-----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, Sv7rEBlXRRJVMMgcLB+AuKsjK6sScwuejlmtQiPx6rlbzAZ77zmoEJ8HWLrYJN1+ sFk0G5dl3/LpVyTeNsX9bg== 0001068800-99-000157.txt : 19990416 0001068800-99-000157.hdr.sgml : 19990416 ACCESSION NUMBER: 0001068800-99-000157 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 31 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990415 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: 99594503 BUSINESS ADDRESS: STREET 1: 431 N PENNSYLVANIA ST. CITY: INDIANAPOLIS STATE: IN ZIP: 46204-1873 BUSINESS PHONE: 3146343301 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 Exchange Act of 1934 For the fiscal year ended December 31, 1998 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 Identification No.) incorporation or organization) 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, 1998, revenues totaled: $22,971,836. As of March 31, 1999, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $53,754,960. As of March 31, 1999, there were 2,275,580 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 1999 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 14 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 4A. Executive Officers of the Registrant 15 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 17 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 7. Financial Statements 22 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 48 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 48 Item 10. Executive Compensation 48 Item 11. Security Ownership of Certain Beneficial Owners and Management 48 Item 12. Certain Relationships and Related Transactions 48 Item 13. Exhibits and Reports on Form 8-K 48 SIGNATURES 50
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). These forward- looking statements involve certain risks and uncertainties. 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 industry or the imposition of regulatory penalties could have an effect on operating results of the Company. 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 it prices its products and estimates costs of operations and regulations may prove to be other than as anticipated. GENERAL Unified Financial Services, Inc., a Delaware corporation ("Unified" or the "Company"), was organized on December 7, 1989. Reference in this filing to the "Company" or "Unified" includes Unified and its subsidiaries. The following table sets forth the Company's active subsidiaries as of March 31, 1999.
- ----------------------------------------------------------------------------------------------------------------------------------- PERCENT PRINCIPAL PLACE OWNED BY SUBSIDIARY NAME OF BUSINESS DESCRIPTION OF SUBSIDIARY COMPANY - ----------------------------------------------------------------------------------------------------------------------------------- Unified Management Corporation Indianapolis, Indiana A licensed National Association of 100% Securities Dealers, Inc. ("NASD") broker-dealer - ----------------------------------------------------------------------------------------------------------------------------------- Unified Fund Services, Inc. Indianapolis, Indiana A registered investment adviser and transfer agent 100% - ----------------------------------------------------------------------------------------------------------------------------------- Health Financial, Inc. Lexington, Kentucky A registered investment adviser 100% - ----------------------------------------------------------------------------------------------------------------------------------- First Lexington Trust Company Lexington, Kentucky A non-bank affiliated trust company that is regulated 100% by the Department of Financial Institutions, Commonwealth of Kentucky - ----------------------------------------------------------------------------------------------------------------------------------- Unified Internet Services, Inc. Indianapolis, Indiana An internet services company 100% - ----------------------------------------------------------------------------------------------------------------------------------- Resource Benefit Planners, Inc. Lexington, Kentucky A professional services firm 100% - ----------------------------------------------------------------------------------------------------------------------------------- Unified Investment Advisers, Inc. Indianapolis, Indiana A provider of mutual fund advisory services for the 100% Unified Funds, the Company's no load mutual fund family - ----------------------------------------------------------------------------------------------------------------------------------- Fiduciary Counsel, Inc New York, New York An investment management firm 100% - ----------------------------------------------------------------------------------------------------------------------------------- EMCO Estate Management Company, Inc. New York, New York A wealth management firm 100% - ----------------------------------------------------------------------------------------------------------------------------------- AmeriPrime Financial Services, Inc. Southlake, Texas A provider of administrative, regulatory, compliance 100% and start-up support services to investment advisors, banks and other money managers in their proprietary mutual fund efforts - ----------------------------------------------------------------------------------------------------------------------------------- AmeriPrime Financial Securities, Inc. Southlake, Texas An NASD broker-dealer in all 50 states 100% - ----------------------------------------------------------------------------------------------------------------------------------- Equity Underwriting Group, Inc. Lexington, Kentucky A holding company that provides, through its 100% subsidiaries, specialty insurance products as a general agent or broker - ----------------------------------------------------------------------------------------------------------------------------------- Equity Insurance Managers, Inc. Lexington, Kentucky A provider of specialty property and casualty 100% insurance products as a managing general agent and broker - ----------------------------------------------------------------------------------------------------------------------------------- 21st Century Claims Service, Inc. Lexington, Kentucky A provider of adjusting services and third-party 100% claim administration services - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- PERCENT PRINCIPAL PLACE OWNED BY SUBSIDIARY NAME OF BUSINESS DESCRIPTION OF SUBSIDIARY COMPANY - ----------------------------------------------------------------------------------------------------------------------------------- Equity Insurance Administrators, Inc. Lexington, Kentucky A provider of third-party claim administration 100% services to insurance companies and program managers - ----------------------------------------------------------------------------------------------------------------------------------- Equity Insurance Managers of Illinois A wholesale brokerage firm 55% Illinois, L.L.C. (d/b/a/ Irland & Rogers) - ----------------------------------------------------------------------------------------------------------------------------------- Commonwealth Premium Finance Lexington, Kentucky A provider of financing for the payment of premiums 100% Corporation on insurance coverage placed by Equity Underwriting Group, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Strategic Fund Services, Inc. New York, New York A provider of mutual fund administration services 100% - ----------------------------------------------------------------------------------------------------------------------------------- Unified Aviation, Inc. Lexington, Kentucky An aviation operating company 100% - ----------------------------------------------------------------------------------------------------------------------------------- VSX Technologies, Inc. New York, New York A developer of software systems for the brokerage 100% industry - ----------------------------------------------------------------------------------------------------------------------------------- Unified Capital Resources, Inc. New York, New York An investment and merchant banking company 100% - ----------------------------------------------------------------------------------------------------------------------------------- M. Wilson & Associates, Inc. Lexington, Kentucky A claim processing and management company 100% - ----------------------------------------------------------------------------------------------------------------------------------- _____________________________________ AmeriPrime Financial Securities, Inc. is a wholly owned subsidiary of AmeriPrime Financial Services, Inc. 21st Century Claims Service, Inc. is 50% owned by Equity Underwriting Group, Inc. and 50% owned by Equity Insurance Managers, Inc. Equity Insurance Administrators, Inc. is a wholly owned subsidiary of Equity Insurance Managers, Inc. Equity Insurance Managers of Illinois, L.L.C. is 55% owned by Equity Insurance Managers, Inc. M. Wilson & Associates, Inc. is a wholly owned subsidiary of Equity Underwriting Group, Inc.
The Company conducts substantially all of its operations through its wholly owned subsidiaries. The Company's principal business is to provide and maintain vertical integration in the financial services industry for its subsidiaries, a "platform" that creates synergy and revenues among its subsidiaries from the fees associated with gathering, managing, maintaining and servicing assets under management. The Company currently maintains approximately $1.5 billion of assets under management and approximately $5 billion of assets under service. The vertically integrated "platform," a subsidiary "home" for managing and servicing virtually every type of wealth-building asset, is primarily accomplished through three strategies: (1) consolidating financial services companies that expand or deepen the integration by means of tax-free, stock-for-stock, pooling-of-interests transactions (This particular consolidation strategy is driven by the Company's 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) consolidating small mutual funds into the Company's mutual fund families by means of tax-free reorganizations (The mutual fund consolidation strategy is assisted by the Company's 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 more capitalized mutual fund families.); and (3) the formation of new subsidiaries to develop proprietary products and services that deepen the integration and enhance and advance the synergy and revenues among the Company's subsidiaries. Once a component of the Company's vertically integrated network, each subsidiary then implements its individual business plan in an autonomous environment and achieves its growth and thereby increases earnings and share value predominantly by: (1) leveraging the existing infrastructure and utilizing the vertically integrated platform to fully realize and effect the synergy and the related earnings impact to the Company's stock; (2) consolidations by the subsidiary, using the Company's stock and/or capital, to acquire important and critical business components along its horizontal business plane; (3) utilizing the Company's capital for necessary expansion; (4) traditional advertising, marketing and selling of the subsidiary's products and services; and (5) networking with the Company's subsidiaries. - 2 - The Company positions itself as the new, "consumer first," consumer- focused company missioned to build financial knowledge, through information and a diverse range of options, to provide more individual (client) control in the long-term quest to build financial security. The Company provides management services, working capital, systems support and development and equipment for its wholly owned subsidiaries. The Company's principal business is (1) providing for its subsidiaries a platform for attaining and maintaining vertical integration in the financial services and insurance industries by means of an aggressive merger and acquisition program featuring stock-for-stock pooling-of-interests transactions and (2) providing management services and equipment for its subsidiaries, which, in turn, concentrate their services over the following lines of business in the financial services and insurance industries: (i) mutual fund services, including transfer agency, shareholder and administrative services, fund accounting, compliance and distribution; (ii) brokerage and securities services, including third-party introduced clearing services; (iii) investment advisory and asset management services for various asset management categories and objectives; (iv) tax-free reorganizations and consolidations of financial services companies and small mutual funds; (v) certain non- bank custodial services; (vi) trust and retirement services; (vii) qualified plan services, including plan participant education; (viii) internal and external proprietary product and systems development for financial services institutions, predominantly mutual funds, including the Unified Funds, a family of no-load mutual funds sponsored by UIA (hereinafter referred to as the "Unified Funds"); (ix) asset allocation services; (x) investment advisory services; (xi) financial planning services; (xii) Internet technology and services; (xiii) specialty insurance general agent and brokerage services; (xiv) adjusting services; (xv) third-party claim administration services; (xvi) financing for the payment of insurance premiums; and (xvii) claim processing and management. Unified's principal executive offices are located at 431 North Pennsylvania Street, Indianapolis, Indiana 46204, and its telephone number is (317) 634-3301. The Company also maintains 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. - 3 - ACQUISITIONS AND ASSET PURCHASES The following table lists the acquisitions and asset purchases completed by the Company during the years ended December 31, 1998 and 1997. No acquisitions or asset purchases were completed in 1996.
- ----------------------------------------------------------------------------------------------------- CONSIDERATION ------------------------ SHARES OF COMMON ACCOUNTING ACQUISITIONS AND ASSET PURCHASES COMPLETED DATE CASH 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 - ----------------------------------------------------------------------------------------------------- UIA became a wholly owned subsidiary of the Company upon the surrender to UIA by all of its stockholders (other than the Company) of their capital stock. The Company 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 the Company 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. and a 50% owner of 21st Century Claims Service, Inc. Equity Insurance Managers, Inc. is a 100% shareholder of Equity Insurance Administrators, Inc., a 50% shareholder of 21st Century Claims Service, Inc. and a 55% shareholder 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.
RECENT DEVELOPMENTS AND PENDING TRANSACTIONS On January 1, 1999, the Company consummated the acquisition of M. Wilson & Associates, Inc., a Kentucky corporation ("M. Wilson & Associates"). In connection with the acquisition, Equity purchased all of the outstanding capital stock of M. Wilson & Associates for a purchase price of 3,636 shares of Common Stock. The acquisition was accounted for pursuant to the pooling-of-interests method of accounting. M. Wilson & Associates is a claim processing and management company that has experience in handling liability, property and workers compensation claims for a self-insured trust fund. M. Wilson & Associates processes claims for an occupational accident program for independent truckers. M. Wilson & Associates also does statewide property adjusting for Kentucky risk and insurance service division and property adjusting for the Fair Plan of Louisville, Kentucky. On October 16, 1998, the Company entered into an Agreement and Plan of Merger with Commonwealth Investment Services, Inc., a Kentucky corporation ("Commonwealth"), pursuant to which the Company will acquire Commonwealth through a merger of Commonwealth with and into HFI Acquisition Corporation, a Kentucky corporation and a wholly owned subsidiary of the Company - 4 - ("HFI"). In connection with the acquisition, the Company will issue a total of 27,500 shares of Common Stock, $.01 par value of Unified (the "Unified Stock"), and the associated preferred share purchase rights (the "Rights" and collectively with the Unified Stock, the "Common Stock") under the Company's Rights Agreement, dated August 26, 1998, between the Company and Unified Fund Services, Inc. ("Unified Fund Services") (the "Rights Agreement"), in exchange for all of the outstanding capital stock of Commonwealth. Consummation of the acquisition is subject to various closing conditions and is intended to be accounted for pursuant to the pooling-of-interests method of accounting. Commonwealth provides investment services to individuals, businesses and institutions throughout the Commonwealth of Kentucky and surrounding areas through a network of independent agents, primarily certified public accountants. On March 25, 1999, the Company entered into an Agreement and Plan of Merger with Fully Armed Productions, Inc., a Kentucky corporation ("Fully Armed Productions"), pursuant to which the Company will acquire Fully Armed Productions through a merger of FAP Acquisition Corporation, a Kentucky corporation and a wholly owned subsidiary of the Company ("FAP"), with and into Fully Armed Productions. In connection with the acquisition, the Company will issue a total of 18,182 shares of Common Stock in exchange for all of the outstanding capital stock of Fully Armed Productions. Consummation of the acquisition is subject to various closing conditions and is intended to be accounted for pursuant to the pooling-of-interests method of accounting. Fully Armed Productions provides creative and technological services for the television, radio and Internet industries through its specialty production capabilities. Fully Armed Productions performs videography, programming and production services for NBC, ESPN and numerous cable, satellite and television stations, including services for the past two Olympic games. The Company has filed applications with the Office of Thrift Supervision (the "OTS") and the Federal Deposit Insurance Corporation (the "FDIC") with respect to the organization by the Company of a Federal savings bank (the "Savings Bank") which would be headquartered at 2353 Alexandria Drive, Lexington, Kentucky, and is intended to be named Unified Banking Company. The Company expects to commence operations of the Savings Bank during the third quarter of 1999, subject to the receipt of the required regulatory approvals and the issuance of a charter. The Savings Bank would be a member of the Savings Association Insurance Fund of the FDIC. The Savings Bank will offer various bank products and services (including but not limited to, certificates of deposit, residential mortgage loans and secured personal loans) to the general public, its banking customer base and to the Company's subsidiaries' customer bases, including investors in the mutual funds managed, advised or administered by the Company's subsidiaries. On March 25, 1999, the Board of Directors of the Company adopted a resolution approving an amendment to the Company's Amended and Restated Certificate of Incorporation. Such proposed amendment would increase the number of shares of authorized Common Stock from 10,000,000 shares to 20,000,000 shares. The amendment is subject to stockholder approval at the 1999 Annual Meeting of Stockholders. On March 25, 1999, the Board of Directors of the Company adopted a resolution to amend and restate the Unified Financial Services, Inc. 1998 Stock Incentive Plan (the "Plan") to decrease to 500,000 the number of shares of Common Stock that may be issued pursuant to the Plan. The amended Plan, which is to be entitled the Amended and Restated Unified Financial Services, Inc. 1998 Stock Incentive Plan, is subject to stockholder approval at the 1999 Annual Meeting of Stockholders. - 5 - THE COMPANY'S SUBSIDIARIES AND OPERATIONS As of March 31, 1999, the Company had 22 active subsidiaries through which it conducted its operations, all of which are described below. UNIFIED FUND SERVICES, INC. Unified Fund Services, an Indiana corporation, is a registered transfer agent and mutual fund services company, and provides transfer agency, fund accounting, administrative and start-up services for mutual funds. Unified Fund Services' primary services include: mutual fund transfer agency and shareholder recordkeeping; shareholder services support; mutual fund start-up services; administration; fund accounting; compliance; asset allocation services; statement processing; retirement plan services; and fulfillment. Unified Fund Services also provides all of the mutual fund services for the Unified Funds portfolios, and performs other clerical functions for the Unified Funds in addition to typical mutual fund services. UNIFIED MANAGEMENT CORPORATION. UMC, an Indiana corporation, is a registered broker dealer under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is a member of the NASD. UMC specializes in mutual fund distribution and shareholder servicing liaison providing such services as: mutual fund distribution, distribution services and support; mutual fund conversion support for broker-dealer requirements; mutual fund trades; individual retirement account ("IRA") custodial services; 12b-1 maintenance, accounting and marketing support; securities (stock and bond) brokerage; brokerage clearing and execution services; consolidated brokerage statement processing; mutual fund and brokerage software development; asset allocation and performance measurement services and statement processing; and retirement account record keeping. UMC, as a broker-dealer subsidiary of the Company, functions as the distributor of the Unified Funds and also provides specialty services for certain customers of the Unified Funds in addition to its discount brokerage activities. The brokerage subsidiary clears, on a fully- disclosed basis, through U.S. Clearing, a division of Fleet Securities, Inc., and Pershing, a division of Donaldson, Lufkin & Jenrette Securities Corporation. HEALTH FINANCIAL, INC. Health Financial, Inc., a Kentucky corporation formed in 1986 ("Health Financial"), is an SEC registered investment adviser. As of December 31, 1998, Health Financial managed approximately $360 million in assets for both individuals and institutions, principally private pension plans and foundations. Health Financial specializes in an investment management philosophy that features a balanced discipline of asset allocation utilizing no-load index funds over six asset classes, including an S&P 500 index, a small cap U.S. bond index, an international stock index, a REIT index and cash. FIRST LEXINGTON TRUST COMPANY. First Lexington Trust Company, a Kentucky corporation ("First Lexington"), is a non-bank trust company specializing in retirement plans. As of December 31, 1998, First Lexington maintained approximately $96 million in assets under management. Directed by its trust investment committee, the Lexington-based Kentucky trust company provides the same investment philosophy as its sister company, Health Financial, while providing full trust powers and retirement plan services to its customer base. Chartered in 1994, First Lexington is regulated by the Kentucky Commissioner of Banking under the Department of Financial Institutions, Commonwealth of Kentucky. UNIFIED INTERNET SERVICES, INC. In 1998, the Company formed Unified Internet Services, Inc., an Indiana corporation ("Unified Internet Services"), to develop the Company's website, website television programming and its proprietary search engine for the financial services industry. It is - 6 - currently anticipated that Unified Internet Services will develop the Company's other industry-related internet products, including an interactive "switch" that will allow consumers access to the Company's products, via their television, cable or satellite stations. The Company anticipates development of such products to be completed by the end of 1999. RESOURCE BENEFIT PLANNERS, INC. Resource Benefit Planners, Inc., a Kentucky corporation ("Resource Benefit Planners"), is a professional services firm specializing in qualified retirement plans. Resource Benefit Planners provides the following specific services to the retirement industry and to the Company's customer base: retirement plan consulting, recordkeeping, trust accounting services, plan participant education, feasibility studies, originations, terminations, implementations, installations, employee communications and administration. UNIFIED INVESTMENT ADVISERS, INC. UIA, a Delaware corporation, provides mutual fund advisory services for the Unified Funds and is an important component in the tax-free reorganization strategy for consolidating small mutual fund assets. UIA also retains the exclusive rights to the proprietary V.O.I.C.E. product (Vision for Ongoing Investment - - - in Charity and Education), which the Company believes is a significant and - - valuable asset for the future gathering of mutual fund assets. FIDUCIARY COUNSEL, INC. Fiduciary Counsel, Inc., a Delaware corporation that is based in New York City ("Fiduciary"), provides on a customized basis professional investment management to individuals and institutions located throughout the United States and Western Europe. The Fiduciary Counsel philosophy is primarily "fundamentalist" and encompasses the long-term investment viewpoint that includes: (1) preservation of capital and maintenance of purchasing power of client dollars; (2) protection against foreseeable market hazards; and (3) sound long-term capital appreciation. EMCO ESTATE MANAGEMENT COMPANY, INC. EMCO Estate Management Company, Inc., a Delaware corporation ("EMCO"), is a wealth management firm based in New York City. EMCO provides fee only services to individuals, families and fiduciaries. EMCO professionals assist 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. AMERIPRIME FINANCIAL SERVICES, INC. AmeriPrime Financial Services, Inc. ("AmeriPrime") is a Texas corporation headquartered in Southlake, Texas. AmeriPrime provides administrative, regulatory, compliance and start-up support services to investment advisors, banks and other money managers in their proprietary mutual fund efforts. AmeriPrime provides mutual fund distribution through its subsidiary, AmeriPrime Financial Securities, Inc. ("AFSI"). AmeriPrime is the administrator of the AmeriPrime Funds, an open-end management investment company consisting of multiple series, each managed by unaffiliated registered investment advisors, and sponsored by AFSI (the "AmeriPrime Funds"), and AmeriPrime Insurance Trust, an open-end management investment company consisting of multiple series, each managed by unaffiliated registered investment advisors, and sponsored by AFSI ("AmeriPrime Insurance Trust"). As of December 31, 1998, AmeriPrime supported 35 mutual funds consisting of over $500 million in assets under management. AMERIPRIME FINANCIAL SECURITIES, INC. AFSI, a Texas corporation headquartered in Southlake, Texas, is an NASD broker-dealer registered in all 50 states. AFSI, as the broker-dealer of AmeriPrime, functions as the distributor of AmeriPrime's mutual funds, including the AmeriPrime Funds and AmeriPrime Insurance Trust. AFSI also specializes in the administration of mutual funds. - 7 - EQUITY UNDERWRITING GROUP, INC. Equity Underwriting Group, Inc., a Kentucky corporation headquartered in Lexington, Kentucky ("Equity"), is a holding company for Equity Insurance Managers, Inc. ("EIM"), Equity Insurance Managers, Inc. of Illinois, L.L.C. d/b/a/ Irland & Rogers ("EIM of Illinois"), 21st Century Claims Service, Inc. (21st Century") and Equity Insurance Administrators, Inc. ("EIA"), and provides, through its subsidiaries, specialty insurance products as a general agent or as a broker and currently provides services in the States of Kentucky, Tennessee, West Virginia, Ohio, Indiana and Illinois. Equity writes insurance products for primarily niche areas in the insurance marketplace that are considered more "non-standard," representing a higher risk of insured. EQUITY INSURANCE MANAGERS, INC. EIM, a Kentucky corporation headquartered in Lexington, Kentucky, operates in the States of Kentucky, Tennessee, West Virginia, Ohio, Indiana and Illinois offering specialty property and casualty insurance products as a managing general agent and broker. The agents that are contracted to write business through EIM principal lines include commercial, auto, garage, packages and general liability. EIM is a member of the American Association of Managing General Agents ("AAMGA"), National Association of Professional Surplus Lines Offices Limited ("NAPSLO"), USA Alliance, Kentucky Lloyd's Agents Association, the Kentucky Surplus Line Association and the Insurers of Tennessee. In each of the six operating states, EIM also is an associate member of Independent Insurance Agents and the Professional Insurance Organization. EQUITY INSURANCE MANAGERS OF ILLINOIS, L.L.C. D/B/A IRLAND & ROGERS (55% OWNED). EIM of Illinois, an Illinois limited liability company operating principally in the States of Illinois and Indiana, was formed to purchase the Chicago wholesale brokerage firm Irland & Rogers. The principal lines written as a wholesale broker include excess workers compensation, commercial auto and general liability. EIM of Illinois currently represents multiple insurance companies and has recently received a number of binding authority contracts from Equity to expand into a national oriented brokerage organization. EIM owns 55% of EIM of Illinois. 21ST CENTURY CLAIMS SERVICE, INC. 21st Century, a Kentucky corporation headquartered in Lexington, Kentucky, provides adjusting services and third-party claim administration services to various companies represented by Equity and other third-party clients. The adjusting resource and knowledge base of 21st Century provides complete program administration to the Equity group. 21st Century is 50% owned by Equity and 50% owned by EIM. EQUITY INSURANCE ADMINISTRATORS, INC. EIA, a Kentucky corporation headquartered in Lexington, Kentucky, provides third-party administrative services to insurance companies and program managers. EIA's services include policy issuance on contractual terms or a temporary basis either in a local or remote environment, premium billing and collection on direct or agency bill programs, electronic data translation and transmission services, data warehousing of policy and claims data, policy and claims information retrieval and processing services, imaging and archival services, and policy issuance systems design and support. EIA is a wholly owned subsidiary of EIM. COMMONWEALTH PREMIUM FINANCE CORPORATION. Commonwealth Premium Finance Corporation, a Kentucky corporation headquartered in Lexington, Kentucky ("CPFC"), provides financing for the payment of premiums on insurance coverage placed by Equity. STRATEGIC FUND SERVICES, INC. Strategic Fund Services, Inc., a Delaware corporation headquartered in New York, New York ("Strategic"), provides mutual fund administration services to smaller mutual funds and fund complexes, utilizing a proprietary database. - 8 - VSX TECHNOLOGIES, INC. VSX Technologies, Inc., a New York corporation formed on March 10, 1999 ("VSX"), develops, implements and operates software systems specifically designed for the brokerage industry. UNIFIED CAPITAL RESOURCES, INC. Unified Capital Resources, Inc., a New York corporation ("UCR"), was formed on March 16, 1999 to operate as the Company's investment and merchant banking facility, which involves: (i) assisting in raising funds required to support the Company's capital requirements; (ii) assisting the Company's subsidiaries in merger and acquisition opportunities; (iii) developing an on-line investment banking capability; and (iv) identifying strategic investments which will profitably contribute to the Company's overall results. M. WILSON & ASSOCIATES, INC. M. Wilson & Associates, a Kentucky corporation, is a claim processing and management company that has experience in handling liability, property and workers compensation claims for a self-insured trust fund. M. Wilson & Associates processes claims for an occupational accident program for independent truckers. M. Wilson & Associates also does statewide property adjusting for Kentucky risk and insurance services division and property adjusting for the Fair Plan of Louisville, Kentucky. UNIFIED AVIATION, INC. Unified Aviation, Inc., a Delaware corporation formed on February 23, 1999 ("Unified Aviation"), is an aviation operating company. THE COMPANY'S AFFILIATED MUTUAL FUNDS As of December 31, 1998, the Unified Funds maintained approximately $68.3 million in total net assets, predominantly in its money market portfolio. AmeriPrime Insurance Trust maintained approximately $100,000 in total net assets, and the AmeriPrime Funds maintained approximately $84.2 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 UIA, 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 Insurance Trust are administered by AmeriPrime and distributed by AFSI. With respect to AmeriPrime Insurance Trust, shares of the funds are sold exclusively to separate accounts of insurance companies that offer variable annuity contracts or variable life insurance policies. The Board of Trustees of the Unified Funds consists of five disinterested trustees and one interested trustee, Timothy L. Ashburn, the Chairman of the Board, President and Chief Executive Officer of the Company. The Board of Trustees of each of the AmeriPrime Funds and AmeriPrime Insurance Trust consists of two disinterested trustees and one interested trustee, Kenneth D. Trumpfheller, a director and the President and Secretary of each of AmeriPrime and AFSI. THE PHILANTHROPIC V.O.I.C.E.(SM) (VISION FOR ONGOING INVESTMENT IN CHARITY - - - - AND EDUCATION)(SM) PROGRAM. - The Company oversees and manages the V.O.I.C.E.(sm) program for UIA, exclusively for the Unified Funds. V.O.I.C.E.(sm) is a unique and innovative philanthropic program through which - 9 - individuals and institutions can cause contributions to be made to educational, charitable and philanthropic "not-for-profit" organizations at no expense to the Unified Fund or to the shareholder. UIA makes the contributions from its own revenue to certain accredited college or university endowments or general scholarship funds designated by qualifying shareholders. The Unified Funds, since their formation in December 1994, have licensed the V.O.I.C.E.(sm) program from UIA and, pursuant to the licensing agreement, UIA is required to make a contribution each quarter on behalf of each qualifying Unified Fund shareholder participating in the V.O.I.C.E.(sm) program. All shareholders in all Unified Funds maintaining an average annualized aggregate net asset value of $25,000 or more over the period of an entire calendar quarter will be qualified to designate an eligible institution to receive a donation under the program for that quarterly period. UIA will contribute, on a quarterly basis, an amount equal to that quarter's portion of 0.25% of the average annualized aggregate net asset value, as long as the average annualized aggregate net assets remain above $25,000 for the quarterly period. Although the contributions will be made in the shareholder's name and behalf, there are no tax deductions or tax advantages to the shareholders, since UIA is making the contributions on behalf of the shareholders and neither the shareholders' nor the Funds' assets are reduced. The contributions made by UIA during fiscal years 1998 and 1997 were $9,872 and $11,789, respectively. Philanthropic institutions outside the area of education may be accepted, at the discretion of UIA. The V.O.I.C.E.