"), and various senior executives of Unified negotiated the terms of Executive's employment and this Agreement over a period of five months. Executive has and is representing Unified on significant portions of its legal matters other than the negotiation, drafting and execution of this Agreement. Unified acknowledges that it is aware of Executive's representation of himself in connection with this Agreement, and it is aware that Executive has not represented Unified in connection with this Agreement. Unified acknowledges that the Executive encouraged Unified to consult with legal counsel in connection with this Agreement, and Unified represents that it has done so. The Executive has represented Unified for a number of years, and both the Board and Unified's senior executives are very familiar with the Executive's talents. Unified offered the terms in this Agreement in order to entice Executive to accept employment with Unified, which acceptance will require that Executive resign his current legal position. Unified and Executive acknowledge that Executive's acceptance of the terms of this Agreement and resignation from his current legal position will result in a disposition of Executive's current law practice. Unified acknowledges that Executive has been in a large and respected law firm, has advanced rapidly while there, and has achieved a substantial amount of economic and employment security, with the expectation of being elected a partner of such firm. Unified acknowledges that Executive would not have accepted employment with Unified and surrendered his current legal position but for the protections and enticements provided in this Agreement, including certain mandatory salary increases and certain payments upon termination or a Change in Control (as defined below). Executive acknowledges that the protections and enticements provided in this Agreement, including certain mandatory salary increases, certain payments upon termination or a Change of Control and certain stock benefits, are adequate, acceptable and sufficient for Executive to resign from his current position and accept the position and terms and conditions provided herein. The Executive Committee of the Board of Directors of Unified (the "Committee") desires to provide for the employment of the Executive on the terms hereof, and the Executive is willing to commit himself to serve Unified. The Executive Committee has determined that it is in the best interests of Unified and its stockholders to reinforce and encourage the attention and dedication of the Executive to Unified as a member of Unified's management and to assure that Unified will have the continuing dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control of Unified. Additionally, the Executive Committee believes it is imperative to encourage the Executive's attention and dedication to Unified currently and in the event of any threatened or pending Change in Control, and to provide the Executive with compensation and benefits arrangements upon certain breaches of this Agreement by Unified or upon a termination of employment after a Change in Control, which ensure that the compensation and benefits expectations of the Executive will be satisfied. Because of the Executive's high position at Unified and his access to information pertaining to the business of Unified (as conducted by its affiliates), Unified believes it is imperative that the Executive neither compete against Unified and any of its affiliates or subsidiaries nor share certain confidential information of either during the Executive's employment and for the three-year period thereafter, as provided below. Therefore, in exchange for the mutual promises and covenants set forth herein, and in order to accomplish these objectives, the Committee has caused Unified to enter into this Agreement. IT IS AGREED AS FOLLOWS: SECTION 1: DEFINITIONS AND CONSTRUCTION. 1.1 DEFINITIONS. For purposes of this Agreement, the following words and phrases, whether or not capitalized, shall have the meanings specified below, unless the context plainly requires a different meaning. Terms not set forth in this Section 1.1 but defined elsewhere in this Agreement shall for all purposes of this Agreement have such defined meaning, whether or not capitalized, unless the context plainly requires a different result. 1.1(a) "BOARD" means the Board of Directors of Unified. 1.1(b) "CHANGE IN CONTROL" means a change in control of Unified of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act; provided that, for purposes of this Agreement, a Change in Control shall be deemed to have occurred if: (i) any Person (other than Unified or any wholly owned subsidiary of Unified) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Unified that represent 20% or more of the combined voting power of Unified's then outstanding securities; (ii) during any period of two (2) consecutive years beginning on or after March 1, 2000, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election, by Unified's stockholders, of each new director is approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period, but excluding any individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such term is 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; (iii) there is consummated any consolidation or merger of Unified in which Unified is not the continuing or surviving corporation or pursuant to which shares of Unified's Common Stock are converted into cash, securities or other property, other than a merger of Unified in which the holders of Unified's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (iv) there is consummated any consolidation or merger of Unified in which Unified is the continuing or surviving corporation in which the holders of Unified's Common Stock immediately prior to the merger do not own fifty percent (50%) or more of the stock of the surviving corporation immediately after the merger; (v) there is consummated any sale, lease, exchange or other transfer (in one transaction or a series of transactions) of all or substantially all of the assets of Unified (provided, however, that for purposes of this subsection (v) any sale lease, exchange or other transfer between subsidiaries that are directly or indirectly wholly owned by Unified shall not be deemed a Change of Control); (vi) Timothy L. Ashburn ceases to serve as the Chairman of the Board or as the Chief Executive Officer of Unified; or (vii) the stockholders of Unified approve any plan or proposal for the liquidation or dissolution of Unified. 1.1(c) "CHANGE IN CONTROL DATE" shall mean the date of the Change in Control. 1.1(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended, including all regulations proposed or promulgated thereunder, and administrative interpretations and judicial precedents relating thereto. All citations to the Code shall include any amendments or any substitute or successor provisions thereto. -2- 1.1(e) "COMMON STOCK" shall mean the common stock, $0.01 par value, of Unified. 1.1(f) "CUSTOMER" shall mean any Person from which or from dealings with which any member of the Unified Group is earning or has earned revenue in the ordinary course of its business. Dealings shall include, for example and without limitation, distribution arrangements, revenue or income sharing arrangements, commission arrangements and any other arrangement or contract. 1.1(g) "EFFECTIVE DATE" shall mean January 1, 2000. 1.1(h) "EMPLOYMENT PERIOD" shall mean the period that begins on the Effective Date and ends on the earlier of: (i) twelve (12) months after the date on which Unified shall have delivered to Executive written notice (in accordance with the provisions of Section 9.3 hereof) of termination of the Employment Period, which notice shall not be delivered prior to the fourth anniversary of the Effective Date (and the parties agree that the term described in this clause (i) shall be for a period of not less than sixty (60) months); or (ii) the Date of Employment Termination (as defined in Section 3.6 hereof). 1.1(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. All citations to the Exchange Act shall include any amendments or any substitute or successor provisions thereto. 1.1(j) "EXPECTED EMPLOYMENT PERIOD" shall mean the period of time beginning on the Effective Date and ending on the date described in Section 1.1(h)(i). If no written notice terminating the Employment Period (as required in Section 1.1(h)(i)) shall have been delivered to Executive on or before the Date of Employment Termination (as defined in Section 3.6 hereof) or such notice is delivered prior to the fourth anniversary of the Effective Date, then for all purposes of this Agreement such notice shall be deemed to have been delivered on the later of such Date of Employment Termination and the fourth anniversary of the Effective Date. For example and without limitation: (i) if Unified were to terminate the Executive without Cause (as defined in Section 3.3 hereof) at the end of the eighteenth (18th) month of the Employment Period, the Expected Employment Period for purposes of Section 4.1 would end on the fifth (5th) anniversary of the Effective Date; (ii) if Unified were to terminate the Executive without Cause on the fourth (4th) anniversary of the Effective Date and no written notice of termination of the Employment Period had previously been delivered, such notice would be deemed delivered on such fourth (4th) anniversary, and the Expected Employment Period for purposes of Section 4.1 would end on the fifth (5th) anniversary of the Effective Date; and (iii) if Unified were to deliver written notice of termination of the Employment Period on the fourth (4th) anniversary of the Effective Date, and thereafter Executive's employment is terminated by Unified or Executive (whether without Cause, for Good Reason or otherwise), the Expected Employment Period for purposes of Section 4.1 would end on the fifth (5th) anniversary of the Effective Date. 1.1(k) "FAIR MARKET VALUE" means, for any particular date, (i) for any period during which Common Stock shall be listed for trading on a national securities exchange, the closing price per share of Common Stock on such exchange as of the close of such trading day; (ii) for any period during which Common Stock shall not be listed for trading on a national securities exchange, but when Common Stock is authorized as a Nasdaq National Market security, the last transaction price per share as quoted by The Nasdaq Stock Market (the "Nasdaq"); (iii) for any period during which Common Stock shall not be listed for trading on a national securities exchange or authorized as a Nasdaq National Market security, but when Common Stock shall be authorized as a Nasdaq SmallCap Market security, the closing bid price as reported by the Nasdaq; (iv) for any period during which the Common Stock shall be listed for trading on an electronic communications network (an "ECN"), an alternative trading system -3- (an "ATS") and/or on-line order matching system or auction system, the closing bid price as reported by such ECN, ATS and/or on-line order matching system or auction system; or (v) the market price per share of Common Stock as determined by an investment banking firm or certified public accountant selected by the Board in the event neither (i), (ii), (iii) nor (iv) above shall be applicable. If Fair Market Value is to be determined as of a day when the securities markets are not open, the Fair Market Value on that day shall be the Fair Market Value on the preceding day when the markets were open. 1.1(l) "PERSON" shall include an individual, firm, trust, estate, association, joint venture, partnership, corporation, limited liability company, organization or other entity. 1.1(m) "UNIFIED" shall mean Unified Financial Services, Inc., a Delaware corporation. 1.1(n) "UNIFIED GROUP" means, jointly and severally, Unified and any Person more than twenty percent (20%) of which (by value and not by voting power) is directly or indirectly owned by Unified at any time during the Employment Period, and any successors or assigns of Unified or any other Person included in the Unified Group. 1.2 GENDER AND NUMBER. When appropriate, pronouns in this Agreement used in the masculine gender include the feminine gender, words in the singular include the plural, and words in the plural include the singular. 1.3 HEADINGS. All headings in this Agreement are included solely for ease of reference and do not bear on the interpretation of the text. Accordingly, as used in this Agreement and except where expressly provided to the contrary, the term "Section" means the text that accompanies the specified Section of this Agreement. For example and without limitation, a reference to "Section 3" would mean all the text under the headings numbered 3.1 through 3.6. 1.4 INCORPORATION OF RECITALS; WAIVER OF DEFENSES. The Recitals set forth on the first page of this Agreement are hereby incorporated in this Section 1.4 as if fully set forth herein and are binding upon the parties to this Agreement. Unified shall not, directly or indirectly, raise as a defense to enforcement or excuse for any nonperformance under this Agreement Executive's prior representation of Unified, Executive's representation of himself in connection with this Agreement, or any failure on the part of Unified to secure adequate legal representation in connection with this Agreement. Moreover, Unified represents and warrants that this Agreement is duly authorized and binding upon Unified in accordance with its terms; and Unified shall take no action inconsistent with, and shall raise no objections or defenses to the enforcement of this Agreement based in whole or part upon, those grounds. Executive shall not, directly or indirectly, raise as a defense to enforcement or excuse for any nonperformance under this Agreement Executive's representation of himself in connection with this Agreement. No provision of this Agreement shall be construed against any party on the ground that such party drafted the provision or caused it to be drafted or the provision contains a covenant of such party. 1.5 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Kentucky, without reference to its conflict of law principles. SECTION 2: TERMS AND CONDITIONS OF EMPLOYMENT. 2.1 PERIOD OF EMPLOYMENT. Throughout the Employment Period, the Executive shall serve in the employ of Unified in accordance with the terms and provisions of this Agreement. -4- 2.2 POSITIONS AND DUTIES. 2.2(a) Throughout the Employment Period, the Executive shall be the Associate General Counsel and a Senior Vice President of Unified. The Executive shall render legal and administrative services to Unified as are customarily performed by persons situated in similar executive legal positions including, among other things, retention and oversight of inside and outside legal counsel for Unified and the other members of the Unified Group, and may have such other powers or authority as may from time to time be prescribed by the Board or any other executive officer of Unified or any other member of the Unified Group (collectively, "Positions and Duties"). The Executive shall report to the General Counsel of Unified. 2.2(b) Throughout the Employment Period (but excluding any periods of vacation and sick leave to which he is entitled), the Executive shall devote reasonable attention and time during normal business hours to the business and affairs of Unified and shall use his reasonable best efforts to perform faithfully and efficiently such responsibilities as are assigned to him under or in accordance with this Agreement; provided that, it shall not be a violation of this paragraph for the Executive to: (i) serve on corporate, civic or charitable boards or committees; (ii) deliver lectures or fulfill speaking engagements; (iii) manage personal investments for the Executive's own account or those of family members; or (iv) render legal services in an "of counsel" or similar role to or for the benefit of Persons who are not members of the Unified Group, so long as such activities described in clauses (i) through (iv) do not materially interfere with the performance of the Executive's responsibilities as a senior executive officer of Unified in accordance with this Agreement. The parties agree that an "of counsel" or similar relationship will be beneficial to Unified and will not conflict with Executive's Positions or Duties and will not present a conflict of interest to Executive or Unified. 2.3 COMPENSATION. The Executive's annual compensation and other benefits described in this Section 2.3 shall be provided by Unified. 2.3(a) ANNUAL BASE SALARY. From the Effective Date, the Executive shall receive an annual base salary of $160,000, which shall be due and paid in equal or substantially equal installments, to be paid at the same frequency as other employees of Unified but no less often than monthly. The Annual Base Salary (as hereinafter defined) payable to the Executive shall be increased on each January 1 occurring during the Employment Period by no less than an amount equal to the Annual Base Salary for the immediately preceding calendar year multiplied by the Adjustment Percentage. The Adjustment Percentage shall equal the sum of (A) the CPI Percentage, plus (B) eight percent (8%). The CPI Percentage shall mean the greater of (i) zero and (ii) the remainder of (x) the quotient of the CPI-U for September of the year preceding such January 1 divided by the CPI-U for the immediately preceding September, minus (y) one (1), and any such remainder shall be expressed as a percentage. By way of example and not limitation, the CPI Percentage for January 1, 2002 shall be (assuming such amount exceeds zero) the remainder of (x) the quotient of the September 2001 CPI-U divided by the September 2000 CPI-U, minus (y) one (1); in addition, had this Agreement been in effect on January 1, 1999, the actual CPI Percentage for 1999 would have been the quotient of 163.6 (the September 1998 CPI-U) divided by 161.2 (the September 1997 CPI-U) minus one (1), the remainder of which is 1.488 percent (0.01488). The CPI-U shall mean the United States Department of Labor's Consumer Price Index, All Items, All Urban Consumers (CPI-U) (1982-84=100), All Cities (or the successor of such CPI-U, should such index be no longer published by the Department of Labor). The Annual Base Salary shall never be reduced during the Employment Period. "Annual Base Salary" as used herein shall mean the annual -5- base salary in respect of a calendar year in the Employment Period, as increased from time to time hereunder, and in respect of 2000 shall mean $160,000. 2.3(b) INCENTIVE BONUSES. In addition to Annual Base Salary, the Executive shall be awarded incentive bonuses on a basis commensurate with those provided through the incentive compensation plans available to other senior executive officers of Unified. 2.3(c) SAVINGS AND RETIREMENT PLANS. Throughout the Employment Period, the Executive shall be entitled to participate in and receive cash and/or stock-based benefits commensurate with the savings and retirement plans available to other senior executive officers of Unified. In addition, Executive shall be granted on the Effective Date, and on each January 1 during the first sixty (60) months of the Expected Employment Period an option, which option shall be fully vested on the date of grant, to acquire such number of shares of Common Stock as shall equal one-half of the Annual Base Salary (after giving effect to the annual increase required by Section 2.3(a) hereof) divided by the Fair Market Value of the Common Stock on the date of grant, at an exercise price per share equal to the Fair Market Value of the Common Stock on the date of grant. 2.3(d) FRINGE BENEFITS. Throughout the Employment Period, the Executive shall be entitled to such fringe benefits as are provided to other senior executive officers of Unified or shall receive cash benefits commensurate therewith. 2.3(e) WELFARE BENEFIT PLANS. Throughout the Employment Period (and thereafter, subject to Section 4.1(c) hereof), the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under, or receive cash benefits commensurate with, all welfare benefit plans, practices, policies and programs provided by Unified (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent available to other senior executive officers of Unified. 2.3(f) EXPENSES. Throughout the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures applicable to other senior executive officers of Unified. 2.3(g) OFFICE AND SUPPORT STAFF. Throughout the Employment Period, Unified shall provide the Executive with reasonable office space and equipment (including furnishings, books and reasonable access to research services) no less than equal to those generally provided to other senior executive officers of Unified, and to personal secretarial and other assistance; provided, that the parties contemplate that the Executive and Charles H. Binger (while he is employed by Unified) will share secretarial and other staff assistance to the extent feasible. 2.3(h) VACATION. Throughout the Employment Period, the Executive shall be entitled to four (4) weeks paid vacation per year. 2.3(i) LICENSES AND LEGAL EDUCATION. Throughout the Employment Period, Unified shall pay any and all state licensing fees required to be paid by Executive to practice law in any state in which Executive currently is licensed as a practicing attorney and in any state in which Executive is required to be licensed in order to represent Unified and its subsidiaries as a practicing attorney. In addition, throughout the Employment Period, Executive shall be entitled to attend two (2) national continuing legal -6- education seminars annually, and Unified shall pay any and all fees, including, among other things, registration, travel and lodging, related thereto. 2.3(j) EXECUTIVE'S RIGHTS NONASSIGNABLE. The right to receive the Annual Base Salary (as further provided in Section 4) and other benefits hereunder shall be a personal right of the Executive and shall not be extinguished by the death of the Executive. Such right shall not be transferable by the Executive other than pursuant to the laws of descent and distribution. 2.4 SITUS OF EMPLOYMENT. The Executive's services shall be performed in St. Louis, Missouri during the Employment Period, except to the extent (and under the terms and conditions) that each of the Executive, Unified and (if he shall then be employed by Unified) Charles H. Binger shall agree to a different location. During the Employment Period, each of the Executive and the General Counsel of Unified shall be located at the same office. SECTION 3: TERMINATION OF EMPLOYMENT. Unified may only terminate Executive's employment for reasons constituting Disability (as defined in Section 3.2 hereof) or Cause (as defined in Section 3.3 hereof). Any termination by Unified for reasons failing to constitute Cause or Disability is a breach of this Agreement having the remedies set forth herein. Executive may terminate his employment by reason of death or Good Reason (as defined in Section 3.4 below). Any termination by Executive during his life for reasons failing to constitute Good Reason is a breach of this Agreement having the remedies set forth herein. In the case of any breach of the provisions of this Agreement that does not entitle the aggrieved party to terminate Executive's employment, the aggrieved party shall remain entitled to any other remedy or monetary damages as elsewhere provided in this Agreement (see, for example, Section 5.7 and Section 8). 3.1 DEATH. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. 3.2 DISABILITY. If Unified determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 9.3 of its intent to terminate the Executive's employment. In such event, the Executive's employment with Unified shall terminate effective on the thirtieth (30th) day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of his duties. For purposes of this Agreement, "Disability" shall mean that the Executive has been unable to perform the services required of the Executive hereunder on a full-time basis for a period of one hundred eighty (180) consecutive business days by reason of a physical and/or mental condition. "Disability" shall be deemed to exist when certified by a physician selected by Unified or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). The Executive shall submit to such examinations and tests as such physician deems reasonably necessary to make any such Disability determination. 3.3 TERMINATION FOR CAUSE. Unified may terminate the Executive's employment during the Employment Period for "Cause," which for purposes of this Agreement shall mean termination based upon, and only upon: (i) the continued failure of the Executive to perform substantially, during the Employment Period, the Executive's Positions and Duties with Unified (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of Unified which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially -7- performed the Executive's Positions and Duties, or (ii) the willful engaging by the Executive during the Employment Period in gross misconduct that directly causes material injury to Unified, or (iii) conviction of the Executive of a felony (or a guilty or nolo contendere plea by the Executive with respect thereto) willfully committed by the Executive in the course of performance of his Positions and Duties with Unified during the Employment Period. For purposes of this paragraph, no course of conduct, action or omission on the Executive's part shall be considered to be grounds for Cause unless such course of conduct, action or omission (x) was done without reasonable belief that the course of conduct, action or omission was in the best interests of Unified, and (y) is inconsistent with standards of conduct consistently applied to other senior executive officers of the Unified Group. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, or based upon the instructions of the Chief Executive Officer or any other senior officer of Unified or any other member of the Unified Group, or based upon the advice of counsel for Unified shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of Unified. Termination for Cause may be effected by, and only by, written notice to Executive in accordance with the provisions of Section 9.3 hereof stating with particularity each action or condition constituting Cause, sufficient in detail such that the corrective measures necessary to cure such action(s) or condition(s) may be readily inferred from the face of the notice. During the ninety-day period following receipt of such notice by Executive, Unified shall use its best efforts to cooperate with Executive to cure the action(s) or condition(s) set forth in Unified's notice. If a cure is commercially reasonable and the Executive fails to take sufficient steps within such ninety-day period to effectuate a cure, then and only then may Unified terminate his employment for Cause. Failure of Unified to set forth in such notice any material fact or circumstance (then known or that should be then known by Unified) that contributes to a showing of Cause shall waive any right of Unified to assert such fact or circumstance in enforcing its rights under this Agreement in connection with such notice, but shall not waive Unified's right pursuant to any subsequent notice to terminate the Executive on grounds of any then unknown material fact or circumstance. 3.4 GOOD REASON. The Executive may terminate his employment with Unified for "Good Reason," which shall mean termination based upon, and only upon: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's Positions and Duties (including status, offices, titles and reporting requirements), as contemplated by Section 2.2 or any other action by Unified that results in a material diminution in such Positions and Duties, excluding for this purpose any action not taken in bad faith and which is remedied by Unified promptly after receipt of notice thereof given by the Executive in accordance with the provisions of Section 9.3 hereof; or (ii) (a) the failure by Unified to provide any of the benefits enumerated in Section 2.3 hereof; or (b) the taking of any action by Unified that would adversely affect the Executive's participation in, or materially reduce the Executive's benefits under, any plans described in Section 2.3(e) hereof; or (iii) Unified requiring the Executive to be based at any office or location other than that described in Section 2.4 hereof; or (iv) (a) (1) an attempt by Unified or any other member of the Unified Group to cause the Executive to engage in conduct that could result in the suspension of his license to practice law, or (2) the taking of any course of conduct by Unified and/or any member of the Unified Group that would require the Executive to resign his employment with Unified under the ethical rules of any jurisdiction in -8- which the Executive is licensed to practice law; in each case based upon the determination or written advice of the agency or other body having authority to suspend such license, or (b) the refusal of Unified to submit or permit the submission of facts and/or other statements to such agency or other body for purposes of obtaining such determination or written advice pursuant to subsection (a) hereof; or (v) any purported termination by Unified of the Executive's employment otherwise than as expressly permitted by this Agreement; or (vi) any failure by Unified to comply with and satisfy the provisions of Section 7.2; or (vii) within a period ending at the close of business on the date three (3) years after the Change in Control Date, the Executive, in his sole and absolute discretion, determines and notifies Unified in writing, that he does not wish to continue his employment with Unified. Other than a Termination for Good Reason pursuant to Section 3.4(v), 3.4(vi) or 3.4(vii), Termination for Good Reason may be effected by, and only by, written notice to Unified in accordance with the provisions of Section 9.3 stating with particularity each action or condition constituting Good Reason, sufficient in detail such that the corrective measures necessary to cure such action(s) or condition(s) may be readily inferred from the face of the notice. During the ninety-day period following receipt of such notice by Unified, the Executive shall use his best efforts to cooperate with Unified to cure the action(s) or condition(s) set forth in the Executive's notice. If a cure is commercially reasonable and Unified fails to take sufficient steps within such ninety-day period to effectuate a cure, then and only then may the Executive terminate his employment for Good Reason. Failure of Executive to set forth in such notice any material fact or circumstance (then known or that should be then known by Executive) that contributes to a showing of Good Reason shall waive any right of Executive to assert such fact or circumstance in enforcing his rights under this Agreement in connection with such notice, but shall not waive Executive's right pursuant to any subsequent notice to terminate his employment on grounds of any then unknown material fact or circumstance. 3.5 NOTICE OF TERMINATION. Any termination by Unified or by the Executive (including terminations in breach of this Agreement) shall be communicated by Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" means a written notice given in accordance with Section 9.3 that: (i) indicates the specific termination provision in this Agreement relied upon (including reliance upon Section 1.1(h)(i), if the Notice of Termination is delivered to terminate the Employment Period); (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii) if the Date of Employment Termination (as defined below) is other than the date such notice is given, specifies the Date of Employment Termination (which date shall be not more than ninety (90) days after the giving of such notice), provided that no such date need be specified if such notice relates to a termination for Cause or Good Reason. The failure by the Executive or Unified to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall waive any right of the Executive or Unified to assert such fact or circumstance in enforcing the Executive's or Unified's, as the case may be, rights hereunder. 3.6 DATE OF EMPLOYMENT TERMINATION. "Date of Employment Termination" means: (i) if the Executive's employment is terminated by Unified for Cause or by the Executive for Good Reason, the later of the day specified in the Notice of Termination and the last day of the cure period specified in Section 3.3 or 3.4; (ii) if the Executive's employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be; (iii) if the Executive's employment is terminated by Unified -9- other than for Cause or Disability, the date the Notice of Termination is given or any later date (within the ninety-day limit provided in Section 3.5) specified therein, as the case may be; (iv) if the Executive shall terminate employment with Unified for any reason other than for Good Reason, the date the Executive shall terminate his employment with Unified or, if not more than ninety (90) days later, the date specified in the Notice of Termination; and (v) in any other case, the date on which the Expected Employment Period ends. SECTION 4: CERTAIN BENEFITS UPON TERMINATION. 4.1 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If during the Employment Period (i) Unified shall terminate the Executive's employment without Cause or (ii) the Executive shall terminate employment with Unified for Good Reason, the Executive shall be entitled to the benefits provided below: 4.1(a) "ACCRUED OBLIGATIONS": On or before the fifth (5th) business day following the Date of Employment Termination, Unified shall pay to the Executive the sum of: (1) the Executive's Annual Base Salary through the Date of Employment Termination to the extent not previously paid; (2) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon); and (3) any accrued vacation pay; in each case to the extent not previously paid. 4.1(b) "ANNUAL BASE SALARY CONTINUATION": For the remainder of the Expected Employment Period that occurs after the Date of Employment Termination, Unified shall pay to the Executive the same Annual Base Salary as would have been paid to the Executive had the Executive remained in Unified's employ during the remainder of the Expected Employment Period. Unified at any time may elect to pay the balance of such payments then remaining in a lump sum, in which case the total of such payments shall be discounted to present value as determined according to Code Section 280G(d)(4); provided, however, in the event of termination of employment by Executive pursuant to the provisions of Section 3.4(vi) or (vii) hereof, Unified shall pay on the Date of Employment Termination to the Executive all amounts due pursuant to this Section 4.1 and Section 4.5. 4.1(c) "OTHER BENEFITS": To the extent not previously paid or provided, Unified shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement or under any plan, program, policy or practice or agreement of Unified provided to other senior executive officers and their families during the ninety-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally after the Effective Date to other senior executive officers of Unified and their families. Over the remainder of the Expected Employment Period, the Executive also shall receive health insurance benefits as maintained by Unified for the benefit of its senior executive officers. 4.2 DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for timely payment of Accrued Obligations (as provided in Section 4.1(a)). 4.3 DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for timely payment of Accrued Obligations (as provided in Section 4.1(a)). -10- 4.4 TERMINATION FOR CAUSE; TERMINATION OTHER THAN FOR GOOD REASON. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than for timely payment of Accrued Obligations (as provided in Section 4.1(a)). If the Executive terminates employment with Unified during the Employment Period (excluding a termination for death or Good Reason), this Agreement shall terminate without further obligations to the Executive, other than for timely payment of Accrued Obligations (as provided in Section 4.1(a)). 4.5 ANNUAL NONCOMPETE AND SEVERANCE PAYMENTS. Except in the case of a termination of the Executive's employment by Unified for Cause, by Executive without Good Reason or upon the death or Disability of the Executive, on or before the thirtieth (30th) day following the Date of Employment Termination (as defined in Section 3.6 hereof), and on each of the first and second anniversary dates of the Date of Employment Termination, Unified shall pay to the Executive an amount equal to the Annual Base Salary as was (or would have been) determined for the final calendar year of the Expected Employment Period, and if the termination or purported termination shall be by Unified without Cause or by Executive for Good Reason pursuant to Section 3.4(v), each such payment shall be increased by one-half as liquidated damages (and not as a penalty) in recognition of damage to Executive's reputation and the enhanced difficulties inherent in finding replacement employment while being removed from the marketplace. The payments and arrangements in this Section 4.5 constitute further consideration for the Executive's covenants set forth in Section 5, and the Executive agrees that he shall abide by the terms of Section 5 in their entirety and acknowledges that Section 5 continues to apply after any termination of employment (other than a termination described in Section 4.2). 4.6 EXCISE TAXES. The parties recognize that termination of Executive's employment in connection with any change of control or other payments made in connection with any change in control could result in excise taxes to the Executive, and the parties provide for payment of such taxes as follows. (i) Anything in this Agreement to the contrary notwithstanding, in the event: (A) it shall be determined that any payment or distribution by Unified to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed by Code Section 4999; or (B) any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount equal to the Excise Tax imposed on the Payment and on the Gross-Up Payment as well as any additional income tax, employment tax and Excise Tax payable with respect to such additional payment (including any interest or penalties imposed with respect to such excise tax). The Gross-Up Payment shall not include any amount for the payment of any income or employment taxes imposed on the Payment, but shall include any income or employment taxes payable with respect to any Gross-Up Payment (and any interest and penalties imposed with respect thereto). (ii) Subject to the provisions of Section 4.6(iii), all determinations required to be made under this Section, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by an independent accountant jointly selected by Unified and the Executive which shall provide detailed supporting calculations both to Unified and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by Unified. All fees and expenses of the -11- independent accountant shall be borne solely by Unified. Any Gross-Up Payment, as determined pursuant to this Section 4.6, shall be paid by Unified to the Executive within five (5) days of the receipt of the independent accountant's determination. If the independent accountant determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable Federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the independent accountant shall be binding upon Unified and the Executive. As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the independent accountant hereunder, it is possible that Gross-Up Payments which will not have been made by Unified should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that Unified exhausts its remedies pursuant to Section 4.6(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the independent accountant shall determine the amount of the Underpayment that has occurred and any such Underpayment, as well as any interest and penalties imposed thereon, shall be promptly paid by Unified to or for the benefit of the Executive. (iii) The Executive shall notify Unified in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by Unified of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise Unified of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which the Executive gives such notice to Unified (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If Unified notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (a) give Unified any information reasonably requested by Unified relating to such claim; (b) take such action in connection with contesting such claim as Unified shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by Unified; (c) cooperate with Unified in good faith in order to effectively contest such claim; and (d) permit Unified to participate in any proceedings relating to such claim; provided, however, that Unified shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 4.6, Unified shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and -12- the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as Unified shall determine; provided, however, that if Unified directs the Executive to pay such claim and sue for a refund, Unified shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, Unified's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by Unified pursuant to Section 4.6(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to Unified's compliance with the requirements of Section 4.6(iii)) promptly pay to Unified the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by Unified pursuant to Section 4.6(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and Unified does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 4.7 NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by Unified and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement with Unified. Vested benefits which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, Unified at or subsequent to the Date of Employment Termination, shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 4.8 FULL SETTLEMENT; EXECUTIVE HAS NO DUTY OF MITIGATION. Unified's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Unified may have against the Executive or others, other than any set-off for monies improperly taken by Executive (including any funds embezzled). In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 4.1(c), such amounts shall not be reduced whether or not the Executive obtains other employment. Unified agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by Unified, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Code Section 7872(f)(2)(A). The payments and arrangements in this Section 4 -13- constitute further consideration for the Executive's covenants set forth in Section 5, and the Executive agrees that he shall abide by the terms of Section 5 in their entirety and acknowledges that Section 5 continues to apply after any termination of employment (other than a termination described in Section 4.2). SECTION 5: NON-COMPETITION. 5.1 NON-COMPETE AGREEMENT. It is agreed that during the Employment Period and until the date three (3) years after the Date of Employment Termination (such period of time, the "Restricted Period"), the Executive shall not, directly or indirectly, render services of any nature within the Relevant Market Area (as defined herein) as an employee, agent, representative, consultant, partner or otherwise, to or for the direct or indirect benefit of any business that competes with any member of the Unified Group; provided however, nothing in this Section 5 shall prohibit Executive from engaging in the private practice of law. The Relevant Market Area is the area within the fifty-mile radius of: (i) each office maintained by Unified at any time during the Employment Period; and (ii) each office maintained by any other member of the Unified Group at any time during the Employment Period. In addition, during the Restricted Period, the Executive shall not, directly or indirectly, either as an individual, partner or a joint venturer, or in any other capacity, invest in, own or have any arrangement to acquire (whether by option or otherwise) an interest in any Person or business that is competitive with any member of the Unified Group, excluding any interest in a publicly traded company which constitutes not more than one percent (1%) by value of the equity securities of such company. 5.2 NON-SOLICITATION OF EMPLOYEES. It is agreed that during the Restricted Period, Executive shall not, either directly or indirectly, approach or solicit: (i) any Person employed by Unified at any time during the Employment Period; and (ii) any Person employed by any other member of the Unified Group at any time during the Employment Period, with a view towards enticing such Person to work for the Executive or any other Person. 5.3 NON-SOLICITATION OF CUSTOMERS. It is agreed that during the Restricted Period, Executive shall not, either directly or indirectly, approach or solicit: (i) any Person who was a Customer of Unified at any time during the Employment Period; and (ii) any Person who was a Customer of any other member of the Unified Group at any time during the Employment Period and in respect of which the Executive had direct or indirect contact or gained Confidential Information during such period, if such direct or indirect approach or solicitation (x) is made with a view towards diverting or attempting to divert business from Unified or any other member of the Unified Group; or (y) consists of any action or communication that disparages or depreciates, or tends to disparage or depreciate, the reputation, business practices, future business prospects, policies or personnel (including officers, directors and employees) of any member of the Unified Group. 5.4 CONFIDENTIAL INFORMATION. For purposes of this Agreement, "Confidential Information" shall mean any communication disclosed to the Executive or known by the Executive as a consequence of or through his past, present or prospective employment or business relationship with the Unified Group, not generally known and available in the Unified Group's industries, which constitutes the Unified Group's (including Unified's) proprietary and non-public method(s) of doing business, including, but not limited to, any information related to trade secrets, pricing formulas, know-how, test data, Customer lists, vendor lists, training and operating manuals, software and reporting systems. Unified and the Executive acknowledge that during the Executive's period of employment by Unified, the Unified Group will furnish the Executive with Confidential Information. The Executive agrees both during his employment with Unified, whether under this Agreement or otherwise, and at all times thereafter, that the Executive, his officers, directors, partners, employees, affiliates, agents, representatives or assigns (collectively "Representatives") shall keep all Confidential Information in the strictest confidence and shall not discuss, publish, communicate, transmit, reproduce or otherwise disclose such Confidential Information, in any manner whatsoever, in whole or in part, without the prior written consent of Unified, unless and until such time -14- as the Confidential Information becomes generally known in the Unified Group's industries other than through breach of this Agreement. Any written consent by Unified to the Executive's disclosure of Confidential Information, if given, shall in no way operate as a waiver of the Executive's obligation to maintain the confidential nature of the material disclosed or to protect and preserve that Confidential Information from disclosure so that it will receive confidential treatment thereafter. The Executive agrees to reimburse Unified for any damages sustained and costs and expenses, including attorneys' fees, incurred in connection with an unauthorized disclosure of Confidential Information by the Executive, his Representatives or any other person or persons to whom the Executive or his Representatives previously had disclosed Confidential Information. 5.5 REASONABLENESS OF COVENANTS. The Executive acknowledges and agrees that the covenants and agreements contained in this Section 5 are reasonable, and the Executive agrees he shall not raise any issue of their reasonableness in any proceeding to enforce such covenants and agreements. 5.6 BLUE PENCILLING. In the event any court or other body having appropriate jurisdiction (including any panel of arbitrators) shall determine that the area where competition is prohibited, the time period during which competition is prohibited, the nature or duration of prohibitions on solicitation of Customers or employees, or any other term of this Section 5 is overbroad, then the area or time or other term shall be reduced appropriately as the court or other body may determine is necessary to make this Section 5 enforceable. The parties acknowledge that the purpose of this Section 5 is to protect the goodwill and going concern value of Unified and the Unified Group, and the parties intend that this Section 5 shall be enforced to the maximum extent allowed by law. 5.7 SPECIFIC ENFORCEMENT. The Executive agrees that any violation or breach by the Executive and/or his Representatives of any provision of this Section 5 would cause immediate and irreparable harm to the Unified Group, the exact amount of which will be impossible to ascertain, and for that reason further agrees that the Unified Group shall be entitled, as a matter of right, to an injunction out of the appropriate court of competent jurisdiction (as set forth below), restraining any further violation or breach of this Agreement by Executive and/or his Representatives, either directly or indirectly, such right to an injunction being cumulative and in addition to whatever remedies the Unified Group may have under applicable law and/or this Agreement. The Unified Group and the Executive hereby irrevocably consent to the jurisdiction of the Circuit Court of Fayette County, Kentucky or, if there is federal jurisdiction, the United States District Court for the Eastern District of Kentucky. The Unified Group and the Executive waive any defense of an inconvenient forum to the maintenance of any action or proceeding brought in such courts in connection with this Agreement, any objection to venue with respect to any such action, and any right of jurisdiction on account of the place of residence or domicile of any party to such action. The remedies of the Unified Group under this Section 5.7 are not exclusive, and shall not prejudice any other rights under this Agreement or otherwise. SECTION 6: OWNERSHIP OF PAPERS AND INTELLECTUAL PROPERTY RIGHTS. 6.1 PAPERS AND PROPERTY. Executive acknowledges the Unified Group's (including Unified's) exclusive right to ownership, possession and title to all papers, documents, tapes, drawings, notebooks, formulas, Customer lists, software, hardware, trademarks, trade names, service marks, processes, data, intellectual property, or other records, information or products prepared by the Executive during the Employment Period or provided by Unified, or which otherwise come into the Executive's possession by reason of employment with Unified. Executive agrees not to make or permit to be made, except in pursuit of Executive's Position and Duties hereunder, any copies of such items. Executive further agrees to deliver to Unified upon request all such items in Executive's possession and without request to immediately deliver such items upon the termination, voluntarily or involuntarily, of Executive's employment. -15- 6.2 INVENTIONS. The term "Inventions" means all ideas, inventions and discoveries, whether patentable, copyrightable or not, made or conceived by the Executive, whether or not during the hours of his employment or with the use of Unified Group's facilities, materials or personnel, either solely or jointly with others, during the term of his employment (past, present or future) with any member of the Unified Group that relates to any present or prospective business of Unified or any other member of the Unified Group, including, but not limited to, software, algorithms, designs, devices, processes, methods, formulae, techniques, data storage systems, networks, servers and any improvements to the foregoing. 6.2(a) REPORT. Executive agrees to promptly disclose all Inventions to Unified. Executive shall inform Unified promptly and fully of such Inventions by a written report, setting forth in detail the structures, procedures and methodology employed and the results achieved. A report also shall be submitted by the Executive upon completion of any study or research project undertaken on behalf of Unified or any other member of the Unified Group, whether or not in the Executive's opinion a given study or project has resulted in an Invention. 6.2(b) ASSIGNMENT AND PATENT. Executive hereby assigns and agrees to assign to Unified all of his rights to such Inventions and to all proprietary rights therein, based thereon or related thereto, including, but not limited to, applications for United States and foreign letters patent and resulting letters patent. Upon Unified's request and at Unified's expense, the Executive shall execute such documents and provide such assistance as may be deemed necessary by Unified to apply for, prosecute, obtain, defend or enforce any United States and foreign letters patent based on or related to such Inventions. The Executive agrees to execute all documents reasonably requested by Unified to assist Unified in perfecting or protecting any or all of its rights in the Inventions. 6.2(c) COPYRIGHT. Executive acknowledges that all copyrightable Inventions are "works made for hire" and consequently that Unified owns all copyrights thereto, including, but not limited to, 17 U.S.C. Sections 101 and 210. Unified and its successors and assigns shall have the sole and exclusive right to register the copyright(s) in all such work in its name as the owner and author of such work and shall have the exclusive rights conveyed under 17 U.S.C. Sections 106 and 106A, including, but not limited to, the right to make all uses of the works in which attribution or integrity rights may be implicated. Additionally, without in any way limiting the foregoing, the Executive hereby assigns, transfers and conveys to Unified, and its successors and assigns, all right, title or interest that Executive may now have, or may acquire in the future, to the work including, but not limited to, all ownership, patent (United States and foreign letters patent), trade secret, trade names and trademarks, copyright moral, attribution and/or integrity rights. The Executive hereby expressly and forever waives any and all rights that Executive may have arising under 17 U.S.C. Section 106A, and any rights arising under any federal, state, territorial or foreign laws that convey rights which are similar in nature to those conveyed under 17 U.S.C. Section 106A. Notwithstanding any provision of the Copyright Act, any and all copyrightable works constituting Inventions or prepared either in whole or in part by the Executive in connection with his employment are, shall be, or shall become, owned by Unified. SECTION 7: SUCCESSORS. 