(sm) program is the proprietary property of UIA. REGULATION OF THE COMPANY'S BUSINESS Under the Investment Company Act of 1940, as amended (the "1940 Act"), the advisory, subadvisory shareholder servicing and distribution agreements between the Company's 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 the Company's business. The Company has 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 NASD. The regulations to which broker-dealers are subjected cover all aspects of the securities business, including sales methods, trade practices, capital structure of securities firms, recordkeeping and the conduct of directors, officers and employees. Additional state and Federal legislation, changes in rules promulgated by the SEC and by self-regulatory organizations, or changes in the interpretation or enforcement of existing laws and rules often directly affect the methods of operation and profitability of money managers, broker-dealers and transfer agents. Subject to certain preemptive Federal law, investment-related firms also are subject to regulation and licensing by state securities commissions in the states in which they transact business. The SEC, state securities administrators and the self-regulatory organizations may conduct administrative proceedings that can result in censure, fine, suspension or expulsion of 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. The Company also is subject to extensive regulation as to its duties, affiliations, conduct and limitations on fees. - 10 - The insurance industry is highly regulated by state law. CPFC must be licensed as a premium finance company in the states of Kentucky, Tennessee, Illinois and Ohio. Although CPFC 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 CPFC conducts business require the approval of service charges, forms and applications used by CPFC in its business and also require compliance with certain recordkeeping and record inspection requirements. The Company's other insurance-related subsidiaries also are subject to state regulation. 21st Century 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. Each of EIM and EIM of Ill. 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 EIM and EIM of Ill. 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. INDUSTRY REGULATIONS The Company's broker-dealer subsidiaries, UMC and AFSI, are NASD members. The NASD 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 1940 Act. Each of UIA, Health Financial and Fiduciary Counsel is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). UIA serves as the adviser to the Unified Funds. Under the 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. The Company aggressively pursues a strategy of acquiring investment advisers to mutual funds. Once an investment adviser is acquired, its advisory agreement is assigned to the Company and automatically terminates under the 1940 Act. UIA's 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 the Company may not benefit from the sale of its advisory business to UIA 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 1940 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 UIA after UIA has acquired the former adviser to the fund. In addition, UIA 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 UIA's assumption of the agreement. Mutual fund directors and investment advisers to mutual funds are deemed to be "fiduciaries" of the fund. The SEC 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 - 11 - of a fund. Shareholders or the SEC 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 SEC to impose remedial sanctions for violation of any provision of the Federal securities laws and the regulations adopted thereunder, and the SEC may preclude 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 1940 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 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 UMC and AFSI under the Exchange Act could force UMC and AFSI to suspend activities pending recovery of net capital. Factors that may affect UMC's and AFSI's net capital include the general investment climate as well as the ability of the Company to obtain any assets necessary to contribute equity capital to UMC and AFSI. RISKS OF BUSINESS The Company's investment advisory, transfer agent, shareholder servicing and broker-dealer businesses are subject to various risks and contingencies, many of which are beyond the ability of the Company to control. These risks include: economic conditions generally and, in particular, those affecting 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 the Company's 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 the Company or any of its employees to comply with such regulations or with any of the laws, rules or regulations of Federal, state or industry authorities (principally the NASD, SEC and state insurance departments) could result in censure, imposition of fines or other sanctions, including revocation of the Company's right to do business or in suspension or expulsion from the NASD. Any of the foregoing could have a material adverse effect upon the Company. Such regulations are designed primarily for the protection of the investing customers of securities firms and not the Company's stockholders. Finally, there is no assurance that the Company, along with other fund - 12 - distributors, administrators and managers will not be subjected to additional stringent regulation and publicity that may adversely affect their business. COMPETITION Since its inception, the Company has encountered substantial competition in the businesses in which it competes. The Company's principal competitors include mutual finds, investment advisors, 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 the Company's business are competitive, including competition for mutual fund assets to manage. Large national firms have much greater marketing capabilities, offer a broader range of financial services and compete not only with the Company and among themselves but also with commercial banks, insurance companies and others for retail and institutional clients. The Company's affiliated mutual funds are subject to competition from nationally and regionally distributed funds offering equivalent financial products with returns equal to or greater than those offered by the Unified Funds, the AmeriPrime Funds or AmeriPrime Insurance Trust. The Company is focused on the niche area of tax-free reorganizations and consolidations of small mutual funds into the Unified Funds family and its proprietary products, such as V.O.I.C.E.(sm) Competition for assets under management is intense from both national and regional based firms. Access to local investment and the population of the region by modern communication systems is so efficient that the Company's geographical position cannot be deemed an advantage. The Company's investment management operations compete with a large number of other investment management firms, commercial banks, insurance companies, broker- dealers and other financial service firms. Most of these firms are larger and have access to greater resources than the Company. The investment advisory industry is characterized by relatively low cost of entry and the formation of new investment advisory entities that may compete directly with the Company is a frequent occurrence. The Company directly competes with as many as several hundred firms that are of similar or larger size. The Company's ability to increase and retain clients' assets could be materially adversely affected if client accounts under-perform the market. The ability of the Company's investment management 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 the Company's 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. The Company expects that there will be increasing pressures among mutual fund sponsors to obtain and hold market share. Although the Company may expand the financial services it can provide to its customers, it does not now offer as broad a range of financial services as national stock exchange member firms, commercial banks, insurance companies and others. DEPENDENCE ON KEY CLIENTS As of December 31, 1998, the Company provided mutual fund services, transfer agency, fund accounting, administration and distribution services to 18 mutual fund families consisting of 53 portfolios. Four of those portfolios, the Unified Funds, originally were organized and are sponsored by UIA. The Unified Funds and those of the remaining parties, have entered into contracts with the Company that typically expire within one to three years. No assurance can be given that any of these third party funds will remain clients of the Company upon expiration or termination of the various administration and distribution agreements. The loss by the Company of such mutual fund clients could have a material adverse effect on the Company. - 13 - Additionally, UMC 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 UMC's revenues from trading commissions. The loss of clearing clients could have a material adverse effect on the Unified Funds and the Company. UIA receives management fees from the Unified Funds. As the Unified Funds' manager and adviser, UIA, and, therefore, the Company, are economically dependent on the Unified Funds for a portion of their revenue. Contracts for portfolio management performed by UIA 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 the Company. These Boards also are responsible for awarding the Company's subsidiaries the various service agreements for the Unified Funds. DEPENDENCE ON KEY PERSONNEL The Company is dependent in a large part on Timothy L. Ashburn, the President, Chief Executive Officer and Chairman of the Board, as well as a group of senior management personnel. The loss or unavailability of any of these persons could have a material adverse effect on the Company. The Company's success also will depend on its ability to attract and retain highly skilled personnel in all areas of its business. There can be no assurance that the Company will be able to attract and retain personnel on acceptable terms in the future. 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, each a wholly owned subsidiary of the Company, the Company does not presently own insurance covering the lives of the senior management of the Company. There can be no assurance that the services of the senior management of the Company will continue to be available. EMPLOYEES As of December 31, 1998, the Company and its subsidiaries had 165 employees, of which 158 were full-time employees. None of the employees of the Company and its subsidiaries are subject to a collective bargaining agreement. The Company considers its relationships with its employees and those of the subsidiaries to be good. ITEM 2. DESCRIPTION OF PROPERTY ----------------------- The Company, through its subsidiary, UMC, leases its 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. Health Financial's, First Lexington's and Resource Benefit Planners' administrative offices are located at 2353 Alexandria Drive, Lexington, Kentucky. The operating lease for Health Financial's and First Lexington's offices expires in 2002 and such offices have approximately 2,320 square feet. The operating lease for Resource Benefit Planners' offices expires in 2002 and such offices have approximately 2,180 square feet. The Company also leases a portion of such property for corporate offices. Fiduciary's, Strategic's, VSX's and UCR's administrative offices are located at 36 West 44th Street, New York, New York. The operating lease for Fiduciary Counsel expires in 2002 and such offices have approximately 3,231 square feet. Equity's administrative offices are located at 220 Lexington Green - 14 - Circle, Suite 600, Lexington, Kentucky. The operating lease for Equity expires in 2001 and such offices have approximately 20,080 square feet. AmeriPrime's administrative offices are located at 175 Westwood Drive, Suite 500, Southlake, Texas. The operating lease for AmeriPrime expires in 1999 and such offices have approximately 600 square feet. The Company's current administrative offices are considered adequate to serve the Company's foreseeable needs. Other than the administrative offices leases, the Company has no other significant property holdings. ITEM 3. LEGAL PROCEEDINGS ----------------- Various claims and lawsuits, incidental to its ordinary course of business, are pending against the Company and its subsidiaries. In the opinion of management, after consultation with legal counsel, resolution of these matters is not expected to have a material effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- There were no matters submitted during the quarter ended December 31, 1998 to a vote of the Company's 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 the executive officers of the Company are set forth below: TIMOTHY L. ASHBURN, 48, has served as Chairman of the Board of the Company since 1989, as Chief Executive Officer from 1989 to 1992 and 1994 to present, and as President since November 1997. Mr. Ashburn was employed by Vine Street Trust Company, Lexington, Kentucky, a wholly owned subsidiary of Cardinal Bancshares, a Kentucky bank holding company, for the two-year period from April 1992 through March 1994. Mr. Ashburn also is a director of each of UMC, Unified Fund Services, First Lexington, Health Financial, Resource Benefit Planners, Unified Internet Services, UIA, Fiduciary, EMCO, Equity, CPFC, Strategic, AmeriPrime, AFSI, Unified Aviation, VSX and UCR, is Chairman of the Board of Trustees, President, Chief Executive Officer and Assistant Secretary of the Unified Funds, is Chairman and Chief Executive Officer of Unified Fund Services, is Chairman of UMC, is President and Assistant Secretary of Unified Aviation, is Assistant Secretary of each of Fiduciary, EMCO, Equity, CPFC, Strategic, AmeriPrime and AFSI and is Vice President and Assistant Secretary of VSX and UCR. Mr. Ashburn is a member of the Executive Committee. THOMAS G. NAPURANO, 57, a certified public accountant and a certified management accountant, has served as a director, the Chief Financial Officer and Executive Vice President of the Company since 1989. Mr. Napurano also is a director and the Chief Financial Officer of Unified Internet Services, is a director and the Chief Financial Officer and Executive Vice President of each of UMC and Unified Fund Services, is a director and the Treasurer of Unified Aviation, is a director and the Assistant Treasurer of VSX and UCR, is the Chief Financial Officer and the Treasurer for the Unified Funds, is the Assistant Treasurer of each of Fiduciary, EMCO, Equity and CPFC, and is the Treasurer of each of Strategic, AmeriPrime and AFSI. Mr. Napurano is a member of the Executive Committee. LYNN E. WOOD, 52, has served as a director of the Company since 1992 and served as Chief Operating Officer and President of the Company from 1993 through November 1997. Mr. Wood also has served as Executive Vice President of the Company since 1998. Mr. Wood is a director and the - 15 - President and Chief Executive Officer of UMC, is a director of Unified Internet Services and is the Assistant Secretary to the Unified Funds. DAVID A. BOGAERT, 35, has served as an Executive Vice President of the Company since 1992, as the President of Unified Fund Services since November 1997, as a director and an Executive Vice President of UIA from 1995 and as an Executive Vice President of UMC from 1994 through September 1998. Mr. Bogaert has been the national sales and marketing director since 1995 as well as the telephone service representative, brokerage services supervisor, institutional sales representative and Assistant Vice President from 1986 through 1992. DR. GREGORY W. KASTEN, 44, has served as a director of the Company since 1997. Dr. Kasten has served as President and Chief Executive Officer of Health Financial and First Lexington since 1986 and 1994, respectively. Dr. Kasten also is a director of each of Health Financial, First Lexington and Resource Benefit Planners. 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 of the Company since 1989. Mr. Orben also is a director and the Chairman of the Board, Chief Executive Officer and Treasurer of each of Fiduciary Counsel, EMCO and Associated Family Services, Inc. and is a director and the President and Treasurer of Fiduciary Alliance. 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. and as a director of UIA. Mr. Orben is a member of the Audit, Nominating and Compensation Committee. JOHN R. OWENS, 45, a certified public accountant, has served as a director and an Executive Vice President of the Company since 1998. Mr. Owens has served as a director and the President of Equity since 1998, a director and the Vice-President and a director and the Vice-President, Secretary and Treasurer of CPFC since 1991 and 1998, respectively, a director and the President of each of EIM and EIA since 1990 and 1997, respectively, a director and the Treasurer of 21st Century since 1996 and a director of EIM of Illinois since 1996. Mr. Owens also is a director, the Vice President and Secretary of Unified Aviation. Mr. Owens is a member of the Executive Committee. - 16 - PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS --------------------------------------------------------------------- There currently is no established public trading market for the Common Stock. All share and price information has been adjusted to reflect all stock splits and stock dividends paid by the Company since January 1, 1997.
SALES PRICE --------------------------- HIGH LOW ------- ------- 1997 ---- First Quarter $0.1028 $0.0935 Second Quarter -- -- Third Quarter 1.2312 1.2312 Fourth Quarter -- -- 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
Because of the closely held nature of the Company, no representation is made that the foregoing prices are or are not reflective of a "market price." As of March 15, 1999, the Company reported approximately 270 stockholders of record holding the Common Stock. The Company has not paid any cash dividends with respect to the Common Stock during the disclosed time periods. For the three months ended December 31, 1998, the only sales of the Company's securities were the following: (i) 7,500 shares of Common Stock issued in connection with the acquisition of Strategic (such shares were issued in exchange for the outstanding capital stock of Strategic); (ii) 241,745 shares of Common Stock issued in connection with the acquisition of Equity (such shares were issued in exchange for the outstanding capital stock of Equity); (iii) 12,800 shares of Common Stock issued in connection with the acquisition of CPFC (such shares were issued in exchange for the outstanding capital stock of CPFC); (iv) 410,000 shares of Common Stock issued in connection with the acquisition of AmeriPrime (such shares were issued in exchange for the outstanding capital stock of AmeriPrime); and (v) 11,400 shares of Common Stock issued in connection with private offerings of Common Stock at a price of $27.50 per share. All shares of Common Stock issued by the Company during such period were issued pursuant to the exemption provided by Rule 506, as promulgated by the SEC. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS - --------------------- The following presents management's discussion and analysis of the Company's consolidated financial condition and results of operations as of the dates and for the periods indicated. This discussion should be read in conjunction with the other information set forth in this Annual Report on Form 10-KSB, including the Company's audited, consolidated financial statements and the accompanying notes thereto. COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 Total revenue for the year ended December 31, 1998 as compared to the year ended December 31, 1997 increased $3,722,619, or 19.3%, from $19,249,217 to $22,971,836. For such periods, - 17 - brokerage revenue increased $1,862,142, or 64.8%, investment advisory revenue increased $1,559,894, or 77.8%, financial services administration revenues increased $631,645, or 16.5%, insurance brokerage revenue declined $315,364, or 3.2%, and software and programming services and other income decreased $15,698, or 2.2%. The increase in brokerage revenues primarily was due to $772,000 in commissions received by UMC from the sale of Common Stock in connection with the Company's private placement (the "Private Placement"). Investment advisory revenue increased principally due to growth in assets under management plus the increased revenue ($1,003,472) due to the acquisitions by the Company in March 1998 and August 1998 of UIA and Fiduciary, respectively. Financial services administration revenues increased principally due to growth in assets under services and growth in claim service contracts and premium financing activities. Gross insurance brokerage revenues decreased slightly due to lesser premium income being written in the current year. Overall, $42,934,060 in premiums was written during 1998 as compared to $44,105,396 in 1997, a decrease of 2.7%. Software and programming services and other income declined slightly from 1997 to 1998, principally as a result of additional interest income earned on cash and cash equivalents received in connection with the Private Placement, offset by a reduction in software and programming revenue. Gross profit for the year ended December 31, 1998 as compared to the year ended December 31, 1997 increased $2,603,952, or 21.9%, from $11,879,096 to $14,483,048. For such periods, gross profit as a percentage of revenue increased to 63.0% from 61.7%. Brokerage gross profit increased to $1,647,500 for the year ended December 31, 1998 from $1,001,100 for the prior year, reflecting the increased brokerage revenues received by UMC in connection with the Private Placement. Investment advisory gross profit increased to $3,492,672 for the year ended December 31, 1998 from $1,949,749 for the year ended December 31, 1997. For such periods, investment advisory gross profit increased $1,542,923, of which $991,287 was due to the acquisitions of UIA and Fiduciary on March 31, 1998 and August 21, 1998, respectively, plus increased assets under management. Financial services administration gross profit increased to $3,725,593 for the year ended December 31, 1998 from $3,265,090 for the year ended December 31, 1997, reflecting the increased assets under service and growth in claim service contracts and premium financing activities. Insurance brokerage gross profit of $4,931,363 declined slightly for the year ended December 31, 1998 compared to $5,090,342 for the prior year. The insurance brokerage gross profit decrease was attributable to a premium decline of approximately $3,500,000 in private passenger automobile business, but was tempered by increases in other lines of commercial business, at lower margins. The premium decline is reflective of the very competitive nature of the present insurance market. The increase in all other gross profit of $113,074 reflects the increased interest income earned on cash and cash equivalents received in connection with the Private Placement and the growth in the claims and premium finance operations. Income from operations for the year ended December 31, 1998 was $1,195,353, or 5.2% of total revenue, as compared to a loss from operations of $1,017,533 for the prior year. Total expenses for the year ended December 31, 1998 were $13,287,695, or 57.8% of total revenue, as compared to $12,896,629, or 67% of total revenue, for the year ended December 31, 1997. Fiduciary and UIA, each of which was acquired by the Company during 1998, accounted for $1,044,927 of the expenses during 1998 when compared to 1997. The 1998 compensation and benefit expense of $6,698,826, or 50.4% of total expenses, was $919,442 lower than the 1997 total expenses of $7,618,268. The cost of additional personnel hired during 1998 due to increased volume was more than offset by a one-time special bonus paid in 1997 of approximately $125,000, acquisition related guaranteed payments of approximately $825,000 related to the purchase of a new subsidiary and the retirement of stock held by a former shareholder of Equity and an overall reduction in executive compensation in 1998 at Equity. Investment administration expenses increased $180,104 from $235,561 due to a $261,000 one-time charge related to the fund administration activity from 1989 and prior years, partially offset by the increased cost in 1997 due to a change in the Company's fund service provider. The 1997 depreciation and amortization - 18 - expense reflected accelerated adjustments of $278,000 in goodwill expense related to a subsidiary purchased by Equity. Interest expense related to the cost of capital used to retire the shares held by a former shareholder of Equity. For the year ended December 31, 1998, the Company's portion of profit from affiliates was $59,197 as compared to $295,525 profit from affiliates for the year ended December 31, 1997. The Company's portion of the loss of UIA (prior to the Company's acquisition of 100% of the capital stock of UIA on March 31, 1998) was $39,945 as compared to a $160,298 loss for the year ended December 31, 1997. Equity's portion of profit of an affiliate for the year ended December 31, 1998 was $99,142 as compared to $455,823 profit from an affiliate for the year ended December 31, 1997. Unrealized and realized gains on securities of approximately $37,441 in 1998 compared to $76,058 in 1997, reflecting the change in the stock market. Net income of $1,132,781 for the year ended December 31, 1998 increased $1,410,714 as compared to a net loss of $277,933 for the year ended December 31, 1997. Increased revenue (19.3%) for the year ended December 31, 1998 more than offset the increased expenses (3.0%) during such year as compared to the year ended December 31, 1997. The growth in assets under management and services, coupled with the commissions received by UMC from the sale of Common Stock in the Private Placement, resulted in increased gross revenue The acquisition of each of UIA and Fiduciary was reported pursuant to the purchase method of accounting and included in the Company's consolidated financial statements from the date of each respective acquisition. The 1998 revenue and expenses from acquisitions were increased 5.2% and 8.1%, respectively. The 1997 expenses from merged subsidiaries reflect acquisition-related compensation, depreciation and amortization and equipment rental expense, net of tax of $898,000. LIQUIDITY AND CAPITAL RESOURCES The assets and liabilities of each of UIA and Fiduciary are included in the Company's balance sheet as of December 31, 1998. The inclusion of these companies and the receipt of funds pursuant to the Private Placement are the principal reasons for the increase of most balance sheet items from December 31, 1997 to December 31, 1998. The Company's 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 increase in cash and cash equivalents at year-end 1998 from year-end 1997 was $7,776,107. The principal increase reflects net proceeds from the Private Placement of $10,222,635 and bank borrowings of $3,373,770, which monies offset the $1,706,900 utilized to redeem the Series A and Series B Preferred Stock, as well as cash the Company expended for the purchase of Fiduciary, the purchase of fixed assets and the purchase of common stock of Equity. The Company issued 450,738 shares of Common Stock in 1998. In addition, during May 1998, the Company issued to certain directors, executive officers and agents of the Company 2,100 shares of Series C Preferred Stock for total consideration of $210,000. On August 21, 1998, the Company paid $800,835 and issued 36,110 shares of Common Stock in connection with the acquisition of Fiduciary, creating goodwill of $1,564,802. On April 25, 1998, the Company utilized $1,706,900 of the proceeds from the Private Placement to redeem the outstanding shares of Series A and Series B Preferred Stock. Pending usage, the Company invested the remaining net proceeds from the Private Placement in its own no-load mutual fund portfolios. The Private Placement should have a positive effect on the Company by assisting further development, marketing, expansion and support of the Company's products and services, some of which are proprietary, promoting an aggressive advertising and publicity program for the Company's niche - 19 - products and services, especially the V.O.I.C.E.(TM) program, and the Company's vision for the financial services industry and expansion of the Company's internet investment activities. YEAR 2000 COMPLIANCE The year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. These programs treat years as occurring between 1900 and the end of 1999 and do not self-convert to reflect the upcoming change in the century. If not corrected, computer applications could create erroneous results by or at the Year 2000. The Company has undertaken a program to understand the nature and extent of the work required to make its computer systems Year 2000 compliant. This program encompasses evaluation and correction of operating systems, information systems and facilities systems. The program also involves an evaluation of the Company's products and the Year 2000 compliance of the Company's vendors. The program consists of the following phases: awareness and inventory; triage; detailed assessment and resolution; testing; deployment; and contingency plan development. AWARENESS PHASE. In this phase, the Company informs employees and management of the Year 2000 problem and how it affects the Company. The Company explains its Year 2000 project to employees and management and provides routine updates on the project's status. INVENTORY PHASE. This phase focuses on the identification of all products that are not Year 2000 Compliant. TRIAGE PHASE. In this phase, the Company, based on an evaluation of technical and business risks, determines which non-compliant computer systems should be retired and which should be maintained. Those systems critical to the business of the Company are placed in the detailed assessment phase. DETAILED ASSESSMENT PHASE. In this phase, efforts are focused on the identification of Year 2000 problems within each specific system and identification of appropriate solutions to such problems. RESOLUTION PHASE. Efforts in this phase are focused on repair, replacement or retirement of systems that have been identified as non- compliant. TESTING PHASE. In this phase, the Company tests its systems to determine the effectiveness of the solutions developed in the resolution phase. DEPLOYMENT PHASE. The Company makes the Year 2000 systems operational in this phase. The Company's objective was to be Year 2000 compliant with its critical systems by the end of the fourth quarter of 1998, allowing substantial time for further testing, verification and conversion of less important activities and systems. The Company has achieved this goal in over 90% of the mission critical systems. The remaining 10% of the critical systems is scheduled to be compliant by April 30, 1999. The Company is utilizing both internal and external resources to identify, correct or reprogram, and test its internal systems for Year 2000 compliance. The Company has gathered information from its suppliers and vendors to determine the status of their Year 2000 compliance and the extent to which the Company's operations may be affected by such third-parties' non- compliance. The Company is - 20 - monitoring the progress of each vendor and is developing contingency plans in the event vendors experience Year 2000 problems and cannot deliver products and services necessary to the Company's operations. Further analysis or testing of the vendors' systems will continue throughout 1999. However, there can be no assurance that the systems and products of third-parties on which the Company relies will be compliant. The following chart identifies the status of each phase in the critical systems compliance project:
PHASE PROJECTED PERIOD OF PHASE PRESENT STATUS ----- ------------------------- -------------- Awareness Plan Ongoing through 01/2000 100% Inventory Plan 100% completed by 9/1998 100% Triage Plan 100% completed by 9/1998 100% Assessment Plan 100% completed by 10/1998 100% Resolution Plan 100% completed by 12/1998 100% Testing Plan 100% completed by 12/1999 90% Deployment Plan 100% completed by 12/1999 90%
The total cost of the Year 2000 project to date has not been material. Based on the results of the program to date, the Company does not expect that future costs of modifications will have a material adverse effect on the Company's financial position or results of operations. An estimated $40,000 will be spent in 1999 on hardware and software to complete the Year 2000 project. Because the Company expects that its internal systems will become Year 2000 compliant in a timely manner, the Company believes that the most likely worst case scenario would result from the failure of vendors or other third parties to achieve Year 2000 compliance. Depending upon the number of non-compliant third parties, the nature and extent of their relationship with the Company and the nature of the non-compliance, the Year 2000 issue could have a material adverse effect on the Company's financial position or results of operations. However, the Company is developing contingency plans, which are expected to be completed during the second half of 1999, should any critical problems occur in any of the assessment areas noted above. Accordingly, the Company does not expect Year 2000 problems to result in any material adverse effects on the Company's financial position or results of operations. - 21 - 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, 1998 and 1997, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence 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, 1998 and 1997, and the results of its operations, and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Larry E. Nunn & Associates, LLC Columbus, Indiana February 12, 1999 - 22 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1998 AND 1997 --------------------------
ASSETS ------ 1998 1997 ---- ---- Current Assets Cash and cash equivalents $10,342,501 $ 2,566,394 Investment in affiliated mutual funds 231,728 707,936 Investment in securities and non-affiliated mutual funds 494,403 150,218 Accounts receivable (net of allowance for doubtful accounts of $38,326 for 1998 and $2,041 for 1997) 8,873,903 6,437,944 Prepaid assets and deposit 230,006 132,125 ----------- ----------- Total current assets 20,172,541 9,994,617 ----------- ----------- Fixed Assets, at cost Equipment and furniture (net of accumulated depreciation of $2,913,498 for 1998 and $2,472,022 for 1997) 1,542,251 1,465,360 ----------- ----------- Total fixed assets 1,542,251 1,465,360 ----------- ----------- Non-Current Assets Investment in debt securities 994,211 958,604 Equity investment in affiliates 565,566 751,418 Notes receivable (net of current maturity) - 8,090 Organization cost (net of accumulated amortization of $254,230 for 1998 and $6,900 for 1997) 898,027 2,100 Goodwill (net of accumulated amortization of $34,773 for 1998 and $24,844 for 1997) 1,902,691 347,818 Other non-current assets 620,649 672,335 ----------- ----------- Total non-current assets 4,981,144 2,740,365 ----------- ----------- TOTAL ASSETS $26,695,936 $14,200,342 =========== =========== See accompanying notes and independent auditors' report. - 23 - LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ 1998 1997 ---- ---- Current Liabilities Current portion of capital lease obligations $ 52,735 $ - Current portion of bank line-of-credit 3,886,612 1,291,846 Accounts payable and accrued expenses 1,860,544 1,292,768 Accrued compensation and benefits 338,779 151,979 Payable to insurance companies 6,456,511 4,787,147 Payable to broker-dealers 596,509 524,688 Income taxes payable, current 1,857 23,122 Income taxes payable, deferred 90,318 183,924 Other liabilities 1,218,855 1,008,970 ----------- ----------- Total current liabilities 14,502,720 9,264,444 ----------- ----------- Long-Term Liabilities Long-term portion of capital lease obligation 37,122 79,102 Long-term portion of bank line-of-credit 2,024,579 1,282,112 Other long-term liabilities 385,886 714,611 Deferred income taxes 33,361 17,705 ----------- ----------- Total long-term liabilities 2,480,948 2,093,530 ----------- ----------- Total liabilities 16,983,668 11,357,974 ----------- ----------- Commitments and Contingencies - - Stockholders' Equity Common stock, par value $.01 per share 27,174 21,728 Preferred stock Series A - 8,486 Preferred stock Series B - 8,583 Preferred stock Series C 1,672 - Additional paid-in capital 8,234,123 2,199,921 Retained earnings 1,449,299 603,749 Accumulated other comprehensive income - (99) ----------- ----------- Total stockholders' equity 9,712,268 2,842,368 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,695,936 $14,200,342 =========== =========== See accompanying notes and independent auditors' report.