7.1 SUCCESSORS OF EXECUTIVE. This Agreement is personal to the Executive, and without the prior written consent of Unified, amounts receivable hereunder shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. -16- 7.2 SUCCESSORS OF UNIFIED. Unified shall require any Person(s) that acquires (whether directly or indirectly, in one or more transactions, whether by purchase, merger, consolidation or otherwise) all or substantially all of the business and/or assets of Unified to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Unified would be required to perform it if no such transaction had taken place. Failure of Unified to obtain such agreement on or before thirty (30) days prior to the effectiveness of any such transaction shall be a breach of this Agreement and such breach (i) shall entitle the Executive to terminate this Agreement at his option at any time during or after such thirty (30) day period for Good Reason, and (ii) shall entitle Executive to immediate payment of all amounts that are then or that would become due from Unified hereunder. As used in this Agreement, "Unified" shall mean Unified as hereinbefore defined and any Person that assumes and agrees to perform (or is required to assume and perform) this Agreement by operation of law, the provisions of this Section 7.2 or otherwise. SECTION 8: ARBITRATION. Notwithstanding any other provision of this Agreement to the contrary, and excluding the rights of the Unified Group to pursue injunctive relief pursuant to Section 5.7, any controversy or claim regarding, arising under or pertaining to this Agreement which cannot be resolved among the parties themselves shall be resolved solely by binding arbitration in Lexington, Kentucky. The arbitration panel shall consist of three arbitrators selected from list(s) of candidates provided by the American Arbitration Association. Unified shall be entitled to appoint one arbitrator and the Executive shall be entitled to appoint one arbitrator. The third arbitrator, who shall be an attorney in good standing who is licensed to practice law in the Commonwealth of Kentucky and devotes more than one-half of his or her professional time to the practice of employment law, shall be chosen by the two arbitrators so appointed. If any Person fails to appoint its arbitrator or to notify the other Person of such appointment within thirty (30) days after the institution of arbitration proceedings, such other Person may request the President of the American Arbitration Association to appoint such arbitrator on behalf of the Person who so failed. If the two arbitrators appointed by (or on behalf of) the parties fail to appoint such third arbitrator, or fail to notify the parties to such proceedings of such appointment, within thirty (30) days after the appointment of the later of such two arbitrators to be appointed by (or on behalf of) the parties, any party may request such President to appoint such third arbitrator. The President of the American Arbitration Association shall appoint such arbitrator or such third arbitrator, as the case may be, within thirty (30) days after the making of such request. The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (which rules may be modified by a majority of the arbitrators serving), except that the parties shall be allowed to take depositions as provided under applicable state and federal laws, and the arbitration award, decree and/or order may grant any remedy or relief that is in accordance with the provisions of this Agreement and applicable Kentucky law. No awards of punitive damages shall be made. The arbitration award, decree and/or order shall be final and binding on all parties to such arbitration. Judgment and/or decree shall be entered (in conformity with such award, decree and/or order) in the Circuit Court of Fayette County, Kentucky or, if there is federal jurisdiction, the United States District Court for the Eastern District of Kentucky. The Executive and each member of the Unified Group irrevocably submit to the exclusive jurisdiction of the Circuit Court of Fayette County, Kentucky or, if there is federal jurisdiction, the United States District Court for the Eastern District of Kentucky, for the purpose of (a) entry of any such judgment and/or decree; or (b) entry of an order to proceed with arbitration. Any such judgment, decree and/or order entered by the Circuit Court of Fayette County, Kentucky, or the United States District Court for the Eastern District of Kentucky and any related order(s) of such court, may be endorsed as any other judgment, decree or order of such court. SECTION 9: MISCELLANEOUS. 9.1 ABILITY TO PERFORM. The Executive warrants that the Executive's execution and performance of this Agreement is not restricted or prohibited by any agreement to which the Executive is subject. -17- 9.2 TIME PERIODS. Any period of time measured under this Agreement by days shall refer to calendar days and not business days, unless otherwise provided. If the last day of any such period falls on a Saturday, Sunday or holiday observed by commercial banks in the city of Lexington, Kentucky, the last day of such period, for all purposes of this Agreement (including the determination of the first day of each succeeding period of time measured by days), shall be deemed to be the next succeeding business day after such Saturday, Sunday or holiday. Any period of time measured under this Agreement shall end at midnight, Lexington, Kentucky time, on the last day of such period. 9.3 NOTICE. For all purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given and received when (i) delivered; or (ii) mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses as set forth below, or to such other address as may have been furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. Notice to Executive: ------------------- David F. Morris 2741A Park Avenue St. Louis, Missouri 63104 Notice to Unified: ----------------- Unified Financial Services, Inc. 1104 Buttonwood Court Lexington, Kentucky 40515 Attention: Chairman, President and Chief Executive Officer 9.4 VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 9.5 WITHHOLDING. Unified may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. 9.6 WAIVER. The Executive's or Unified's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or Unified may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3.4, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 9.7 ENTIRE AGREEMENT. All prior negotiations and agreements between the parties hereto regarding Executive's employment are superseded by this Agreement, and there are no representations, warranties, understandings or agreements other than those expressly set forth herein, except as modified in writing concurrently herewith or subsequent hereto. 9.8 AMENDMENT. This Agreement may be amended or modified in whole or in part only by an agreement in writing executed by all parties hereto and making specific reference to this Agreement. -18- 9.9 PRIORITY OF AGREEMENT. In case of any conflict or ambiguity in connection with or between this Agreement and any policy manuals, including, but not limited to, any employee manuals, employment applications, management instructions or promises, etc., this Agreement shall control. 9.10 ASSIGNMENT. Subject to the provisions of Section 7.2, Unified shall have the right to assign this Agreement to its successors or assigns (collectively, "Permitted Assignees"). The terms "successors" and "assigns" shall include for all purposes of this Agreement (except Sections 1.1(d) and 2.3(a)), any Person that acquires all or substantially all of Unified's assets or of Unified's stock, or with which or into which Unified merges or consolidates. 9.11 INTENDED BENEFICIARIES. This Agreement shall be binding upon the Executive, Unified and their respective successors and assigns, and shall inure to the benefit of the Executive, Unified, each member of the Unified Group, their respective successors and assigns and Permitted Assignees. Nothing herein expressed or implied is intended to confer upon any Person not named or described in the preceding sentence any rights, remedies, obligations or liabilities under or by reason of this Agreement. 9.12 COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument. A signature transmitted by facsimile shall be deemed a delivery of an original, manually executed counterpart. [remainder of this page intentionally left blank] -19- IN WITNESS WHEREOF, the Executive and Unified, pursuant to the authorization from its Executive Committee of the Board, have executed or caused this Agreement to be executed in its name, all as of the day and year first above written. THIS CONTRACT IS GOVERNED BY KENTUCKY LAW AND CONTAINS A BINDING ARBITRATION PROVISION. ALL DISPUTES ARISING IN CONNECTION WITH THIS AGREEMENT ARE SUBJECT TO BINDING ARBITRATION IN LEXINGTON, KENTUCKY. EACH OF THE EXECUTIVE AND UNIFIED HAS REVIEWED THESE AND THE OTHER PROVISIONS OF THIS AGREEMENT WITH LEGAL COUNSEL OF HIS OR ITS, RESPECTIVELY, OWN CHOOSING. "EXECUTIVE" /s/ David F. Morris ----------------------------------------- David F. Morris UNIFIED FINANCIAL SERVICES, INC. By: /s/ Timothy L. Ashburn -------------------------------------- Timothy L. Ashburn, Chairman, President and Chief Executive Officer -20- EX-10.26 4 LOAN AGREEMENT LOAN AGREEMENT -------------- THIS LOAN AGREEMENT (the "Agreement") is made and entered into effective as of the 28th day of December, 1999, by and among BANK ONE, KENTUCKY, NA, a national banking association and its successors and assigns, whose address is 416 West Jefferson Street, Louisville, Kentucky 40202 (the "Bank"); UNIFIED FINANCIAL SERVICES, INC., a Delaware corporation whose address is 220 Lexington Green Circle, Suite 600, Lexington, Kentucky 40503 ("Unified"); and COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation whose address is 220 Lexington Green Circle, Suite 600, Lexington, Kentucky 40503 ("Commonwealth") (Unified and Commonwealth are hereinafter collectively referred to as "Borrowers"). RECITALS -------- WHEREAS, Unified has applied to Bank for a loan in the amount of Two Million Two Hundred Ninety-Three Thousand Seven Hundred Fifty and 00/100 Dollars ($2,293,750.00) (the "Term Loan"), which loan shall be secured by certain assets of Unified. WHEREAS, Commonwealth has applied to Bank to renew an existing revolving line of credit loan in an amount not to exceed the maximum principal sum of Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) (the "Renewal Revolving Credit Loan"), which loan shall be secured by certain assets of Commonwealth and guaranteed by Unified. WHEREAS, one of the conditions to the making of the Term Loan and the Renewal Revolving Credit Loan by Bank is that Unified and Commonwealth must enter into this Agreement setting forth the terms and conditions of the Term Loan and the Renewal Revolving Credit Loan, all of which terms and conditions Unified and Commonwealth acknowledge are supported by good, valuable and sufficient consideration. NOW, THEREFORE, in consideration of the mutual covenants, the financial accommodations extended to Borrowers, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree to and affirm the foregoing recitals and further agree as follows: ARTICLE I --------- CERTAIN DEFINITIONS 1.01 "ADVANCE" means any disbursement of funds to Unified under the Term Note pursuant to Section 2.01 hereof or to Commonwealth under the Renewal Revolving Credit Note pursuant to Section 2.02 hereof. 1.02 "AGREEMENT" means this Loan Agreement, as amended, supplemented or modified from time to time. 1.03 "BUSINESS DAY" means any Domestic Business Day on which Bank is open for business. 1.04 "BORROWING BASE" means the computation of Eligible Net Premiums as calculated in the Borrowing Base Certificate and Advance Request attached hereto as EXHIBIT 1.04. ------------ 1.05 "COLLATERAL" means all property which is subject to, becomes subject to, or is to be subject to the Liens granted by the Security Agreements or which otherwise becomes security for the Loan. 1.06 "DEFAULT" OR "EVENT OF DEFAULT" means any of the events specified in Article VII herein, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. 1.07 "DOMESTIC BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banks in Lexington, Kentucky, are authorized or required to close under the laws of the Commonwealth of Kentucky or of the United States. 1.08 "GUARANTY" means the guaranty dated of even date of the Renewal Revolving Credit Loan and all of Commonwealth's obligations under the Loan Documents made, executed and delivered by Unified. 1.09 "INTEREST COVERAGE RATIO" means a ratio calculated as follows: net income for the applicable period plus interest expenses for such period plus income tax expenses for such period divided by total interest expenses for such period. 1.10 "INSURANCE PREMIUM FINANCING AGREEMENT ("IPFA")" means the contract among Commonwealth, the insurance agent and the insured/ borrower in which the insured/borrower grants to Commonwealth a security interest in all unearned premiums which may be payable under the insurance policies. 1.11 "LIEN" means any mortgage, deed of trust, pledge, security interest, hypothecation, conditional assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority, or other security agreement, or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having a similar economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing), but excluding leases of operating equipment or furniture in the ordinary course of business. 1.12 "LOAN DOCUMENTS" means this Agreement, the Notes, the Guaranty, the Security Agreements, the UCC-1's, and any additional documents required to be delivered by Unified or Page 2 of 26 Commonwealth under this Agreement, or otherwise evidencing, securing and/or relating to the Loans. 1.13 "LOANS" means the Term Loan extended by Bank to Unified and the Renewal Revolving Credit Loan extended by Bank to Commonwealth. 1.14 "NET PREMIUMS" means the total premiums on IPFA plus all accrued interest and other finance charges derived thereunder less all initial premium payments made by insured/borrower thereunder. 1.15 "NOTES" means the Term Note evidencing the Term Loan extended by Bank to Unified and the Renewal Revolving Credit Note evidencing the Renewal Revolving Credit Loan extended by Bank to Commonwealth. 1.16 "OBLIGATIONS" means the indebtedness evidenced by the Notes and all obligations relating to any of the other Loan Documents. 1.17 "PERSON" means any individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature. 1.18 "PRIME RATE" means the variable prime, or primary index, rate of Bank as announced from time to time by Bank at its principal office, whether or not such rate is published and which rate may not necessarily be Bank's lowest or best rate. 1.19 "RENEWAL REVOLVING CREDIT LOAN" shall have the meaning assigned to such term in Section 2.02. 1.20 "RENEWAL REVOLVING CREDIT NOTE" means the note executed by Commonwealth evidencing the renewal of a revolving line of credit loan extended by Bank to Commonwealth in an amount not to exceed the maximum principal sum of Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00). 1.21 "SECURITY AGREEMENTS" means the Stock Pledge and Security Agreement from Unified to Bank dated of even date in which Unified pledges to Bank a first and prior lien on certain securities of Unified described in Schedule "A" attached thereto, and a Security Agreement from Commonwealth to Bank dated of even date whereby Commonwealth assigns and pledges to Bank a first and prior lien on certain assets of Commonwealth described in Exhibit "A" attached thereto. 1.22 "TERM LOAN" means shall have the meaning assigned to such term in Section 2.01. Page 3 of 26 1.23 "TERM NOTE" means the note executed by Unified evidencing the loan extended by Bank to Unified in the amount of Two Million Two Hundred Ninety-Three Thousand Seven Hundred Fifty and 00/100 Dollars ($2,293,750.00). The definitions set forth above in this Article I are in addition to, and not in lieu of, any other definitions set forth elsewhere in this Agreement or the other Loan Documents. ARTICLE II ---------- AMOUNT AND TERMS OF THE LOANS, THE COLLATERAL, THE GUARANTY, ETC. 2.01 The Term Loan. ------------- a. Terms and Amount. Bank will enter into the Term Loan ---------------- as evidenced by the Term Note in the amount of TWO MILLION TWO HUNDRED NINETY-THREE THOUSAND SEVEN HUNDRED FIFTY AND 00/100 DOLLARS ($2,293,750.00). The interest rate per annum on the outstanding principal balance of the Term Loan throughout the term of the Term Loan shall be equal to the Prime Rate. Interest on the Term Note shall be computed by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Under no circumstances will the interest rate on the Term Note be more than the maximum rate allowed by applicable law. Unified shall make monthly payments of principal in the amount of $100,000 plus all accrued but unpaid interest beginning on January 28, 2000, and continuing thereafter on the 28th day of each month until June 30, 2000 (the "Maturity Date"), at which time all outstanding principal, all accrued but unpaid interest and all other fees, charges and expenses payable under the Term Note and the other Loan Documents shall be due and payable. b. Purpose of the Loan. The purpose of the Term Loan ------------------- is to refinance preexisting debt of subsidiary companies and begin the payment and amortization of the same. c. No Prepayment Premium. Unified may prepay the Term --------------------- Note, in whole or in part, without premium or penalty. d. Collateral. As security for the payment of the Term ---------- Loan and in order to secure Unified's obligations to Bank, as well as all other sums as are recoverable by Bank under the Term Loan and any of the other Loan Documents, Unified shall execute and deliver to Bank a Stock Pledge and Security Agreement whereby Unified pledges and conveys to Bank a security interest in all of Unified's shares of stock in Equity Underwriting Group, Inc. e. Renewal. Unified acknowledges that Bank has not ------- committed to any renewals or extensions of the Term Loan. Page 4 of 26 2.02 The Renewal Revolving Credit Loan. --------------------------------- a. Terms and Amount. Bank will enter into the Renewal ---------------- Revolving Credit Loan as evidenced by the Renewal Revolving Credit Note in the amount of TWO MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($2,500,000.00). The interest rate per annum on the outstanding principal balance of the Renewal Revolving Credit Loan throughout the term of the Renewal Revolving Credit Loan shall be equal to the Prime Rate. Interest on the Renewal Revolving Credit Note shall be computed by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Under no circumstances will the interest rate on the Renewal Revolving Credit Note be more than the maximum rate allowed by applicable law. Commonwealth shall make monthly payments of all accrued but unpaid interest beginning on January 28, 2000, and continuing thereafter on the 28th day of each month until June 30, 2000 (the "Maturity Date"), at which time all outstanding principal, all accrued but unpaid interest and all other fees, charges and expenses payable under the Renewal Revolving Credit Note and the other Loan Documents shall be due and payable. b. Purpose of the Loan. The purpose of the Renewal ------------------- Revolving Credit Loan is solely to provide Commonwealth with working capital for the financing and/or acquisition of IPFAs and the payments of premiums to insurance companies. c. Notice and Manner of Borrowing. On the last day of ------------------------------ each calendar month and on each such Business Day that Commonwealth requests an Advance, Commonwealth shall submit to Bank a Borrowing Base Certificate and Advance Request substantially in the form attached hereto as EXHIBIT 1.04. Provided that (i) all of the applicable ------------ conditions set forth in Article III hereof have been fulfilled to Banks's satisfaction and (ii) Commonwealth has provided Bank with the Borrowing Base Certificate and Advance Request by 10:00 a.m., Bank will make Advances under the Renewal Revolving Credit Loan available to Commonwealth in immediately available funds by crediting the amount thereof to Commonwealth's account with Bank on the same Business Day. d. No Prepayment Premium. Commonwealth may prepay the --------------------- Renewal Revolving Credit Note, in whole or in part, without premium or penalty. e. Guaranty of Unified. Unified shall guarantee the ------------------- payment of the Renewal Revolving Credit Loan and all of Commonwealth's obligations under the Renewal Revolving Credit Note and any of the other Loan Documents pursuant to the terms of the Guaranty. f. Collateral. As security for the payment of the ---------- Renewal Revolving Credit Loan and in order to secure Commonwealth's obligations to Bank, as well as all other sums as are recoverable by Bank under the Renewal Revolving Credit Loan and any of the other Loan Documents, Commonwealth shall execute and deliver to Bank a Security Agreement whereby Commonwealth assigns, pledges and conveys to Bank a security interest in all of Commonwealth's assets including, but not limited to, the IPFAs. As further security for the payment of the Renewal Revolving Credit Loan and in order to secure Commonwealth's obligations to Bank, as well as all other sums as are recoverable by Bank under the Guaranty, the Renewal Revolving Credit Loan and Page 5 of 26 any of the other Loan Documents, Unified shall execute and deliver to Bank a Stock Pledge and Security Agreement whereby Unified pledges and conveys to Bank a security interest in all of Unified's shares of stock in Equity Underwriting Group, Inc. g. Renewal. Commonwealth acknowledges that Bank has ------- not committed to any further renewals or extensions of the Renewal Revolving Credit Loan. h. Readvances of Principal Amounts Paid Prior to --------------------------------------------- Maturity. Any amounts of principal paid to Bank prior to the Maturity - -------- Date set forth in Section 2.02(a) hereof shall be available for any subsequent Advance or borrowing by Commonwealth hereunder. 2.03 Provisions Applicable to Both Loans. ----------------------------------- a. Method of Payment. Borrowers shall make each ----------------- payment under this Agreement and under the Notes in lawful money of the United States, to Bank at its Lexington office or such other place as may be designated by Bank, in immediately available funds during normal business hours of Bank. Whenever any payment to be made under this Agreement or under the Notes shall be stated to be due on a Saturday, Sunday or a public holiday or banking holiday, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of the payment of interest. b. Costs and Fees. Borrowers shall pay to Bank its -------------- costs and expenses (including, without limitation, its attorneys' fees, court costs, litigation and other expenses) incurred or paid by Bank in negotiating, documenting, administering and enforcing this Agreement and the Loan Documents and in establishing, maintaining, protecting, perfecting or enforcing any of Bank's rights or Borrowers' obligations including, without limitation, any and all such costs and expenses incurred or paid by Bank in defending Bank's title or right to the Collateral or in collecting or enforcing payment of the Obligations and the liquidation of the Collateral, and all costs of filing financing, continuation or termination statements with respect to the Collateral. c. Late Payments and Late Charges. If any payment ------------------------------ required under either of the Notes is not paid within ten (10) days after such payment is due, then, at the option of Bank, Unified or Commonwealth, as applicable, shall pay a late charge equal to five percent (5.0%) of the amount of such payment or $25.00, whichever is greater, up to the maximum amount of $750.00 per late charge to compensate Bank for administrative expenses and other costs of delinquent payments. This late charge may be assessed without notice, shall be immediately due and payable and shall be in addition to all other rights and remedies available to Bank. d. Default Interest Rate. Upon the occurrence of any --------------------- Event of Default and during the continuation thereof, and after maturity, including maturity upon acceleration, Bank, at its option, may, if permitted under applicable law, do one or both of the following: (i) increase the interest rate under the Term Note or the Renewal Revolving Credit Note, as applicable, to the rate that is three percent (3.0%) above the rate that would otherwise be payable thereunder, and (ii) add any unpaid accrued interest to principal and such sum shall bear interest therefrom until paid at the rate provided Page 6 of 26 in the Term Note or the Renewal Revolving Credit Note, as applicable, (including any increased rate). The interest rate under the Notes shall not exceed the maximum rate permitted by applicable law under any circumstances. ARTICLE III ----------- CONDITIONS PRECEDENT The obligation of Bank to make the initial Advance and any subsequent Advances under either the Term Note or the Renewal Revolving Credit Note are subject to (1) the performance of the respective obligations of Unified and Commonwealth to be performed hereunder at, prior to or subsequent to the making the Loans, and (2) the satisfaction of all of the following conditions: 3.01 Loan Documents. All of the Loan Documents shall be duly -------------- executed by Borrowers and delivered to Bank, all of which shall be in form and substance reasonably satisfactory to Bank and to counsel for Bank. 3.02 Lien Report. At the sole cost of Borrowers, Bank shall ----------- receive a lien report confirming that Bank has a first and prior lien on all of the property pledged to Bank as Collateral. Said lien report shall include a summary of all liens and encumbrances against any of the property pledged to Bank by either Unified or Commonwealth as Collateral. 3.03 Certificate of Borrowers. Each of the Borrowers shall ------------------------ deliver to Bank a Certificate for Borrower, substantially in the form of EXHIBIT 3.03 hereto with all attachments thereto. - ------------ 3.04 Opinions of Counsel. At the sole cost of Borrowers, Bank ------------------- shall receive separate opinions of each of Borrowers' counsel, substantially in the form of EXHIBIT 3.04 hereto. ------------ 3.05 Representations and Warranties. Each and every ------------------------------ representation and warranty made by Borrowers contained in Article IV hereof and in any of the Loan Documents shall be substantially true, complete and accurate as of the making of the Loans. 3.06 Delivery of Financial Information. Bank shall receive, on --------------------------------- or before the making of the Loans, all available financial information of Borrowers as set forth in Section 5.02 hereof. 3.07 No Defaults. No Event of Default shall exist as of the ----------- making of the Loans which has not been cured to Bank's satisfaction. 3.08 No Change in Condition. There shall have been no material ---------------------- adverse change in the condition, financial or otherwise, of any of the Borrowers since the date of the most recent financial statement that has been furnished to Bank. 3.09 Compliance with Applicable Laws. Each of the Borrowers is ------------------------------- in compliance, in all material respects, with any and all laws applicable to their respective businesses. Page 7 of 26 3.10 Additional Closing Deliveries and Payments. Borrowers ------------------------------------------ shall deliver the following to Bank at the Closing, all of which shall be in form and substance satisfactory to Bank: (i) all appropriate financing statements (Form UCC-1) covering the Collateral; (ii) executed copies of all documents set forth on Bank's document checklist for this transaction including, but not limited to, the Loan Documents; and (iii) payment by Borrowers of all of Bank's fees and expenses incurred in connection with the Loans including, but not limited to, all reasonable fees and expenses of Bank's counsel and all recording fees and taxes, if any. ARTICLE IV ---------- REPRESENTATIONS AND WARRANTIES Borrowers jointly and severally represent and warrant to Bank, as of the date hereof and as of the date of each subsequent Advance, as follows: 4.01 Organization and Qualification. Unified is a corporation ------------------------------ duly organized, validly existing and in good standing under the laws of the State of Delaware, Commonwealth is a corporation duly organized, validly existing and in good standing under the laws of the State of Kentucky, and each has the lawful power to engage in the business each presently conducts; and each is duly licensed or qualified and in good standing in each jurisdiction where the nature of the business transacted by it makes such licensing or qualification necessary. 4.02 Power and Authority. Each of the Borrowers has the power ------------------- and authority to enter into and carry out the Loan Documents delivered by it in connection herewith, to execute and deliver such Loan Documents, and to perform each of its obligations under the Loan Documents. Each of the Borrowers has the power and authority to make the borrowings contemplated hereby and all such actions have been fully authorized by all necessary proceedings on the part of such Borrower. 4.03 Validity and Binding Effect. This Agreement and the other --------------------------- Loan Documents have been duly and validly executed and delivered by the Borrowers and each of the Borrowers' performance under such Loan Documents has been duly authorized. This Agreement and the other Loan Documents constitute legal, valid and binding obligations of the Borrowers enforceable in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization or other laws affecting creditors' remedies. No authorization, approval, exemption or consent by any governmental or public body or other authority is required in connection with the authorization, execution, delivery and carrying out of the terms of the Loan Documents by any of the Borrowers. 4.04 No Conflict. Neither the execution and delivery of the ----------- Loan Documents nor the Borrowers' consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof will conflict with or result in any default under or breach or Page 8 of 26 violation of (a) the terms and conditions of the Certificate or Articles of Incorporation, as the case may be, or the By-Laws of either of the Borrowers; (b) any state or federal law or regulation or any order, writ, injunction or decree of any court or governmental instrumentality applicable to either of the Borrowers; or (c) any agreement or instrument to which either of the Borrowers is a party or to which either of the Borrowers is subject or which will constitute a default thereunder or which will result in the creation or enforcement of any lien, charge or encumbrance whatsoever upon any of the Collateral. 4.05 Ownership of Collateral. Each of the Borrowers has good ------------------------ and marketable title to all of the personal property serving as Collateral pledged to Bank by such Borrower as security for the Loans. Unified has good and marketable title to all of the Collateral pledged to Bank by Unified as security for the Renewal Revolving Credit Loan. 4.06 Litigation. Except as disclosed in writing to Bank prior ---------- to the date of this Agreement, there are no actions, suits, proceedings or investigations pending or threatened against either of the Borrowers at law or in equity before any court or before any federal, state, municipal or any governmental department, commission, board, agency or instrumentality, whether or not covered by insurance, which, individually or in the aggregate, may result in any materially adverse effect on the business, property or assets or the condition, financial or otherwise, of either of the Borrowers or impair either of the Borrowers' ability to perform their obligations under the Loan Documents. Neither of the Borrowers is in violation of or in default with respect to any order, writ, injunction or any decree of any court or any federal, state, municipal or other governmental department, commission or bureau, agency or instrumentality which may result in any such impairment. 4.07 No Liens and Encumbrances on Collateral. Other than those --------------------------------------- Liens which have been previously disclosed to Bank in writing, there are no security interests, liens, claims, mortgages, or encumbrances upon or against the Collateral pledged to Bank by Borrowers except the liens in favor of Bank granted herein. Assuming Bank receives all of the Loan Documents which have been properly executed, duly authorized and properly recorded, Bank shall possess a valid and first priority lien in the Collateral pledged to Bank by Borrowers. 4.08 Tax Returns and Taxes. Each of the Borrowers has filed, --------------------- in a timely fashion and will in the future file in a timely fashion, all tax returns or reports (federal, state and local) required to be filed and has paid, and will pay in the future, all taxes, assessments, fees and governmental charges and levies shown or required to be shown thereon to be due, including interest and penalties. Each of the Borrowers will pay in the future, all real estate and personal property taxes, license fees and/or assessments due with respect to the Collateral. Each of the Borrowers knows of no material additional assessments for which adequate reserves have not been established, and each of the Borrowers has made adequate provisions for all current real estate and personal property taxes relating to the Collateral. 4.09 General Validity. No representation or warranty by either ---------------- of the Borrowers contained herein or made by either of the Borrowers in any other Loan Document contains any untrue statement of material fact or omits to state a material fact necessary in order to make such representation or Page 9 of 26 warranty not misleading in light of the circumstances under which it was made. There are no facts which materially and adversely affect the business, operations, affairs or condition of either of the Borrowers other than those facts disclosed to Bank in writing prior to the time of closing or as set forth herein. 4.10 Financial Statements; No Adverse Change. The financial --------------------------------------- statements and other documents of the Borrowers previously furnished to Bank are true, complete and accurate and are not misleading in any material respect. There have been no material adverse changes in the financial condition of either of the Borrowers since the date of the most recent financial statements that have been furnished to Bank. All financial statements and other financial information furnished to Bank accurately represent the financial condition of the Borrowers as of their respective dates in all material respects. Neither of the Borrowers has any material liabilities, direct or contingent, except as disclosed in its respective financial statements. 4.11 Accuracy of Information. All factual information ----------------------- furnished by Borrowers in writing to Bank for purposes of, or in connection with, this Agreement or the other Loan Documents is true, complete and accurate in every material respect on the date that such information was provided to Bank and as of the date of execution and delivery of this Agreement to Bank. ARTICLE V --------- AFFIRMATIVE COVENANTS 5.01 Affirmative Covenants Other Than Reporting Requirements for ----------------------------------------------------------- Both Borrowers. Borrowers jointly and severally covenant that, so long - -------------- as either of the Borrowers may borrow or request Advances hereunder and until payment in full of the Notes and all accrued but unpaid interest thereon or unless otherwise consented to in writing by Bank, each will do the following: a. Preservation of Company Existence, etc. Each of the --------------------------------------- Borrowers shall maintain its existence as a corporation, and its respective licenses or qualifications and good standing in each jurisdiction in which its ownership, use or lease of property or the nature of its business or both makes such licenses or qualifications necessary. b. Payment of Liabilities, Including Taxes, etc. Each --------------------------------------------- of the Borrowers shall duly pay and discharge all obligations to which they are subject or which are asserted against them, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental charges upon them or any of their properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that such obligations, including taxes, assessments or charges, are being contested in good faith by appropriate proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, has been made as required by Bank. c. Compliance with Loan Documents, etc. Each of the ------------------------------------ Borrowers shall substantially comply in all material respects with the terms and conditions of the Loan Documents and all other related agreements to which any is a party. Page 10 of 26 d. Collateral Maintenance. At Borrowers' sole cost, ---------------------- each of the Borrowers shall maintain, keep and preserve all tangible Collateral pledged to Bank in good working order and condition (ordinary wear and tear and insured casualty damages excepted). e. Keeping of Records and Books of Account. Each of --------------------------------------- the Borrowers shall maintain and keep proper books of record and account in accordance with sound accounting practices applied on a consistent basis and in which full, true and correct entries shall be made of all of its dealings and business and financial affairs. f. Operation of Business. Each of the Borrowers shall --------------------- maintain, conduct and operate its business in substantially the same manner as it has been heretofore maintained, conducted and operated. g. Insurance. At Borrowers' sole cost, each of the --------- Borrowers shall maintain, or cause to be maintained, insurance with financially sound and reputable insurance companies reasonably acceptable to Bank and in such amounts and covering such risks as are reasonably acceptable to Bank including, without limitation, liability, property, business interruption, and errors and omissions coverage. All insurance policies shall (i) provide that Bank is to receive thirty (30) days written notice prior to non-renewal or cancellation, and (ii) be evidenced by a certificate of insurance to be held by Bank. In the event Borrower fails to provide, maintain and keep in force the policies of insurance required by this Agreement, Bank may procure such insurance for such risks covering Bank's interest, and Borrowers shall pay all premiums, with interest, promptly upon demand by Bank. h. Compliance with Laws. Each of the Borrowers has at -------------------- all times heretofore and will hereafter comply in all material respects with all applicable laws, rules, regulations and orders including, without limitation, all applicable covenants and restrictions of record and all valid laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, certificates, franchises, permits, licenses, authorizations, directions and requirements including, without limitation, the Americans with Disabilities Act and regulations thereunder and all laws, ordinances, rules and regulations of all federal, states, county, municipal and other governments, departments, commissions, boards, courts, authorities, officials and officers. i. Right of Inspection. At any reasonable time and ------------------- from time to time, each of the Borrowers shall permit Bank and any agent or representative thereof to examine and make copies of and abstracts from either of the Borrowers' records and books of account, and visit its properties and to discuss its affairs, finances, and accounts with any of its respective officers and directors and its independent accountants. Without limiting the foregoing rights of Bank, each of the Borrowers agrees that without any prior notice to either of the Borrowers and not more frequently than two (2) times per calendar year, Bank and its agents and employees may, at Borrowers' sole cost, conduct Page 11 of 26 an audit of each of the Borrowers' records and books to determine each of the Borrowers' compliance with this Agreement and the other Loan Documents. 5.02 Reporting Requirements for Commonwealth. Commonwealth --------------------------------------- covenants that, so long as either of the Borrowers may borrow or request Advances hereunder and until payment in full of the Notes and all accrued but unpaid interest thereon or unless otherwise consented to in writing by Bank, Commonwealth will furnish, or cause to be furnished, to Bank the following: a. Annual Audited Financial Statements. Within one ----------------------------------- hundred twenty (120) days after the end of each fiscal year, audited financial statements for Commonwealth prepared and certified by a firm of independent public accountants of recognized standing acceptable to Bank, in form and content acceptable to Bank in its reasonable discretion, which shall include an unqualified annual audit report consisting of a balance sheet, statement of income, statement of shareholders' equity, statement of cash flows and notes to financial statements. All of the foregoing shall be in reasonable detail and stating in comparative form the respective amounts for the corresponding date and period in the prior fiscal year and all such financial statements shall be prepared in accordance with generally accepted accounting principles and certified as correct by the chief financial officer or president of Commonwealth. b. Quarterly Financial Statements. Within sixty (60) ------------------------------ days after the end of each fiscal quarter, company prepared financial statements for Commonwealth, in form and content acceptable to Bank in its reasonable discretion, which shall include a balance sheet as of the end of each such period and an income statement for the period from the beginning of the current fiscal year to the end of such period. The statement shall be certified as correct by the chief financial officer or president of Commonwealth. c. Covenant Compliance Certificate. Within sixty (60) ------------------------------- days after the end of each fiscal quarter, a Covenant Compliance Certificate, in the same form as attached hereto as EXHIBIT 5.02 C., --------------- prepared by Commonwealth and certified as correct by the chief financial officer or president of Commonwealth. d. Company Activity Summary. Within sixty (60) days ------------------------ after the end of each fiscal quarter, company prepared schedules summarizing the business activities of Commonwealth and certified as correct by the chief financial officer or president of Commonwealth. e. Schedule of Cash Receivables from Contracts. Within ------------------------------------------- sixty (60) days after the end of each fiscal quarter, company prepared schedules of cash receivables from contracts with insureds certified as correct by the chief financial officer or president of Commonwealth. f. Schedule of Past Due Accounts. Within sixty (60) ----------------------------- days after the end of each fiscal quarter, company prepared account receivable aging summaries for all accounts that are more than ninety (90) days past due certified as correct by the chief financial officer or president of Commonwealth. Page 12 of 26 g. Monthly Borrowing Base Certificate. Within fifteen ---------------------------------- (15) days after the end of each month or simultaneously with any request for an Advance, a Borrowing Base Certificate and Advance Request substantially in the form attached hereto as EXHIBIT 1.04. ------------ h. Notice of Litigation. Promptly after the commencement -------------------- thereof but in any event within thirty (30) days after the service thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting any of the Borrowers which, if determined adversely, could reasonably be expected to have a material and adverse effect on any of the Borrowers' respective financial conditions, properties, or operations. i. Notice of Events of Default. As soon as possible --------------------------- and in any event within ten (10) days after the occurrence of any Event of Default, a written notice setting forth the details of such Event of Default and the action which is proposed to be taken by Commonwealth with respect thereto. 5.03 Reporting Requirements for Unified. Unified covenants ---------------------------------- that, so long as either of the Borrowers may borrow or request Advances hereunder and until payment in full of the Notes and all accrued but unpaid interest thereon or unless otherwise consented to in writing by Bank, Unified will furnish, or cause to be furnished, to Bank the following: a. Annual Audited Financial Statements. Within one ----------------------------------- hundred twenty (120) days after the end of each fiscal year, audited financial statements for Unified prepared and certified by a firm of independent public accountants of recognized standing acceptable to Bank, in form and content acceptable to Bank in its reasonable discretion, which shall include an unqualified annual audit report consisting of a balance sheet, statement of income, statement of shareholders' equity, statement of cash flows and notes to financial statements. All of the foregoing shall be in reasonable detail and stating in comparative form the respective amounts for the corresponding date and period in the prior fiscal year and all such financial statements shall be prepared in accordance with generally accepted accounting principles and certified as correct by the chief financial officer or president of Unified. b. Quarterly Financial Statements. Within sixty (60) ------------------------------ days after the end of each fiscal quarter, company prepared financial statements for Unified, in form and content acceptable to Bank in its reasonable discretion, which shall include a balance sheet as of the end of each such period and an income statement for the period from the beginning of the current fiscal year to the end of such period. The statement shall be certified as correct by the chief financial officer or president of Unified. 5.04 Minimum Interest Coverage Ratio for Commonwealth. Commonwealth ------------------------------------------------ shall maintain a minimum Interest Coverage Ratio (as defined herein) of 1.75:1.0, which shall be calculated and reported on a calendar quarter basis. Page 13 of 26 ARTICLE VI ---------- NEGATIVE COVENANTS Borrowers jointly and severally covenant that, so long as either of the Borrowers may borrow or request Advances hereunder and until payment in full of the Notes and all accrued but unpaid interest thereon or unless otherwise consented to in writing by Bank, which consent shall not be unreasonably withheld, neither of the Borrowers shall permit or cause any of the following: 6.01 Liens. Create, incur, assume or suffer to exist any ----- mortgage, security interest, lien or encumbrance whatsoever on any of the Collateral or assign all or any part of the Collateral to any party other than Bank, except: a. Bank Liens. Liens in favor of Bank; ---------- b. Tax Liens and Contested Liens. Liens for taxes or ----------------------------- assessments or other government charges or levies if not yet due and payable or, if due and payable, if they are being contested in good faith by appropriate proceedings diligently conducted; c. Statutory Liens. Liens imposed by law, such as --------------- mechanics, materialmen, landlords, warehousemen and carrier Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due or which are being contested in good faith by appropriate proceedings diligently conducted and for which appropriate reserve or other appropriate provisions, if any, have been established as required by Bank; d. Liens Not Due and Payable. Liens under workers' ------------------------- compensation, unemployment insurance, social security, or similar legislation for sums which are not past due; e. Certain Judgment Liens. Liens consisting of judgment ---------------------- or judicial attachment liens (including prejudgment attachment) in existence less than sixty (60) days after the entry thereof or the enforcement of which is effectively stayed or payment of which is covered in full (subject to deductible) by insurance; and f. Ordinary Course Liens. Liens, deposits, or pledges --------------------- to secure the performance of public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business. 6.02 Liquidation, Merger or Sale of Assets. (a) Liquidate, ------------------------------------- merge or consolidate with or into any other Person or take any action in furtherance of any thereof; (b) permit any other Person to consolidate with or merge into either of the Borrowers; (c) sell, convey, assign, lease or otherwise transfer or dispose of, in a single transaction or a series of related transactions, a material part of either of the Borrowers' assets; (d) change either of the Borrowers' name; or (e) sell, convey or otherwise transfer any of the Collateral other than in the ordinary course of business. Page 14 of 26 6.03 Debt Limitations of Commonwealth. Commonwealth shall not -------------------------------- create, incur, assume or suffer to exist any additional indebtedness in excess of $50,000, without the prior written consent of Bank, except: a. Bank Debt. Debt payable to Bank under this --------- Agreement and the Revolving Credit Note; or b. Accounts Payable, etc. Accounts payable to trade ---------------------- creditors in accordance with prior practice including, without limitation, amounts payable under service contracts and for goods or services incurred in the ordinary course of business that are paid within the specified time, unless contested in good faith and by appropriate proceedings diligently conducted. 6.04 No Dividends by Commonwealth. Commonwealth shall not ---------------------------- declare or pay any dividends, payable in cash, property, stock or otherwise, with respect to Commonwealth's outstanding common stock throughout the term of this Agreement without the prior written consent of Bank. ARTICLE VII ----------- EVENTS OF DEFAULT Each of the following shall be an Event of Default under this Agreement: 7.01 Payment Default. Either of the Borrowers fails to pay any --------------- installment of interest on the Notes after its due date without notice from Bank, or any other sum due to Bank under any of the Loan Documents, within ten (10) days following notice that the same is due and payable. 7.02 Default in Other Obligations to Bank. The occurrence of a ------------------------------------ material default and the expiration of the applicable cure period, if any, under any of the Loan Documents or any other obligation of either of the Borrowers to or with Bank, whether now or hereafter arising. 7.03 Breach of Representation or Warranty. Any representation ------------------------------------ or warranty made or deemed made by any of the Borrowers in this Agreement, the Loan Documents, or in any certificate, document, opinion, or financial or other statement furnished at any time under or in connection with any Loan Document proves to have been incorrect in any material respect on or as of the date made or deemed made. 7.04 Breach of Covenant. Any of the Borrowers fails to perform ------------------ or observe any term, covenant or agreement on their part to be performed or observed in any of the Loan Documents (other than a failure to pay any sum to Bank when due) to which any of them is a party and such failure shall continue for a period of thirty (30) days after written notice to Unified or Commonwealth, as applicable, from Bank describing the nature of the failure; provided, however, that an Event of Default shall occur immediately and without the thirty (30) day cure period if any such failures relate to the provisions contained in Sections 6.02 or 9.21 of this Agreement. Page 15 of 26 7.05 Insolvency. Either of the Borrowers (i) is unable to, or ---------- admits in writing its inability to, pay its debts as such debts become due; (ii) makes an assignment for the benefit of creditors, petitions or applies to any tribunal for the appointment of a custodian, receiver or trustee for them or a substantial part of its assets; (iii) commences any proceeding under any bankruptcy, reorganization, arrangements, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction whether now or hereafter in effect; (iv) has any such petition or application filed or any such proceeding commenced against it in which an order for relief is entered or adjudication or appointment is made and which remains undismissed for a period of sixty (60) days or more; (v) by any act or omission, indicates its consent to, approval of, or acquiescence in any such petition, application, or proceeding, or order for relief, or the appointment of a custodian, receiver, or trustee for all or any substantial part of its properties; (vi) suffers any such custodianship, receivership, or trusteeship to continue undischarged for a period of sixty (60) days or more; or (vii) becomes insolvent in that its total assets are in the aggregate less than all of its liabilities. 7.06 Unpaid Judgments. One or more final judgments, decrees, ---------------- or orders for the payment of money in excess of Fifty Thousand Dollars ($50,000.00) in the aggregate shall be rendered against any of the Borrowers and such judgments, decrees or orders shall continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal. 7.07 Invalid Documents. Any of the Loan Documents shall at any ----------------- time after their execution and delivery and for any reason, other than payment in full of the obligations so secured, cease (i) to create a valid and perfected first priority security interest in and to the Collateral; or (ii) to be in full force and effect, and such matter is not fully corrected or resolved to Bank's satisfaction within thirty (30) days after written notice with respect thereto from Bank. 7.08 Sale of Collateral. Any of the Borrowers sells, transfers ------------------ or conveys any interest whatsoever in any of the Collateral (unless such Collateral is replaced in the ordinary course of business or is obsolete) without the prior written consent of Bank. 7.09 Unauthorized Liens on Collateral. Any further Lien is -------------------------------- placed on any of the Collateral which is the subject of the Loan Documents (except to the extent and in the manner provided for in this Agreement), without the prior written consent of Bank. 7.10 Termination of Borrower. If either of the Borrowers takes ----------------------- any action that is intended to result in such Borrower's termination, dissolution or liquidation. ARTICLE VIII ------------ REMEDIES OF BANK IN THE EVENT OF DEFAULT 8.01 Acceleration, etc. Upon the occurrence of any Event of ------------------ Default set forth above and without further notice to Borrowers, Bank may (i) declare its obligation to make Advances under the Notes and this Agreement to be terminated, whereupon the same shall forthwith terminate; (ii) declare the outstanding principal balance owing under the Notes, all accrued but unpaid interest Page 16 of 26 thereon, and all other amounts payable under any of the Loan Documents or otherwise to be forthwith due and payable, whereupon the Notes, all such interest, and all such amounts shall become and be immediately due and payable without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by Borrowers, without any action on the part of Bank; (iii) avail itself of any and all remedies available to it in any of the Loan Documents including, without limitation, the appointment of receivers for the Collateral; and (iv) avail itself of any and all other or additional remedies available by law or in equity. 8.02 Enforcement of Rights. Upon the occurrence of any Event --------------------- of Default, Bank shall have the right to proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate proceedings either for specific performance of any covenant or condition contained in this Agreement or in any of the other Loan Documents, or in aid of the exercise of any power granted in this Agreement or any of the other Loan Documents. 8.03 Foreclosure, Repossession and Sale of Collateral. Bank ------------------------------------------------ shall have full power and authority to proceed to exercise any one or more of the rights accorded to it by the Uniform Commercial Code of the Commonwealth of Kentucky or otherwise accorded to it by law, including the foreclosure and repossession of the Collateral. Upon the occurrence of any Event of Default, the rights of either of the Borrowers to use, sell, substitute, exchange or exercise any other rights relating to the Collateral and all proceeds thereof and income therefrom shall automatically terminate without notice and Bank shall thereafter be entitled to foreclose, take possession of, receive, sell and collect the same. The Collateral and the proceeds of any sale thereof may be applied by Bank, in its sole discretion, against the Notes or any other liabilities or obligations owed to Bank, and Bank may first apply the proceeds of such disposition to any and all expenses including, without limitation, advertising and storage costs and reasonable attorneys' fees and legal costs, incurred by Bank in connection with or arising out of such disposition. Bank may send any written notice required by this Section 8.03 in the manner set forth in Section 9.04 hereof. Borrowers agree that ten (10) days notice by Bank to such Borrower is reasonable notice of any sale of Collateral consisting of personal property. Bank shall have the right to sell that portion of the Collateral which is personal property at either public or private sale and shall have the right to bid upon and purchase any of the Collateral at any sale. 8.04 Right to Proceed in Any Order. Upon the occurrence of any ----------------------------- Event of Default, Bank shall be entitled to exercise any and all of its rights and remedies in any order against the Borrowers and the Collateral as Bank determines in its sole discretion. 8.05 Waiver of Marshaling of Assets. Borrowers waive any ------------------------------ requirement of marshaling of assets and all other legal or equitable doctrines which might otherwise require Bank to proceed against any Persons or any Collateral in any particular order. 