- 24 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 ----------------------------------------------
1998 1997 ---- ---- REVENUE Brokerage $ 4,736,631 $ 2,874,489 Financial services administration 4,467,866 3,836,221 Investment advisory 3,564,760 2,004,866 Insurance brokerage 9,516,704 9,832,068 Software and programming services 25,353 131,788 Other income 660,522 569,785 ----------- ----------- Total revenue 22,971,836 19,249,217 ----------- ----------- COST OF SALES Brokerage revenue changes 3,072,222 2,007,894 Financial services administration 732,370 554,174 Insurance commissions 4,588,723 4,741,726 Investment fees 95,473 66,327 ----------- ----------- Total cost of sales 8,488,788 7,370,121 ----------- ----------- Gross Profit 14,483,048 11,879,096 ----------- ----------- EXPENSES Employee compensation and benefits 6,698,826 7,618,268 Brokerage operating charges 537,879 363,330 Investment administration expenses 415,665 235,561 Occupancy 704,977 474,854 Telephone 253,188 181,376 Depreciation and amortization 598,022 802,173 Mail and courier 491,562 336,675 Equipment rental and maintenance 364,480 292,694 Travel and entertainment 368,217 94,305 Business development cost 586,052 611,358 All other 2,268,827 1,886,035 ----------- ----------- Total expenses 13,287,695 12,896,629 ----------- ----------- Income from operations 1,195,353 (1,017,533) OTHER INCOME (LOSS) Unrealized gain on securities 23,946 46,825 Realized gain on securities 13,495 29,233 Equity in results of affiliates 59,197 295,525 Gain (loss) on sale/disposal of fixed assets (8,752) (8,836) ----------- ----------- Income before income taxes 1,283,239 (654,786) Income taxes 150,458 (376,853) ----------- ----------- NET INCOME $ 1,132,781 $ (277,933) =========== =========== Per share earnings Net income - basic $ 0.47 $ (0.24) Basic common shares outstanding 2,267,449 1,758,931 Net income - fully diluted $ 0.42 $ (0.23) Fully diluted common shares outstanding 2,530,695 1,765,731 See accompanying notes and independent auditors' report.
- 25 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 ---------------------------------------------- 1997 - ---- Net income $ (277,933) Other comprehensive income, net of tax: Unrealized gain on securities, net of reclassification adjustment 4,873 ---------- Comprehensive income $ (273,060) ========== 1998 - ---- Net income $1,132,781 Other comprehensive income, net of tax: Unrealized gain on securities, net of reclassification adjustment 99 ---------- Comprehensive income $1,132,880 ========== See accompanying notes and independent auditors' report.
- 26 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997 --------------------------------------
Accumulated Preferred Preferred Preferred Additional Other Common Class A Class B Class C Paid-In Retained Comprehensive Stock Stock Stock Stock Capital Earnings Income Total ----- ----- ----- ----- ------- -------- ------ ----- Balance at December 31, 1996 $12,599 $ 8,486 $ 8,583 $ - $ 2,125,431 $1,367,568 $(4,972) $ 3,517,695 1997 net income (277,933) (277,933) Other comprehensive income 4,873 4,873 Common stock issued 97 2,456 2,553 Common stock issued-MER 5,728 69,534 75,262 Adjustment to stated capital 3,304 (3,304) - Additional paid-in-capital EUG 2,500 2,500 Distribution to CPFC and AmeriPrime stockholders (135,570) (135,570) Dividends to AmeriPrime and Health Financial stockholders (210,460) (210,460) Dividends on preferred stock (136,552) (136,552) ------- ------- ------- ------ ----------- ---------- ------- ----------- Balance at December 31, 1997 21,728 8,486 8,583 - 2,199,921 603,749 (99) 2,842,368 1998 net income 1,132,781 1,132,781 Other comprehensive income 99 99 Comprehensive income Redemption of Preferred A and B shares (8,486) (8,583) (1,689,831) (1,706,900) Issuance of 2,100 Preferred C shares 2,100 207,900 210,000 Issuance of common stock 4,507 10,218,128 10,222,635 Conversion of 428 Preferred C to 57,780 common stock shares 578 (428) (150) - Acquisition of Advisers (683,210) (31,387) (714,597) Acquisition of Fiduciary Counsel 361 902,389 902,750 Repurchase of common shares at EUG (2,921,024) (2,921,024) Dividends to CPFC and AmeriPrime stockholders (190,000) (190,000) Dividends on preferred stock (65,844) (65,844) ------- ------- ------- ------ ----------- ---------- ------- ----------- Balance at December 31, 1998 $27,174 $ - $ - $1,672 $ 8,234,123 $1,449,299 $ - $ 9,712,268 ======= ======= ======= ====== =========== ========== ======= =========== See accompanying notes and independent auditors' report.
- 27 - UNIFIED FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 ----------------------------------------------
1998 1997 ---- ---- CASH FLOW FROM OPERATING ACTIVITIES Net income $ 1,132,781 $ (277,933) Adjustments to reconcile net income to cash provided by (used) in operating activities: Deferred income taxes 125,343 (401,929) Provision for depreciation and amortization 598,022 802,173 Unrealized gain on investments (23,946) (40,657) Results of affiliated company (59,197) (295,524) (Gain) loss on disposal of fixed assets 8,752 52,720 Cash value of officers' life insurance (12,500) (6,273) Deferred startup cost (643,169) - (Increase) decrease in operating assets Receivables (2,321,952) (1,759,462) Prepaid and sundry assets 28,824 (11,559) Increase (decrease) in operating liabilities Accounts payable and accrued expenses 1,055,473 2,233,526 Other liabilities (235,541) 559,754 Accrued income taxes 47,789 17,302 ----------- ----------- Net cash provided (used) by operating activities (299,321) 872,138 ----------- ----------- CASH FLOW FROM INVESTING ACTIVITIES Purchase of equipment (499,152) (1,203,039) Proceeds from sale of fixed assets 9,220 128,701 Equity in affiliate - (21,367) Investment in securities and mutual funds 224,634 (31,726) Investment in debt securities (110,699) (154,801) Repayment of note receivable 4,502 28,783 Intangible assets - 270,338 Appreciation of debt securities (531) (833) Proceeds from sale of marketable securities 89,665 - ----------- ----------- Net cash provided (used) by investing activities (282,361) (983,944) ----------- ----------- CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 10,222,635 77,815 Proceeds from issuance of Preferred C stock 210,000 - Redemption of Preferred A and B stock (1,706,900) - Dividend on preferred stock (65,844) (136,552) Dividends on CPFC and AmeriPrime common stock (190,000) - Dividends on AmeriPrime and Health Financial common stock - (233,072) Purchase of common stock at EUG (2,921,024) 2,500 Acquisition of Fiduciary Counsel and Advisers (413,026) - Proceeds from borrowings 3,373,770 1,676,463 Repayment of borrowings (81,537) (1,423,857) Repayment of capital lease obligations (70,285) (44,072) ----------- ----------- Net cash provided (used) by financing activities 8,357,789 (80,775) ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 7,776,107 (192,581) CASH AND CASH EQUIVALENTS - Beginning of the year 2,566,394 2,758,975 ----------- ----------- CASH AND CASH EQUIVALENTS - End of the year $10,342,501 $ 2,566,394 =========== =========== See accompanying notes and independent auditors' report.
- 28 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 1 - NATURE OF OPERATIONS The consolidated financial statements include the accounts of Unified Financial Services, Inc. (the "Company" or "Unified"), a Delaware corporation, and its wholly owned subsidiaries, Unified Management Corporation, Unified Fund Services, Inc., Health Financial, Inc, First Lexington Trust Company, Resource Benefit Planners, Inc., Unified Investment Advisers, Inc., Unified Internet Services, Inc., EMCO Estate Management Company, Inc., Fiduciary Counsel, Inc., Equity Underwriting Group, Inc., Commonwealth Premium Finance Corporation, Strategic Fund Services, Inc. and AmeriPrime Financial Services, Inc. Unified Management Corporation, an Indiana corporation ("Management") is a registered broker-dealer under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is a member of the National Association of Securities Dealers, Inc. ("NASD"). Management specializes in mutual fund distribution and shareholders servicing liaison providing such services as: mutual fund distribution; distribution services and support; mutual fund conversion support for broker-dealer requirements; mutual fund trades; individual retirement account ("IRA") custodial services; 12b-1 maintenance; accounting and marketing support; securities (stock and bond) brokerage; brokerage clearing and execution services; consolidated brokerage statement processing; mutual fund and brokerage software development; asset allocation and performance measurement services and statement processing; and retirement account record keeping. Management, as the Company's broker-dealer subsidiary, functions as the distributor of the Unified Funds, a family of no-load mutual funds sponsored by Unified Investment Advisers, Inc., and also provides specialty services for certain customers of the Unified Funds in addition to its discount brokerage activities. The brokerage subsidiary clears, on a fully disclosed basis, through U.S. Clearing, a division of Fleet Securities, Inc. and Pershing, a division of Donaldson, Lufkin & Jenrette Securities Corporation. Unified Fund Services, Inc., an Indiana corporation ("Services"), is a registered transfer agent and mutual fund services company, and provides transfer agency, fund accounting, administrative and start-up services for mutual funds. Services' primary services include: mutual fund transfer agency and shareholder recordkeeping; compliance; asset allocation services; statement processing; retirement plan services; and fulfillment. Services also provides all of the mutual fund services for the Unified Funds portfolios, and performs other clerical functions for the Unified Funds in addition to typical mutual fund services. - 29 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 1 - NATURE OF OPERATIONS (continued) Health Financial, Inc., a Kentucky corporation ("Health Financial"), is a registered investment adviser formed in 1986. As of December 31, 1998, Health Financial managed approximately $360 million in assets for both individuals and institutions, principally private pension plans and foundations. Health Financial specializes in an investment management philosophy that features a balanced discipline of asset allocation utilizing no-load index funds over six asset classes, including an S&P 500 index, a small cap U.S. bond index, an international stock index, a REIT index and cash. First Lexington Trust Company, a Kentucky corporation ("Lexington"), is a non-bank trust company specializing in retirement plans. As of December 31, 1998, First Lexington maintained approximately $96 million in assets under management. Directed by its trust investment committee, the Lexington based Kentucky trust company provides the same investment philosophy as its sister company, Health Financial, while providing trust powers and retirement plan services to it customer base. Chartered in 1994, Lexington is regulated by the Kentucky Commissioner of Banking under the Department of Financial Institutions, Commonwealth of Kentucky. On March 10, 1998, the Company acquired Resource Benefit Planners, Inc. ("Benefit Planners"). Benefit Planners, a Kentucky corporation, is a professional services firm that provides consulting, recordkeeping and trust accounting services for qualified retirement and cafeteria plans. The acquisition is accounted for under the pooling-of-interests method of accounting. In connection with such acquisition, the Company issued 12,000 shares of common stock, $0.01 par value, of the Company (the "Common Stock") in exchange for all the outstanding capital stock of Benefit Planners. As of March 10, 1998, Benefit Planners reported total assets of $282,724 and shareholder's equity of $37,543. On March 31, 1998, Unified Investment Advisers, Inc., a Delaware corporation ("Advisers"), became a wholly owned subsidiary of the Company upon surrender to Advisers by all stockholders of Advisers (other than the Company) of their capital stock of Advisers. The stock surrender occurred upon approval by the shareholders of the Unified family of mutual funds and upon receipt of the required regulatory approval. Advisers, formerly knows as Vintage Advisers, Inc., provides mutual fund advisory services for the Unified Funds, the Company's no-load mutual fund family, and is an important component in the tax-free reorganization strategy for consolidating small mutual fund assets. Advisers also retains the exclusive rights to the proprietary V.O.I.C.E. product (Vision for Ongoing Investment in Charity and - - - - Education), which Unified believes is a significant and - valuable asset for the future gathering of mutual fund assets. As of March 31, 1998, Advisers reported total assets of $617,773 and shareholders' equity of $(469,548). - 30 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 1 - NATURE OF OPERATIONS (continued) During February 1998, the Company formed Unified Internet Services, Inc., an Indiana corporation ("Unified Internet Services"), to develop the Company's website, website television programming and its proprietary search engine for the financial services industry. It currently is anticipated that Unified Internet Services will develop the Company's other industry-related internet products, including an interactive "switch" that will allow consumers access to the Company's products via their television, cable and satellite stations. The Company anticipates development of such products to be completed by the end of 1999. On August 21, 1998, the Company acquired Fiduciary Counsel, Inc. ("Fiduciary Counsel"). Fiduciary Counsel, a Delaware corporation that is based in New York City, was founded in 1931 and provides professional investment management to individuals and institutions on a customized basis. This acquisition is accounted for under the purchase method of accounting. In connection with the acquisition, the Company issued 36,110 shares of Common Stock and paid $800,835 in cash in exchange for all the capital stock of Fiduciary Counsel. The excess of cost over fair value of net assets acquired was $1,564,802. Goodwill will be amortized on a straight-line method over 15 years. As of August 21, 1998, Fiduciary Counsel reported total assets of $738,157 and total stockholders' equity of $234,783. On August 21, 1998, the Company completed the acquisition of all of the assets and certain of the liabilities of EMCO Estate Management Company, Inc. ("EMCO"). Such assets and liabilities were acquired by a wholly owned subsidiary of the Company that, upon consummation of the transaction, was renamed EMCO Estate Management Company, Inc. EMCO, a Delaware corporation, is a wealth management firm based in New York City. Since 1921, EMCO professionals have assisted 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 acquisition is accounted for under the pooling-of-interests method of accounting. In connection with such transaction, the Company issued 11,000 shares of Common Stock in exchange for all of the assets and certain of the liabilities of EMCO. As of August 21, 1998, EMCO reported total assets of $67,230 and stockholder's equity of $(110,212). On December 17, 1998, the Company acquired Equity Underwriting Group, Inc., a Kentucky corporation headquartered in Lexington, Kentucky ("Equity Underwriting"). Equity Underwriting, a holding company for Equity Insurance Managers, Inc., Equity Insurance Managers of Illinois, LLC, 21st Century Claims Service, Inc., and Equity Insurance Administrators, Inc., provides, through its subsidiaries, specialty insurance products as a general agent or as a broker and currently provides services in the States of Kentucky, Tennessee, West Virginia, Ohio, Indiana and Illinois. Equity Underwriting - 31 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 1 - NATURE OF OPERATIONS (continued) writes insurance products for primarily niche areas in the insurance marketplace that are considered more "non- standard," representing a higher risk of insured. The acquisition is accounted for under the pooling-of-interests method of accounting. In connection with the acquisition, the Company issued 241,745 shares of Common Stock in exchange for all of the capital stock of Equity Underwriting. Equity Insurance Managers, Inc. ("EIM") and Equity Insurance Managers, Inc. of Illinois ("EIM of Ill") are licensed Managing General Agencies operating as a wholesaler/broker of property and casualty insurance products in Kentucky, Illinois, Tennessee, Virginia, West Virginia, Ohio and Indiana. EIM and EIM of Ill operate as managing general agents between a number of admitted as well as Excess and Surplus Line insurance companies with over 2,200 independent producers. 21st Century Claims Service, Inc., a Kentucky Corporation ("21st Century") conducts business as a claim adjusting service company operating as a third party administrator for various insurance companies in the private passenger and commercial trucking lines. Equity Insurance Administrators, Inc., a Kentucky Corporation ("EIA"), was incorporated in 1997 for the purpose of performing administrative services on a contractual basis for property and casualty insurance carriers. Effective December 17, 1998, the Company acquired Commonwealth Premium Finance Corporation, a Kentucky corporation headquartered in Lexington, Kentucky ("CPFC"). CPFC is a premium finance company as governed by the laws under Subtitle 30 of the Commonwealth of Kentucky Insurance Code. CPFC is licensed under applicable governing regulations in the states of Kentucky, Tennessee, Illinois and Ohio and conducts business in West Virginia and Indiana, which do not require licensing of premium finance companies. CPFC provides financing for the payment of premiums on insurance coverage placed by Equity Underwriting. The acquisition was accounted for under the pooling-of-interests method of accounting. In connection with the acquisition, the Company issued 12,800 shares of Common Stock in exchange for all of the capital stock of CPFC. Effective December 22, 1998, the Company acquired Strategic Fund Services, Inc., a Delaware corporation headquartered in New York, New York ("Strategic"). Strategic provides mutual fund administration services to smaller mutual funds and fund complexes, utilizing a proprietary database. The acquisition is accounted for under the pooling-of-interests method of accounting. In connection with the acquisition, the Company issued 7,500 shares of Common Stock in exchange for all of the capital stock of Strategic. - 32 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 1 - NATURE OF OPERATIONS (continued) Effective December 31, 1998, the Company acquired AmeriPrime Financial Services, Inc. ("AmeriPrime") and its subsidiary, AmeriPrime Financial Securities, Inc. ("AFSI"), each a Texas corporation headquartered in Southlake, Texas. AmeriPrime provides administrative, regulatory, compliance and start-up support services to investment advisors, banks and other money managers in their proprietary mutual fund efforts. AmeriPrime provides mutual fund support through AFSI, a NASD broker-dealer registered in all 50 states. As of December 31, 1998, AmeriPrime serviced 35 mutual funds consisting of over $500 million in assets. The acquisition is accounted for under the pooling-of-interests method of accounting. In connection with the acquisition, the Company issued 410,000 shares of Common Stock in exchange for all of the capital stock of AmeriPrime. Effective in January 1998, Unified Holdings, Inc. name was changed to Unified Financial Services, Inc.; Unified Advisers, Inc. name was changed to Unified Fund Services, Inc.; and Vintage Advisers Inc. name was changed to Unified Investment Advisers, Inc. Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation --------------------- The consolidated financial statements include the accounts of the Company, Management, Services, Health Financial, Lexington, Benefit Resources, Advisers, Unified Internet Services, EMCO, Fiduciary Counsel, Equity Insurance, CPFC, Strategic and AmeriPrime. All significant intercompany transactions and balance between the Company and its subsidiaries have been eliminated. Effective March 31, 1998, Advisers became a wholly owned subsidiary of the Company upon surrender to Advisers of all the capital stock of Advisers by all stockholders of Advisers (other than the Company). Prior to the surrender of the capital stock to Advisers, the Company accounted for its 33.3% ownership in Advisers pursuant to the equity method of accounting. Advisers reported gross revenue for the four months (Advisers' fiscal year end was November 30) ended March 31, 1998 of $146,519 and loss for the period of $195,967. Advisers reported total assets as of March 31, 1998 of $617,773 and shareholders' equity of $(469,548). Effective March 10, 1998, the Company acquired Benefit Planners in a transaction accounted for under the pooling- of-interests method of accounting. In connection with such acquisition, the Company issued 12,000 shares of Common Stock. - 33 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Effective August 21, 1998, the Company acquired EMCO in a transaction accounted for under the pooling-of-interests method of accounting. In connection with such acquisition, the Company issued 11,000 shares of Common Stock. Effective August 21, 1998, the Company acquired Fiduciary Counsel 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. Effective December 17, 1998, the Company acquired Equity Underwriting in a transaction accounted for under the pooling-of-interests method of accounting. In connection with such acquisition, the Company issued 241,745 shares of Common Stock. Effective December 17, 1998, the Company acquired CPFC in a transaction accounted for under the pooling-of-interests method of accounting. In connection with such acquisition, the Company issued 12,800 shares of Common Stock. Effective December 22, 1998, the Company acquired Strategic in a transaction accounted for under the pooling-of- interests method of accounting. In connection with such acquisition, the Company issued 7,500 shares of Common Stock. Effective December 31, 1998, the Company acquired AmeriPrime in a transaction accounted for under the pooling-of- interests method of accounting. In connection with such acquisition, the Company issued 410,000 shares of Common Stock. The Consolidated Financial Statements give retroactive effect to the pooling-of-interests transactions and, as a result, the Consolidated Statements of Financial Condition, Statements of Operations, Statements of Comprehensive Income, Statements of Changes in Stockholders' Equity and Statements of Cash Flows are presented as if the combining companies have been 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 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. - 34 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 consists 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 Statements of Operations as unrealized gain or loss on 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. Lexington is required by the Kentucky Department of Financial Institutions to maintain a minimum of $800,000 of capital as long as trust assets under management do not exceed $100,000,000. When trust assets under management exceed $100,000,000, the capital requirement will be increased by $350,000. Currently, Lexington has approximately $96,000,000 of trust assets under management. Income Taxes ------------ The Company files consolidated federal and state income tax returns with its subsidiaries. Subsequent to its acquisition by the Company, each of Benefit Planners, EMCO, Strategic, Equity Insurance, CPFC and AmeriPrime will be included in the consolidated tax returns of the Company, which uses the accrual method of tax and accounting reporting. - 35 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. The value of the goodwill 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. 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. 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. Financial Statement Presentation -------------------------------- Certain amounts in the 1997 financial statements have been reclassified to conform to the 1998 presentation. - 36 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 3 - PROPOSED ACQUISITIONS On October 16, 1998, Unified entered into an agreement to acquire Commonwealth Investment Services, Inc., a Kentucky corporation that is headquartered in Lexington, Kentucky ("Commonwealth Investment"). Commonwealth Investment provides investment services to individuals, businesses and institutions throughout the State of Kentucky and surrounding areas through its network of independent agents, primarily certified public accountants ("CPAs"). In connection with the acquisition, Unified will issue 27,500 shares of Common Stock in exchange for all of the capital stock of Commonwealth Investment. The acquisition is intended to be accounted for under the pooling-of-interests method of accounting. As of December 31, 1998, Commonwealth Investment reported total assets of $61,696 and shareholder's equity of $39,157. On October 12, 1998, Unified executed a letter of intent with Fully Armed Productions, Inc. a Kentucky corporation ("Fully Armed Productions"), to acquire all of the capital stock of Fully Armed Productions in exchange for 18,182 shares of Common Stock. Fully Armed Productions provides creative and technological services for the television, radio and internet industries through its specialty production capabilities. Fully Armed Productions performs videography, programming and production services for NBC, ESPN and numerous cable, satellite and television stations, including services for the past two Olympic games. The acquisition is intended to be accounted for pursuant to the pooling-of-interests method of accounting. On January 1, 1999, Unified and M. Wilson & Associates, Inc., a Kentucky corporation headquartered in Lexington, Kentucky ("M. Wilson & Associates"), agreed to the terms of a transaction whereby Equity Underwriting Group, Inc., a wholly owned subsidiary of Unified, would acquire all of the capital stock of M. Wilson & Associates in exchange for 3,636 shares of Common Stock. M. Wilson & Associates is a claim processing and management company that has experience in handling liability, property and workers compensation claims for a self-insured trust fund. M. Wilson & Associates processes claims for an occupational accident program for independent truckers. M. Wilson & Associates does statewide property adjusting for Kentucky risk and insurance service division and property adjusting for the Fair Plan of Louisville, Kentucky. The acquisition is intended to be accounted for pursuant to the pooling-of- interests method of accounting. As of December 31, 1998, M. Wilson & Associates reported total assets of $3,308 and shareholder's equity of $3,308. - 37 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 3 - PROPOSED ACQUISITIONS (continued) The Company has filed the required applications with the Office of Thrift Supervision with respect to the organization by the Company of a federal savings bank (the "Savings Bank") which would be headquartered in Lexington, Kentucky. The Company expects to commence operations of the Savings Bank during the third quarter of 1999, subject to the receipt of the required regulatory approvals and the issuance of a charter. Note 4 - OPTIONS On May 20, 1998, the stockholders of the Company adopted the Unified Financial Services, Inc. 1998 Stock Incentive Plan (the "Plan") which provides for the granting of stock options and other stock-based awards. The total number of shares of Common Stock issuable under the Plan is not to exceed 1,500,000 shares, subject to adjustment in the event of any change in the outstanding shares of such stock by reason of a stock dividend, stock split, capitalization, merger, consolidation or other similar changes generally affecting stockholders of the Company. Of these 1,500,000 shares of stock, no more than 250,000 shares may be issued to participants in the Plan in any plan year. Under the terms of the 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, 1998, the Board of Directors of the Company had granted options to acquire 37,526 shares of Common Stock to certain employees, directors and advisers of the Company. Such options were fully vested on the date of the grant and have an exercise price as follows: (a) 6,800 shares at $25 per share (b) 20,051 shares at $27.50 per share (c) 10,675 shares at $40 per share Of such options, 36,226 are intended to qualify as incentive stock options pursuant to Section 422 of the Internal Revenue Code of 1986, as amended. Note 5 - FINANCING AND CAPITAL LEASES OBLIGATIONS Unified and subsidiaries have obtained financing via borrowings from banks and former owners of companies acquired via line of credit and asset-based financing including capitalized leases obligations. The Company has obtained bank financing totaling a maximum borrowing capacity of Five Hundred Thousand Dollars ($500,000) for the - 38 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 5 - FINANCING AND CAPITAL LEASES OBLIGATIONS (continued) purpose of purchasing various communication and computer hardware and software to support operating needs. As of December 31, 1998, the amount outstanding under this credit facility was $321,576, of which $30,719 is the current portion. The financing converts to a four-year term loan payable in equal monthly principal payments plus interest at 0.5% above the bank's prime rate. Property, supplies, inventory and intangible assets of the Company are security for this financing. Fiduciary Counsel leases both computer and office equipment under capital leases. The economic substance of the leases is that Fiduciary Counsel is financing the acquisition through the leases and, according, Fiduciary Counsel recorded the assets and liabilities. The current portion of the long-term capital lease obligations is $35,452 and the long-term portion is $35,409. CPFC has a bank note payable consisting of a revolving line of credit with a bank in the amount of $2,000,000 of which $1,350,000 was drawn, leaving $650,000 at December 31, 1998. The interest at prime on the loan is payable monthly. The loan is secured by contracts receivable and guaranteed and due June 18, 1999. EIM has a $400,000 revolving line of credit with a bank, which was fully drawn as of December 31, 1998 and 1997. Interest is at prime. The loan is secured by all company assets and is payable on June 30, 1999. Equity Underwriting has a $1,250,000 bank loan with a maturity date of January 20, 2001. The interest at prime on the loan is payable monthly. Equity Underwriting has a $1,800,000 bank loan with a maturity date of January 30, 1999 that was extended to June 30, 1999. The interest on the loan is at prime. 21st Century has a $200,000 revolving line of credit with a bank, $160,004 was outstanding as of December 31, 1998 and it was fully drawn at December 31, 1997. The loan is a five-year loan payable in equal monthly installments with interest at prime and a balloon payment due January 31, 1999, which was extended until June 30, 1999 to allow refinancing. The loan is secured by all assets of 21st Century and is guaranteed by EIM. EIM of Ill has a note payable due to the former owner of the agency, which was purchased by Equity Underwriting on December 31, 1996. The note is payable in six annual installments of $150,952 beginning January 1, 1998. The interest rate is prime plus 1% (9.25%) as of the purchase date. In addition, EIM of Ill has a $50,000 line of credit. The long-term debt maturity follows:
Year ended December 31, Amount ----------------------- ------ 1999 $ 95,889 2000 104,998 2001 114,973 2002 125,896 2003 137,855 -------- Total $579,611 ========