8.06 Remedies Cumulative; No Waiver of Rights by Bank. Upon ------------------------------------------------ the occurrence of any Event of Default, Bank may choose to exercise and enforce any of its rights or remedies, or decline to exercise and enforce any of its rights or remedies, in Bank's sole discretion. The failure of Bank to exercise and enforce any rights or remedies shall not prevent Bank from thereafter exercising or Page 17 of 26 enforcing any such rights or remedies, nor shall such failure release any Person or property with respect to which Bank has any rights or remedies or in any way limit or diminish Bank's rights with respect to any such property or Person. All of Bank's rights and remedies shall be cumulative to the greatest extent permitted by law, may be exercised successively or concurrently, at any time and from time to time, and shall be in addition to all of those rights and remedies afforded Bank at law, in equity, or in bankruptcy. Any exercise of any right or remedy shall not be deemed to be an election of that right or remedy to the exclusion of any other right or remedy. Bank shall be entitled to recover from the cumulative exercise of all remedies the sum of: (a) the outstanding principal amount of the Notes; (b) all accrued but unpaid interest with respect to the principal amount of the Notes; (c) any other amounts that either of the Borrowers are required by the Loan Documents to pay to Bank (for example and without limitation, the reimbursement of all reasonable expenses, legal fees and late charges); and (d) any costs, expenses or damages which Bank is otherwise permitted to recover under the terms of the Loan Documents, or at law or in equity. 8.07 Application of Payments and Proceeds of Sale. All payments -------------------------------------------- from Borrowers to Bank under the Notes or any of the other Loan Documents, and all payments to Bank from the sale or other disposition of Collateral, shall be applied by Bank in its discretion as follows: (a) to the payment of the costs and expenses of Bank and the reasonable fees and expenses of its counsel in connection with the administration or enforcement of Bank's rights and remedies against either of the Borrowers, the Collateral and sale or collection thereof; (b) to the payment in full of all loan obligations referred to under the Loan Documents applying such amounts first to accrued but unpaid interest and then to principal; and (c) the balance, if any, to Borrowers or to any third party entitled thereto. 8.08 No Obligation to Preserve Collateral. Upon the occurrence ------------------------------------ of any Event of Default, Bank may, at its option, demand, sue for, collect, preserve or make any compromise or settlement it deems desirable with reference to the Collateral. Bank shall not be bound to take any steps necessary to preserve the Collateral against other parties, which steps each of the Borrowers expressly agree to undertake. 8.09 Right of Set Off. Upon the occurrence and during the ---------------- continuance of any Event of Default, Bank is hereby authorized, at any time and from time to time, without notice to any of the Borrowers (any such notice being expressly waived), to set off and apply any and all deposit balances (other than trust, restricted or fiduciary accounts) at any time held and other indebtedness at any time owing by Bank to or for the credit or the account of any Borrower against any and all of the obligations of any Borrower now or hereafter existing under this Agreement, the Notes or any other Loan Document, irrespective of whether or not Bank shall have made any demand under this Agreement or the Notes or such other Loan Document and although such obligations may be unmatured. Bank agrees to promptly notify such Borrower after any such set off and application, provided that the failure to give such notice shall not affect the validity of such set off and application. The rights of Bank under this section are in addition to other rights and remedies (including, without limitation, other rights of set off) which Bank may have. Page 18 of 26 8.10 Cash Collateral. All income and proceeds from any of the --------------- Collateral shall be considered "cash collateral" as defined under the terms of the United States Bankruptcy Code and Borrowers shall not have the right to use any of the cash collateral without first receiving leave from a bankruptcy court of competent jurisdiction and venue. ARTICLE IX ---------- MISCELLANEOUS 9.01 No Implied Waiver; Cumulative Remedies; Writing Required. -------------------------------------------------------- No delay or failure of Bank in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The rights and remedies provided hereunder are cumulative and not exclusive of any rights or remedies (including, without limitation, the right of specific performance) which Bank would otherwise have. Any waiver, permit, consent or approval of any kind or character on the part of Bank of any breach or default under this Agreement, the Notes or any other Loan Documents or any such waiver of any provision or condition hereof or thereof must be in writing and shall be effective only to the extent specifically set forth in such writing. Borrowers acknowledge that with respect to this Agreement and its terms, Borrowers are neither authorized nor entitled to rely on any representations, modifications or assurances in any form or as to any subject from any officer of Bank unless and until such representation, modification or assurance is set forth in writing and signed by such officer of Bank. 9.02 Taxes. Borrowers agree to pay or cause to be paid any and ----- all stamp, document, transfer or recording taxes, and similar impositions payable or hereafter determined to be payable in connection with this Agreement and any other Loan Document or other documents, instruments or transactions pursuant to or in connection herewith, and agree to save Bank harmless from and against any and all present or future claims or liabilities with respect to or resulting from any delay in paying or omission to pay, any such taxes or similar impositions. 9.03 Holidays. Whenever any payment or action to be made or -------- taken hereunder or under the Notes shall be stated to be due on a day which is not a Business Day, such payment or action shall be made or taken on the next succeeding Business Day. 9.04 Notices. All notices and other communications given to or ------- made upon any party hereto in connection with this Agreement or any of the other Loan Documents shall, except as herein or therein otherwise expressly provided, be in writing and mailed, faxed or delivered to the addresses set forth below the signatures of the parties hereto or at such other address as shall be specifically designated by any such party. All such notices or other communications shall be effective, if mailed, when deposited in the U.S. mail, first class postage prepaid; if faxed, when faxed; or if delivered, when delivered. 9.05 [intentionally omitted] Page 19 of 26 9.06 Time of Essence. Time shall be of the essence as to all --------------- provisions of this Agreement. 9.07 Severability. The provisions of this Agreement are ------------ severable, and if any clause or provision of this Agreement shall be held invalid or unenforceable in whole or in part, then such clause or provision shall be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability or the remaining provisions hereof. 9.08 Governing Law. This Agreement, the Notes and the other ------------- Loan Documents and the rights and obligations of the parties hereto and thereto shall be governed by and construed and enforced in accordance with the substantive law of the Commonwealth of Kentucky. 9.09 Survival. All representations, warranties, covenants and -------- agreements contained herein, in the Loan Documents or any other agreement, certificate or instrument delivered pursuant hereto or made in writing in connection herewith or therewith shall survive the execution and delivery hereof and thereof, the making of the Loan hereunder and the issuance of the Notes and shall continue in full force and effect so long as Borrowers may borrow or request Advances and until payment in full of Borrowers' obligations hereunder and under the Notes. Provided, however, those provisions contained in Sections 9.11, 9.12, 9.18 and 9.20 shall survive the payment of the Notes. 9.10 Benefit and Binding Effect of Agreement. This Agreement --------------------------------------- shall be binding upon and inure to the benefit of Bank, Borrowers and their respective successors and assigns, except that Borrowers may not assign or transfer their rights hereunder or any interest herein without the prior written consent of Bank. 9.11 JURY WAIVER. BORROWERS AND BANK HEREBY VOLUNTARILY, ----------- KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT, ANY OTHER LOAN DOCUMENT OR ANY RELATIONSHIP BETWEEN BANK AND BORROWERS. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE OTHER LOAN DOCUMENTS. 9.12 Jurisdiction and Venue; Service. Subject to Section 9.20, ------------------------------- the parties agree that the sole proper venue for the determination of any litigation commenced by Bank against any Borrower or any Borrower against Bank on any basis shall be in a court of competent jurisdiction which is located in Fayette County, Kentucky, and the parties hereby expressly declare that any other venue shall be improper and Borrowers expressly waive any right to a determination of any such litigation against Bank by a court in any other venue. Each Borrower further agrees that service of process by any judicial officer or by registered or certified U.S. mail shall establish personal jurisdiction over Borrowers and Borrowers waive any rights under the laws of any state to object to jurisdiction within the Commonwealth of Kentucky. Provided, however, nothing contained in this section shall prevent Bank from bringing an action within another state in order to enforce its rights in the Collateral which may be located in another state. Initiating such proceedings or taking such action in any other Page 20 of 26 state shall in no event constitute a waiver of the agreement contained herein that the laws of the Commonwealth of Kentucky shall govern the rights and obligations of the parties hereunder or of the submission herein made by each Borrower to personal jurisdiction within the Commonwealth of Kentucky. The aforesaid means of obtaining personal jurisdiction and perfecting service of process are not intended to be exclusive, but are cumulative and in addition to all other means of obtaining personal jurisdiction and perfecting service of process now or hereafter provided by the laws of the Commonwealth of Kentucky or by any other state in an action brought by Bank in such state. 9.13 No Third Party Beneficiaries. All conditions on the ---------------------------- obligations of any party hereunder, including the obligation of Bank to make Advances, are imposed solely and exclusively for the benefit of the other parties to this Agreement and Bank's successors and assigns. No other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Bank will refuse or decline to make Advances in the absence of strict compliance with any or all thereof, and no other Person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any and all of which may be freely waived in whole or in part by the respective party to whom the performance of any such condition shall run at any time if, in the sole discretion of such party, it deems it desirable to do so, or if it fails to do so for any other reason. 9.14 Relationship of the Parties. All of the parties herein --------------------------- intend that the relationship between them be solely that of creditor and debtor. Nothing contained in the Loan Documents shall be deemed or construed to create a partnership, fiduciary relationship, joint venture or co-ownership by or between the parties herein. Bank shall not in anyway be responsible or liable for the debts, losses, obligations or duties of either of the Borrowers. All obligations to pay property or other taxes, assessments, insurance on the Collateral and all other fees and charges arising from the ownership and operation of the assets of Borrowers shall be the sole responsibility of Borrowers. 9.15 Bank's Performance of Borrowers' Covenants and Duties. ----------------------------------------------------- Should Borrowers fail to perform any of their covenants, duties and agreements in accordance with the terms hereof and an Event of Default shall thereby result, Bank may, at its election and at Borrowers' sole expense, perform or attempt to perform such covenant, duty or agreement on behalf of Borrowers, but in no event shall Bank have any obligation to do so. Borrowers shall, at the request of Bank, promptly pay, upon demand, any reasonable amount expended by Bank in such performance or attempted performance to Bank, together with interest thereon at the default rate under the Notes from the date such amount was requested by Bank to be paid until paid; provided that Bank does not assume and shall never have, except by a subsequent, express written undertaking by Bank, any liability for the performance of any duties of Borrowers under or in connection with all or any part of the Collateral. Bank shall be subrogated to all rights, titles, liens and security interests securing the payment of any debt, claim, tax or assessment for the payment of which Bank may make an advance or that Bank may pay. 9.16 Course of Dealing; Waiver. No course of dealing in ------------------------- respect of, or any omission or delay in the exercise of, any right, power, remedy or privilege by Bank shall operate as a waiver Page 21 of 26 thereof, nor shall any right, power, remedy or privilege of Bank be exclusive of any other right, power, remedy or privilege referred to herein or in any related document or now or hereafter available at law, in equity, in bankruptcy, by statute or otherwise. No waiver or consent granted by Bank with respect to any of the Loan Documents or related writing shall be binding upon Bank, unless specifically granted in writing by a duly authorized officer of Bank, which writing shall be strictly construed. 9.17 Absence of Oral Representations. Each of the Borrowers ------------------------------- represents and warrants that no promises, assurances or commitments have been made to either of them by Bank or have been relied on by either of them regarding any extension, renewal or future financing. Each of the Borrowers understands and agrees that Bank is entitled to enforce all of the Loan Documents strictly in accordance with their terms, and any commitment or obligation to extend or renew any financing or provide additional financing shall not be binding on Bank, except to the extent contained in a writing signed by every Person who is to be bound thereby. Borrowers further acknowledge that (i) Bank does not presently anticipate renewing, extending or further modifying the financing referenced in this Agreement, and (ii) Bank anticipates the Notes will be fully paid in accordance with its terms on or before maturity. Borrowers each agree and represent to Bank (which representation Borrowers acknowledge Bank is relying on in executing this Agreement) that they will not rely on any (i) commitment or representation from Bank with respect to any future financing including, but not limited to, renewals, extensions and modifications, unless signed in writing by Bank, and (ii) waiver of any right existing at any time, and from time to time, either now or in the future, except to the extent evidenced by a writing signed by the person affecting such waiver. 9.18 Indemnity. Borrowers shall indemnify and hold Bank --------- harmless against any loss suffered or liability incurred by Bank on account of any damage to the person or property of the parties hereto or to third parties by reason of the operation of Borrowers' businesses, or otherwise arising out of or connected to the conduct of any Borrower or their officers, managers, directors, employees or agents, in connection with any matters which are the subject of this Agreement. 9.19 References. Any and all references in this Agreement to ---------- any document or documents shall be references to such document or documents as the same may from time to time be modified, amended, renewed, consolidated or extended, with the consent of Bank. 9.20 Arbitration. Borrowers and the Bank agree that, upon the ----------- written demand of either party, whether made before or after the institution of any legal proceedings but prior to the rendering of any judgment in that proceeding, all disputes, claims and controversies between them, whether individual, joint, or class in nature, arising from any of the Loan Documents or otherwise including, without limitation, contract disputes and tort claims, shall be resolved by binding arbitration pursuant to the Commercial Rules of the American Arbitration Association. Any arbitration proceeding held pursuant to this arbitration provision shall be conducted at the city nearest Commonwealth's address having a AAA office or at any other location selected by mutual agreement of the parties. No act to take or dispose of any Collateral shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This arbitration provision shall not limit the right of either party during any dispute, claim or controversy to seek, use and employ ancillary, or preliminary Page 22 of 26 rights and/or remedies, judicial or otherwise, for the purposes of realizing upon, preserving, protecting, foreclosing upon or proceeding under forcible entry and detainer for possession of, any real or personal property, and any such action shall not be deemed an election of remedies. Such remedies include, without limitation, obtaining injunctive relief or a temporary restraining order, invoking power of sale under any deed of trust or mortgage, obtaining a writ of attachment or imposition of a receivership, or exercising any rights relating to personal property, including exercising the right of set-off, or taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code or when applicable, a judgment by confession of judgment. Any disputes, claims or controversies concerning the lawfulness or reasonableness of an act, or exercise of any right or remedy concerning any Collateral, including any claim to rescind, reform or otherwise modify any agreement relating to the Collateral, shall also be arbitrated; provided, however, that no arbitrator shall have the right or the power to enjoin or restrain any act of any party. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this arbitration provision shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches and similar doctrines which would otherwise be applicable in a legal action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of a legal action for these purposes. The Federal Arbitration Act (Title 9 of the United States Code) shall apply to the construction, interpretation, and enforcement of this arbitration provision. 9.21 Assignments. Borrowers may not assign their respective ----------- rights under any of the Loan Documents to any other party. Any attempted assignment shall be a default under this Agreement and shall be null and void. The Bank shall have the right and ability, upon not less than fifteen (15) days prior written notice to (but without the requirement for any consent from) Borrower, to sell, assign or transfer all or any part of its rights and/or obligations under this Agreement, and/or to participate its rights and obligations under this Agreement with other institutional lenders, and/or to sell participation or participating interests in its rights and/or obligations under this Agreement to other institutional lenders. In furtherance thereof, the Bank shall have the right to provide to any Person who expresses an interest in becoming such a buyer, assignee, transferee, participant and/or purchaser, or who actually does become such a buyer, assignee, transferee, participant and/or purchaser, such information concerning the financial condition, business and other affairs of the Borrowers as the Bank may deem appropriate in the circumstances. Borrowers hereby authorize all such disclosures. 9.22 Waivers by Borrowers. Borrowers hereby waive, to the -------------------- extent permitted by applicable law, (a) all presentments, demands for performance, notices of nonperformance (except to the extent specifically required by the Loan Documents), protests, notices of protest and notices of dishonor in connection with the Notes; and (b) any requirement of diligence or promptness on the part of Bank in enforcement of its rights under the provisions of any of the Loan Documents. 9.23 Incorporation by Reference. All schedules, annexes or -------------------------- other attachments to this Agreement are incorporated into this Agreement as if set out in full at the first place in this Agreement that reference is made thereto. Page 23 of 26 9.24 Headings. The headings used in this Agreement are -------- included for ease of reference only and shall not be considered in the interpretation or construction of this Agreement. 9.25 Counterpart Execution. This Agreement may be signed by --------------------- each party upon a separate copy, and in such case one counterpart of this Agreement shall consist of enough of such copies to reflect the signature of each party. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement or the terms thereof to produce or account for more than one of such counterparts. 9.26 Acknowledgment. Borrowers acknowledge that Borrowers have -------------- received a copy of each of the Loan Documents, as fully executed by the parties thereto. Borrowers acknowledge that Borrowers (a) have READ THE LOAN DOCUMENTS OR HAVE CAUSED SUCH DOCUMENTS TO BE EXAMINED BY THE BORROWERS' REPRESENTATIVES OR ADVISORS; (b) are thoroughly familiar with the transactions contemplated in this Agreement and the other Loan Documents; and (c) have had the opportunity to ask such questions to representatives of the Bank, and receive answers thereto, concerning the terms and conditions of the transactions contemplated in the Loan Documents as the Borrowers deem necessary in connection with their decision to enter into this Agreement. 9.27 Year 2000 Compliance. -------------------- (a) Representation and Warranties. Borrowers represent ----------------------------- and warrant to Bank as follows: (i) as of the date of any request for an Advance under the Loan Documents; (ii) as of the date of any renewal, extension or modification of the Loan Documents; and (iii) at all times that the Loan Documents or Bank's commitment to make advances under the Loan Documents is outstanding all devices, systems, machinery, information technology, computer software and hardware, and other date sensitive technology (jointly and severally the "Systems") necessary for them to carry on their businesses as presently conducted and as contemplated to be conducted in the future are Year 2000 Compliant or will be Year 2000 Compliant with a period of time calculated to result in no material disruption of any of their business operations. For purposes of these provisions, "Year 2000 Compliant" means that such Systems are designed to be used prior to, during and after the Gregorian calendar year 2000 A.D. and will operate during such time period without error relating to date data, specifically including any error relating to, or the product of, date data which represents or referenced different centuries or more than on century. (b) Affirmative Covenants. Borrowers covenant and agree --------------------- with Bank that, while any Loan Document is in effect, Borrowers will: i. Furnish such additional information, statements and other reports with respect to their activities, course of action and progress towards becoming Year 2000 Compliant as Bank may request from time to time; ii. In the event of any change in circumstances that causes or will likely cause any of their representations and warranties with respect to either of them being or becoming Year 2000 Compliant to no longer be true (hereinafter referred to as a "Change in Circumstances") Page 24 of 26 promptly, and in any event within ten (10) days of receipt of information regarding a Change in Circumstances, provide Bank with written notice (the "Notice") that describes in reasonable detail the Change in Circumstances and how such Change in Circumstances caused or will likely cause Borrowers' representations and warranties with respect to being or becoming Year 2000 Compliant to no longer be true. Borrowers shall, within ten (10) days of a request, also provide Bank with any additional information that Bank requests in connection with the Notice and/or Change of Circumstances; and iii. Give any representative of the Bank access during all business hours, and permit such representative to examine, copy or make excerpts from, any and all books, records and documents in the possession of any Borrower and relating to its affairs, and to inspect any of the properties and Systems and to project test the Systems to determine if they are Year 2000 Compliant in an integrated environment, all at the sole cost and expense of Bank. 9.28 Entire Agreement. This Agreement constitutes the entire ---------------- agreement and the understanding between and among the parties with respect to the subject matter hereof and this Agreement supersedes all previous and contemporaneous negotiations and agreements between the parties and no parole evidence of any prior or other agreements shall be permitted to contradict or vary the terms hereof. Borrowers acknowledge that there have been no promises for additional extensions of time for payment of the Notes nor have there been any agreements made to provide additional funding to any party hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first set forth above. BANK ONE, KENTUCKY, NA, a national banking association BY: /s/ Mark Boison -------------------------------------- TITLE: First Vice President ----------------------------------- "BANK" UNIFIED FINANCIAL SERVICES, INC., a Delaware corporation BY: /s/ John S. Penn -------------------------------------- TITLE: Executive Vice President ----------------------------------- "UNIFIED" Page 25 of 26 COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation BY: /s/ John R. Owens -------------------------------------- TITLE: Vice President ----------------------------------- "COMMONWEALTH" Page 26 of 26 EX-10.27 5 SECURITY AGREEMENT SECURITY AGREEMENT ------------------ THIS SECURITY AGREEMENT is made and entered into effective as of the 28th day of December, 1999, by COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation whose address is 220 Lexington Green Circle, Suite 600, Lexington, Kentucky 40503 (hereinafter referred to as "Debtor"), and BANK ONE, KENTUCKY, NA, a national banking association and its successors and assigns, whose address is 416 West Jefferson Street, Louisville, Kentucky 40202 (hereinafter referred to as "Secured Party"). IT IS AGREED BY THE PARTIES AS FOLLOWS: 1. For value received, Debtor does hereby grant unto Secured Party a security interest in and to all the collateral described in numerical Paragraph 2 hereof to secure all the indebtedness referred to in numerical Paragraph 3 hereof. 2. The collateral covered by this Security Agreement is (a) all of Debtor's property described in EXHIBIT "A" hereto and any ----------- supplemental exhibits thereto, and (b) all proceeds and products thereof (all of which collateral is hereinafter collectively referred to as the "Collateral"). 3. This Security Agreement is made as collateral security for: a. the Renewal Revolving Credit Note dated December 28, 1999, made by Debtor payable to the order of Secured Party in the original principal amount of $2,500,000.00; and b. all other liabilities and obligations of whatever kind or type of Debtor to Secured Party, including any other guarantees of the Debtor to Secured Party, whether created directly or acquired by Secured Party by assignment or otherwise, whether now existing or hereafter created, arising or acquired, absolute or contingent, joint or several, due or to become due (the foregoing obligations are herein collectively referred to as the "Indebtedness"). 4. Debtor represents and warrants to Secured Party that: a. All of the Collateral is used or will be used for business purposes. b. (i) Debtor is the absolute owner of the legal and beneficial title to the Collateral, (exclusive of hereafter acquired, replacement or hereafter created items), and is in full possession thereof; and (ii) except as previously disclosed to Secured Party in writing, the collateral is free and clear of all liens, encumbrances and adverse claims whatsoever. c. Debtor has the right to enter into this Security Agreement. 