- 39 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 5 - FINANCING AND CAPITAL LEASES OBLIGATIONS (continued) The Company's capitalized lease obligations are payable over a 36-month period. The following is a summary of future minimum lease payments under capitalized lease obligations as of December 31, 1998:
For the years ended December 31, Amount -------------------------------- ------ 1999 $62,112 2000 30,021 2001 7,632 ------- Subtotal 99,765 Less: amount representing interest 9,908 ------- Net present value $89,857 =======
The Company acquired equipment through capital lease obligations in the amount of $0 and $139,929 during the years ended December 31, 1998 and 1997, respectively. Note 6 - COMMITMENTS AND CONTINGENCIES The Company through its subsidiary, Management, leases its corporate headquarters and administrative office facilities located at 429-431 N. Pennsylvania Street, Indianapolis, Indiana, which facility has approximately 10,820 square feet, and is leased pursuant to an operating lease expiring in 2007 for office facilities and equipment. The lease includes provisions for adjustment of operating costs and real estate taxes. Such obligations are allocated between Services and Management based on estimated usage. The Company also maintains administrative offices at the corporate offices of Lexington, Health Financial and Benefit Planners, each of which is located at 2353 Alexandria Drive, Suite 100, Lexington, Kentucky. The aggregate minimum rental commitments required under operating leases for office space and equipment at December 31, 1998 for all operations were as follows:
For the years ended December 31, Lease commitments -------------------------------- ----------------- 1999 $ 898,925 2000 859,306 2001 858,513 2002 629,291 Thereafter 1,227,224 ---------- Total $4,473,259 ==========
Total rental expense was $704,977 and $474,854 for the years ended December 31, 1998 and 1997, respectively. - 40 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 6 - COMMITMENTS AND CONTINGENCIES (continued) 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 its operations for the years ended December 31, 1998 and 1997. Note 7 - EMPLOYEE BENEFIT PLANS Unified and subsidiaries provide a defined contribution retirement plan which covers substantially all employees. The Board of Directors determines contributions to the plan. For 1998, the Board of Directors made contributions to the plan in the amount of $10,851. The Company also maintains a 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. Note 8 - CASH SEGREGATED UNDER FEDERAL REGULATION AND NET CAPITAL REQUIREMENTS FOR MANAGEMENT AND AFSI Management and AFSI are subject to the Securities and Exchange Commission's (the "SEC") Uniform Net Capital Rule ("Rule 15c3-1"), which requires the maintenance of minimum net capital, as defined, of 6-2/3% of aggregate indebtedness or $50,000 for Management and $5,000 for AFSI, whichever is greater, and a ratio of aggregate indebtedness to net capital of not more than 15 to 1. At December 31, 1998, Management had net capital of $548,703, which was $498,703 in excess of its required net capital of $50,000 and a ratio of aggregate indebtedness to net capital of 0.51 to 1. At December 31, 1998, AFSI had net capital of $160,895, which was $155,895 in excess of its required net capital of $5,000, and a ratio of aggregate indebtedness to net capital of 0 to 1. Pursuant to Rule 15c3-3 as promulgated by the SEC, Management and AFSI calculate their reserve requirement and segregate cash and/or securities for the exclusive benefit of their customers on a periodic basis. The reserve requirement calculated by Management and AFSI were $0 at December 31, 1998. Balances segregated in excess of reserve requirements are not restricted. - 41 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 9 - COMMON AND PREFERRED STOCK Common Stock: Acquisitions ------------ The Company has 10,000,000 authorized shares of Common Stock. In connection with the acquisitions consummated during 1998, the Company issued shares of Common Stock, as reflected in Note 1 of the notes to the consolidated financial statements. The shares issued by acquisition follow: Company acquired Date Shares issued ---------------- -------------- ------------- Benefit Planners March 10, 1998 12,000 EMCO August 21, 1998 11,000 Fiduciary Counsel August 21, 1998 36,110 Equity Insurance December 17, 1998 241,745 CPFC December 17, 1998 12,800 Strategic December 22, 1998 7,500 AmeriPrime December 31, 1998 410,000 Private Placement Offerings: ---------------------------- 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 per share. All shares of Common Stock offered were sold by the Company on a best efforts basis. There is no public market for any securities of the Company and there can be no assurance that a market will develop in the future. The offering terminated on June 30, 1998. As of December 31, 1998, the Company issued 440,738 shares of Common Stock pursuant to such offering. 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. The securities offered and sold in this private placement 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. Effective December 10, 1998, the Company commenced a private placement offering to sell a maximum of 1,750,000 shares of Common Stock. The first 1,250,000 shares are being offered at a price of $40.00 per share and, upon acceptance by the Company of subscriptions for such 1,250,000 shares, the remaining 500,000 shares will be offered at a price of $50.00 per share. All shares of Common Stock are being offered by the Company on a best efforts basis. There is no public market for any securities of the Company. There can be no assurance that a market will develop in the future. The offering will terminate on the earlier occurrence of (1) subscription for 1,750,000 shares have been accepted; or (2) September 31, 1999; provided, however, the Company - 42 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 9 - COMMON AND PREFERRED STOCK (continued) reserves the right either to extend the offering or to terminate it at any time, without notice, but in no event may the term of the offering be extended beyond December 31, 1999. The securities offered and sold in this private placement 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, 1998, the total preferred shares authorized for the Company was 1,000,000 with a par value of $.01 per share of which 102,100 shares were designated at December 31, 1998 as follows:
SHARES SHARES SHARES STATED PAR DESIGNATED ISSUED OUTSTANDING VALUE VALUE ---------- ------ ----------- ------ ----- Preferred Stock Series C: 2,100 2,100 1,672 $100 $0.01 Preferred Stock Series D: 100,000 -0- -0- 200 0.01
Series C Preferred Stock Issuance: ---------------------------------- In May 1998, the Company issued 2,100 shares of Series C 6.75% Cumulative Convertible Preferred Stock to certain directors, executive officers and agents of the Company for total consideration of $210,000. Each share of Series C Preferred Stock is 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. As of December 31, 1998, 428 Series C Preferred Stock had been converted into 57,780 shares of Common Stock. Series D Preferred Stock Authorized: ------------------------------------ In July 1998, the Company authorized 100,000 shares of Series D Convertible Junior Participating Preferred Stock. 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 Services, as rights agent. On August 26, 1998, the Board of Directors of Unified declared a dividend distribution of one Preferred Stock Purchase Right (collectively, the "Rights") 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 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. - 43 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 9 - COMMON AND PREFERRED STOCK (continued) 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. Note 10 - RELATED PARTY TRANSACTIONS CPFC employees are paid through the EIM payroll system, which serves as a common paymaster. CPFC's employees are eligible for all benefits that EIM offers, although these benefits are paid for by CPFC. As of December 31, 1998, CPFC's balance in unfunded contracts payable of $448,040 was owed to EIM for the amount due on the insurance policy premiums that EIM and EIM of Ill sold and CPFC financed. At December 31, 1998 and 1997, EUG had $421,992 and $201,132, respectively, receivable from CPFC. CPFC also owed EIM $21,911 and $32,823 for various expenses paid by EIM in 1998 and 1997, respectively. EUG paid various expenditures on behalf of 21st Century throughout 1998 and 1997. EUG had $318,129 and $147,333 due from 21st Century as of December 31, 1998 and 1997, respectively. EUG paid various expenditures on behalf of EIA throughout 1998 and 1997. EUG had $202,728 and $108,897 due from EIA as of December 31, 1998 and 1997, respectively. Note 11 - INCOME TAXES Consolidated net operating loss carryforwards at December 31, 1998 amounted to approximately $13,100,000, expiring through 2008. Consolidated State of Indiana net operating loss carryforwards at December 31, 1998 amounted to approximately $12,100,000, expiring through 2008. The Company utilized approximately $800,000 and $790,000 of net operating loss carryforwards during 1998 and 1997, 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 liability in the consolidated financial statements as of December 31, 1998 and 1997 were as follows: 1998 1997 ---- ---- Deferred tax assets $(51,062) $(35,700) Deferred tax liability 90,318 183,924 -------- -------- Net deferred tax liability $ 39,256 $148,224 ======== ======== - 44 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 11 - INCOME TAXES (continued) The components of income tax expense for the year ended December 31 were as follows: 1998 1997 ---- ---- Current income tax Federal $ 62,848 $ 35,708 State and local 7,433 10,976 -------- --------- Total current 70,281 46,684 -------- --------- Deferred income tax Federal 19,080 (426,237) State and local 61,097 2,700 -------- --------- Total deferred 80,177 (423,537) -------- --------- Total income tax $150,458 $(376,853) ======== ========= Note 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair value of the Company's financial instruments at December 31, 1998 and 1997. FAS No. 107, Disclosures about Fair Value of Financial Instruments, defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
1998 1997 --------------------- ------------------- CARRYING FAIR CARRYING FAIR ($ IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE ------ ----- ------ ----- Financial assets Cash and cash equivalents $10,342.5 $10,342.5 $2,566.4 $2,566.4 Investment in: Debt securities 494.4 494.4 150.2 150.2 Mutual funds 231.7 231.7 707.9 707.9 Affiliates 565.6 565.6 751.4 751.4 Notes receivable - - 8.1 8.1 Receivables (trade) 8,873.9 8,873.9 6,437.9 6,437.9 Prepaid and sundry 230.0 230.0 132.1 132.1 Financial assets Current liabilities 14,502.7 14,502.7 9,264.4 9,264.4 Capital lease obligation 37.1 37.1 79.1 79.1 Long-term debt 2,024.6 2,024.6 1,282.1 1,282.1
- 45 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 13 - DISCLOSURES ABOUT REPORTING SEGMENTS The Company has five reportable segments: brokerage, financial services administration, investment advisory, insurance brokerage, and all other. The brokerage segment provides services of a broker-dealer. The financial services administration provides transfer agency, fund accounting, administrative and start-up services for mutual funds. In addition, it provides retirement plan consultation and plan administration to pension plans. Investment advisory provides asset management services to pension plans, foundations and mutual funds. Insurance brokerage provides specialty insurance products. All other represents activities not categorized as a separate segment. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before income taxes not including recurring gains and losses. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as a unit and the management at the time of the acquisition was retained. Reportable Segment Profit of Loss, Segment Assets are as follows for the years ended December 31, 1998 and 1997:
($ IN THOUSANDS) 1998 1997 ---- ---- Revenues Brokerage $ 4,736.6 $ 2,874.5 Financial services administration 4,467.9 3,836.2 Investment advisory 3,564.8 2,004.9 Insurance brokerage 9,516.7 9,832.1 Other 685.9 701.5 --------- --------- Total $22,971.9 $19,249.2 ========= ========= Gross Margin Brokerage $ 1,647.5 $ 1,001.1 Financial services administration 3,725.6 3,265.1 Investment advisory 3,492.7 1,949.7 Insurance brokerage 4,931.4 5,090.3 Other 685.9 572.8 --------- --------- Total $14,483.1 $11,879.0 ========= ========= Total Assets Brokerage $ 1,250.1 $ 942.7 Financial services administration 4,923.4 4,413.2 Investment advisory 4,134.2 1,050.9 Insurance brokerage 9,144.5 6,783.0 Other 7,243.7 1,010.6 --------- --------- Total $26,695.9 $14,200.4 ========= ========= - 46 - UNIFIED FINANCIAL SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 -------------------------- Note 13 - DISCLOSURES ABOUT REPORTING SEGMENTS (continued) Capital expenditures Brokerage $ 38.5 $ 140.0 Financial services administration 190.9 708.0 Investment advisory 69.1 71.8 Insurance brokerage 145.1 343.5 Other 55.6 (60.3) --------- --------- Total $ 499.2 $ 1,203.0 ========= ========= Depreciation and amortization Brokerage $ 23.9 $ 4.6 Financial services administration 230.7 336.0 Investment advisory 146.3 19.3 Insurance brokerage 199.9 296.6 Other (2.9) 145.7 --------- --------- Total $ 597.9 $ 802.2 ========= =========
- 47 - 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 the Company's directors is contained in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders under the caption "Proposal 1: Election of Directors" and is incorporated herein by reference. Information regarding the Company's 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 the Company's Proxy Statement for the 1999 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 the Company's Proxy Statement for the 1999 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 the Company's Proxy Statement for the 1999 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 the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders under the captions "Certain Relationships and Related Transactions" and "Board of Directors and Committees," and is incorporated herein by reference. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits: See Exhibit Index on pages 52-56 hereto. - 48 - (b) Reports on Form 8-K. During the three months ended December 31, 1998, the Company filed the following Current Reports on Form 8-K: (i) Current Report on Form 8-K, dated October 16, 1998 and filed on November 5, 1998, reported items 5 and 7; and (ii) Current Report on Form 8-K, dated December 17, 1998 and filed on December 23, 1998, reported items 2 and 7. An amendment to this Form 8-K/A was filed on February 19, 1999 to file the following financial statements: (A) for each of Equity Underwriting Group, Inc. and AmeriPrime Financial Services, Inc.: Audited Consolidated Statements of Financial Condition as of December 31, 1997 and 1996, Audited Consolidated Statements of Operations, Audited Consolidated Statements of Cash Flows and Audited Consolidated Statements of Changes in Stockholders' Equity, each for the years ended December 31, 1997 and 1996, Unaudited Consolidated Balance Sheet as of September 30, 1998, Unaudited Consolidated Statements of Operations and Unaudited Consolidated Statements of Cash Flows, each for the nine months ended September 30, 1998 and 1997; and (B) pro forma financial information for the Company, including: Pro Forma Consolidating Balance Sheet as of September 30, 1998, Pro Forma Consolidating Statements of Income for the nine months ended September 30, 1998 and 1997 and for the years ended December 31, 1997 and 1996. - 49 - 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 25th day of March 1999. 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 March 25, 1999 - -------------------------- and Chief Executive Officer Timothy L. Ashburn /s/ Lynn E. Wood Director March 25, 1999 - -------------------------- Lynn E. Wood /s/ Thomas G. Napurano Executive Vice President, March 25, 1999 - -------------------------- Chief Financial Officer Thomas G. Napurano and Director - 50 - /s/ Weaver H. Gaines Director March 25, 1999 - -------------------------- Weaver H. Gaines /s/ Jack R. Orben Director March 25, 1999 - -------------------------- Jack R. Orben /s/ Dr. Gregory W. Kasten Director March 25, 1999 - -------------------------- Dr. Gregory W. Kasten /s/ John R. Owens Director March 25, 1999 - -------------------------- John R. Owens
- 51 - EXHIBIT INDEX Ex. No. Description - ------- ----------- 3.1 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. 3.2 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 Relative Rights, Qualifications and Restrictions of the Series C 6.75% Cumulative Convertible Preferred Stock of the Company, filed as Exhibit 4.1(d) to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997, is incorporated herein by reference. 4.2 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. 4.3 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 Agreement and Plan of Merger dated April 25, 1997 by and among the Company, HFI Acquisition Corporation, Health Financial, Inc. and Dr. Gregory W. Kasten, filed as Exhibit 2.1 to the Company's Registration Statement on Form 10-SB, is incorporated herein by reference. 10.2 Amended and Restated Agreement and Plan of Merger dated as of April 25, 1997 by and among the Company, FLTC Acquisition Corporation, First Lexington Trust Company and Dr. Gregory W. Kasten, filed as Exhibit 2.2 to the Company's Registration Statement on Form 10-SB, is incorporated herein by reference. 10.3 Agreement and Plan of Merger dated as of May 8, 1997 by and among the Company, VAI Acquisition Corporation, Vintage Advisers, Inc. and Timothy L. Ashburn, filed as Exhibit 2.3 to the Company's Registration Statement on Form 10-SB, is incorporated herein by reference. 10.4 First Amendment to Agreement and Plan of Merger dated as of May 31, 1997 by and among the Company, HFI Acquisition Corporation, Health Financial, Inc. and Dr. Gregory W. Kasten, filed as Exhibit 2.4 to Amendment No. 1 to the Company's Registration Statement on Form 10-SB, is incorporated herein by reference. - 52 - 10.5 Termination Agreement dated as of December 1, 1997 by and among the Company, VAI Acquisition Corporation, Vintage Advisers, Inc. and Timothy L. Ashburn, filed as Exhibit 2.5 to Amendment No. 1 to the Company's Registration Statement on Form 10-SB, is incorporated herein by reference. 10.6 Release and Surrender Agreement dated as of December 1, 1997 by and among the Company, Vintage Advisers, Inc., Timothy L. Ashburn and Jack R. Orben, filed as Exhibit 2.6 to Amendment No. 1 to the Company's Registration Statement on Form 10-SB, is incorporated herein by reference. 10.7 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. 10.8 Employment Agreement dated as of December 16, 1998 by and between Equity Underwriting Group, Inc. and John R. Owens. 10.9 Business Loan Agreement dated as of September 10, 1997 by and between the Company and Bank One, Indiana, N.A., filed as Exhibit 10.2 to Amendment No. 1 to the Company's Registration Statement on Form 10-SB, is incorporated herein by reference. 10.10 Commercial Security Agreement dated as of September 10, 1997 by and between the Company and Bank One, Indiana, N.A., filed as Exhibit 10.3 to Amendment No. 1 to the Company's Registration Statement on Form 10-SB, is incorporated herein by reference. 10.11 Promissory Note dated as of September 10, 1997 issued by the Company in favor of Bank One, Indiana, N.A., filed as Exhibit 10.4 to Amendment No. 1 to the Company's Registration Statement on Form 10-SB, is incorporated herein by reference. 10.12 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. 10.13 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. - 53 - 10.14 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. 10.15 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. 10.16 Unified Financial Services, Inc. 1998 Stock Incentive Plan, filed as Annex A to the Company's Proxy Statement for the Company's 1998 Annual Meeting, is incorporated herein by reference. 10.17 Loan Agreement, dated as of October 18, 1996, by and among Commonwealth Premium Finance Corporation, John R. Owens, William W. Davis, Jr., D. Richard Meyer and Bank One, Kentucky, NA. 10.18 Security Agreement, dated as of October 18, 1996, by and between Commonwealth Premium Finance Corporation and Bank One, Kentucky, NA. 10.19 First Amendment to Loan Agreement, dated as of December 17, 1996, by and among Commonwealth Premium Finance Corporation, John R. Owens, William W. Davis, Jr., D. Richard Meyer and Bank One, Kentucky, NA. 10.20 Second Amendment to Loan Agreement, dated as of August 4, 1997, by and between Commonwealth Premium Finance Corporation, John R. Owens, William W. Davis, Jr., D. Richard Meyer and Bank One, Kentucky, NA. 10.21 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. 10.22 Renewed Revolving Credit Note, dated as of June 18, 1998, issued by Commonwealth Premium Finance Corporation in favor of Bank One, Kentucky, NA. 10.23 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. 10.24 Guaranty of Payment and Performance, dated February 25, 1999, by the Company. - 54 - 10.25 Stock Pledge and Security Agreement, dated as of February 25, 1999, by and among the Company and Bank One, Kentucky, NA. 10.26 Loan Agreement, dated as of January 20, 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. 10.27 Guaranty of Payment and Performance, dated as of December 30, 1997, by Equity Insurance Managers, Inc. 10.28 Security Agreement, dated as of January 20, 1998, by and between Equity Underwriting Group, Inc. and Bank One, Kentucky, NA. 10.29 Security Agreement, dated as of January 20, 1998, by and between Equity Insurance Managers, Inc. and Bank One, Kentucky, NA. 10.30 Security Agreement, dated as of December 30, 1997, by and between 21st Century Claim Service, Inc. and Bank One, Kentucky, NA. 10.31 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. 10.32 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. 10.33 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. 10.34 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. 10.35 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. 10.36 Renewal Term Note, dated as of January 30, 1999, issued by 21st Century Claim Service, Inc. in favor of Bank One, Kentucky, NA. 10.37 429 Pennsylvania Building Office Lease, dated as of November 7, 1997, by and between 429 Penn Partners and the Company. 10.38 First Addendum to Lease, dated as of June 25, 1998, by and between 429 Penn Partners and the Company. - 55 - 10.39 Office Lease Agreement, dated as of November 4, 1996, by and between MIF Realty L.P. and Equity Insurance Mangers, Inc. 10.40 Addendum, dated as of November 4, 1996, by and between MIF Realty L.P. and Equity Insurance Managers, Inc. 10.41 Amendment and Extension of Lease, dated as of March 1, 1999, by and between Equity Insurance Managers, Inc. and Nashville Mini Storage, L.P. 21.1 List of Subsidiaries. 23.1 Consent of Larry E. Nunn & Associates, LLC with respect to its report dated February 12, 1999 regarding the consolidated financial statements of the Company as of and for the years ended December 31, 1998 and 1997. 24.1 Power of Attorney (included on signature page hereto). 27.1 Financial Data Schedule (December 31, 1998). 27.2 Restated Financial Data Schedule (December 31, 1997). [FN] ------------------- Management contract or compensatory plan or arrangement. - 56 - EX-10.8 2 EXECUTIVE EMPLOYMENT AGREEMENT EXHIBIT 10.8 EXECUTIVE EMPLOYMENT AGREEMENT This agreement ("Agreement") has been entered into this 16th day of December, 1998, by and between Equity Underwriting Group, Inc., a Kentucky corporation ("Subsidiary"), and John R. Owens, an individual ("Executive"), in connection with and as further mutual consideration for the sale of Subsidiary by Executive to Unified Financial Services, Inc., a Delaware corporation ("Company"), pursuant to that certain Agreement and Plan of Merger between Company and Equity Acquisition Corporation, a Kentucky corporation, as Buyers, and Subsidiary and Executive, as Sellers, dated October 16, 1998, as amended by that certain First Amendment to Agreement and Plan of Merger, dated December 14, 1998 (collectively, the "Agreement and Plan of Merger"). RECITALS The Board of Directors of Subsidiary (the "Board") has determined that it is in the best interests of Subsidiary and its stockholder to reinforce and encourage the continued attention and dedication of the Executive to Subsidiary as a member of Subsidiary"s management and to assure that Subsidiary will have the continued dedication of the Executive. The Board desires to provide for the continued employment of the Executive on the terms hereof, and the Executive is willing to commit himself to continue to serve Subsidiary. Additionally, the Board believes it is imperative to encourage the Executive's full attention and dedication to Subsidiary currently and to provide the Executive with compensation and benefits arrangements upon certain breaches of this Agreement by Subsidiary, which ensures that the compensation and benefits expectations of the Executive will be satisfied. Because of the Executive's high position at the Subsidiary and his access to information pertaining to the business of the Company (as conducted by its other affiliates), Company and the Subsidiary believe it is imperative that the Executive neither compete against the Company, the Subsidiary and any affiliates or subsidiaries of either nor share certain confidential information of either during the Executive's employment and for the three-year period thereafter, as provided below. Therefore, in order to accomplish these objectives, the Board has caused Subsidiary to enter into this Agreement. Executive acknowledges that his assent to, and fulfillment of, the terms and conditions of this Agreement is an indispensable element of the consideration provided by Executive pursuant to the Agreement and Plan of Merger. Therefore, in exchange for the mutual promises and covenants set forth herein, and in order to accomplish these objectives, the Board has caused Subsidiary to enter into this Agreement with the Executive, whereupon 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 Subsidiary. 1.1(b) "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(c) "Company" shall mean Unified Financial Services, Inc., a Delaware corporation and the sole stockholder of Subsidiary. 1.1(d) "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(e) "Effective Date" shall mean December 16, 1998. 1.1(f) "Employment Period" means the period that begins on the Effective Date and ends on the earlier of: (i) the close of business on December 31 of the calendar year that includes the fifth anniversary of the Effective Date; or (ii) the Date of Termination as defined in Section 3.6. 1.1(g) "Person" shall include an individual, firm, trust, estate, association, joint venture, partnership, corporation, limited liability company, organization or other entity. 1.1(h) "Subsidiary" means Equity Underwriting Group, Inc., a Kentucky corporation. 1.1(i) "Unified Group" means, jointly and severally, the Company and any Person more than twenty percent (20%) of which (by value and not by voting power) is directly or indirectly owned by the Company at any time during the Employment Period, and any successors or assigns of the Company or any other Person included in the Unified Group. For example and without limitation, after the closing of the transactions contemplated in the Agreement and Plan of Merger, the Unified Group would include (i) Subsidiary, as well as any corporation wholly owned by Subsidiary, (ii) a corporation forty-five percent (45%) of which (by value) is owned by a wholly-owned subsidiary of the Company, and (iii) a corporation (or a partnership) thirty percent (30%) of which (by value) is owned by the Subsidiary and thirty percent (30%) of which (by value) is owned by a wholly-owned subsidiary of the Company. 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, the terms "Article" and "Section" mean the text that accompanies the specified Article or Section of this Agreement. 1.4 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth, without reference to its conflict of law principles. 2 Section 2: Terms and Conditions of Employment. 2.1 Period of Employment. Throughout the Employment Period, the Executive shall serve in the employ of Subsidiary 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 President of Subsidiary. The Executive shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, including presidents of other subsidiaries of the Company, shall render such other services as he has rendered in the past to Subsidiary, and may have such other powers and duties as may from time to time be prescribed by the Board. 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 his full professional attention and time to the business and affairs of Subsidiary, shall not render professional services to or for the benefit of Persons not members of the Unified Group, 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, or (iii) manage personal investments for the Executive's own account or those of family members, so long as such activities do not interfere with the performance of the Executive's responsibilities as a senior executive officer of the Subsidiary in accordance with this Agreement. 2.3 Compensation. The Executive's annual compensation and other benefits described in this Section 2.3 shall be provided by Subsidiary. 2.3(a) Annual Base Salary. For the first two-year period within the Employment Period, the Executive shall receive an annual base salary of $180,000.00 (the "Initial Base Salary"), which shall be due and paid in equal or substantially equal installments, to be paid at the same frequency as other employees of Subsidiary but no less often than monthly. Thereafter, during the Employment Period, the annual base salary payable to the Executive shall be reviewed at least annually beginning upon the second anniversary of the Effective Date and upon each anniversary date thereafter, but need not be adjusted upward as a result of such review and shall not be reduced below the Initial Base Salary. "Annual Base Salary" as used herein shall mean the annual base salary for a then current year. 2.3(b) Welfare Benefit Plans. Throughout the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by Subsidiary (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 generally available to other senior executive officers of the Subsidiary. 3 2.3(c) 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 generally applicable to other peer executives of the Company's operating subsidiaries; provided, however, that all reimbursements must satisfy the record keeping policies of the Company. 2.3(d) Vacation. Throughout the Employment Period, the Executive shall be entitled to four (4) weeks paid vacation. 2.3(e) Executive's Rights Nonassignable. The right to receive Initial Base Salary, the Annual Base Salary 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 Indemnification. The Company and Subsidiary desire to have Executive serve as an officer and employee of Subsidiary, free from undue concern for unpredictable, inappropriate or unreasonable legal risks and personal liabilities by reason of his acting in good faith in the performance of his duties to Subsidiary and will, therefore indemnify Executive against any and all claims of insurance agencies against Executive for Executive's liability (primary, secondary or as guarantor) under any agency agreements between third party insurance companies and Subsidiary or Executive, but only to the extent such claims arise from the Subsidiary's failure to pay over premiums received after the Effective Date. Executive desires to serve as an officer and employee of Subsidiary, as long as he is furnished with the indemnity set forth herein. Section 3: Termination of Employment. 3.1 Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. 3.2 Disability. If Subsidiary 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 8.3 of its intention to terminate the Executive's employment. In such event, the Executive's employment with Subsidiary 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 the Executive's 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 days by reason of a physical and/or mental condition. "Disability" shall be deemed to exist when certified by a physician selected by the Company 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 will submit to such examinations and tests as such physician deems necessary to make any such Disability determination. 3.3 Termination for Cause. Subsidiary may terminate the Executive's employment during the Employment Period for "Cause," which for the purposes of this Agreement shall mean termination based upon: (i) the Executive's continued failure to perform substantially his duties with Subsidiary (other than as a result of incapacity due to physical or mental condition), after a demand for substantial 4 performance is delivered to him by the Chairman of the Board or the President of the Subsidiary or the Chairman of the Board of the Company, which specifically identifies the manner in which the Executive has not substantially performed his duties; (ii) the Executive's commission of misconduct that is materially injurious to Subsidiary, monetarily or otherwise; or (iii) the Executive's material breach of any provision of this Agreement. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until (i) he is given a Notice of Termination (as defined in Section 3.5) from the Chairman of the Board or the President of the Subsidiary or the Chairman of the Board of Directors of the Company, (ii) he is given the opportunity to be heard before the Board of Directors of the Company, and (iii) the Board of Directors of the Company finds, in its good faith opinion and at its sole discretion, that the Executive was guilty of the conduct set forth in the Notice of Termination. 3.4 Good Reason. The Executive may terminate his employment with Subsidiary 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 position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2.2 or any other action by Subsidiary that results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose any action not taken in bad faith; or (ii) (a) the failure by Subsidiary to provide benefits commensurate with any welfare benefit plan, practice, policy or program, including any life insurance plan, health and accident plan or disability plan, to which the Executive is entitled as specified in Section 2.3(b), (b) the taking of any action by Subsidiary that would adversely affect the Executive's participation in, or materially reduce the Executive's benefits under, any plans described in Section 2.3(b), or (c) the failure by Subsidiary to provide the Executive with the number of paid vacation days to which the Executive is entitled as described in Section 2.3(d). Termination for Good Reason may be effected by, and only by, written notice to the Company stating with particularity each action or condition constituting the 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 the Company, the Executive shall use his best efforts to cooperate with the Company and Subsidiary to cure the action(s) or condition(s) set forth in the Executive's notice. If a cure is commercially reasonable and neither the Company nor Subsidiary takes sufficient steps within such ninety-day period to effectuate a cure, then and only then may the Executive terminate his employment for Good Cause. Failure of Executive to set forth in such notice any fact or circumstance that contributes to a showing of Good Cause shall waive any right of the Executive to assert such fact or circumstance in enforcing the Executive's rights under this Agreement. 3.5 Notice of Termination. Any termination by Subsidiary 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 8.3 that (i) indicates the specific termination provision in this Agreement relied upon, (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 5 (iii) if the Date of Termination (as defined below) is other than the date such notice is given, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or Subsidiary 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 Subsidiary to assert such fact or circumstance in enforcing the Executive's or Subsidiary's rights hereunder. 3.6 Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by Subsidiary for Cause, or by the Executive for Good Reason, the Date of Termination shall be the date the Notice of Termination is given or any later date (within the thirty-day limit provided in Section 3.5) specified therein, as the case may be, (ii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be 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 Subsidiary other than for Cause, death or Disability, the Date of Termination shall be the date the Notice of Termination is given or any later date (within the thirty- day limit provided in Section 3.5) specified therein, as the case may be, or (iv) if the Executive shall terminate employment with Subsidiary for any reason other than for Good Reason, the Date of Termination shall be the date the Executive shall terminate his employment with Subsidiary or, if not more than thirty (30) days later, the date specified in the Notice of Termination. Section 4: Certain Benefits Upon Termination. 4.1 Termination Without Cause or Termination for Good Reason. If during the Employment Period (i) Subsidiary shall terminate the Executive's employment without Cause, or (ii) the Executive shall terminate employment with Subsidiary for Good Reason, the Executive shall be entitled to the benefits provided below: 4.1(a) "Accrued Obligations": On or before the ninetieth (90th) day following the Date of Termination, Subsidiary shall pay to the Executive the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid, (2) any compensation previously deferred by the Executive (other than pursuant to the terms of this Agreement) 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 period described in Section 1.1 (f)(i) (which period ends on December 31 of the fifth full calendar year succeeding the Effective Date) that occurs after the Date of Termination, if any, Subsidiary shall pay to the Executive, the Executive's then-current Annual Base Salary as would have been paid to the Executive had the Executive remained in Subsidiary's employ at such salary during the remainder of such period. Subsidiary 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). 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 6 Executive's legal representatives under this Agreement, other than for timely payment of Accrued Obligations (as defined 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 defined 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 defined in Section 4.1(a)). If the Executive terminates employment with Subsidiary during the Employment Period (excluding a termination for Good Reason), this Agreement shall terminate without further obligations to the Executive, other than for timely payment of Accrued Obligations (as defined in Section 4.1(a)). 4.5 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 Subsidiary 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 Subsidiary. Vested benefits which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, Subsidiary at or subsequent to the Date of Termination, shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 4.6 Full Settlement; Executive Has No Duty of Mitigation. The payments and arrangements set forth in this Section 4 are in full settlement of any and all claims of the Executive under this Agreement, and neither the Subsidiary, the Company nor any other member of the Unified Group shall have any other obligation to Executive after Executive's Date of Termination. The Executive shall not be required to mitigate the amount of any payment provided for in this Section by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. 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 later of (i) the date five (5) years after the date hereof or (ii) the date three (3) years after the Date of 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. The Relevant Market Area is the area within the fifty-mile radius of (i) each office maintained by the Subsidiary at any time during the Employment Period, and (ii) each office maintained by the Company at any time during the Employment Period, and (iii) each office maintained by any other member of the Unified Group during the Employment Period. In addition, during the Restricted Period, the Executive shall not, directly or indirectly, either as an 7 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 per cent (1%) by value of the equity securities of such company. For the purposes of this Section 5.1, the noncompete obligations of Executive shall not apply to the resort, entertainment or aviation industries. 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 the Subsidiary at any time during the Employment Period, (ii) any Person employed by the Company at any time during the Employment Period, and (iii) 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 the Subsidiary at any time during the Employment Period, (ii) any Person who was a Customer of the Company at any time during the Employment Period and in respect of which the Executive had direct or indirect contact or gained Confidential Information (as defined in Section 5.4) during such period, and (iii) 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 the Company, the Subsidiary 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 Company's and Subsidiary'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. The Subsidiary and the Executive acknowledge that during the Executive's period of employment by Subsidiary, the Unified Group will furnish the Executive with Confidential Information. The Executive agrees both during his employment with the Subsidiary, 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 the Company, 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 the Company 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 disclosures so that it will receive confidential treatment thereafter. The Executive agrees to reimburse 8 Company 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 the Subsidiary and the Unified Group, including those Customer relationships, goodwill and going concern value purchased in connection with the Agreement and Plan of Merger, 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. To the extent required to be enforceable by applicable law, the cessation of Subsidiary's obligation to make payments or continue benefits under this Agreement shall be deemed to be in the nature of liquidated damages and not a penalty. Section 6: Ownership of Papers and Intellectual Property Rights. 6.1 Papers and Property. Executive acknowledges the Unified Group's (including Company's and Subsidiary'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 employment (past, present and future) with Subsidiary or provided by Subsidiary, or which otherwise come into the Executive's possession by reason of employment with Subsidiary. Executive agrees not to make or permit to be made, except in pursuit of Executive's duties 9 hereunder, any copies of such items. Executive further agrees to deliver to the Company 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 or her 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 the Subsidiary 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 the Company. Executive shall inform the Company 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 the Subsidiary 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 the Subsidiary 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 the request of the Company or the Subsidiary request and at the Subsidiary's expense, the Executive shall execute such documents and provide such assistance as may be deemed necessary by the Subsidiary to apply for, 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 Company or the Subsidiary to assist the Subsidiary 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 the Subsidiary owns all copyrights thereto, including, but not limited to, 17 U.S.C. Sections 101 and 210. The Company, the Subsidiary and their 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 the Subsidiary, 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 10 whole or in part by the Executive in connection with his employment are, shall be, or shall become, owned by the Subsidiary. Section 7: Arbitration. Notwithstanding any other provision of this Agreement or the Agreement and Plan of Merger 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. The Company 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) and the arbitration award, decree and/or order may grant any remedy or relief deemed by the arbitrators to be just and equitable, including the reasonable costs and expenses of such arbitration (including, but not limited to, reasonable attorneys' fees and expenses, which fees and expenses the parties expect will be awarded to the Person who prevails). 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 8: Miscellaneous. 8.1 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. 8.2 Time Periods. Any period of time measured under this Agreement by days shall refer to calendar days and not business days. 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 11 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. 8.3 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: ------------------- John R. Owens Equity Insurance Managers 220 Lexington Green Circle Lexington, Kentucky 40503 Notice to Subsidiary or to Company: ---------------------------------- Equity Underwriting Group, Inc. c/o Unified Financial Services, Inc. 1104 Buttonwood Court Lexington, Kentucky 40515 Attention: President and Chief Executive Officer With a copy to: Charles H. Binger Thompson Coburn One Mercantile Center St. Louis, Missouri 63101 8.4 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. 8.5 Withholding. Subsidiary 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. 8.6 Waiver. The Executive's or Subsidiary'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 Subsidiary 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. 8.7 Entire Agreement. All prior negotiations and agreements between the parties hereto are superseded by this Agreement, and there are no representations, warranties, understandings or 12 agreements other than those expressly set forth herein, except as modified in writing concurrently herewith or subsequent hereto. 8.8 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. 8.9 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. 8.10 Costs. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the party who substantially prevails shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which he or it may be entitled. 8.11 Assignment. Subsidiary 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 any Person that acquires all or substantially all of Subsidiary's assets or all of its stock, or with which Subsidiary merges or consolidates. The rights, duties and benefits to the Executive hereunder are personal to him, and no such right or benefit may be assigned by him. 8.12 Intended Beneficiaries. This Agreement shall be binding upon the Executive, the Subsidiary and their respective successors and assigns, and shall inure to the benefit of the Executive, the Subsidiary, 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. 8.13 Mutual Contribution. The parties to this Agreement and their counsel have mutually contributed to its drafting. Consequently, 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. 8.14 Counterparts. This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument. [Remainder of This Page Intentionally Left Blank] 13 IN WITNESS WHEREOF, the Executive and Subsidiary, pursuant to the authorization from its 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. THE EXECUTIVE HAS REVIEWED THESE AND THE OTHER PROVISIONS OF THIS AGREEMENT WITH LEGAL COUNSEL OF HIS OWN CHOOSING. "EXECUTIVE" /s/ John R. Owens ----------------------------------- John R. Owens "SUBSIDIARY" Equity Underwriting Group, Inc. By: /s/ John R. Owens ----------------------------------- Name: John R. Owens Title: President 14 EX-10.17 3 LOAN AGREEMENT EXHIBIT 10.17 LOAN AGREEMENT -------------- Dated as of October 18, 1996 by and among COMMONWEALTH PREMIUM FINANCE CORPORATION and JOHN ROBERT OWENS, WILLIAM W. DAVIS, JR. and D. RICHARD MEYER and BANK ONE, KENTUCKY, NA LOAN AGREEMENT -------------- THIS LOAN AGREEMENT (the "Agreement") dated as of October 18, 1996 between COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation (referred to herein as "Borrower"); JOHN ROBERT OWENS, WILLIAM W. DAVIS, JR. and D. RICHARD MEYER, individuals (referred to herein as the "Guarantors or individually as a "Guarantor") and BANK ONE, KENTUCKY, NA, a national banking association (referred to herein as "Bank"). R E C I T A L S: WHEREAS, Borrower has applied to Bank for a "Revolving Credit Loan," as hereinafter defined, in an amount not to exceed the maximum principal sum of One Million Dollars ($1,000,000.00), outstanding at any one time, which Revolving Credit Loan shall be secured by certain of the assets of Borrower and guaranteed by each of the Guarantors; WHEREAS, one of the conditions to the Bank's making the Revolving Credit Loan is that Borrower and Guarantors must enter into this Agreement setting forth the terms and conditions of the Revolving Credit Loan and other terms and conditions binding upon Borrower and Guarantors, all of which terms and conditions Borrower and Guarantors acknowledge are supported by good, valuable and sufficient consideration. NOW, THEREFORE, in consideration of their mutual covenants, the financial accommodations extended to Borrower herein 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 ---------- DEFINITIONS ----------- Section 1.01 Defined Terms As used in this Agreement the following terms have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): "Advance" means any disbursement of funds to Borrower under the Revolving Credit Note pursuant to Section 2.01 hereof. "Agreement" means this Loan Agreement, as amended, supplemented or modified from time to time. "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. "Borrowing Base" means the computation of Eligible Bank One Net Premiums as calculated in the Borrowing Base Certificate and Draw Request which is attached hereto as Exhibit 1. "Collateral" means all property which is subject to, becomes subject to, or is to be subject to the Liens granted by the Security Agreement or which otherwise becomes security for the Loan. "Debt" means any and all (i) indebtedness or liability for borrowed money, or for the deferred purchase price of property or services (excluding trade obligations incurred in the ordinary course of business); (ii) obligations under letters of credit issued for the account of any Person; (iii) guarantees, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person, or otherwise to assure a creditor against loss. "Default" means any of the events specified in Section 7.01, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Event of Default" means any of the events specified in Section 7.01, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "GAAP" means generally accepted accounting principles in the United States. "Guaranty" means each of the personal guaranties of the Note executed by each of the Guarantors. "Interest Coverage Ratio" means the earnings before interest expenses and taxes divided by interest expense. "Insurance Premium Financing Agreement ("IPFA")" means the contract among the Borrower, the insurance agent and the insured/borrower in which the insured/borrower grants to the Borrower herein a security interest in all unearned premiums which may be payable under the insurance policies. "Lexington Head Office" means the office of Bank at 201 East Main Street, Lexington, Kentucky 40507, or the principal office of any subsequent holder of the Revolving Credit Note. "Lien" means any pledge, security interest, hypothecation, conditional assignment, deposit arrangement, encumbrance, lien (statutory or other), or other security agreement, or encumbrance of any kind or nature whatsoever (including, without limitation, any lien on unearned premiums and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing). "Loan" means the Revolving Credit Loan. "Loan Documents" means this Agreement, the Note, the Security Agreement, the UCC-1's, the Guaranties, and any additional documents required to be delivered by Borrower, Guarantors, or any of them, under this Agreement, or otherwise evidencing, securing and/or relating to the Loan. "Loan Obligations" means the obligations of Borrower and Guarantors to Bank under the Loan Documents. "Maturity Date" means October 20, 1997, at which time all obligations of Borrower under the Note are due and payable in full. "Net Premiums" shall mean total premiums on IPFA less all initial premium payments made by insured/borrower thereunder. 2 "Note" means the Revolving Credit Note. "Others" shall mean any Person as defined herein other than Bank or its affiliates. "Person" means any individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature. "Prime Rate" 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. "Revolving Credit Loan" shall have the meaning assigned to such term in Section 2.01. "Revolving Credit Note" shall have the meaning assigned to such term in Section 2.02. "Security Agreement" means the Security Agreement to be delivered by Borrower under the terms of this Agreement granting Bank a first priority security interest in all rights, interests, accounts, contractual rights and proceeds thereof of Borrower in connection with any and all IPFA's entered into between the Borrower and other parties which have been pledged or assigned to Bank. "Stockholders Equity" means (a) the book value of all assets of the Borrower taken on a consolidated basis, as determined in accordance with GAAP minus (b) all current and long term liabilities and other obligations of the Borrower on a consolidated basis, as determined in accordance with GAAP. "Security Documents" means the Security Agreement, the UCC-1's, and such other instruments or documents executed and/or delivered in connection herewith and by which a lien is granted to Bank or by which the Loan is otherwise secured. "UCC-1's" means all filings under the Uniform Commercial Code as adopted in the various states in which filings may be made by Bank now or at any time in the future for purposes of perfecting any security interest granted by the Security Agreement. "Unearned Discount" means the difference, if any, between the principal amount of each Installment Contract and the amount paid by the Borrower to purchase the Installment Contract, which difference is amortized over the life of the Installment Contract. Section 1.02 Accounting Terms All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with that applied in the preparation of the financial statements referred to in Section 5.08, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. 3 ARTICLE II ---------- AMOUNT AND TERMS OF THE LOAN ---------------------------- Section 2.01 Revolving Credit Loan Bank agrees, subject to the terms and conditions of this Agreement and the other Loan Documents to make Advances to Borrower from time to time during the period from the date when Borrower first qualifies for the initial Advance pursuant to Section 3.01 hereof, up to, but not including, the Maturity Date in an aggregate principal amount outstanding not to exceed at any time One Million Dollars ($1,000,000.00) (the "Revolving Credit Loan"). Subject to the terms and conditions of this Agreement and of the other Loan Documents, Borrower may borrow, prepay pursuant to Section 2.05, and reborrow under this Section 2.01. Section 2.02 Note The Revolving Credit Loan and Advances thereunder shall be evidenced by, and repaid with interest in accordance with, a single promissory note of Borrower in form and content acceptable to Bank, in the original principal amount of One Million Dollars (U.S. $1,000,000.00), which Note shall be payable to Bank, and shall mature and shall be due and payable in full on the Maturity Date, which is one (1) year from the date hereof or October 20, 1997 (the "Revolving Credit Note"). Section 2.03 Notice and Manner of Borrowing On the last day of each calendar month and on each such Business Day the Borrower requests a Draw, Borrower shall submit to Bank a Borrowing Base Certificate and Draw Request. Provided (a) all of the applicable conditions set forth in Article III hereof have been fulfilled to Bank's satisfaction, and (b) Borrower has provided Bank with the Borrower's Base Certificate and Draw Request by 10:00 a.m., Bank will make Advances under the Revolving Credit Loan available to Borrower in immediately available funds by crediting the amount thereof to Borrower's account with Bank on the same day. Section 2.04 Interest Borrower shall pay interest to Bank on the outstanding and unpaid principal amount of the Revolving Credit Note at a per annum rate equal to the Bank's Prime Rate. Interest shall be calculated for the actual number of days elapsed on the basis of an assumed year of three hundred sixty (360) days. All accrued interest on the Revolving Credit Loan shall be paid in immediately available funds on the 18th day of each month at the Lexington Head Office. Upon an Event of Default consisting of Borrower's failure to pay any interest or principal payment due under the Note within ten (10) business days of the due date thereof, at maturity, by acceleration or otherwise, the outstanding principal balance shall thereafter bear interest until paid at a rate which shall be equal to the lesser of five percent (5%) per annum in excess of the rate set forth in the first sentence of this Section 2.04 or the maximum effective rate of interest which Bank or the then current holder of the Note is permitted by law to contract for and charge from time to time. In no event shall the amount of interest due or payable under the Note exceed the maximum lawful rate of interest allowed by applicable law, and in the event that any such excess payment is made by Borrower or received by Bank, then such excess sums shall be credited as a payment of the principal, unless Borrower shall notify Bank, in writing, that it has elected to have such excess sums returned to it. 4 Section 2.05 No Prepayment Premium Borrower may prepay the Note, in whole or in part, at any time without incurring any premium or penalty. Any partial prepayment shall not change the amount or dates of payments due from Borrower under the Note. Section 2.06 Method of Payment Borrower shall make each payment under this Agreement and under the Note in lawful money of the United States, to Bank at the Lexington Head Office, in immediately available funds. Whenever any payment to be made under this Agreement or under the 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 Business Day, and such extension of time shall in such case be included in the computation of the payment of interest. Section 2.07 Use of Loan Proceeds Advances under the Revolving Credit Loan shall be used by Borrower solely for the financing and/or the acquisition of IPFA's or repayment of any Loans from EIM. Section 2.08 Fees In consideration of Bank's agreement enter into the Revolving Credit Loan pursuant to the terms hereof, Borrowers agree to pay to Bank a fee in the amount of One Thousand Dollars ($1,000.00), such fee shall be deemed fully earned upon execution of this Agreement and shall be due and payable at the closing. Section 2.09 Guaranty by Guarantors Each of the Guarantors shall guarantee to Bank the payment and performance of Borrower's Loan Obligations pursuant to separate Guaranties dated this date. ARTICLE III ----------- CONDITIONS PRECEDENT -------------------- Section 3.01 Conditions Precedent to Initial Advance Under Revolving Credit Loan The obligation of Bank to make the initial Advance under the Revolving Credit Loan is subject to the condition precedent that Bank shall have received and approved on or before disbursement of the initial Advance under the Revolving Credit Loan each of the following, in form and substance reasonably satisfactory to Bank and its counsel: a. Note and Agreement. The Revolving Credit Note and this ------------------ Agreement duly executed and delivered by Borrower and Guarantors. b. Security Agreement. A Security Agreement or agreements ------------------ duly executed and delivered by Borrower and granting to Bank a first and prior security interest in and to all of the Collateral to secure payment of the Loan Obligations. c. Insurance. Certificates of insurance coverage satisfying --------- all requirements as provided in Section 5.05. 