5. Debtor covenants and agrees that: a. Debtor shall defend the Collateral against all claims and demands of all persons. b. Debtor shall not: (i) permit any loan or security interest (other than Secured Party's security interest granted herein and those liens previously disclosed in writing to Secured Party) to attach to any of the Collateral; (ii) permit any of the Collateral to be levied upon under any legal process; or (iii) dispose of or enter or agree to enter into any sale of any of the Collateral, without the prior written consent of Secured Party. c. Debtor shall insure or have insured the Collateral for the benefit of Secured Party (who shall be the loss payee) in such amounts, for such risks and with such company as Secured Party may request, and promptly deliver all policies with respect thereto to Secured Party, or in the event Debtor at any time has not maintained and delivered to Secured Party such requested policies of insurance, Secured Party may, in its sole and absolute discretion and whether or not any Event of Default (as defined in this Security Agreement) has occurred, place and affect such insurance as Secured Party deems appropriate, at the Debtor's sole expense, and in the event Secured Party elects to pay for such insurance coverage, Debtor shall reimburse Secured Party for the amount(s) so paid plus interest thereon at the highest rate charged on any of the Indebtedness mentioned in Paragraph 3 of this Security Agreement. d. Debtor shall preserve the value of the Collateral and maintain the Collateral in good condition, ordinary wear and tear excepted. e. Debtor shall advise Secured Party in writing, at least thirty (30) days prior thereto, of any change in Debtor's place of business or mailing address, or any changes in the locations of the Collateral or new locations at which any of the Collateral is to be located. f. Debtor shall not conduct business under any other name than that given above nor change or reorganize the type of business entity under which it does business except upon prior written approval of Secured Party which approval shall not be unreasonably withheld. If such approval is given, Debtor guarantees that all documents, instruments and agreements demanded by Secured Party shall be prepared and filed at Debtor's expense before such change of name or business entity occurs. Page -2- g. Debtor shall execute and deliver to Secured Party, upon request, new UCC-1 Financing Statements describing the same Collateral specified herein for recordation, where necessary in Secured Party's sole discretion, to perfect Secured Party's security interest in the Collateral, and Debtor shall pay all filing and recording fees and filing and recording taxes in connection with the filing and/or recordation of such Financing Statements and, if paid by the Secured Party, Debtor will reimburse Secured Party therefor upon demand by Secured Party. h. Debtor hereby irrevocably appoints Secured Party as Debtor's attorney-in-fact to do all acts and things which Secured Party may deem necessary or appropriate to perfect and continue perfected the security interest created by this Security Agreement and to protect and, in case of an Event of Default hereunder, collect and sell the Collateral including, but not limited to, the execution of the following in Debtor's name as Debtor's irrevocable attorney- in-fact: (i) notifications and agreements to sell, where sale is permitted; (ii) any documents or papers necessary or helpful to comply with the terms of any agreements relative to any of the collateral; and (iii) UCC-1 (and other) Financing Statements covering the Collateral, and the filing and recordation of same wherever Secured Party deems appropriate, with Debtor to reimburse Secured Party for all filing and recording fees, taxes and other expenses in connection therewith upon demand of Secured Party; provided, however, the power of attorney granted hereby shall survive the disability of the principal but when all the Indebtedness is fully paid and performed and Debtor has no obligations to or commitments for loan(s) from Secured Party, this power of attorney shall become null and void. i. The Indebtedness shall be paid to Secured Party in accordance with the terms of the Renewal Revolving Credit Note. j. Debtor shall comply in all respects with any other agreement between Debtor and Secured Party. k. Debtor shall permit Secured Party and/or its agents to inspect and appraise the Collateral and inspect the books and records of Debtor, at all reasonable times and from time to time, and shall pay all reasonable expenses Secured Party may incur in connection with any such inspection(s) and appraisal(s). 6. Events of Default. The occurrence of any Event of Default as ----------------- defined in the Loan Agreement or the other Loan Documents (as defined in the Loan Agreement) shall constitute an Event of Default hereunder. Page -3- 7. Remedies Upon Occurrence of Default. Upon the occurrence of any ----------------------------------- Event of Default as defined in Section 6 hereof, Secured Party shall have the following rights and remedies, in addition to all other rights and remedies provided by law, at equity or in the Loan Agreement and any other document or instrument relating to, securing or evidencing the Indebtedness, all of which shall be cumulative and may be exercised from time to time, either successively or concurrently: a. To notify each account debtor or lessee of the Debtor who owes receivables or rents to Debtor and direct that all such receivables or rents be paid directly to Secured Party and applied to the Indebtedness; b. To sell all or any of the Collateral in one (1) or more lots, and from time to time, upon ten (10) days prior written notice to Debtor of the time and place of sale (which notice Debtor hereby agrees is commercially reasonable), for cash or upon credit or for future delivery, Debtor hereby waiving all rights, if any, of marshaling the Collateral and any other security for the payment of the Indebtedness, and at the option and in the complete discretion of Secured Party, either: (i) at a public sale or sales, and in one (1) or more lots; or (ii) at a private sale or sales, and in one (1) or more lots. Secured Party may bid for and acquire the Collateral or any portion thereof at any public sale, free from any redemption rights of Debtor, all of which are hereby waived by Debtor. c. To exercise all rights of a secured party under the Uniform Commercial Code of Kentucky and all other applicable law. From time to time, Secured Party may, but shall not be obligated to, postpone the time of any proposed sale of any of the Collateral, which has been subject of a notice as provided above, and also, upon ten (10) days prior written notice to Debtor (which notice Debtor hereby agrees is commercially reasonable), may change the time and/or place of such sale. (i) In the case of any sale by Secured Party of the Collateral or any portion thereof on credit or for future delivery, which may be elected at the option and in the complete discretion of Secured Party, the Collateral so sold may, at Secured Party's option, either be transferred and/or delivered to the purchaser or retained by Secured Party until the selling price therefor is paid by the purchaser, but in either event Secured Party shall not incur any liability to Debtor in case of failure of the purchaser to pay for the Collateral so sold. In case of any such failure, such Collateral may be again sold by Secured Party in the manner provided in this Paragraph 7. (ii) After deducting all of Secured Party's costs and expenses of every kind including, without limitation, reasonable legal fees and registration fees and Page -4- expenses, if any, in connection with the sale of the Collateral, Secured Party shall apply the remainder of the proceeds of any sale or sales of the Collateral to the Indebtedness in such order Secured Party may select in its sole and absolute discretion. All sales of Collateral shall be made in a commercially reasonable manner. Secured Party shall not incur any liability as a result of the sale of the Collateral or any part thereof at any private sale or sales, and Debtor hereby waives any claim arising by reason of (1) the fact that the price or prices for which the Collateral or any portion thereof is sold at any private sale or sales is less than the price which would have been obtained at a public sale or sales or is less than the Indebtedness, even if Secured Party accepts the first offer received and does not offer the Collateral or any portion thereof to more than one offeree; (2) any delay by Secured Party in selling the Collateral following an Event of Default hereunder, even if the price of the Collateral thereafter declines; or (3) the immediate sale of the Collateral upon the occurrence of an Event of Default hereunder, even if the price of the Collateral should thereafter increase. 8. Miscellaneous. ------------- a. Secured Party shall be under no duty or obligation to give Debtor notice of any rights or privileges relating to or affecting any Collateral held by Secured Party other than those notices required under the Loan Agreement. b. All advances, charges, costs and expenses, including reasonable attorneys' fees to the extent allowed by law, incurred or paid by Secured Party in exercising any right, power or remedy conferred by the Renewal Revolving Credit Note, this Security Agreement or the Loan Agreement, or in the enforcement thereof, shall become a part of the Indebtedness secured hereunder and shall be paid to Secured Party by Debtor immediately and without demand, with interest thereon at the Default Rate charged on the Indebtedness. c. Debtor waives any right to require Secured Party to (a) proceed against any person, (b) proceed against or exhaust any Collateral, or (c) pursue any other remedy in Secured Party's power. d. Secured Party may, at any time, deliver the Collateral or any part thereof to Debtor and the receipt of Debtor shall be a complete and full acquittance for the Collateral so delivered and Secured Party shall thereafter be discharged from any liability or responsibility therefor. e. This is a continuing Security Agreement and all the rights, powers and remedies hereunder shall apply to all past, present and future Indebtedness of Debtor to Secured Party, including that arising under successive transactions which shall either continue, increase or decrease the Indebtedness, or from time to time create new Indebtedness after all or any prior Indebtedness has been satisfied. Page -5- f. Until all of the Indebtedness shall have been paid in full, the power of sale and all other rights, powers and remedies granted to Secured Party hereunder shall continue to exist and may be exercised by Secured Party at any time. g. The rights, powers and remedies given to Secured Party by this Security Agreement shall be in addition to all rights, powers and remedies given to Secured Party by virtue of the Loan Agreement, any other prior Security Agreements, any other agreement relating to the Indebtedness, and any statute or rule of law. Secured Party may exercise its right of setoff with respect to the Indebtedness in the same manner as if the Indebtedness were unsecured. Any forbearance or failure or delay by Secured Party in exercising any right, power or remedy hereunder shall not be deemed to be a waiver of such right, power or remedy, and any single or partial exercise of any right, power or remedy hereunder shall not preclude the further exercise thereof; and every right, power and remedy of Secured Party shall continue in full force and effect until such right, power or remedy is specifically waived by an instrument in writing executed by Secured Party. h. In all cases where more than one party executes this Security Agreement, all words used herein in the singular shall be deemed to have been used in the plural where the context and construction so require, and the obligations and undertakings hereunder are joint and several. i. The law of the Commonwealth of Kentucky applies to this Agreement and its construction and interpretation. j. This Security Agreement shall bind Debtor and its successors and assigns and shall inure to the benefit of Secured Party and its successors and assigns. k. Time shall be of the essence in the performance of each and every one of the obligations hereunder. l. All covenants, representations, warranties, remedies and other terms provided in the Loan Agreement are incorporated herein by reference. m. All notices and other communications given to or made upon any party hereto in connection with this Security Agreement, the Renewal Revolving Credit Note or any of the other Loan Documents shall, except as herein or therein otherwise expressly provided, be in writing, sent by certified or registered U.S. mail return receipt requested, as follows: (i) if to Debtor, at the address set forth hereinabove or at such other address as shall be designated by Debtor and (ii) if to Secured Party, at the address set forth hereinabove or at such other address as shall be specifically designated by Secured Party with a copy to Charles H. Binger, Thompson Coburn LLP, One Mercantile Center, Suite 3400, St. Louis, Missouri 63101. Page -6- n. In the event that any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, shall not in any way impair or preclude enforcement of rights or remedies of Secured Party under Chapter 355 of the Kentucky Revised Statutes, or other applicable law and this Security Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 9. This Security Agreement may, in the sole discretion of Secured Party, be filed as a financing statement and Debtor agrees to also execute any additional financing statements with respect hereto which may be requested by Secured Party. Secured Party may, in its sole discretion, provide this Security Agreement or any other document executed pursuant hereto or in connection herewith to any person or organization which is in any manner involved with any or all of the Collateral. Secured Party shall be entitled to notify the person in possession of the Collateral, or any other person Secured Party deems appropriate, of the security interest herein granted and to notify such person or entity to forward all documents and payments with respect to the Collateral to Secured Party and otherwise, as Secured Party deems appropriate. IN TESTIMONY WHEREOF, witness the signature of the parties hereto, to be effective the day, month and year first above written. BANK ONE, KENTUCKY, NA, a national banking association BY: /s/ Mark Boison -------------------------------------- TITLE: First Vice President ----------------------------------- "SECURED PARTY" COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation BY: /s/ John R. Owens -------------------------------------- TITLE: Vice President ----------------------------------- "DEBTOR" Page -7- EXHIBIT "A" TO FINANCING STATEMENT AND/OR SECURITY AGREEMENT ------------------------------------------------------------ This property covered by this Financing Statement and/or Security Agreement includes all of the Debtor's right, title and interest in, to and under the following described property, whether now owned or hereafter acquired by the Debtor, and whether now existing or hereafter created, arising, accruing, incurred or entered into (all of which hereinafter collectively called the "Collateral"): 1. Each and every "Account", as such term is defined in the Uniform Commercial Code of the State of Kentucky, and in any event shall include, but not be limited to, all of the Debtor's rights to payment for goods sold or leased or services performed by the Debtor whether now in existence or arising from time to time hereafter, including, without limitation, rights evidenced by an account, accounts receivables, note, contract, security agreement, chattel paper, or other evidence of indebtedness or security, whether or not such right(s) to payment has been earned by performance, and whether or not such right(s) to payment is evidenced by any document, instrument or chattel paper, together with (a) all security pledged, assigned, hypothecated or granted to or held by the Debtor to secure the foregoing, (b) all of the Debtor's right, title and interest in and to any goods, the sale of which gave rise thereto, (c) all guarantees, endorsements and indemnifications on, or of, any of the foregoing, (d) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith, (e) all books, correspondence, credit files, records, ledger cards, invoices, and other papers relating thereto, including, without limitation, all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Debtor or any computer bureau from time to time acting for the Debtor, (f) all evidences of the filing of financing statement and other statements and the registration of other instruments in connection therewith and amendments thereto, notices to other creditors or secured parties, and certificates from filing or other registration officers, (g) all credit information, reports and memoranda relating thereto, and (h) all other writings related in any way to the foregoing. 2. All "Chattel Paper", as such term is defined in the Uniform Commercial Code in the state of Kentucky, in which Debtor now has or hereafter acquires any rights and wherever located and, in any event, shall include a writing or writings which evidence both a monetary obligation and a security interest in or lease of specific goods; any returned, rejected or repossessed goods covered by any such writing or writings and all proceeds (in any form including, without limitation, accounts, contract rights, documents, chattel paper, instruments and general intangibles) of such returned, rejected or repossessed goods. 3. All of the inventory of the Debtor of every type or description, now owned or hereafter acquired and wherever located, whether raw, in process or finished, all materials usable in processing the same and all documents of title covering any inventory, including, but not limited to, work in process, materials used or consumed in the Debtor's business, now owned or hereafter acquired or manufactured by the Debtor and held for sale or lease or to be furnished under a contract of service in the ordinary course of its business; all present and future substitutions therefor, parts and accessories thereof and all additions thereto; all proceeds thereof and products of such inventory in Page -1- any form whatsoever; specifically including all "inventory", as such term is defined in the Uniform Commercial Code of the State of Kentucky. 4. All "Instruments" of Debtor, as such term is defined in the Uniform Commercial Code of the State of Kentucky and in Kentucky Revised Statutes Subsection 355.9-105(1)(g), and shall include but not be limited to any and all negotiable instruments (defined in Kentucky Revised Statutes Subsection 355.3-104) or certified securities (defined in Kentucky Revised Statutes 355.8-102) or any other writings which evidence a right to payment of money and are not themselves security agreements or leases and are of the type which are in the ordinary course of business transferred by delivery with any necessary endorsement or assignment. 5. All "Equipment", as such term is defined in the Uniform Commercial Code of the State of Kentucky, now or hereafter owned or leased by the Debtor and, in any event, shall include, but shall not be limited to, all machinery, tools, equipment, office equipment, furniture, furnishings, fixtures, trade fixtures, goods which are to become fixtures, and any materials, instructions, blueprints, computer software and similar items which relate to the above, and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all improvements thereon and all attachments, components, parts, equipment and accessories installed thereon or affixed thereto (all of the foregoing in this section collectively, the "Equipment"). 6. All "General Intangibles", as such term is defined in the Uniform Commercial Code of Kentucky and in Kentucky Revised Statutes Subsection 355.9-106, now or hereafter owned by the Debtor and shall include, but not be limited to, all (a) Marks, Patents and Copyrights (as such terms are hereinafter defined), (b) goodwill of the Debtor's business symbolized by any of the foregoing, (c) license rights, license agreements, leases, permits, franchises, patents, computer software and customer lists, and (d) any rights to tax refunds to which the Debtor is now or hereafter may be entitled. 7. All trademarks, trademark registrations and trademark applications pending, now held or hereafter acquired by the Debtor, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or any similar governmental agency in any foreign country (which the Debtor has adopted and used and is using or hereafter acquires or under which the Debtor is licensed), as well as all other trademarks, trade names, fictitious business names, business names, company names, business identifiers, prints, labels, trade styles and service marks not registered, and trade dress, including logos and/or designs (all of the foregoing in this section collectively, the "Marks") together with the registrations and right to all renewals, reissues and extensions thereof, the goodwill of the business of the Debtor symbolized by the Marks, and any and all causes of action which may exist by reason of infringement or dilution thereof, or injury to the associated goodwill with the right to sue for and collect said damages and the right to collect all royalties under any license agreements with respect to any such Marks. 8. All copyrights, copyright registrations and copyright applications now held or hereafter acquired by the Debtor including, without limitation, any United States copyright to which the Debtor now or hereafter has an interest as well as any application for a United States copyright made Page -2- by the Debtor (all of the foregoing in this section collectively, the "Copyrights"), together with any renewals, reissues and extensions thereof, and any and all causes of action which may exist by reason of infringement thereof with the right to sue for and collect said damages and the right to collect all royalties under any license agreements with respect to any such Copyrights. 9. All letters patent and any patent registrations, and any patent applications pending, including, without limitation, registrations, recordings and applications registered or recorded in the United States Patent and Trademark Office or any similar governmental agency in any foreign country (all of the foregoing in this section collectively, the "Patents"), in respect of which the Debtor possesses any rights whatsoever, together with any renewals, reissues, continuations and extensions thereof, any and all causes of action which may exist by reason of infringement thereof with the right to sue for and collect said damages and the right to collect all royalties under any license agreements with respect to any such Patents. 10. Each and every contract to which the Debtor is a party, is bound or is a beneficiary or assignee, and all exhibits to such contracts and all other instruments, agreements and documents executed and delivered with respect to such contracts and all revenues, rentals, Proceeds (as hereinafter defined) and other sums of money due and to become due thereunder from any of the foregoing, as the same may be modified, supplemented or amended from time to time in accordance with its terms, as well as all contracts to which the Debtor may hereafter from time to time become a party, become bound, or become a beneficiary or assignee (all of the foregoing in this section collectively the "Contracts") including, without limitation, (a) any leases relating to the Inventory, the Equipment, any licenses, any personal property and assets in the nature of personal property wheresoever situated to which the Debtor is a party or is bound, as well as all renewals, substitutions and replacements therefor and all other leases to which the Debtor may hereafter from time to time become a party or become bound (collectively, the "Leases"); (b) (1) all payments due and to become due under any Contract, whether as contractual obligations, damages or otherwise; (2) all of the Debtor's claims, rights, powers, or privileges and remedies under any Contract and under any Lease and, to the extent permitted by the lessor under any such Lease, the right to cure a default by Debtor under any such Lease; and (3) all of its rights under any Contract or under any Lease to make determinations, to exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, waiver or approval together with full power and authority with respect to any Contract to demand, receive, enforce, collect or receipt for any of the foregoing rights or any property the subject of any of the Contracts, to enforce or execute any checks, or other instruments or orders, to file any claims and to take any action which may be necessary or advisable in connection with any of the foregoing; (c) all of Debtor's right, title and interest in, to and under each and every IPFA (as defined in the Loan Agreement) and all rights and privileges thereunder; and (d) all contract rights under any of the foregoing. 11. All amounts from time to time held in any checking, savings, deposit or other account of the Debtor, which amounts are "cash collateral" as defined in the U.S. Bankruptcy Code, 11 U.S.C. Section 363. Page -3- 12. All licenses and permits issued by any federal, state, municipal, or other governmental department, commission, board, bureau, agency, court, tribunal or other instrumentality, domestic or foreign, and any arbitrator. 13. All computer programs of the Debtor, and all intellectual property rights therein and all other proprietary information of the Debtor including, but not limited to, trade secrets. 14. All books, records, ledger cards, data processing records, computer software and other property at any time evidencing or relating to any of the foregoing. 15. Without limiting the generality of the foregoing, all other personal property, goods (including without limitation consumer goods), "farm products","documents" (as such terms are defined in the Uniform Commercial Code of the State of Kentucky), credits, claims, demands and assets of the Debtor, whether now existing or hereafter acquired from time to time. 16. All "Proceeds", as such term is defined in the Uniform Commercial Code of the State of Kentucky, and in any event shall include, but not be limited to, (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Secured Party or the Debtor, from time to time, and claims for insurance, indemnity, warranty or guaranty effected or held for the benefit of the Debtor, with respect to any of the Collateral (as hereinafter defined), (b) any and all payments (in any form whatsoever) made or due and payable to the Debtor, from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority) and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral (all of the foregoing in this section 16, collectively, the "Proceeds"). 17. Any and all additions and accessions to any of the foregoing, all improvements thereto, all substitutions and replacements thereof and all products and Proceeds thereof. The undersigned confirms that this Exhibit is part of a security agreement and financing statement signed by it: COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation BY: /s/ John R. Owens -------------------------------------- TITLE: Vice President ----------------------------------- Page -4- EX-10.28 6 STOCK PLEDGE AND SECURITY AGREEMENT STOCK PLEDGE AND SECURITY AGREEMENT ----------------------------------- THIS STOCK PLEDGE AND SECURITY AGREEMENT is made and entered into effective as of December 28, 1999, by and between UNIFIED FINANCIAL SERVICES, INC., a Delaware corporation, whose address is 220 Lexington Green Circle, Suite 600, Lexington, Kentucky 40503 (hereinafter called "Obligor"), and BANK ONE, KENTUCKY, NA, a national banking association, whose address is 416 West Jefferson Street, Louisville, KY 40202 (hereinafter called "Secured Party"). W I T N E S S E T H : ------------------- That, for and in consideration of credit extended by Secured Party, the parties do hereby agree as follows: 1. Deposit and Pledge of Stock. As collateral security for: --------------------------- (a) Obligor's Guaranty to Secured Party dated as of December 28, 1999 whereby the Obligor guaranteed the payment of the obligations provided for in Obligor's Guaranty dated of even date to the maximum amount of $2,500,000.00, plus interest, fees, charges and costs as provided therein; (b) that certain Term Note dated as of December 28, 1999 made by Obligor payable to the order of Secured Party in the original principal amount of $2,293,750.00; and (c) all other liabilities and obligations of whatever kind or type of Obligor to Secured Party, including any other guarantees of Obligor to Secured Party, whether created directly or acquired by Secured Party by assignment or otherwise, whether now existing or hereafter created, arising or acquired, absolute or contingent, joint or several, due or to become due (the foregoing obligations are herein collectively referred to as the "Indebtedness") Obligor, pursuant to the provisions of the Uniform Commercial Code of the State of Kentucky, hereby grants to Secured Party a first and prior security interest in and lien on all of the following (all of which is hereinafter collectively called the "Collateral"): (a) all property delivered to and deposited with Secured Party or its designee/bailee, including all of the property specified on SCHEDULE "A" attached hereto and incorporated herein by ------------ reference (the "Stock"); (b) all money and property heretofore delivered to, or which shall hereafter be delivered by Obligor to or under the custody or control of Secured Party in any manner or for any purpose whatever during the existence of this Security Agreement, and whether held in a general or special account or deposit or for safekeeping or otherwise; and (c) together with any and all stock rights, rights to subscribe, liquidating dividends, stock dividends, dividends paid in stock, new securities or other property to which Obligor is or may hereafter become entitled to receive on account of any or all of the Stock or such other property, and in the event that Obligor hereafter receives any such rights, dividends, new securities or other property, Obligor will immediately deliver such property to Secured Party to be held by Secured Party hereunder in the same manner as the property originally delivered hereunder. 