5 d. Guaranties. A Guaranty executed by each of the Guarantors ---------- in which they each guarantee to Bank the payment and performance of Borrower's Loan Obligations. e. UCC-1's and Lien Opinion. Borrower shall have executed ------------------------ all UCC-1's, and shall have provided to Bank prior to the initial Advance, (i) acknowledgment copies for all UCC-1's duly filed under the Uniform Commercial Code in the appropriate offices in all jurisdictions necessary or, in the opinion of Bank, desirable to perfect the security interests created by the Security Agreement; and (ii) an opinion of counsel acceptable to Bank identifying all of the financing statements on file with respect to Borrower in all jurisdictions referred to under (i), including the UCC-1's filed by Bank against Borrower, which opinion shall reflect no prior filings against any of the Collateral except for such Liens as are to be paid in full and released prior to or in connection with the initial Advance. f. Evidence of Existence and Good Standing of Borrower. --------------------------------------------------- Certified copies of Borrower's Articles and By-Laws, Certificate of Good Standing of Borrower issued by the Secretary of State of Kentucky and certificates of authority from each state in which qualification of Borrower is necessary or appropriate. g. Evidence of all Corporate Action by Borrower. Certified -------------------------------------------- (as of the date of this Agreement) copies of all corporate action taken by Borrower, including resolutions of Borrower's Board of Directors, authorizing the execution, delivery, and performance of the Loan Documents to which its and Signature Certificate of Borrower. A certificate (dated as of the date of the initial Advance under the Revolving Credit Loan) of the Secretary of Borrower certifying the names and true signatures of the officers of Borrower authorized to sign the Loan Documents to which it is a party and the other documents to be delivered by Borrower under this Agreement. h. Certificate of No Adverse Changes in Borrower's or -------------------------------------------------- Guarantors' Condition. A certificate of Borrower and Guarantors - --------------------- stating that there has been no adverse change in the financial condition of any such parties since the last submission of financial information to the Bank. i. Compliance Certificate for the Initial Advance in the Form ---------------------------------------------------------- Described in Section 3.02b. A certificate in the form described in - -------------------------- Section 3.02b hereof properly certified on behalf of the Borrower. j. Compliance with Laws Applicable to Borrower. The IPFA's ------------------------------------------- are in form and substance satisfactory to Bank, are valid and enforceable, and comply with all applicable laws, including state insurance regulations. k. Other Documents. Such other approvals, opinions, or --------------- documents as Bank may reasonably request. Section 3.02 Further Conditions Precedent to All Advances Under the Revolving Credit Loan The obligation of Bank to make any Advances under the Revolving Credit Loan is further subject to the Bank having received from Borrower a request for an Advance as provided for in Section 2.03 hereof. Section 3.03 Authorized Representative Borrower does hereby authorize and empower John Robert Owens, William W. Davis, Jr., and D. Richard Meyer or either of them acting alone, or such other individuals who are designated in writing by Borrower, to request Advances, direct or authorize Bank as to such account(s) or such parties into which 6 or to whom Advances are to be made (including the accounts of or to such authorized representatives), sign such instruments or documents as may be required from or on behalf of Borrower in connection with any such Advances, and any Advances made by Bank to, at the request of, or at the direction of either such authorized representative(s) shall be deemed to have been received by Borrower and used for the benefit of Borrower, evidenced by the Note, and entitled to the benefit and security of the Security Documents, irrespective of the ultimate use of such funds. Such designation shall remain in full force and effect and Bank may rely thereon until written notice of any change in the individuals designated has been provided to Bank accompanied by resolutions of Borrower effecting any such change and a current incumbency certificate. ARTICLE IV ----------- REPRESENTATIONS AND WARRANTIES ------------------------------ Borrower and each of the Guarantors (where applicable) represent and warrant to Bank as of the date hereof, which representations and warranties shall be deemed remade by Borrower and each of the Guarantors (where applicable) as of the date of each Advance hereunder, that: Section 4.01 Incorporation, Good Standing and Due Qualification of Borrower Borrower is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Kentucky; has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged; and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required by law or under this Agreement. Section 4.02 Corporate Power and Authority of Borrower The execution, delivery, and performance by Borrower of the Loan Documents have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of Borrower; (ii) contravene any provision of Borrower's Articles or By-Laws; (iii) violate any provision of any law, regulation, writ, judgment, injunction, decree or determination presently in effect having applicability to Borrower, other than the Liens to be granted in favor of Bank; (iv) result in a breach of or constitute a default under (whether with the giving of notice, passage of time, or both) any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Borrower is a party or by which it or its properties may be bound or affected; (v) result in, or require, the creation or imposition of any Lien, upon or with respect to any of the properties now owned or hereafter acquired by Borrower; or (vi) cause Borrower to be in default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award or any such indenture, agreement, lease, or instrument. Section 4.03 Legally Enforceable Agreement This Agreement is, and each of the other Loan Documents executed and/or delivered in connection with this Agreement are, legal, valid and binding obligations of Borrower and each of the Guarantors, as applicable, enforceable in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally. 7 Section 4.04 Other Agreements Borrower is not a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction or partnership restriction, which could have a material adverse effect on the business, properties, assets, operations or conditions, financial or otherwise, of Borrower or the ability of Borrower to carry out its respective obligations under the Loan Documents to which it is a party. Borrower is not in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party. Section 4.05 Litigation There is no pending or threatened action or proceeding against or affecting Borrower before any court, governmental agency or arbitrator, which may, in any one case or in the aggregate, materially and adversely affect the respective financial condition, operation, properties, or business of Borrower or the ability of Borrower to perform its respective obligations under the Loan Documents to which it is a party. Section 4.06 No Liens Upon Collateral There are no liens on any of the Collateral nor has Borrower previously assigned any of its rights to any of the Collateral, including the unearned premiums under the insurance policies subject to the Insurance Premium Financing Agreement. Section 4.07 Operation of Business Except as may have been disclosed in writing to and approved by Bank, Borrower has made application for or otherwise possesses all licenses, permits, franchises, patents, copyrights, trademarks and trade names, or rights thereto, to conduct its businesses substantially as now conducted and as presently proposed to be conducted, and Borrower is not in violation of any of the foregoing or any valid rights of others with respect to any of the foregoing. Section 4.08 Taxes and Reports Borrower 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, and has paid, and will pay in the future, all real estate and personal property taxes, license fees and/or assessments due with respect to its assets. Section 4.09 Accuracy of Information All factual information heretofore or contemporaneously furnished by Borrower or Guarantors in writing to Bank for purposes of, or in connection with, this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by Borrower and Guarantors to Bank will be, true and accurate in every material respect on the date as of which such information is certified and as of the date of execution and delivery of this Agreement by Bank, and such information is not, or shall not be, as the case may be, incomplete or omit to state any material fact necessary to make such information not misleading. 8 Section 4.10 No Adverse Change No material adverse change has occurred in Borrower's business, operating or Borrower's or either Guarantor's financial condition since the date of the most current financial statements provided by Borrower and each Guarantor to Bank. Section 4.11 Registered Agent Borrower's registered agent is Richard E. Vimont, who is located at 155 E. Main Street, Suite 300, Lexington, Kentucky 40507. Borrower shall give written notice within thirty (30) days of any change in the name or location of its registered agent. ARTICLE V ---------- AFFIRMATIVE COVENANTS --------------------- So long as any portion of the Note shall remain unpaid or Bank shall have any obligation under this Agreement, Borrower and Guarantors (where applicable) each covenant as follows: Section 5.01 Maintenance of Existence Borrower will preserve and maintain its corporate existence and good standing in the jurisdiction of its incorporation, shall qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required, and shall not enter into any merger, consolidation or other arrangement whereby Borrower, or a controlling interest in Borrower, shall be acquired by any other Person unless, as a part thereof, the Loan is to be paid in full and this Agreement and the Revolving Credit Loan shall be terminated. Section 5.02 Maintenance of Records Borrower will keep adequate, consolidated records and books of account in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions. Section 5.03 Maintenance of Properties Borrower will maintain, keep, and preserve all of its properties necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear and insured casualty damage or taking through the power of eminent domain excepted. Section 5.04 Conduct of Business Borrower will continue to engage in an efficient and economical manner in a business of the same general type as conducted by it on the date of this Agreement. Section 5.05 Maintenance of Insurance Borrower will maintain insurance with financially sound and reputable insurance companies or associations, reasonably acceptable to Bank, in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated. Specifically, Borrower will maintain, with respect to its property: 9 a. Casualty. Insurance against loss or damage to all the -------- improvements to the Premises by fire and any of the risks covered by insurance of the type now known as "fire and extended coverage". b. Liability. Comprehensive public liability insurance on an --------- "occurrence basis" against claims for "personal injury," including, without limitation, bodily injury, death or property damage occurring on Borrower's properties; such insurance to afford immediate minimum protection to a limit of not less than that reasonably required by Bank with respect to personal injury or death to any one or more persons or damages to property. All policies of insurance shall be issued by companies and in amounts in each company reasonably satisfactory to Bank. Borrower shall furnish Bank with an original certificate of insurance and a copy of all policies of required insurance. Prior to the expiration of each such policy, Borrower shall furnish Bank with evidence satisfactory to Bank of the payment of premium and the reissuance of a policy continuing insurance in force as required by this Agreement. Borrower shall give Bank notice of any cancellations or material amendments or alterations of said policies. Section 5.06 Compliance with Laws Borrower 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, state, county, municipal and other governments, departments, commissions, boards, courts, authorities, officials and officers. Section 5.07 Right of Inspection & Audit by Bank At any reasonable time and from time to time, Borrower will permit Bank or any agent or representative thereof to examine and make copies of and abstracts from Borrower's 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, Borrower agrees that without any prior notice to Borrower and not more frequently than two (2) times per calendar year, Bank and its agents and employees may at Borrower's expense conduct an audit of Borrower's records and books to determine Borrower's compliance with this Agreement and the other Loan Documents. Section 5.08 Reporting Requirements Borrower shall furnish to Bank: a. Monthly Reporting. ----------------- (i) As soon as available and in any event within forty- five (45) days after the end of each fiscal month, balance sheets as of the end of each month, statements of income and retained earnings as of the end of such fiscal month, and properly completed calculations necessary to test compliance with all of the financial covenants set forth herein, in form and content reasonably acceptable to Bank, and all in reasonable detail, and all such financial statements shall be prepared in accordance with GAAP consistently applied and certified as correct by Borrower's chief financial officer. Provided, however, Borrower shall not be obligated to deliver the Borrower's internally prepared balance sheet and income statement for the last month of Borrower's fiscal year. 10 (ii) Within fifteen (15) days after the end of the month or upon reasonable request of Bank, Borrower shall provide to Bank the following company prepared monthly reports, Balance Sheet and Income Statement, Income Analysis Reports, Schedule of Cash Receivables from Contracts, Company Activity Summary, Agent Activity Summary, and Schedule of Accounts Past Due. b. Annual Financial Statements. As soon as available and in --------------------------- any event within one hundred twenty (120) days after the end of Borrower's 1996 fiscal year, and for all fiscal years thereafter so long as any Indebtedness remains unpaid, a complete, unqualified, annual audit report of Borrower. The audited report shall consist of balance sheet, statement of profit and loss, application of funds, change in financial position and the like, prepared and certified by a firm of independent public accountants of recognized standing acceptable to the Bank. All of the foregoing shall be in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year and all such financial statements shall be prepared in accordance with GAAP consistently applied and certified as correct by Borrower's chief financial officer. c. Notice of Litigation. Promptly after the commencement -------------------- thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting Borrower or either Guarantor which, if determined adversely, could have a material, adverse effect on Borrower's or a Guarantor's financial condition, properties, or operations. d. Notice of Defaults and Events of Default. As soon as ---------------------------------------- possible and in any event within ten (10) days after the occurrence of each Default or Event of Default, a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken with respect thereto. e. Tax Returns. Copies of Borrower's federal and state ----------- income tax returns, and any amendments and extensions no later than the earlier of the date filed or one hundred twenty (120) days after the end of Borrower's fiscal year for so long as any portion of the Loan shall remain unpaid or Bank has any obligations hereunder. In the event Borrower files for an extension with the Internal Revenue Service, Borrower shall provide to Bank copies of the federal income tax return prior to the expiration of such extension period. f. Guarantors' Financial Statements and Tax Returns. On or ------------------------------------------------ before June 10, 1997, copies of each Guarantor's federal and state income tax returns, amendments and schedules, and a financial statement of assets, liabilities and net worth for each Guarantor, in form and content reasonably acceptable to Bank, and all in reasonable detail. g. Annual Reporting on Equity Insurance Managers, Inc. ---------------------------------------------------- ("EIM"). As soon as available and in any event within one hundred - ------- twenty (120) days after EIM's 1996 fiscal year, a complete, unqualified, annual audit report of EIM in such detail as required under Section 5.08(b). h. Quarterly Reporting on EIM. No later than forty-five days -------------------------- after the end of the calendar quarter, balance sheets and statements of income and retained earnings in such detail as required under Section 5.08(a)(i). i. General Information. Such other information respecting ------------------- the condition or operations, financial or otherwise, of Borrower or any Guarantor, as Bank may from time to time reasonably request. 11 Section 5.09 Financial Covenants to Be Maintained by Borrower a. Stockholders' Equity. Borrower shall not permit its -------------------- Stockholders' Equity to be less $60,000.00 at all times while any of the Loan remains unpaid and outstanding. b. Interest Coverage Ratio. While any of the Loan remains ----------------------- unpaid and outstanding, the Borrower shall not permit the ratio of (i) its calendar quarterly earnings before interest expenses and taxes to (ii) calendar quarterly interest expenses to be less than 2.00 to 1.00, which shall be reported on a calendar quarterly basis. Section 5.10 Further Assurances Borrower and Guarantors shall, upon request by Bank, promptly cure any defects in the creation, issuance and delivery of the Note and the execution and delivery of the other Loan Documents, including this Agreement. Borrower and Guarantors, at their expense, promptly will execute and deliver to Bank, upon request, all such other and further documents, agreements and instruments reasonably required to ensure compliance with or the accomplishment of the covenants and agreements of Borrower and Guarantors in the Loan Documents, including this Agreement, or to evidence further and to describe more fully any Collateral or other property intended as security for the Loan or to correct any omissions in the Loan Documents, or to state more fully the obligations set out in this Agreement or in any of the other Loan Documents, or to perfect, protect or preserve any Liens created pursuant to any of the Loan Documents, or to make any recordings, to file any notices or to obtain any consents, all as may be necessary or determined by Bank in good faith to be reasonably appropriate in connection therewith. Section 5.11 Taxes and Other Payment Obligations. Borrower shall pay and discharge, or cause to be paid and discharged, before any of them becomes in arrears: a. all taxes, assessments, governmental charges, levies, and claims for labor, materials or supplies which if unpaid might become a lien or charge upon any of Borrower's property, and b. all of Borrower's other debts, obligations and liabilities as and when same become due. Provided, however, Borrower may refrain from paying any amount it would be required to pay pursuant to this section only if the validity or amount thereof is being contested in good faith by appropriate proceedings timely instituted which shall operate to prevent the collection or enforcement of the obligation contested, and provided that Borrower shall have set aside on its books appropriate reserves with respect thereto. Section 5.12 Notice of Documents. Not later than forty-five (45) days from the date hereof, Borrower shall have added a notation to all IPFA's stating in form and substance satisfactory to Bank that a security interest in such documents has been granted by Borrower to Bank and that no transfer of such documents may be made by Borrower without the Bank's prior written consent. Borrower shall continue to add the notation on all IPFA's which are assigned to Bank in the future. 12 Section 5.13 Perfection and Assignment of Borrower's Security Interests in Unearned Premiums Securing Obligations to Borrower Under Insurance Premium Financing Agreements. Borrower shall properly perfect and maintain the perfection of a first priority security in all unearned premiums securing the obligations of Borrower's debtors under the terms of the agreements which is part of the Collateral. All IPFA's in favor of Borrower which have been designated as Collateral shall be assigned to Bank by Borrower. Section 5.14 Subordination of Borrower's Debt to Guarantors. Borrower and Guarantors hereby agree that any loans of Borrower to Guarantors or any one of them, whether now existing or hereafter created, shall be, and hereby are, fully subordinated as to priority and payment to all Loan Obligations of Borrower to Bank. Provided, however, notwithstanding the foregoing, Borrower is authorized to make regularly scheduled payments to Guarantors on any debt to Guarantors until an Event of Default occurs, after which no such payments shall be made by Borrower. Section 5.15 Notification to Insurance Company Borrower shall send a Notice of Acceptance to EIM or such other insurance company as notification of Borrower's collateral assignment of such security interest to Bank. In the Event of Default as provided in Section 7.01 herein, Borrower shall instruct EIM or such other insurance company to (a) inform Bank of any defaults or notices of cancellation of such insurance contracts and (b) pay directly to Bank any unearned premiums. ARTICLE VI ----------- NEGATIVE COVENANTS ------------------ So long as any portion of the Note shall remain unpaid or Bank shall have any obligation under this Agreement, Borrower and Guarantors shall comply with the following negative covenants: Section 6.01 Liens on or Assignments of Collateral a. Liens. Borrower will not create, incur, assume or suffer ----- to exist any Lien upon or with respect to any of the Collateral now owned or hereafter acquired, except: (i) Liens in favor of Bank; (ii) 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 and for which appropriate reserves are maintained; (iii) 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 and for which appropriate reserves have been established; (iv) Liens under worker's compensation, unemployment insurance, social security, or similar legislation for sums which are not past due; 13 (v) 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; b. Assignments. Borrower shall not assign or transfer its ----------- rights to the unearned premiums which are pledged as Collateral to Bank to any other third party. Section 6.02 Mergers, Etc. Borrower will not merge, engage in a share exchange, or consolidate with any other entity, or sell, assign, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets at any time hereafter owned by Borrower to any Person, or acquire all or substantially all of the assets or the business of any Person, other than acquisition of automobile financing chattel paper in the ordinary course of business. ARTICLE VII ----------- EVENTS OF DEFAULT AND REMEDIES OF BANK -------------------------------------- Section 7.01 Events of Default Each of the following shall be an Event of Default under this Agreement: a. Payment Default. Borrower fails to pay any installment of --------------- principal or interest on the Note within ten (10) days following its due date without notice from Bank. b. Other Defaults. The occurrence of a default under any -------------- other obligation or agreement of Borrower or either of Guarantors to or with Bank, whether now or hereafter arising and such default shall continue for a period of thirty (30) days after notice to Borrower or Guarantors from Bank describing the nature of the default. c. Breach of Warranty, Etc. Any representation or warranty ----------------------- made or deemed made by Borrower or either of Guarantors in this Agreement, the Loan Documents, any Compliance Certificate or in any other certificate, document, opinion, or financial or other statement furnished at any time under or in connection with any Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made. d. Breach of Covenant. Either Borrower or a Guarantor shall ------------------ fail to perform or observe any term, covenant or agreement on their part to be performed or observed contained in any Loan Document (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 notice to Borrower or Guarantors from Bank describing the nature of the failure. e. Bankruptcy/Insolvency. Either Borrower or a Guarantor --------------------- (i) shall be unable to, or shall admit in writing its inability to, pay its debts as such debts become due; or (ii) shall make an assignment for the benefit of creditors, petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for it or a substantial part of its assets; or (iii) shall commence any proceeding under any bankruptcy, reorganization effect; or (iv) shall have 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; or (v) by any act or omission shall indicate 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 14 substantial part of its properties; or (vi) shall suffer any such custodianship, receivership, or trusteeship to continue undischarged for a period of sixty (60) days or more. f. Termination of Borrower. If Borrower or any Person ----------------------- affiliated with it takes any action that is intended to result in the termination, dissolution or liquidation of Borrower. Section 7.02 Remedies of Bank in the Event of Default a. Acceleration, etc. Upon the occurrence of any Event of ----------------- Default set forth in section 7.01 hereof, Bank may, by notice to Borrower: (i) declare its obligation to make Advances under this Agreement and the Revolving Credit Note terminated, whereupon the same shall forthwith terminate; (ii) declare the outstanding principal balance owing under the Revolving Credit Note, all interest thereon, and all other amounts payable under this Agreement or any Loan Document, or otherwise to be forthwith due and payable, whereupon the Revolving Credit Note, all such interest, and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by Borrower, 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, appointment of receivers for the Collateral; and (iv) avail itself of any and all other or additional remedies available by law or in equity. b. File Action. 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. c. Use of Collateral. Upon the occurrence of any Event of ----------------- Default, Borrower's rights 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 take possession of, receive, sell, and collect same. d. Waiver of Marshaling of Assets. Borrower waives 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 or any other property or with respect to any other rights in any particular order. e. Sale of Collateral. Upon the occurrence of any Event of ------------------ Default, Bank shall have the right to sell the Collateral at public or private sale, and shall have the right to bid upon and purchase the Collateral at any sale. Bank shall have the right to deliver the Collateral to the buyer at any public or private sale. f. No Waiver. 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, at Bank's sole discretion. The failure of Bank to exercise and enforce any rights or remedies shall not prevent Bank from thereafter exercising or 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. g. Cumulative Rights. All of Bank's rights and remedies ----------------- shall be cumulative to the greatest extent permitted by law, may be exercised successively or concurrently, from time to time, and shall be in addition to all of those rights and remedies afforded Bank at law, or in equity, or in bankruptcy. Any 15 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. h. Recovery. Bank shall be entitled to recover from the -------- cumulative exercise of all remedies the sum of: (i) the outstanding principal amount of the Loan; (ii) all accrued but unpaid interest with respect to the principal amount of the Loan; (iii) any other amounts that Borrower or Guarantors are required by this Agreement or the Loan Documents to pay to Bank (for example, and without limitation, the reimbursement of reasonable expenses and legal fees, and late charges); and (iv) any costs, expenses or damages which Bank is otherwise permitted to recover by the terms of this Agreement, the other Loan Documents, or at law or equity. i. Direct Payment. Until the occurrence of an Event of -------------- Default, Borrower shall have the right to collect all of the Collateral consisting of accounts and uneaower, and Bank shall have the right to notify all of insurance companies to send all payments on such debts, accounts and unearned premiums directly to Bank. j. Application of Payments. All payments from Borrower to ----------------------- Bank under the Note or any of the other Loan Documents, and payments to Bank from the sale or other disposition of Collateral, shall all be applied by the Bank as follows: (i) to the payment of the costs and expenses of the Bank and the reasonable fees and expenses of its counsel in connection with the administration or enforcement of the Bank's rights and remedies against Borrower, any Guarantor, and the Collateral and sale or collection thereof; (ii) to the payment in full of all indebtedness referred to hereunder and under the Loan Documents, applying such amounts first to accrued interest and then to principal; and (iii) the balance, if any, to Borrower or to any third party entitled thereto. k. Appointment of Bank as Attorney-In-Fact. Borrower hereby --------------------------------------- appoints Bank as Borrower's attorney-in-fact upon the occurrence of any Event of Default for the purpose of dealing with the Collateral, including the collection and disposition of same. The powers vested in said attorney are, and shall be deemed to be, coupled with an interest and cannot be revoked. ARTICLE VIII ------------ MISCELLANEOUS ------------- Section 8.01 Amendments, Etc. No amendment, modification, termination, or waiver of any provision of any Loan Document, nor consent to any departure by Borrower or Guarantors from any Loan Document to which any of them is a party, shall in any event be effective unless the same shall be in writing and signed by Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 16 Section 8.02 Notices, Etc. All notices required or provided for in this Agreement or under any of the other Loan Documents shall be made in writing and delivered either (i) personally, (ii) via certified mail with return receipt requested, (iii) by Federal Express or other nationally recognized, overnight courier service, or (iv) by facsimile, with the original by United States, first class, postage prepaid mail, to the party to whom directed at the addresses and facsimile numbers set forth below, or to such other addresses and numbers as may be designated by any party by the giving of notice of a change in its address or facsimile number as provided for herein. All notices given as provided for herein, other than by way of certified mail, shall be deemed effective upon personal delivery, the next business day after delivery to the overnight courier service or upon being faxed, as applicable. Notice given by way of certified mail shall be deemed effective upon receipt or refusal of receipt thereof. The addresses and facsimile numbers for notice to the parties hereto are as follows: If to Borrower: Commonwealth Premium Finance Corporation 3201 Nicholasville Road Lexington, KY 40512-4032 If to John Robert Owens: 1905 Lakes Edge Drive Lexington, KY 40502 If to William W. Davis, Jr.: 407 Adair Road Lexington, KY 40502 If to D. Richard Meyer: 3362 Tisdale Drive Lexington, KY 40512 with a copy to Borrower's and Guarantors' counsel: Robert M. Beck, Jr., Esq. Stites & Harbison 2300 Lexington Financial Center Lexington, Kentucky 40507 If to Bank: William H. Poche Bank One, Kentucky, NA 201 East Main Street Lexington, Kentucky 40507-2002 Facsimile: (606) 231-2732 with a copy to Bank's counsel at: Harvie B. Wilkinson STOLL, KEENON & PARK, LLP 201 East Main Street, Suite 1000 Lexington, Kentucky 40507-1380 Facsimile: (606) 253-1093 Section 8.03 No Waiver; Remedies No failure on the part of Bank to exercise, and no delay in exercising, any right, power, or remedy under any Loan Documents shall operate as a waiver thereof; nor shall any single or partial 17 exercise of any right under any Loan Documents preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law or in equity. Section 8.04 Successor and Assigns This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that neither Borrower nor either Guarantor may assign or transfer any of their rights under any Loan Document to which they are a party without the prior written consent of Bank. Section 8.05 Costs, Expenses and Taxes Borrower agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery, filing, recording and administration of any and all of the Loan Documents, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Bank and local counsel who may be retained by said counsel, with respect thereto and with respect to advising Bank as to its rights and responsibilities under any of the Loan Documents, and all costs and expenses, if any, in connection with the enforcement of any of the Loan Documents. In addition, Borrower shall pay any and all fees payable or determined to be payable in connection with the execution, delivery, filing, and recording of any of the Loan Documents and the other documents to be delivered under any such Loan Documents. Borrower shall further pay all of the foregoing reasonable costs, including reasonable attorney fees, associated with modification of the Loan Documents, and preparation and recording of additional Loan Documents. Section 8.06 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 Borrower (any such notice being expressly waived), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Bank to or for the credit or the account of Borrower against any and all of the obligations of Borrower, now or hereafter existing under this Agreement or the Note or any other Loan Document, irrespective of whether or not Bank shall have made any demand under this Agreement or the Note or such other Loan Document and although such obligations may be unmatured. Bank agrees promptly to notify 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 8.06 are in addition to other rights and remedies (including, without limitation, other rights of set off) which Bank may have. Section 8.07 Waiver of Jury Trial BANK, BORROWER AND GUARANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF BANK, BORROWER OR GUARANTORS. BORROWER AND GUARANTORS ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. 