2. Delivery of Stock Power Agreements. Contemporaneously ---------------------------------- with the execution of this Security Agreement, the Obligor shall deliver to Secured Party duly executed irrevocable stock power agreements with respect to the aforementioned Stock, subject to the provisions contained in this Agreement, to the extent same have not already been delivered to Secured Party. 3. Voting. So long as there is no default in the payment and ------ performance of the Indebtedness or of any of the terms, provisions and conditions of this Security Agreement, the Loan Agreement, or any other agreement securing repayment of the Indebtedness, Obligor shall be entitled to vote the Stock pledged, provided, however, upon the occurrence of an Event of Default as defined in Section 7 hereof, Secured Party shall be entitled to vote the Stock pledged hereunder. 4. Status of Stock. Obligor hereby represents and warrants --------------- to Secured Party that (a) the Stock described on SCHEDULE "A" is ------------ validly issued and outstanding, is fully paid and nonassessable, and Obligor is the registered, absolute, legal and beneficial owner of all shares of the Stock, free and clear of all liens, charges, equities and encumbrances, except for the lien and encumbrance created by this Security Agreement; and (b) Obligor has the full power and authority to pledge the Stock to Secured Party pursuant to this Security Agreement, and, subject to the Securities Act of 1933, as amended, and state blue sky laws, the Stock is not subject to any restrictions imposed by law, regulation, agreement or otherwise against public or private sale. 5. Maintenance of Priority of Pledge. Obligor shall be --------------------------------- liable for, and shall from time to time pay and discharge, all intangible and other taxes, assessments and governmental charges imposed upon any of the Stock by any federal, state or local authority, the liens of which would or might be held prior to the security interest and rights of Obligor in and to the Stock. Obligor shall not, at any time while this Security Agreement is in effect, do or suffer any act or thing whereby the rights of Secured Party in and to the Stock would or might be impaired or diminished. Obligor shall execute and deliver such further documents and instruments and take such further actions as may be required to confirm the rights of Secured Party in and to the Stock or otherwise to effectuate the intention of this Security Agreement. 6. Transfer of Encumbrance of the Stock. Obligor shall not ------------------------------------ transfer, sell, pledge, assign or further encumber the Stock or any part thereof without the prior written consent of Secured Party, which consent may be withheld by Secured Party for any reason whatsoever so long as this Security Agreement is in effect. Obligor shall not vote the Stock in favor of any merger, consolidation, share exchange agreement, reorganization or other business combination involving, relating to or affecting Equity Underwriting Group, Inc. ("EUG"), or in favor of any amendment to the Articles or Incorporation of EUG whereby EUG would be authorized to issue any additional capital stock or securities convertible into or exchangeable for any capital stock of EUG without the prior written consent of Secured Party. Page -2- 7. Events of Default. The occurrence of any Event of Default ----------------- as defined in the Loan Agreement shall constitute an Event of Default hereunder. 8. Remedies Upon Occurrence of Default. ----------------------------------- a. Upon the occurrence of any Event of Default as defined in Section 7 hereof, Secured Party shall have the following rights and remedies, in addition to all other rights and remedies provided by law or at equity, the Loan Agreements and any other document or instrument relating to, securing or evidencing the Indebtedness, all of which shall be cumulative and may be exercised from time to time, either successively or concurrently: (i) To sell all or any of the Stock in one (1) or more lots, and from time to time, upon ten (10) days prior written notice to Obligor of the time and place of sale (which notice Obligor hereby agrees is commercially reasonable), for cash or upon credit or for future delivery, Obligor hereby waiving all rights, if any, of marshaling the Stock and any other security for the payment of the Indebtedness, and at the option and in the complete discretion of Secured Party, either: (a) at a public sale or sales, including a sale at or over any broker's board or exchange, and in one (1) or more lots; or (b) at a private sale or sales, and in one (1) or more lots. Secured Party may bid for and acquire the Stock or any portion thereof at any public sale, free from any redemption rights of Obligor, all of which are hereby waived by Obligor. (ii) To exercise all rights of a secured party under the Uniform Commercial Code of Kentucky and all other applicable law. From time to time, Secured Party may, but shall not be obligated to, postpone the time of any proposed sale of any of the Stock, which has been subject of a notice as provided above, and also, upon ten (10) days prior written notice to Obligor (which notice Obligor hereby agrees is commercially reasonable), may change the time and/or place of such sale. b. In the case of any sale by Secured Party of the Stock or any portion thereof on credit or for future delivery, which may be elected at the option and in the complete discretion of Secured Party, the Stock so sold may, at Secured Party's option, either be transferred and/or delivered to the purchaser or retained by Secured Party until the selling price therefor is paid by the purchaser, but in either event Secured Party shall not incur any liability to Obligor in case of failure of the purchaser to pay for the Stock so sold. In case of any such failure, such Stock may be again sold by Secured Party in the manner provided in this Paragraph 8. Page -3- c. After deducting all of Secured Party's costs and expenses of every kind including, without limitation, reasonable legal fees and registration fees and expenses, if any, in connection with the sale of the Stock, Secured Party shall apply the remainder of the proceeds of any sale or sales of the Stock to the Indebtedness in such order Secured Party may select in its sole and absolute discretion. All sales of Stock shall be made in a commercially reasonable manner. Secured Party shall not incur any liability as a result of the sale of the Stock or any part thereof at any private sale or sales, and Obligor hereby waives any claim arising by reason of (i) the fact that the price or prices for which the Stock or any portion thereof is sold at any private sale or sales is less than the price which would have been obtained at a public sale or sales or is less than the Indebtedness, even if Secured Party accepts the first offer received and does not offer the Stock or any portion thereof to more than one offeree; (ii) any delay by Secured Party in selling the Stock following an Event of Default hereunder, even if the price of the Stock thereafter declines; or (iii) the immediate sale of the Stock upon the occurrence of an Event of Default hereunder, even if the price of the Stock should thereafter increase. 9. Miscellaneous. ------------- a. Secured Party shall be under no duty or obligation to give Obligor notice of, or to exercise, any subscription rights or privileges, any rights or privileges to exchange, convert or redeem or any other rights or privileges relating to or affecting any Collateral held by Secured Party other than those notices required under the Loan Agreements. b. All advances, charges, costs and expenses including reasonable attorney's fees, to the extent allowed by law, incurred or paid by Secured Party in exercising any right, power or remedy conferred by the Notes, the Security Agreements or the Loan Agreement, or in the enforcement thereof, shall become a part of the indebtedness secured hereunder and shall be paid to Secured Party by Obligor immediately and without demand, with interest thereon at twelve (12%) percent per annum, or at the highest rate charged on any of the Indebtedness, whichever rate is greater. c. Obligor waives any right to require Secured Party to (a) proceed against any person, (b) proceed against or exhaust any Collateral, or (c) pursue any other remedy in Secured Party's power. d. Secured Party may at any time deliver the Collateral or any part thereof to Obligor and the receipt of Obligor shall be a complete and full acquittance for the Collateral so delivered, and Secured Party shall thereafter be discharged from any liability or responsibility therefor. e. This is a continuing Security Agreement and all the rights, powers and remedies hereunder shall apply to all past, present and future Indebtedness of Obligor to Secured Party, including that arising under successive transactions which shall either continue, increase or decrease the Indebtedness, or from time to time create new Indebtedness after all or any prior Indebtedness has been satisfied. Page -4- f. Until all of the Indebtedness shall have been paid in full the power of sale and all other rights, powers and remedies granted to Secured Party hereunder shall continue to exist and may be exercised by Secured Party at any time. g. The rights, powers and remedies given to Secured Party by this Security Agreement shall be in addition to all rights, powers and remedies given to Secured Party by virtue of the Loan Agreement, any other prior Security Agreements, any other agreement relating to the indebtedness, and any statute or rule of law. Secured Party may exercise its right of setoff with respect to the Indebtedness in the same manner as if the Indebtedness were unsecured. Any forbearance or failure or delay by Secured Party in exercising any right, power or remedy hereunder shall not be deemed to be a waiver of such right, power or remedy, and any single or partial exercise of any right, power or remedy hereunder shall not preclude the further exercise thereof; and every right, power and remedy of Secured Party shall continue in full force and effect until such right, power or remedy is specifically waived by an instrument in writing executed by Secured Party. h. In all cases where more than one party executes this Security Agreement, all words used herein in the singular shall be deemed to have been used in the plural where the context and construction so require, and the obligations and undertakings hereunder are joint and several. i. The law of the Commonwealth of Kentucky applies to this Agreement and its construction and interpretation. j. This Security Agreement shall bind Obligor and its successors and assigns and shall inure to the benefit of Secured Party and its successors and assigns. k. Time shall be of the essence in the performance of each and every one of the obligations hereunder. l. All notices and other communications given to or made upon any party hereto in connection with this Security Agreement, the Notes or any other Loan Documents shall, except as herein or therein otherwise expressly provided, be in writing, sent by certified or registered mail return receipt requested, as follows: If to Obligor: Unified Financial Services, Inc. 220 Lexington Green Circle, Suite 600 Lexington, KY 40503 ATTN: Chief Operating Officer with a copy to: Charles H. Binger Thompson Coburn LLP One Mercantile Ctr, Ste 3400 St. Louis, MO 63101 If to Secured Party: Bank One, Kentucky, NA 416 West Jefferson Street Louisville, KY 40202 with a copy to: Mark Boison Bank One, Kentucky, NA 201 East Main Street Lexington, KY 40507 Page -5- IN WITNESS WHEREOF, the parties hereto have entered into this Security Agreement effective as of the 28th day of December, 1999. BANK ONE, KENTUCKY, NA BY: /s/ Mark Boison ------------------------------------------- TITLE: First Vice President ---------------------------------------- UNIFIED FINANCIAL SERVICES, INC. BY: /s/ John S. Penn ------------------------------------------- TITLE: Executive Vice President ---------------------------------------- Page -6- SCHEDULE "A" ------------ Certificate No. No. Of Shares --------------- ------------- Equity Underwriting Group, Inc. 14 1,000 EX-10.29 7 GUARANTY OF PAYMENT AND PERFORMANCE GUARANTY OF PAYMENT AND PERFORMANCE ----------------------------------- ("Guaranty") Dated as of December 28, 1999 1. FOR VALUE RECEIVED and in order to induce BANK ONE, KENTUCKY, NA, a national banking association, and its successors and assigns, 416 West Jefferson Street, Louisville, Kentucky 40202 (the "Bank"), to enter into that certain Loan Agreement of even date and to continue to extend credit to COMMONWEALTH PREMIUM FINANCE CORPORATION (the "Borrower"), the undersigned, UNIFIED FINANCIAL SERVICES, INC. (the "Guarantor") does hereby personally and unconditionally guarantee to the holder of the Renewal Revolving Credit Note dated as of December 28, 1999, and made by Borrower payable to the order of Bank in the original principal amount of $2,500,000.00 (the "Note") the due and punctual payment of all installments of principal and interest now or in the future due under the Note, as and when the same shall be due and payable thereunder in accordance with its terms, and whether the same be declared due by the holder of the Note prior to its stated maturity date by virtue of default thereunder. The undersigned further guarantees the prompt performance by Borrower of all non-monetary undertakings, covenants and agreements to be performed by Borrower under the Note. 2. Guarantor consents and agrees that the whole or any part of the security now or hereafter held for the Note may be exchanged, compromised, surrendered or released from time to time; that the time or place of payment of the Note or of any security therefor may be exchanged or extended, in whole or in part, to a time certain or otherwise, and the Note may be renewed or accelerated, in whole or in part; that Borrower may be extended further loans and be granted indulgences generally; that any of the provisions of the Note, or of any instrument securing or pertaining to the security for the same, may be modified or waived (either expressly or through tacit acquiescence); that any party liable for the payment of the Note may be granted indulgences or released; that neither the death, insolvency, bankruptcy, dissolution, nor disability of Borrower or of Guarantor shall affect the obligations hereunder of Guarantor; that no claim need be asserted against the personal representatives, guardian, trustee in bankruptcy or receiver of any deceased, incompetent, bankrupt or insolvent Borrower or guarantor; that any deposit balance to the credit of Borrower, Guarantor or any other party liable for payment of the Note or liable upon any security therefor may be released from time to time in whole or in part, at, before or after the stated, extended or accelerated maturity date of the Note; and that the undersigned Guarantor shall remain bound hereunder, notwithstanding any such exchange, compromise, surrender, extension, renewal, acceleration, modification, waiver, indulgence, release or other action, all of which may be affected without notice to or further assent or agreement by Guarantor. 3. Guarantor expressly waives: (a) Notice of acceptance of this Guaranty; (b) Presentment and demand for payment of the Note; (c) Protest and notice of protest, dishonor or default to Guarantor or to any other party with respect to the Note or any security for the Note; (d) Demand for payment under this Guaranty; (e) Notice of disposition of any security for the Note; and (f) All rights of indemnity, exoneration, reimbursement, contribution and/or subrogation of Guarantor against Borrower. 4. This is a guaranty of payment as to monetary obligations and not of collection. The liability of Guarantor under this Guaranty shall be direct and immediate and not conditional or contingent upon the pursuit of any remedies against Borrower or any other guarantor or other person nor against the security or liens available to the holder for the payment of the Note. Guarantor waives any claim to marshaling of assets and waives any right to require that an action be brought against Borrower or any other person prior to action against Guarantor hereunder and waives any right to require that resort be had to any security for the Note or to any balance of any deposit account or credit on the books of the holder of the Note in favor of Borrower or any other party prior to action by the holder of the Note against Guarantor hereunder. If the Note is partially paid through the election of the holder thereof to pursue any of the remedies mentioned in this literary paragraph or if the Note is otherwise partially paid, Guarantor shall remain personally liable for the entire unpaid principal balance of, and all accrued interest on, the Note. 5. The Note shall constitute the primary independent and continuing obligation of Guarantor, who shall be liable for payment of the debt evidenced by the Note, notwithstanding the partial or total invalidity of the Note. 6. The obligations of Guarantor under this Guaranty shall not be subject to any counterclaim, set off, deduction or defense based upon any claim Guarantor may have against Borrower or Bank, and the obligations of Guarantor under this Guaranty shall remain in full force and effect, without regard to, and shall not be released, discharged or in any way modified or affected by, any circumstance or condition (whether or not Guarantor shall have any knowledge or notice thereof) including, but not limited to, any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to Borrower or its properties or its creditors, or any action taken by any trustee or receiver or by any court in any such proceeding. 7. In the event of any default by Borrower under the Note, Guarantor shall pay to Bank, to the extent allowable by law, such further amount as shall be sufficient to fully reimburse Bank for all of its costs and expenses of enforcing its rights and remedies under the Note including, without limitation, Bank's reasonable attorneys' fees and court costs, and all of same shall be evidenced by the Note and this Guaranty. 8. This Guaranty shall be construed in accordance with and governed by the laws of the Commonwealth of Kentucky, without reference to its principles of conflicts of laws. 9. GUARANTOR HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY Page -2- RELATED TO THIS GUARANTY, ANY OTHER LOAN DOCUMENT OR ANY RELATIONSHIP BETWEEN BANK AND BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE OTHER LOAN DOCUMENTS. 10. Guarantor agrees that the sole proper venue for the determination of any litigation commenced by either Guarantor or Bank on any basis shall be in a court of competent jurisdiction which is located in Fayette County, Kentucky, and the parties hereby expressly declare that any other venue shall be improper and Guarantor expressly waives any right to a determination of any such litigation against Guarantor by a court in any other venue. Guarantor further agrees that service of process by any judicial officer or by registered or certified U.S. mail shall establish personal jurisdiction over Guarantor, and Guarantor waives any rights under the laws of any state to object to jurisdiction within the Commonwealth of Kentucky. The aforesaid means of obtaining personal jurisdiction and perfecting service of process are not intended to be exclusive, but are cumulative and in addition to all other means of obtaining personal jurisdiction and perfecting service of process now or hereafter provided by the laws of the Commonwealth of Kentucky or by any other state in an action brought by Bank in such state. Provided, however, nothing herein shall in any way be deemed to limit the ability of Bank to serve any writs, process or summons in any other manner permitted by applicable law or to obtain jurisdiction over Guarantor in such other jurisdictions and in such manner as may be permitted by applicable law. 11. The undersigned does hereby agree and acknowledge that the maximum aggregate liability of Guarantor shall be the sum of Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00), plus interest accruing on said amount, plus fees, charges and costs of collecting the guaranteed indebtedness (including reasonable attorneys' fees). 12. This Guaranty shall terminate on June 30, 2000. Provided, however, the undersigned acknowledges and agrees that such termination shall not affect its liability with respect to: (a) obligations created or incurred prior to such date (which specifically includes the Note), or (b) extensions or renewals of, interest accruing on, or fees, costs or expenses incurred with respect to such obligations (which specifically includes the Note), on or after such date. 13. If any payment made on the Note shall be required to be repaid or refunded by Bank as a result of any bankruptcy or insolvency of Borrower or of Guarantor or by virtue of any claim of preference, invalidity, unenforceability or right of rescission, Guarantor hereby acknowledges and agrees that Guarantor shall remain liable for the amount of such payment refunded, to the extent provided herein, as if such payment had never been made by Borrower or by Guarantor to Bank. 14. This Guaranty shall remain fully enforceable irrespective of any claim, defense or counterclaim which Borrower may or could assert as to the Note including, but not limited to, failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, fraud, bankruptcy, and usury, all of which Guarantor hereby waives along with any standing by Guarantor to assert any said claim, defense or counterclaim. This Guaranty is in addition to and not in lieu of, nor does it supercede, any prior Guaranties signed by Guarantor. Page -3- 15. Guarantor has, to its satisfaction, independently investigated: (a) Borrower's credit history; (b) Borrower's payment history with Bank; (c) Borrower's past, current and projected financial condition; and (d) the sufficiency of any collateral supporting Borrower's obligations under the Note. Guarantor represents and warrants that it has relied exclusively on his own independent investigation of Borrower for its decision to guarantee the Note. Guarantor agrees that it has sufficient knowledge of Borrower to make an informed decision about this Guaranty, and that Bank has no duty or obligation to disclose any information in its possession or control about Borrower to Guarantor. 16. In the event that any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 17. The provisions of this Guaranty shall be binding upon Guarantor and its, successors, and assigns and shall inure to the benefit of the holder of the Note, and its successors, endorsees and assigns. IN WITNESS WHEREOF, Guarantor has executed this Guaranty to be effective as of the date and year first above written. UNIFIED FINANCIAL SERVICES, INC. BY: /s/ John S. Penn -------------------------------------- TITLE: Executive Vice President ----------------------------------- Page -4- EX-10.30 8 RENEWAL REVOLVING CREDIT NOTE RENEWAL REVOLVING CREDIT NOTE ----------------------------- ("Note") COMMONWEALTH PREMIUM FINANCE CORPORATION a Kentucky corporation 220 Lexington Green Circle, Suite 600 Lexington, Kentucky 40503 $2,500,000.00 DATE: December 28, 1999 Executed at Lexington, Kentucky 1. FOR VALUE RECEIVED, COMMONWEALTH PREMIUM FINANCE CORPORATION ("Borrower"), promises to pay to the order of BANK ONE, KENTUCKY, NA, a national banking association (the "Bank"), the principal sum of TWO MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($2,500,000.00) or so much thereof as may be advanced by Bank and outstanding from time to time under this Note pursuant to the Loan Agreement between Borrower and Bank dated as of December 28, 1999 (the "Loan Agreement") and to pay interest from the date hereof on such principal amount from time to time outstanding at the per annum rate equal to the Prime Rate of interest as declared by Bank from time to time and adjusted daily, all of such payments to be made in lawful money of the United States of America in immediately available funds, without defalcation. "Prime Rate" of interest as used herein means a variable rate of interest announced from time to time by Bank as its prime rate whether or not such rate is otherwise published, which rate may not be Bank's lowest or best rate; provided, that in the event this Note is assigned to another holder which is a commercial bank, Prime Rate shall mean the reference rate of interest established by such subsequent holder from and after the date of such assignment, as its prime rate from time to time. The Prime Rate shall be adjusted each time and at the time the Bank's prime rate changes. 2. This Note represents a renewal, and not a novation, of that certain Renewal Revolving Credit Note dated June 20, 1999. All terms not otherwise defined herein shall have the same meaning given to them in the Loan Agreement. Advances under this Note shall only be made in accordance with the terms and conditions set forth in the Loan Agreement and provided that no Event of Default as defined herein or in the Loan Agreement has occurred or then exists. This Note, the Loan Agreement and any and all other documents referred to in the Loan Agreement or instruments securing repayment of this Note or relating thereto, whether made by Borrower or any other person(s) or entities, are hereinafter referred to collectively as the "Loan Documents". 3. This Note evidences indebtedness of Borrower to Bank which indebtedness may increase or decrease from time to time and the total amount advanced pursuant hereto may exceed the face amount hereof; provided, however, the aggregate principal amount outstanding hereunder shall not exceed the face amount of this Note at any time. It is further contemplated that, by reason of payments hereon, there may be times when no indebtedness is owing hereunder, but notwithstanding such occurrences, this Note shall remain valid and shall continue to be in full force and effect as to Advances made subsequent to each such occurrence. 4. Borrower shall repay this Note by paying all accrued interest monthly beginning on January 28, 2000, and continuing on the 28th day of each month until June 30, 2000 (the "Maturity Date") at which time all outstanding principal and accrued interest shall be due and payable in full. Interest on this Note shall be computed by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. Borrower shall make each payment under this Note not later than 12:00 p.m. (Noon), Lexington, Kentucky, Eastern time, on the date when due, in lawful money of the United States of America, to Bank at its Lexington Office, in immediately available funds. Borrower hereby authorizes Bank to charge against any account of Borrower with Bank containing unrestricted funds any amount so due. Whenever any payment to be made under this Note shall be stated to be due on a Saturday, Sunday or a public holiday or banking holiday, such payment shall be made on the next succeeding Domestic Business Day, and such extension of time shall be in such case be included in the computation of the payment of interest. 5. The obligations evidenced by this Note or the Loan Agreement are secured by the Security Agreement dated of even date from Borrower, and a Stock Pledge and Security Agreement (as defined in the Loan Agreement) dated of even date from UNIFIED FINANCIAL SERVICES, INC., which secures its Guaranty dated of even date, in favor of Bank. 6. If any payment required under the Note is not paid within ten (10) days after such payment is due, then, at the option of Bank, Borrower shall pay a late charge equal to five percent (5.0%) of the amount of such payment or $25.00, whichever is greater, up to the maximum amount of $750.00 per late charge to compensate Bank for administrative expenses and other costs of delinquent payments. This late charge may be assessed without notice, shall be immediately due and payable and shall be in addition to all other rights and remedies available to Bank. Upon the occurrence of any Event of Default and during the continuation thereof, and after maturity, including maturity upon acceleration, Bank, at its option, may, if permitted under applicable law, do one or both of the following: (i) increase the interest rate under this Note to the rate that is three percent (3.0%) above the rate that would otherwise be payable thereunder, and (ii) add any unpaid accrued interest to principal and such sum shall bear interest therefrom until paid at the rate provided in this Note (including any increased rate). The interest rate under this Note shall not exceed the maximum rate permitted by applicable law under any circumstances and if such increased rate of interest exceeds the maximum amount permitted under applicable law in such circumstances, the amount of the increased interest rate shall be increased by such lesser maximum amount as legally may be allowed, and Bank's entitlement to such sum shall be in addition to, and not in lieu of, all other rights and remedies available to Bank as a result of such overdue payment. If a law which applies to this Note is interpreted so that the interest collected or to be collected hereunder exceeds the legal amount, then the interest rate charged hereunder shall be reduced by the amount necessary to reduce Page -2- the interest charged to the maximum legal amount and this Note and all sums due hereunder shall immediately become due and payable in full at the election of the holder hereof. It is agreed that all matured interest installments outstanding shall also bear interest until paid at the same rate that continues to accrue on the principal outstanding. 7. Bank and Borrower agree to binding arbitration as provided in Section 9.20 of the Loan Agreement. 8. The occurrence of any Event of Default specified in the Loan Agreement or in any of the other Loan Documents or in any other agreement now or hereafter arising between Borrower and Bank shall constitute an Event of Default hereunder. 9. The occurrence of any Event of Default shall entitle the holder hereof to declare the entire principal balance of this Note, together with all accrued interest, and all other liabilities, indebtedness and obligations of Borrower to Bank, whether now existing or hereafter created, to be immediately due and payable, and to take any and all action allowed the holder by law or equity, under the terms of this Note and under the terms of any other agreements between Borrower and Bank. 10. All rights and remedies of Bank under this Note, any document securing or relating thereto, and under any other applicable law or at equity, are and shall be cumulative to the greatest extent permitted by law. The delay or failure of Bank or the holder hereof to insist upon strict performance of any of the terms of this Note, or to exercise any rights herein confirmed shall not be construed as a waiver or relinquishment to any extent of Bank's or the holder's right to assert or rely upon such terms or rights at any subsequent time or in any other instance. 11. Borrower and all endorsers, guarantors and all other parties to this Note hereby: (a) consent to the negotiation or assignment of this Note to any other person at any time; (b) waive presentment and demand, notice of demand, notice of dishonor, protest and notice of protest and non- payment thereof and all other notices or demands in connection with the delivery, acceptance, performance, default, enforcement, endorsement or guarantee hereof; (c) waive all exemptions to which they may now or hereafter be entitled under the laws of this or any other state or of the United States; (d) waive any requirement of marshaling of assets and all other legal or equitable doctrines which might otherwise require the holder hereof to proceed against any persons or any collateral or any other property or with respect to any other rights in any particular order and agree that the holder may elect not to proceed against any collateral securing this note and may instead seek to Page -3- enforce and collect this note through whatever means may otherwise be available at law or equity; and (e) agree that Bank shall have the right, but not the obligation, without notice to Borrower or any other party, to renew this Note, grant the Borrower extensions of time for, or changes in the amounts of, payment of this Note or any other indulgence or forbearance by Bank, and Bank may release any or all of the security and collateral for this Note, and modify the terms of any of the Loan Documents or any other document securing or relating to this Note, and may release any guarantors, endorsers or any party to this Note, and otherwise deal in any way, at any time, with Borrower, or any guarantor of this Note or with any other party who may become primarily or secondarily liable for any of the obligations of Borrower under this Note, in every instance without the consent of Borrower or any such other parties and without in any way affecting the continuing liability of the Borrower or any such other parties hereunder or under any of the other Loan Documents. 12. Upon any Event of Default, Bank shall have the right to set off, without notice to Borrower, and Borrower hereby grants Bank a security interest in, any and all deposits, credits, accounts, securities, certificates of deposit, cash, instruments, documents, general intangibles and any other property or other sums of Borrower at any time or times held by Bank or credited by or due from Bank to Borrower, except those held by Bank in a restricted or fiduciary capacity, and all products and proceeds thereof, as additional security for all sums due hereunder and all other liabilities of Borrower to Bank, whether now existing or hereafter arising or acquired and whether absolute or contingent. 13. Borrower agrees that it will pay to Bank or the holder hereof all costs and expenses including, without limitation, reasonable attorneys' fees, incurred by Bank in connection with the preparation of this Note and all related documentation, the enforcement thereof, and the collection or attempted collection of the sums due hereunder or in securing or attempting to secure or protecting and defending or attempting to protect and defend holder's interest in any property securing this Note. 14. BORROWER AND BANK HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE, ANY OTHER LOAN DOCUMENT OR ANY RELATIONSHIP BETWEEN BANK AND BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE OTHER LOAN DOCUMENTS. 15. Borrower agrees that the sole proper venue for the determination of any litigation commenced by either Borrower or Bank on any basis shall be in a court of competent jurisdiction Page -4- which is located in Fayette County, Kentucky, and the parties hereby expressly declare that any other venue shall be improper and Borrower expressly waives any right to a determination of any such litigation against Bank by a court in any other venue. Borrower further agrees that service of process by any judicial officer or by registered or certified U.S. mail shall establish personal jurisdiction over Borrower, and Borrower waives any rights under the laws of any state to object to jurisdiction within the Commonwealth of Kentucky. Borrower acknowledges that this Note was executed and delivered in the Commonwealth of Kentucky and shall be governed and construed in accordance with the laws thereof. The aforesaid means of obtaining personal jurisdiction and perfecting service of process are not intended to be exclusive, but are cumulative and in addition to all other means of obtaining personal jurisdiction and perfecting service of process now or hereafter provided by the laws of the Commonwealth of Kentucky or by any other state in an action brought by Bank in such state. 16. The substantive laws of the Commonwealth of Kentucky (without regard to provisions governing conflicts of laws) shall govern the construction of this Note and the rights and remedies of the parties hereto. 17. Time is of the essence in the payment and performance of all of Borrower's obligations under this Note and all documents securing this Note or relating hereto. 18. This Note cannot be modified, altered or amended except by an agreement in writing duly signed and acknowledged by authorized representatives of Bank and Borrower. 19. If any one or more of the provisions of this Note, or the applicability of any such provision to a specific situation, shall be held invalid or unenforceable, such provision shall be modified to the minimum extent necessary to make it or its application valid and enforceable, and the validity and enforceability of all other provisions of this Note and all other applications of any such provision shall not be affected thereby. In the event such provision(s) cannot be modified to make it or them enforceable, the invalidity or unenforceability of any such provision(s) of this Note shall not impair the validity or enforceability of any other provision of this Note. 20. This Note shall bind the heirs, successors and assigns of Borrower and shall inure to the benefit of Bank and its successors and assigns. Borrower shall not assign or allow the assumption of its rights and obligations hereunder without Bank's prior written consent. DATED as of the day and year first above written. COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation BY: /s/ John R. Owens --------------------------------------- TITLE: Vice President ------------------------------------ Page -5- EX-10.31 9 TERM NOTE TERM NOTE --------- ("Note") UNIFIED FINANCIAL SERVICES, INC. a Delaware corporation 220 Lexington Green Circle, Suite 600 Lexington, Kentucky 40503 $2,293,750.00 DATE: December 28, 1999 Executed at Lexington, Kentucky 1. FOR VALUE RECEIVED, UNIFIED FINANCIAL SERVICES, INC. (the "Borrower"), promises to pay to the order of BANK ONE, KENTUCKY, NA, a national banking association (the "Bank"), the principal sum of Two Million Two Hundred Ninety-Three Thousand Seven Hundred Fifty and 00/100 Dollars ($2,293,750.00) or so much thereof as may be advanced by Bank and outstanding from time to time under this Note, and to pay interest from the date hereof on such principal amount from time to time outstanding at the per annum rate equal to the Prime Rate of interest as declared by Bank from time to time and adjusted daily, all of such payments to be made in lawful money of the United States of America in immediately available funds, without defalcation. "Prime Rate" of interest as used herein means a variable rate of interest announced from time to time by Bank as its prime rate whether or not such rate is otherwise published, which rate may not be Bank's lowest or best rate; provided, that in the event this Note is assigned to another holder which is a commercial bank, Prime Rate shall mean the reference rate of interest established by such subsequent holder from and after the date of such assignment, as its prime rate from time to time. The Prime Rate shall be adjusted each time and at the time the Bank's prime rate changes. 2. Borrower shall repay this Note by paying a fixed principal payment of $100,000.00 per month plus accrued interest monthly beginning on January 28, 2000 and continuing on the 28th day of each month thereafter until June 30, 2000 (the "Maturity Date") at which time all outstanding principal and accrued interest shall be due and payable in full. Interest on this Note shall be computed by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. Borrower shall make each payment under this Note not later than 12:00 p.m. (Noon), Lexington, Kentucky, Eastern time, on the date when due, in lawful money of the United States of America, to Bank at its Lexington Office, in immediately available funds. Borrower hereby authorizes Bank to charge against any account of Borrower with Bank containing unrestricted funds any amount so due. Whenever any payment to be made under this Note shall be stated to be due on a Saturday, Sunday or a public holiday or banking holiday, such payment shall be made on the next succeeding Domestic Business Day, and such extension of time shall be in such case be included in the computation of the payment of interest. 3. This Note is mentioned in a Loan Agreement dated December 28, 1999. This Note, the Loan Agreement and all other documents defined in the Loan Agreement as Loan Documents shall be collectively referred to herein as the "Loan Documents". 4. The obligations evidenced by this Note or the Loan Agreement are secured by the Stock Pledge and Security Agreement dated of even date from Borrower. 5. If any payment required under the Note is not paid within ten (10) days after such payment is due, then, at the option of Bank, Borrower shall pay a late charge equal to five percent (5.0%) of the amount of such payment or $25.00, whichever is greater, up to the maximum amount of $750.00 per late charge to compensate Bank for administrative expenses and other costs of delinquent payments. This late charge may be assessed without notice, shall be immediately due and payable and shall be in addition to all other rights and remedies available to Bank. Upon the occurrence of any Event of Default and during the continuation thereof, and after maturity, including maturity upon acceleration, Bank, at its option, may, if permitted under applicable law, do one or both of the following: (i) increase the interest rate under this Note to the rate that is three percent (3.0%) above the rate that would otherwise be payable thereunder, and (ii) add any unpaid accrued interest to principal and such sum shall bear interest therefrom until paid at the rate provided in this Note (including any increased rate). The interest rate under this Note shall not exceed the maximum rate permitted by applicable law under any circumstances and if such increased rate of interest exceeds the maximum amount permitted under applicable law in such circumstances, the amount of the increased interest rate shall be increased by such lesser maximum amount as legally may be allowed, and Bank's entitlement to such sum shall be in addition to, and not in lieu of, all other rights and remedies available to Bank as a result of such overdue payment. If a law which applies to this Note is interpreted so that the interest collected or to be collected hereunder exceeds the legal amount, then the interest rate charged hereunder shall be reduced by the amount necessary to reduce the interest charged to the maximum legal amount and this Note and all sums due hereunder shall immediately become due and payable in full at the election of the holder hereof. It is agreed that all matured interest installments outstanding shall also bear interest until paid at the same rate that continues to accrue on the principal outstanding. 6. Bank and Borrower agree to binding arbitration as provided in Section 9.20 of the Loan Agreement. 7. The occurrence of any Event of Default specified in the Loan Agreement or in any of the other Loan Documents or in any other agreement now or hereafter arising between Borrower and Bank shall constitute an Event of Default hereunder. 8. The occurrence of any Event of Default shall entitle the holder hereof to declare the entire principal balance of this Note, together with all accrued interest, and all other liabilities, indebtedness and obligations of Borrower to Bank, whether now existing or hereafter created, to be immediately due and payable, and to take any and all action allowed the holder by law or equity, under the terms of this Note and under the terms of any other agreements between Borrower and Bank. Page -2- 9. All rights and remedies of Bank under this Note, any document securing or relating thereto, and under any other applicable law or at equity, are and shall be cumulative to the greatest extent permitted by law. The delay or failure of Bank or the holder hereof to insist upon strict performance of any of the terms of this Note, or to exercise any rights herein confirmed shall not be construed as a waiver or relinquishment to any extent of Bank's or the holder's right to assert or rely upon such terms or rights at any subsequent time or in any other instance. 10. Borrower and all endorsers, guarantors and all other parties to this Note hereby: (a) consent to the negotiation or assignment of this Note to any other person at any time; (b) waive presentment and demand, notice of demand, notice of dishonor, protest and notice of protest and non- payment thereof and all other notices or demands in connection with the delivery, acceptance, performance, default, enforcement, endorsement or guarantee hereof; (c) waive all exemptions to which they may now or hereafter be entitled under the laws of this or any other state or of the United States; (d) waive any requirement of marshaling of assets and all other legal or equitable doctrines which might otherwise require the holder hereof to proceed against any persons or any collateral or any other property or with respect to any other rights in any particular order and agree that the holder may elect not to proceed against any collateral securing this note and may instead seek to enforce and collect this note through whatever means may otherwise be available at law or equity; and (e) agree that Bank shall have the right, but not the obligation, without notice to Borrower or any other party, to renew this Note, grant the Borrower extensions of time for, or changes in the amounts of, payment of this Note or any other indulgence or forbearance by Bank, and Bank may release any or all of the security and collateral for this Note, and modify the terms of any of the Loan Documents or any other document securing or relating to this Note, and may release any guarantors, endorsers or any party to this Note, and otherwise deal in any way, at any time, with Borrower, or any guarantor of this Note or with any other party who may become primarily or secondarily liable for any of the obligations of Borrower under this Note, in every instance without the consent of Borrower or any such other parties and without in any way affecting the continuing liability of the Borrower or any such other parties hereunder or under any of the other Loan Documents. Page -3- 11. Upon any Event of Default, Bank shall have the right to set off, without notice to Borrower, and Borrower hereby grants Bank a security interest in, any and all deposits, credits, accounts, securities, certificates of deposit, cash, instruments, documents, general intangibles and any other property or other sums of Borrower at any time or times held by Bank or credited by or due from Bank to Borrower, except those held by Bank in a restricted or fiduciary capacity, and all products and proceeds thereof, as additional security for all sums due hereunder and all other liabilities of Borrower to Bank, whether now existing or hereafter arising or acquired and whether absolute or contingent. 12. Borrower agrees that it will pay to Bank or the holder hereof all costs and expenses including, without limitation, reasonable attorneys' fees, incurred by Bank in connection with the preparation of this Note and all related documentation, the enforcement thereof, and the collection or attempted collection of the sums due hereunder or in securing or attempting to secure or protecting and defending or attempting to protect and defend holder's interest in any property securing this Note. 13. BORROWER AND BANK HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE, ANY OTHER LOAN DOCUMENT OR ANY RELATIONSHIP BETWEEN BANK AND BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE OTHER LOAN DOCUMENTS. 14. Borrower agrees that the sole proper venue for the determination of any litigation commenced by either Borrower or Bank on any basis shall be in a court of competent jurisdiction which is located in Fayette County, Kentucky, and the parties hereby expressly declare that any other venue shall be improper and Borrower expressly waives any right to a determination of any such litigation against Bank by a court in any other venue. Borrower further agrees that service of process by any judicial officer or by registered or certified U.S. mail shall establish personal jurisdiction over Borrower, and Borrower waives any rights under the laws of any state to object to jurisdiction within the Commonwealth of Kentucky. Borrower acknowledges that this Note was executed and delivered in the Commonwealth of Kentucky and shall be governed and construed in accordance with the laws thereof. The aforesaid means of obtaining personal jurisdiction and perfecting service of process are not intended to be exclusive, but are cumulative and in addition to all other means of obtaining personal jurisdiction and perfecting service of process now or hereafter provided by the laws of the Commonwealth of Kentucky or by any other state in an action brought by Bank in such state. 15. The substantive laws of the Commonwealth of Kentucky (without regard to provisions governing conflicts of laws) shall govern the construction of this Note and the rights and remedies of the parties hereto. Page -4- 16. Time is of the essence in the payment and performance of all of Borrower's obligations under this Note and all documents securing this Note or relating hereto. 17. This Note cannot be modified, altered or amended except by an agreement in writing duly signed and acknowledged by authorized representatives of Bank and Borrower. 18. If any one or more of the provisions of this Note, or the applicability of any such provision to a specific situation, shall be held invalid or unenforceable, such provision shall be modified to the minimum extent necessary to make it or its application valid and enforceable, and the validity and enforceability of all other provisions of this Note and all other applications of any such provision shall not be affected thereby. In the event such provision(s) cannot be modified to make it or them enforceable, the invalidity or unenforceability of any such provision(s) of this Note shall not impair the validity or enforceability of any other provision of this Note. 19. This Note shall bind the heirs, successors and assigns of Borrower and shall inure to the benefit of Bank and its successors and assigns. Borrower shall not assign or allow the assumption of its rights and obligations hereunder without Bank's prior written consent. 20. This Note shall serve as a novation of (i) that certain Renewal Term Note dated June 20, 1999 by Equity Underwriting Group, Inc. ("EUG") and Equity Insurance Managers, Inc. ("EIM") in favor of Bank in the principal amount of $800,000.00; (ii) that certain Renewal Term Note dated June 20, 1999 by EUG and EIM in favor of Bank in the principal amount of $1,250,000.00; and (iii) that certain Renewal Revolving Credit Note dated June 20, 1999 by EUG in favor of Bank in the principal amount of $400,000.00. DATED as of the day and year first above written. UNIFIED FINANCIAL SERVICES, INC., a Delaware corporation BY: /s/ John S. Penn -------------------------------------- TITLE: Executive Vice President ----------------------------------- Page -5- EX-11.1 10 EARNINGS PER SHARE CALCULATION EXHIBIT 11.1 UNIFIED FINANCIAL SERVICES, INC. EARNINGS PER SHARE CALCULATION
Year Ended December 31, ------------------------------ 1999 1998 ----------- ---------- INCOME AVAILABLE TO COMMON STOCKHOLDERS Net income (loss) $(1,772,915) $ 912,161 Preferred dividends -- -- Income available to common stockholders $(1,772,915) $ 912,161 =========== ========== CALCULATION OF COMMON STOCK Common shares outstanding at beginning of period 2,316,767 1,722,821 Shares issued in connection with acquisition of Fiduciary Counsel -- 36,110 Shares issued in connection with acquisition of M. Wilson & Associates -- 3,636 Shares issued in connection with acquisition of Commonwealth Investment Services -- 27,500 Shares issued in connection with acquisition of Fully Armed Productions -- 18,182 Conversion of Series C Preferred Stock to common stock 361,935 57,780 Shares issued in private placement during period 238,270 450,738 Repurchase of common stock for treasury (47,110) -- ----------- ---------- Common shares used in basic calculation 2,869,862 2,316,767 ----------- ---------- Common stock equivalent of options 105,961 37,526 Preferred stock Series C conversion into common stock -- 225,720 ----------- ---------- Common shares used in fully diluted calculation 2,975,823 2,580,013 ----------- ---------- EARNINGS PER SHARE Basic $(0.62) $0.39 Fully diluted $(0.60) $0.35
EX-21.1 11 LIST OF SUBSIDIARIES Exhibit 21.1 LIST OF SUBSIDIARIES (as of March 30, 2000)
Corporation State - ----------- ----- Unified Management Corporation Indiana Unified Fund Services, Inc. Indiana First Lexington Trust Company Kentucky Health Financial, Inc. Kentucky Unified Internet Services, Inc. Indiana Unified Investment Advisers, Inc. Delaware Fiduciary Counsel, Inc. Delaware EMCO Estate Management Company, Inc. Delaware AmeriPrime Financial Services, Inc. Texas AmeriPrime Financial Securities, Inc. Texas Equity Underwriting Group, Inc. Kentucky Equity Insurance Managers, Inc. Kentucky Equity Insurance Managers of Illinois, L.L.C. (d/b/a Irland & Rogers) Illinois 21st Century Claims Service, Inc. Kentucky Equity Insurance Administrators, Inc. Kentucky Commonwealth Premium Finance Corporation Kentucky Strategic Fund Services, Inc. Delaware Smart Associates, Inc. Delaware Unified.com, Inc. Delaware Archer Trading, Inc. Delaware Unified Employee Services, Inc. Delaware Fully Armed Productions, inc. Kentucky VSX Technologies, Inc. New York Unified Capital Resources, Inc. New York Unified Investment Services, Inc. Kentucky Unified Banking Company Federal VSX.com, Inc. Delaware
EX-23.1 12 CONSENT OF EXPERT Exhibit 23.1 CONSENT OF LARRY E. NUNN & ASSOCIATES, LLC We consent to the incorporation by reference in the Registration Statement on Form S-8 (registration number 333-53863), and in the related Prospectus, of Unified Financial Services, Inc. of our report dated February 2, 2000, with respect to the consolidated financial statements of the Company as of and for the years ended December 31, 1999 and 1998, appearing in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999. /s/ Larry E. Nunn & Associates, LLC Columbus, Indiana April 12, 2000 EX-27.1 13 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated statements of financial condition and the consolidated statements of operation of Unified Financial Services, Inc. filed as part of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999 and is qualified in its entirety by reference to such report. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 5,709,082 13,042,558 12,020,890 71,326 0 30,533,154 5,858,108 2,913,498 36,748,994 21,457,522 0 33,294 0 0 0 36,748,994 25,617,592 25,617,592 7,280,386 7,280,386 19,916,479 33,000 160,343 (1,743,185) 29,730 (1,772,915) 0 0 0 (1,772,915) (.62) (.60)
EX-27.2 14 RESTATED FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated statements of financial condition and the consolidated statements of operation of Unified Financial Services, Inc. filed as part of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999 and is qualified in its entirety by reference to such report. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 10,395,843 1,720,342 8,912,664 2,041 0 20,262,603 4,062,103 2,472,022 26,498,577 14,514,175 0 27,668 0 1,672 0 26,498,577 23,448,483 23,448,483 8,508,651 8,508,651 13,970,567 0 361,926 1,063,269 151,108 912,161 0 0 0 912,161 0.39 0.35
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