18 Section 8.08 Governing Law; Entire Agreement; Interpretation and Counterparts The substantive laws of the Commonwealth of Kentucky (without regard to provisions governing conflicts of laws) shall govern the construction of this Agreement, the Note and each other Loan Document and the rights and remedies of the parties thereto, except to the extent that the laws of any applicable state shall govern the creation or perfection of the lien or security interest in Collateral located in such applicable state, the enforcement of Bank's rights to such property and/or the realization of Bank's rights in such property as security for the Loan Obligations. Except as otherwise provided herein, this Agreement, the Note and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. This Agreement may be executed in one or more counterparts, each of which shall be a duplicate original, but all of which shall constitute the same agreement. In the event of any conflict between any other Loan Document and the terms of this Agreement, the terms of this Agreement shall be deemed to govern any such conflict. To the extent any other Loan Document is not directly in conflict with the provisions hereof or can be reasonably construed in such a way as to be consistent with the terms of this Agreement, the terms of such other instrument or document shall govern. Section 8.09 Severability of Provisions Any provision of any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. Section 8.10 Headings Article and Section headings in the Loan Documents are included in such Loan Documents for the convenience of reference only and shall not constitute a part of the applicable Loan Documents for any other purpose. Section 8.11 Jurisdiction and Venue The parties agree that the sole proper venue for the determination of any litigation commenced by either Borrower or Guarantors 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 Borrower and Guarantors expressly waive any right to a determination of any such litigation against Bank by a court in any other venue. Borrower and each Guarantor further agrees that service of process by any judicial officer or by registered or certified U.S. mail, as specified in Section 8.02 on Notices, shall establish personal jurisdiction over Borrower and Guarantors, and Borrower and Guarantors waive any rights under the laws of any state to object to jurisdiction within the Commonwealth of Kentucky. Borrower and each Guarantor acknowledges that this Agreement was negotiated, executed and delivered in the Commonwealth of Kentucky and shall be governed and construed in accordance with the laws thereof. Provided, however, nothing contained in this Section 8.11 shall prevent Bank from bringing any action or exercising any rights against any security or against Borrower or either Guarantor personally, and any of their property, within any other state. Initiating such proceedings or taking such action in any other 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 and Guarantors 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 19 addition to all other means of obtaining personal jurisdiction and perfecting service of the laws of the Commonwealth of Kentucky or by any other state in an action brought by Bank in such state. Section 8.12 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 thereto and Bank's successors and assigns and any permitted assigns of Borrower. No other Person, including any shareholder, officer or director of Borrower, 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. Section 8.13 No Agency Bank is not the agent or representative of Borrower or Guarantors, and neither Borrower nor either Guarantor is the agent or representative of Bank, and nothing in this Agreement shall be construed to make Bank liable to anyone for goods delivered to or services performed with respect to the Collateral or for debts or claims accruing against Borrower or Guarantors. Nothing herein, nor the acts of the parties hereto, shall be construed to create a partnership or joint venture between Bank and Borrower or either Guarantor or any other relationship except as creditor, debtor, and guarantor. Section 8.14 Bank's Performance of Borrower's Covenants and Duties Should Borrower fail to perform any of its 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 Borrower's expense, perform or attempt to perform such covenant, duty or agreement on behalf of Borrower, but in no event shall Bank have any obligation to do so. Borrower shall, at the request of Bank, promptly pay, upon demand, any reasonable amount expended by Bank in such performance or attempted performance to Bank at the Head Office, together with interest thereon at the default rate under the Note 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 of Bank, any liability for the performance of any duties of Borrower 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. Section 8.15 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 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. Each such right, power, remedy or privilege may be exercised by Bank, either independently or concurrently with others, and as often and in such order as Bank may deem expedient. No waiver or consent granted by Bank with respect to this Agreement, the indebtedness or any Loan Document 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. 20 Section 8.16 Absence of Oral Representations Borrower and Guarantors each represent and warrant that no promises, assurances or commitments have been made to them by Bank or have been relied on by them regarding any extension, renewal or future financing, they understand and agree that Bank is entitled to enforce this Agreement, the Note and all other 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. Borrower and Guarantors 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 Note will be fully paid in accordance with its terms on or before maturity. Borrower and Guarantors each agree and represent to Bank (which representation Borrower and Guarantors acknowledge Bank is relying on in executing this Agreement) that they will not rely on any (i) commitment or 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 effecting such waiver. Section 8.17 Indemnity Borrower shall indemnify Bank from 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 Borrower's business, or otherwise arising out of or connected to the conduct of Borrower, its officers, directors, employees or agents, in connection with any matters which are the subject of this Agreement. Section 8.18 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 be from time to time modified, amended, renewed, consolidated or extended, with the consent of Bank. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation BY: /s/ D.R. Meyer ------------------------------------------ TITLE: President --------------------------------------- /s/ John Robert Owens --------------------------------------------- JOHN ROBERT OWENS /s/ William W. Davis, Jr. --------------------------------------------- WILLIAM W. DAVIS, JR. /s/ D.R. Meyer --------------------------------------------- D. RICHARD MEYER BANK ONE, KENTUCKY, NA, a national banking association BY: /s/ William H. Poche ------------------------------------------ TITLE: Vice President --------------------------------------- 21 EX-10.18 4 SECURITY AGREEMENT EXHIBIT 10.18 SECURITY AGREEMENT ------------------ THIS SECURITY AGREEMENT is made and entered into effective the 18th day of October, 1996, by COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation, whose address is 3201 Nicholasville Road, Lexington, Kentucky 40512-4032 (hereinafter referred to as "Debtor"); and BANK ONE, KENTUCKY, NA, a National Banking Association, 201 East Main Street, Lexington, Fayette County, Kentucky 40507 (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 two (2) hereof to secure all the indebtedness referred to in numerical Paragraph three (3) hereof. 2. The collateral covered by this Security Agreement is (a) all of Debtor's property described in Schedule 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 payment of an indebtedness for borrowed money evidenced by a certain Revolving Credit Note (the "Note") dated October 18, 1996, executed by Debtor, as maker, in the original principal amount of One Million and No/100 Dollars ($1,000,000.00) with interest thereon from date at the rate set forth therein, payable according to the terms and conditions set forth therein to the order of Secured Party. b. Performance of all obligations of Debtor under a Loan Agreement (the "Loan Agreement") by and among Debtor, John Robert Owens, William W. Davis, Jr., and D. Richard Meyer, and Secured Party relating to the loan evidenced by the Note, and each agreement of Debtor therein is incorporated by reference herein; and c. All other liabilities and obligations of whatever kind or type of Debtor to Secured Party, including any 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 "Indebtedness"). 4. Debtor represents and warrants to Secured Party that: a. All the Collateral is used or will be used for business; b. 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 c. Except as previously disclosed in writing, the Collateral is free and clear of all liens, encumbrances and adverse claims whatsoever; d. Debtor has the right to enter into this Security Agreement. 5. Debtor represents, warrants and agrees that: a. Debtor shall defend the Collateral against the 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 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, whether or not inventory, without prior written consent of Secured Party. c. Debtor shall insure or have insured the tangible 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 shall, in its sole and absolute discretion, whether or not any Event of Default, as defined in this Security Agreement, has occurred, have the right to place and effect such insurance as Secured Party deems appropriate at the Debtor's 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 rate charged on the unpaid balance of the promissory note mentioned in Paragraph 3(a) of this Security Agreement. d. Debtor shall keep the Collateral consisting of tangible property, if any, in good condition. 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. 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. If such approval is given, Debtor agrees 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. 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 Security 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 Statements, and, if paid by the Secured Party, Debtors will reimburse Secured Party therefor upon demand of 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, sell the Collateral, including, but not limited to, the execution in Debtor's name as Debtor's irrevocable attorney-in-fact: i. notifications and agreements to sell where sale is permitted, - 2 - 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 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 obligation to or commitment for loan(s) from Secured Party, this power of attorney shall become null and void upon Secured Party's receipt of written notification from Debtor to such effect. i. The Indebtedness shall be paid to Secured Party in accordance with the terms thereof. 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 expenses Secured Party may incur in connection with any such inspection(s) and appraisal(s). 6. Upon the occurrence of any "Event of Default," which, for the purposes of this Security Agreement means any default in, or breach of, any covenant, agreement, representation or warranty by Debtor under the provisions of any document evidencing any of the Indebtedness or other obligations of Debtor to Secured Party or of any other agreement regarding any of the Indebtedness, this Security Agreement, the Loan Agreement and any mortgage(s) or other security agreement(s) securing or otherwise relating to any of the Indebtedness, Secured Party shall have all rights and remedies in and against the Collateral and otherwise of a secured party under the Uniform Commercial Code and the other applicable law of Kentucky (and all such other states where any part of the Collateral may be located, if applicable) and all other applicable laws and all rights provided herein, in all other documents evidencing, securing or related to any of the Indebtedness, or in any other applicable security or loan agreement, all of which rights and remedies shall, to the full extent permitted by law, be cumulative. In addition, Secured Party may require Debtor, at Debtor's sole expense, to assemble the Collateral and make it available to Secured Party at the place or places to be designated by Secured Party and Debtor. Secured Party shall have the right to sell the Collateral at public or private sale. Debtor agrees to pay to Secured Party, as part of the Indebtedness, all amounts paid by Secured Party, including, but not limited to: a. Secured Party's attorney's fees, to the extent not prohibited by applicable law, in connection with the enforcement of any of Debtor's obligations hereunder or contained in the documents evidencing the Indebtedness, with interest thereon at the highest rate provided for in any of the Indebtedness, b. for taxes, levies and prior liens and insurance on, repairs to, maintenance of, or transporting or otherwise caring for, the Collateral, and c. in taking possession of or preserving the Collateral. 7. The requirement of reasonable notice of the time and place of disposition of Collateral by Secured Party shall be conclusively deemed to have been met if such notice is mailed, postage prepaid, to Debtor's address specified above at least ten (10) days before the time of the sale or disposition. Secured - 3 - Party may bid upon and purchase any or all of the Collateral at any public sale thereof. Secured Party may dispose of all or any part of the Collateral at one or more times and from time to time and in one or more lots or parcels, and upon such terms and conditions, including a credit sale, as Secured Party determines in its sole discretion. Secured Party shall apply the net proceeds of any such disposition of the Collateral (after deducting therefrom all costs incurred in connection therewith, or incidental to the holding, preparing for sale, in whole or in part, of the Collateral, including Secured Party's attorney's fees and court costs) to the Indebtedness and any other obligations of Debtor to Secured Party in the order elected by Secured Party in its sole discretion, and any remaining proceeds shall be paid to the Debtor or such other party as is entitled thereto. 8. 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 any indebtedness arising under subsequent transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new indebtedness or additional indebtedness whether or not all or any prior indebtedness has been satisfied, and notwithstanding the death, incapacity or bankruptcy of Debtor, or any other event or proceeding affecting Debtor. 9. 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 the Secured Party by virtue of any other agreement now existing or subsequently entered into by and between the parties hereto and any statute or rule of law. Secured Party may exercise its right of set off with respect to the Indebtedness in the same manner as if the Indebtedness were unsecured. Any waiver, forbearance, 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. 10. DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SECURITY AGREEMENT OR ANY OTHER DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SECURED PARTY, DEBTOR AND ANY GUARANTORS. DEBTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT TO SECURED PARTY. 11. The Debtor agrees that the sole proper venue for the determination of any litigation commenced by either Debtor or Secured Party 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 Debtor expressly waives any right to a determination of any such litigation against Debtor by a court in any other venue. Debtor further agrees that service of process by any judicial officer or by registered or certified U.S. mail shall establish personal jurisdiction over Debtor, and Debtor 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 Secured Party in such state. 12. The laws of the Commonwealth of Kentucky shall govern the construction of this Security Agreement and the rights, remedies and duties of the parties hereto, unless the laws of the state where the - 4 - Collateral or part thereof is situated dictate that the laws of such other state shall govern with respect thereto. 13. This Security Agreement shall bind Debtor and Debtor's heirs, successors and assigns and shall inure to the benefit of Secured Party and its successors and assigns. 14. Time shall be of the essence in the performance of each of the Debtor's obligations under this Security Agreement. 15. A judicial decree, order or judgment holding any provision herein invalid or unenforceable shall not in any way impair or preclude enforcement of the remaining provisions herein, and 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. 16. 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, attach this Security Agreement or any other document executed pursuant hereto or in connection herewith with any person or organization which registers, sells or 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 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. COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation By: /s/ D. R. Meyer -------------------------------- Title: President ----------------------------- BANK ONE, LEXINGTON, NA By: /s/ William H. Poche -------------------------------- Title: Vice President ----------------------------- - 5 - 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. All right, title, interest, security interests, accounts, contract rights, and general intangibles of Debtor, its successors and assigns, whether now existing or hereinafter arising, under or in connection with any and all insurance premium financing contracts and agreements entered into between Debtor, its successors and assigns, and any and all other parties, including but not limited to the rights of Debtor to unearned insurance premiums under such insurance premium financing contracts and the rights in favor of Debtor to cancel insurance contracts under such insurance premium financing contracts. 2. All books, records, ledger cards, data processing records, computer software and other property at any time evidencing or relating to any of the foregoing; and 3. 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 3, collectively, the "Proceeds"); and 4. 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. 5. There is excepted from the Security Agreement, Financing Statement and definition of Collateral, Insurance Premium Finance Contracts and all rights thereunder, whether constituting accounts, general intangibles, instruments or chattel paper sold to Premium Financing Specialists, Inc., its successors and assigns, under a Purchase Agreement dated May 3, 1996, and proceeds thereof. The undersigned confirms that this Exhibit is part of a financing statement and security agreement signed by it: COMMONWEALTH PREMIUM FINANCE CORPORATION BY: /s/ D. R. Meyer ------------------------------------ TITLE: President --------------------------------- "DEBTOR" EX-10.19 5 FIRST AMENDMENT TO LOAN AGREEMENT EXHIBIT 10.19 FIRST AMENDMENT TO LOAN AGREEMENT --------------------------------- This First Amendment to Loan Agreement (the "Amendment") is dated and effective as of December 17, 1996, by, between and among COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation (referred to herein as "Borrower"); JOHN ROBERT OWENS, WILLIAM W. DAVIS, JR. and D. RICHARD MEYER, individuals (referred to herein as the "Guarantors" or individually as a "Guarantor"); and BANK ONE, KENTUCKY, NA, a national banking association (referred to herein as "Bank"). RECITALS -------- 1. Borrower, Guarantors and Bank are parties to that certain Loan Agreement dated as of October 18, 1996 (the "Loan Agreement"). 2. Borrower, Guarantors and Bank have agreed to increase the maximum principal amount of the Revolving Credit Note (as defined in the Loan Agreement), and further desire to enter into this Amendment to document such increase and other terms applicable to such change. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and agreements contained herein and in the Loan Agreement, and intending to be legally bound hereby, covenant and agree as follows: 1. Amendment of Sections 2.01 and 2.02. Sections 2.01 and 2.02 ----------------------------------- of the Loan Agreement are hereby deleted and replaced with the following: Section 2.01 Revolving Credit Loan Bank agrees, subject to the terms and conditions of this Agreement and the other Loan Documents to make Advances to Borrower from time to time during the period from the date when Borrower first qualifies for the initial Advance pursuant to Section 3.01 hereof, up to, but not including, the Maturity Date in an aggregate principal amount outstanding not to exceed at any time One Million Five Hundred Thousand Dollars ($1,500,000.00) (the "Revolving Credit Loan"). Subject to the terms and conditions of this Agreement and of the other Loan Documents, Borrower may borrow, prepay pursuant to Section 2.05, and reborrow under this Section 2.01. Section 2.02 Note The Revolving Credit Loan and Advances thereunder shall be evidenced by, and repaid with interest in accordance with, a single promissory note of Borrower in form and content acceptable to Bank, in the original principal amount of One Million Five Hundred Thousand Dollars (U.S. $1,500,000.00), which Note shall be payable to Bank, and shall mature and shall be due and payable in full on the Maturity Date, which is October 20, 1997 (the "Revolving Credit Note"). 2. Continuing Security. The Indebtedness as evidenced by the ------------------- Note shall continue to be secured by all of the Loan Documents and collateral described in the Loan Agreement. 3. No Defenses or Setoffs. As of the date hereof, neither Borrower ---------------------- nor Guarantors is aware of any defenses, credits or setoffs to the payment of the Indebtedness evidenced by the Note, or to the enforceability of the Note, the Loan Agreement, or the Loan Documents against the Borrower or Guarantors, nor are there any claims, actions or causes of action which could be asserted against the Bank relating to the transactions evidenced by the Note, the Loan Agreement, this Amendment or any of the transactions relating thereto. 4. Limited Effect of Amendment. Except as specifically amended --------------------------- herein, the terms and conditions of the Note, the Loan Agreement, the Loan Documents, and all other existing agreements between the parties are unaffected by this Amendment and shall continue to be binding upon Borrower, Guarantors and the Bank. Further, the term "Note" shall include the Amended and Restated Revolving Credit Note dated December 17, 1996, in the amount of $1,500,000.00 between the Bank and Borrower. 5. Full Force and Effect of Loan Documents. The Loan Documents as --------------------------------------- defined in the Loan Agreement, including the Amended and Restated Revolving Credit Note dated December 17, 1996, in the amount of $1,500,000.00, between the Bank and Borrower, are valid and enforceable in accordance with their terms and shall continue to remain in full force and effect. BANK ONE, KENTUCKY, NA BY: /s/ William H. Poche -------------------------------------- TITLE: Vice President ----------------------------------- COMMONWEALTH PREMIUM FINANCE CORPORATION BY: /s/ D.R. Meyer -------------------------------------- TITLE: President ----------------------------------- /s/ John Robert Owens ----------------------------------------- JOHN ROBERT OWENS /s/ William W. Davis, Jr. ----------------------------------------- WILLIAM W. DAVIS, JR. /s/ D.R. Meyer ----------------------------------------- D. RICHARD MEYER 2 EX-10.20 6 SECOND AMENDMENT TO LOAN AGREEMENT EXHIBIT 10.20 SECOND AMENDMENT TO LOAN AGREEMENT ---------------------------------- This Second Amendment to Loan Agreement (the "Amendment") is dated and effective as of August 4, 1997, by, between and among COMMONWEALTH PREMIUM FINANCE COPORATION, a Kentucky corporation (referred to herein as "Borrower"); JOHN ROBERT OWENS, WILLIAM W. DAVIS, JR. and D. RICHARD MEYER, individuals (referred to herein as the "Guarantors" or individually as a "Guarantor"); and BANK ONE, KENTUCKY, NA, a national banking association (referred to herein as "Bank"). RECITALS -------- 1. Borrower, Guarantors and Bank are parties to that certain Loan Agreement dated as of October 18, 1996, as amended by that certain First Amendment to Loan Agreement dated as of December 17, 1996 (as amended, the "Loan Agreement"). 2. Borrower, Guarantors and Bank have agreed to further increase the maximum principal amount of the Amended and Restated Revolving Credit Note (as defined in the Loan Agreement), and further desire to enter into this Amendment to document such increase and other terms applicable to such change. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and agreements contained herein and in the Loan Agreement, and intending to be legally bound hereby, covenant and agree as follows: 1. Amendment of Sections 2.01 and 2.02. Sections 2.01 and 2.02 of ----------------------------------- the Loan Agreement are hereby deleted and replaced with the following: Section 2.01 Revolving Credit Loan Bank agrees, subject to the terms and conditions of this Agreement and the other Loan Documents to make Advances to Borrower from time to time during the period from the date when Borrower first qualifies for the initial Advance pursuant to Section 3.01 hereof, up to, but not including, the Maturity Date in an aggregate principal amount outstanding not to exceed at any time Two Million Dollars ($2,000,000.00) (the "Revolving Credit Loan"). Subject to the terms and conditions of this Agreement and of the other Loan Documents, Borrower may borrow, prepay pursuant to Section 2.05, and reborrow under this Section 2.01. Section 2.02 Note The Revolving Credit Loan and Advances thereunder shall be evidenced by, and repaid with interest in accordance with, a single promissory note of Borrower in form and content acceptable to Bank, in the original principal amount of Two Million Dollars (U.S. $2,000,000.00), which Note shall be payable to Bank, and shall mature and shall be due and payable in full on the Maturity Date, which is April 18, 1998 (the "Note"). 2. Continuing Security. The Indebtedness as evidenced by the Note ------------------- shall continue to be secured by all of the Loan Documents and collateral described in the Loan Agreement. 3. No Defenses or Setoffs. As of the date hereof, neither Borrower ---------------------- nor Guarantors are aware of any defenses, credits or setoffs to the payment of the Indebtedness evidenced by the Note, or to the enforceability of the Note, the Loan Agreement, or the Loan Documents against the Borrower or Guarantors, nor are there any claims, actions or causes of action which could be asserted against the Bank relating to the transactions evidenced by the Note, the Loan Agreement, this Amendment or any of the transactions relating thereto. 4. Limited Effect of Amendment. Except as specifically amended --------------------------- herein, the terms and conditions of the Note, the Loan Agreement, the Loan Documents, and all other existing agreements between the parties are unaffected by this Amendment and shall continue to be binding upon Borrower, Guarantors and the Bank. Further, the term "Note" shall include the Amended and Restated Revolving Credit Note dated August 4, 1997, in the amount of $2,000,000.00 between the Bank and Borrower. 5. Full Force and Effect of Loan Documents. The Loan Documents as --------------------------------------- defined in the Loan Agreement, including the Amended and Restated Revolving Credit Note dated August 4, 1997, in the amount of $2,000,000.00, between the Bank and Borrower, are valid and enforceable in accordance with their terms and shall continue to remain in full force and effect. BANK ONE, KENTUCKY, NA BY: /s/ Mark Boison -------------------------------------- TITLE: Senior Vice President ----------------------------------- COMMONWEALTH PREMIUM FINANCE CORPORATION BY: /s/ D. R. Meyer -------------------------------------- TITLE: President ----------------------------------- /s/ John Robert Owens ----------------------------------------- JOHN ROBERT OWENS /s/ William W. Davis, Jr. ----------------------------------------- WILLIAM W. DAVIS, JR. /s/ D. R. Meyer ----------------------------------------- D. RICHARD MEYER - 2 - EX-10.21 7 THIRD AMENDMENT TO LOAN AGREEMENT EXHIBIT 10.21 THIRD AMENDMENT TO LOAN AGREEMENT --------------------------------- This Third Amendment to Loan Agreement (the "Amendment") is dated and effective as of July 23, 1998, by, between and among COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation (referred to herein as "Borrower"); JOHN ROBERT OWENS and D. RICHARD MEYER, individuals, (referred to herein as the "Guarantors" or individually as a "Guarantor"); and BANK ONE, KENTUCKY, NA, a national banking association (referred to herein as "Bank"). RECITALS -------- 1. Borrower, Guarantors and Bank are parties to that certain Loan Agreement dated as of October 18, 1996, as amended by that certain First Amendment to Loan Agreement dated as of December 17, 1996 and that certain Second Amendment to Loan Agreement dated as of August 4, 1997 (as amended, the "Loan Agreement"). 2. Borrower, Guarantors and Bank have agreed to a renewal of the Revolving Credit Note (as defined in the Loan Agreement), and further desire to enter into this Amendment to document other amendments in the terms of the Loan Agreement. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and agreements contained herein and in the Loan Agreement, and intending to be legally bound hereby, covenant and agree as follows: 1. Amendment of Section 2.02. Section 2.02 of the Loan Agreement is ------------------------- hereby deleted and replaced with the following: Section 2.02 Note The Revolving Credit Loan and Advances thereunder shall be evidenced by, and repaid with interest in accordance with, a single renewed promissory note of Borrower, in the original principal amount of Two Million Dollars (U.S. $2,000,000.00), which Note shall be payable to Bank, and shall mature and shall be due and payable in full on the Maturity Date, which is June 18, 1999 (the "Note"). 2. Amendment of Section 5.08 Reporting Requirements. Section 5.08 of ------------------------------------------------ the Loan Agreement is hereby deleted and replaced with the following: Section 5.08 Reporting Requirements Borrower shall furnish to Bank: a. Quarterly Reporting. ------------------- (i) Within sixty (60) days after the end of each fiscal quarter, Borrower shall provide Bank with a Covenant Compliance Certificate in such form as provided in Exhibit "A" attached hereto, balance sheets as of the end of each quarter, statements of income and retained earnings as of the end of such fiscal quarter, and properly completed calculations necessary to test compliance with all of the financial covenants set forth herein, in form and content reasonably acceptable to Bank, and all in reasonable detail, and all such financial statements shall be prepared in accordance with GAAP consistently applied and certified as correct by Borrower's chief financial officer. Provided, however, Borrower shall not be obligated to deliver the Borrower's internally prepared balance sheet and income statement for the last month of Borrower's fiscal year. (ii) Within sixty (60) days after the end of each fiscal quarter, Borrower shall provide to Bank the following company prepared quarterly reports, Balance Sheet and Income Statement, Summary of Cash Receivables from Contracts, Company Activity Summary, and Summary of Accounts Past Due. b. Annual Financial Statements. Within one hundred twenty --------------------------- (120) days after the end of Borrower's 1997 fiscal year, and for all fiscal years thereafter so long as any Indebtedness remains unpaid, a complete, unqualified, annual audit report of Borrower. The audited report shall consist of balance sheet, statement of profit and loss, application of funds, change in financial position and the like, prepared and certified by a firm of independent public accountants of recognized standing acceptable to the Bank. All of the foregoing shall be in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year and all such financial statements shall be prepared in accordance with GAAP consistently applied and certified as correct by Borrower's chief financial officer. c. Notice of Litigation. Promptly after the commencement -------------------- thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting Borrower or either Guarantor which, if determined adversely, could have a material, adverse effect on Borrower's or a Guarantor's financial condition, properties, or operations. d. Notice of Defaults and Events of Default. As soon as ---------------------------------------- possible and in any event within ten (10) days after the occurrence of each Default or Event of Default, a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken with respect thereto. e. Borrowing Base Certificate. Within fifteen (15) days after -------------------------- the end of each month, Borrower shall provide Bank with a Borrowing Base Certificate in such form as provided in Exhibit "B" attached hereto. f. Guarantors' Financial Statements and Tax Returns. Within ------------------------------------------------ thirty (30) days after filing, copies of each Guarantor's federal and state income tax returns, amendments and schedules. Within ninety (90) days after the anniversary date of receipt of the last financial statement, Guarantors shall provide a financial statement of assets, liabilities and net worth for each Guarantor, in form and content reasonably acceptable to Bank, and all in reasonable detail. g. Annual Reporting on Equity Insurance Managers, Inc. ("EIM"). ----------------------------------------------------------- As soon as available and in any event within one hundred twenty (120) days after EIM's 1997 fiscal year, a complete, unqualified, annual audit report of EIM in such detail as required under Section 5.08(b). h. Quarterly Reporting on EIM. No later than sixty (60) days -------------------------- after the end of the calendar quarter, balance sheets and statements of income and retained earnings in such detail as required under Section 5.08(a)(i). 2 i. General Information. Such other information respecting the ------------------- condition or operations, financial or otherwise, of Borrower or any Guarantor, as Bank may from time to time reasonably request. 3. Amendment of Article VIII of the Loan Agreement. Article VIII of ----------------------------------------------- the Loan Agreement is amended as follows: 8.19 Arbitration Borrower, Guarantors and 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 the Note, any 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 ("AAA"). Any arbitration proceeding held pursuant to this arbitration provision shall be conducted at the city nearest the Borrower's address having an AAA regional office, or at any other place 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 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 Uniform Commercial Code. 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 either party. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. The statute of limitations, estoppel, waiver, laches and similar doctrines which would otherwise be applicable in an 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 any 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. 8.20 Year 2000 Provisions (a) Representation and Warranties. Borrower represents and ----------------------------- warrants as follows to Bank that: (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 the Loan Documents or Bank's commitment to make advances under the Loan Documents is outstanding: i. Borrower will use good faith efforts to ensure that by December 31, 1998, all devices, systems, machinery, information technology, computer software and hardware, and other date sensitive technology (jointly and severally the "Systems") necessary for Borrower to carry on its business 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 Borrower's business operations. For purposes of these provisions, "Year 2000 3 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. ii. Borrower will: (1) undertake a detailed inventory, review and assessment of all areas within its business and operations that could be adversely affected by the failure of Borrower to be Year 2000 Compliant on a timely basis; (2) develop a detailed plan and time line for becoming Year 2000 Compliant on a timely basis; and (3) implement that plan in accordance with that timetable in all material respects. iii. By December 31, 1998, Borrower will make written inquiry of each of its key suppliers, vendors, and customers, and will obtain in writing confirmations from all such persons, as to whether such persons have initiated programs to become Year 2000 Compliant and on the basis of such confirmations, Borrower will make a good faith effort to ensure that all such persons will be or become so compliant. For purposes hereof, "key suppliers, vendors and customers" refers to those suppliers, vendors, and customers of Borrower whose business failure would, with reasonable probability, result in a material adverse change in the business, properties, condition (financial or otherwise), or prospects of Borrower. For purposes of this paragraph, Bank, as lender of funds under the terms of the Loan Documents, confirms to Borrower that Bank has initiated its own corporate-wide Year 2000 program with respect to its lending activities. iv. Borrower will make a good faith effort to ensure that the fair market value of all real and personal property, if any, pledged to Bank as Collateral to secure the Loan Documents is not and shall not be less than currently anticipated or subject to substantial deterioration in value because of the failure of such Collateral to be Year 2000 Compliant. (b) Affirmative Covenants. Borrower covenants and agrees with --------------------- Bank that, while any Loan Documents is in effect, Borrower will: i. Furnish such additional information, statements and other reports with respect to Borrower's 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 Borrower's representations and warranties with respect to its being or becoming Year 2000 Compliant to no longer be true (hereinafter referred to as a "Change in Circumstances") then Borrower shall 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 Borrower's representations and warranties with respect to being or becoming Year 2000 Compliant to no longer be true. Borrower shall, within ten (10) days of a request, also provide Bank with any additional information Bank requests of Borrower in connection with the Notice and/or Change of Circumstances. iii. Give any representative of Bank access during all business hours to, and permit such representative to examine, copy or make excerpts from, any and all books, records and documents in the possession of Borrower and relating to its affairs, and to inspect any of the properties and Systems of Borrower, 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. 4 4. Continuing Security. The Indebtedness as evidenced by the Note ------------------- shall continue to be secured by all of the Loan Documents and collateral described in the Loan Agreement. 5. No Defenses or Setoffs. As of the date hereof, neither Borrower ---------------------- nor Guarantors are aware of any defenses, credits or setoffs to the payment of the Indebtedness evidenced by the Note, or to the enforceability of the Note, the Loan Agreement, or the Loan Documents against the Borrower or Guarantors, nor are there any claims, actions or causes of action which could be asserted against the Bank relating to the transactions evidenced by the Note, the Loan Agreement, this Amendment or any of the transactions relating thereto. 6. Limited Effect of Amendment. Except as specifically amended --------------------------- herein, the terms and conditions of the Note, the Loan Agreement, the Guaranties, the Loan Documents, and all other existing agreements between the parties are unaffected by this Amendment and shall continue to be binding upon Borrower, Guarantors and the Bank. Further, the term "Note" shall include the Renewed Revolving Credit Note dated effective as of June 18, 1998, with a maturity date of June 18, 1999, in the amount of $2,000,000.00 between the Bank and Borrower. 7. Full Force and Effect of Loan Documents. The Loan Documents as --------------------------------------- defined in the Loan Agreement, including the Renewed Revolving Credit Note dated effective as of June 18, 1998, in the amount of $2,000,000.00, between the Bank and Borrower, are valid and enforceable in accordance with their terms and shall continue to remain in full force and effect. BANK ONE, KENTUCKY, NA BY: /s/ Rhonda Lenney ---------------------------------------- TITLE: Officer ------------------------------------- COMMONWEALTH PREMIUM FINANCE CORPORATION BY: /s/ Slayton S. Stewart ---------------------------------------- TITLE: V.P. Operations ------------------------------------- /s/ John Robert Owens ------------------------------------------- JOHN ROBERT OWENS /s/ D.R. Meyer ------------------------------------------- D. RICHARD MEYER 5 EX-10.22 8 RENEWED REVOLVING CREDIT NOTE EXHIBIT 10.22 RENEWED REVOLVING CREDIT NOTE ----------------------------- ("Note") COMMONWEALTH PREMIUM FINANCE CORPORATION a Kentucky corporation 3201 Nicholasville Road Lexington, Kentucky 40512-4032 "BORROWER" $2,000,000.00 DATED EFFECTIVE AS OF June 18, 1998 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 Dollars ($2,000,000.00) 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 October 18, 1996 (the "Loan Agreement"), as amended by the First Amendment to Loan Agreement dated December 17, 1996, the Second Amendment to Loan Agreement dated as of August 4, 1997, and the Third Amendment to Loan Agreement dated July 23, 1998 (the "Amendments") 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 if 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 of, and not a novation of, that certain Amended and Restated Revolving Credit Note dated August 4, 1997, which was modified by agreement dated April 22, 1998. All terms not otherwise defined herein shall have the same meaning given to them in the Loan Agreement and Amendments. Advances under this Note shall only be made in accordance with the terms and conditions set forth in the Loan Agreement and Amendments and provided that no Event of Default as defined herein, in the Loan Agreement or Amendments has occurred or then exists. This Note, the Loan Agreement, the Amendments and any and all other documents referred to in the Loan Agreement or Amendments 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 July 18, 1998 and continuing on the eighteenth day of each month until June 18, 1999 (the "Maturity Date") at which time all outstanding principal and accrued interest shall be due and payable in full. Interest on this Note will be computed on the basis of the actual number of days elapsed over an assumed year of 360 days. Borrower shall make each payment under this Note not later than 12:00 p.m. (Noon), Louisville, Kentucky, Eastern time, on the date when due, in lawful money of the United States of America, to Bank at 416 West Jefferson Street, Louisville, Kentucky 40202-3244, 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. If any amount due hereunder is past due for more than fifteen (15) days (whether by lapse of time or by reason of acceleration under the provisions hereof or under the Loan Documents), or upon the occurrence of any Event of Default defined hereinbelow, the interest rate on the entire principal balance and all matured interest installments outstanding shall increase by three percent (3%) per annum and shall continue at that rate as long as any amount due is more than fifteen (15) days late; provided, however, that the total interest rate charged Borrower shall not exceed the maximum rate of interest allowed by law 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. Any payment on this Note that is overdue for more than fifteen (15) days from its due date shall be increased by an amount equal to the lesser of $250.00 or five percent (5%) of the overdue payment. 6. The occurrence of any Event of Default as described in the Loan Agreement shall constitute an event of default under this Note, the occurrence of which 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/or under the terms of the Loan Documents and under the terms of any other agreements between Borrower and Bank. 7. All rights and remedies of Bank under this Note, the Loan Documents, 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. 2 8. The 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; (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. 9. Bank shall have the right to set off, at all times and 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, whether held by Bank in a fiduciary capacity or otherwise, 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. 10. The Borrower agrees that it will pay to the 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. 11. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY 3 COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF BANK AND BORROWER. BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK. 12. The 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. 13. 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. 14. 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. 15. 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. 16. 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. 17. 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. 4 DATED as of the day and year first above written. COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation BY: /s/ D.R. Meyer -------------------------------------- TITLE: President ----------------------------------- 5 EX-10.23 9 FOURTH AMENDMENT TO LOAN AGREEMENT EXHIBIT 10.23 FOURTH AMENDMENT TO LOAN AGREEMENT ---------------------------------- This Fourth Amendment to Loan Agreement (the "Amendment") is dated and effective as of February 25, 1999, by, between and among COMMONWEALTH PREMIUM FINANCE CORPORATION, a Kentucky corporation (referred to herein as "Borrower"); UNIFIED FINANCIAL SERVICES, INC., a Delaware corporation (referred to herein as the "Guarantor"); and BANK ONE, KENTUCKY, NA, a national banking association (referred to herein as "Bank"). RECITALS -------- 1. The Borrower, the Guarantor and the Bank desire to further amend Loan Agreement dated as of October 18, 1996, as amended by that certain First Amendment to Loan Agreement dated as of December 17, 1996, the Second Amendment to Loan Agreement dated as of August 4, 1997, and the Third Amendment to Loan Agreement dated July 23, 1998 (as amended, the "Loan Agreement"). 2. Borrower, Guarantor and Bank have agreed to enter into this Amendment to further amend the terms of the Loan Agreement, including the substitution of the Guarantor. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and agreements contained herein, covenant and agree as follows: 1. Substitution of Guaranties. The Bank hereby agrees to -------------------------- accept the Guaranty of the Guarantor as evidenced by the Guaranty dated February 18, 1999 (the "Guaranty"), in substitution of the Guaranties of John Robert Owens and D. Richard Meyer, and the Bank further agrees that John Robert Owens and D. Richard Meyer are hereby deemed to be released of their obligations as Guarantors of the obligations of Borrower under the Renewed Revolving Credit Note dated June 18, 1998, in the principal amount of $2,000,000.00 (the "Note") upon execution and delivery of all documents required herein. 2. Collateral. The Indebtedness shall continue to be secured ---------- by the Collateral described in the Loan Agreement dated October 18, 1996, as amended. Further, the Guarantor shall execute and deliver to the Bank its Stock Pledge and Security Agreement whereby the Guarantor pledges and assigns to the Bank all of its interest in the Common Stock of Equity Underwriting Group, Inc. and Commonwealth Finance Premium Corporation (the "Stock") as shown on Schedule A attached to the Stock Pledge and Security Agreement dated February 25, 1999. 3. Conditions Precedent. The obligation of the Bank to enter -------------------- into this Agreement and the other Loan Documents is subject to the condition precedent that the Bank shall have received and approved on or before the closing each of the following, in form and substance reasonably satisfactory to the Bank: a. This Agreement, the Guaranty and the Stock Pledge and Security Agreement shall be duly executed and delivered by the Borrower and the Guarantor to the Bank. b. Lien Report. A lien report from the counsel for the ----------- Guarantor, which states that the Bank has first and prior lien on the Stock. c. Articles and By-Laws; Evidence of Existence/Good ------------------------------------------------- Standing of the Guarantor. Certified copies of the Guarantor's - ------------------------- Articles and By-Laws and the Certificate of Existence/Good Standing of the Guarantor issued by the Secretary of State of Delaware. d. Evidence of Corporate Action by the Borrower and the ----------------------------------------------------- Guarantor. Certified copies of all corporate action taken by the - --------- Borrower and the Guarantor, including resolutions of the Borrower and the Guarantor authorizing the execution, delivery and performance of the Loan Documents. A certificate of the Secretary of the Guarantor certifying the names and true signatures of officers of the Guarantor authorized to sign the aforementioned documents to which it is a party. e. Opinion of Counsel. The Borrower and the Guarantor ------------------ shall provide the Bank with an opinion of counsel satisfactory to the Bank regarding such matters as the validity and enforceability of the Loan Documents. 4. Representations and Warranties of the Borrower. The ---------------------------------------------- Borrower represents and warrants to the Bank as follows: a. Good Standing and Due Qualification. The Borrower ----------------------------------- is a corporation, duly incorporated, validly existing and is duly qualified and in good standing under the laws of each jurisdiction in which such qualification is required by law. b. Corporate Power and Authority. The execution, ----------------------------- delivery and performance by the Borrower of the Loan Documents have been duly authorized by all necessary corporate action. c. Legally Enforceable Loan Documents. The Loan ---------------------------------- Documents executed and/or delivered in connection with this Agreement are legal, valid and binding obligations of the Borrower and enforceable in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors rights generally. d. No Adverse Change. No material adverse change has ----------------- occurred in any of the businesses of the Borrower and no material adverse change has occurred in the financial condition of the Borrower since the date of the most current financial information provided to the Bank. e. No Defenses or Setoffs. As of the date hereof, the ---------------------- Borrower is not aware of any defenses, credits or setoffs to the payment of the Indebtedness evidenced by the Note, or to the enforceability of the Note, or the Loan Documents, nor are there any claims, actions or causes of action which could be asserted against the Bank relating to the transactions evidenced by any of the Loan Documents. f. Limited Effect of Amendment. Except as specifically --------------------------- amended herein, the terms and conditions of the Note, the Loan Documents and all other existing agreements between the parties are unaffected by this Amendment and shall continue to be binding upon the Borrower and the Bank and continue to remain in full force and effect. 5. Representations and Warranties of the Guarantor. The ----------------------------------------------- Guarantor represents and warrants to the Bank as follows: a. Good Standing and Due Qualification. The Guarantor ----------------------------------- is a corporation, duly incorporated, validly existing and is duly qualified and in good standing under the laws of Delaware. b. Corporate Power and Authority. The execution, ----------------------------- delivery and performance by the Guarantor of the Loan Documents to which it is a party have been duly authorized by all necessary corporate action. - 2 - c. Legally Enforceable Loan Documents. The Loan ---------------------------------- Documents executed and/or delivered by the Guarantor are legal, valid and binding obligations of the Guarantor and enforceable in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors rights generally. 6. Additional Reporting Requirements. In addition to the --------------------------------- reporting requirements contained in the Loan Agreement, as amended, the Guarantor shall, within sixty (60) days after the end of each fiscal quarter (and beginning with the March 31, 1999 quarter end), provide Bank with balance sheets, statements of income and retained earnings as of the end of such fiscal quarter, and properly completed calculations necessary to test compliance with all of the financial covenants set forth herein, in form and content reasonably acceptable to Bank, and all in reasonable detail, and all such financial statements shall be internally prepared in accordance with GAAP consistently applied and certified as correct by Guarantor's chief financial officer. Provided, however, the Guarantor shall not be obligated to deliver the Guarantor's internally prepared balance sheet and income statement for the last month of the Guarantor's fiscal year. 7. Affirmative Covenants. So long as any portion of the Note --------------------- shall remain unpaid, the Borrower agrees to fully comply with all of the affirmative convents contained in the Loan Agreement and the Amendments. Further, the Borrower shall fully comply with the negative covenants contained in the Loan Agreement and the Amendments. 8. No Defenses or Setoffs. As of the date hereof, the ---------------------- Borrower is not aware of any defenses, credits or setoffs to the payment of the Indebtedness evidenced by the Note, or to the enforceability of the Note, the Loan Agreement, or the Loan Documents against the Borrower, nor are there any claims, actions or causes of action which could be asserted against the Bank relating to the transactions evidenced by the Note, the Loan Agreement, this Amendment or any of the transactions relating thereto. 9. Limited Effect of Amendment. Except as specifically --------------------------- amended herein, the terms and conditions of the Note, the Loan Documents, and all other existing agreements between the parties are unaffected by this Amendment and shall continue to be binding upon the Borrower and the Bank and remain in full force and effect. 10. Notices. 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 Borrower: 220 Lexington Green Circle Lexington, Kentucky 40503 ATTN: Robert Owens with a copy to: Robert M. Beck, Jr. Stites & Harbison 2300 Lexington Financial Center Lexington, Kentucky 40507 - 3 - If to Guarantor: Unified Financial Services, Inc. 1104 Buttonwood Court Lexington, Kentucky 40515 ATTN: President and CEO with a copy to: Charles H. Binger Thompson Coburn One Mercantile Center, Suite 34007 St. Louis, Missouri 63101 If to Bank: Bank One, Kentucky, NA 416 West Jefferson Street Louisville, Kentucky 40202 with a copy to: Mark Boison Bank One, Kentucky, NA 201 East Main Street Lexington, Kentucky 40507 11. Entire Agreement. This Amendment and the other Loan ---------------- Documents constitute the entire understanding among the parties with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. This Agreement may not be amended without the prior written consent of all parties herein. COMMONWEALTH PREMIUM FINANCE CORPORATION BY: /s/ D. R. Meyer -------------------------------------- TITLE: President ----------------------------------- BANK ONE, KENTUCKY, NA BY: /s/ Rhonda Lenney -------------------------------------- TITLE: Officer ----------------------------------- UNIFIED FINANCIAL SERVICES, INC. BY: /s/ Timothy L. Ashburn -------------------------------------- TITLE: Chairman, CEO, President ----------------------------------- - 4 - EX-10.24 10 GUARANTY OF PAYMENT AND PERFORMANCE EXHIBIT 10.24 GUARANTY OF PAYMENT AND PERFORMANCE ----------------------------------- ("Guaranty") Dated as of February 25, 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 certain loan modifications and to extend additional or to continue to extend credit to EQUITY UNDERWRITING GROUP, INC. ("EIMI") and EQUITY INSURANCE MANAGERS, INC. ("EUGI") (EUGI, EIMI, and Commonwealth Premium Finance Corporation are collectively referred to herein as the "Borrower"), the undersigned, UNIFIED FINANCIAL SERVICES, INC. (the "Guarantor") does hereby personally guarantee unconditionally to the holder of the Notes listed in Exhibit "A" attached hereto (the "Notes") the due and punctual payment of all installments of principal and interest now or in the future due under the Notes, as and when the same shall be due and payable thereunder in accordance with their respective terms, and whether the same be declared due by the holder of the Notes 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 Notes. 2. The Guarantor consents and agrees that the whole or any part of the security now or hereafter held for the Notes may be exchanged, compromised, surrendered or released from time to time; that the time or place of payment of the Notes or of any security therefor may be exchanged or extended, in whole or in part, to a time certain or otherwise, and the Notes 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 Notes, 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 Notes may be granted indulgences or released; that neither the death, insolvency, bankruptcy, dissolution, nor disability of the Borrower or of the Guarantor shall affect the obligations hereunder of the 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 Notes 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 Notes; 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. The Guarantor expressly waives: (a) Notice of acceptance of this Guaranty; (b) Presentment and demand for payment of the Notes; (c) Protest and notice of protest, dishonor or default to Guarantor or to any other party with respect to the Notes or any security for the Notes; (d) Demand for payment under this Guaranty; (e) Notice of disposition of any security for the Notes; 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 holder for the payment of the Notes. The 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 the Guarantor hereunder and waives any right to require that resort be had to any security for the Notes or to any balance of any deposit account or credit on the books of the holder of the Notes in favor of Borrower or any other party prior to action by the holder of the Notes against the Guarantor hereunder. If the Notes are partially paid through the election of the holder thereof to pursue any of the remedies mentioned in this literary paragraph or if the Notes is otherwise partially paid, Guarantor shall remain personally liable for the entire unpaid principal balance of, and all accrued interest on, the Notes. 5. The Notes shall constitute the primary independent and continuing obligation of the Guarantor, who shall be liable for payment of the debt evidenced by the Notes, notwithstanding the partial or total invalidity of the Notes. 6. The obligations of the 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 Notes, Guarantor will pay, to the extent allowable by law to Bank such further amount as shall be sufficient to reimburse fully Bank for all of its costs and expenses of enforcing its rights and remedies under the Notes, including, without limitation, Bank's reasonable attorney's fees and court costs, and all of same shall be evidenced by the Notes 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 KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY, THE LOAN AGREEMENT OR ANY OTHER DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF BANK, BORROWER OR ANY GUARANTOR. GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK. 10. The 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 2 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 the Guarantor shall be the sum of Four Million Four Hundred Fifty Thousand Dollars ($4,450,000.00), 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 Notes), or (b) extensions or renewals of, interest accruing on, or fees, costs or expenses incurred with respect to such obligations (which specifically includes the Notes), on or after such date. 13. If any payment made on the Notes 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 Notes, 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. 15. The 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 Notes. Guarantor represents and warrants that it has relied exclusively on his own independent investigation of Borrower for its decision to guarantee the Notes. 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. 3 17. The provisions of this Guaranty shall be binding upon the Guarantor and its, successors, and assigns and shall inure to the benefit of the holder of the Notes, and its successors, endorsees and assigns. IN WITNESS WHEREOF, the Guarantor has executed this Guaranty to be effective as of the date and year first above written. UNIFIED FINANCIAL SERVICES, INC. BY: /s/ Timothy L. Ashburn ---------------------------------- TITLE: Chairman, CEO, President ------------------------------- 4 EXHIBIT "A" ----------- (a) a Revolving Credit Note dated as of December 30, 1997, and made by Equity Insurance Managers, Inc. payable to the order of Bank One in the original principal amount of $400,000.00; (b) an Amended and Restated Term Note dated as of February 18, 1999, and made by Equity Insurance Managers, Inc. and Equity Underwriting Group, Inc. payable to the order of Bank One in the original principal amount of $1,250,000.00; (c) a Term Note dated as of February 18, 1999, and made by Equity Insurance Managers, Inc. and Equity Underwriting Group, Inc. payable to the order of Bank One in the original principal amount of $800,000.00; and (d) a Renewed Revolving Credit Note dated as of June 18, 1998, and made by Commonwealth Premium Finance Corporation payable to the order of the Bank One in the original principal amount of $2,000,000.00 EX-10.25 11 STOCK PLEDGE AND SECURITY AGREEMENT EXHIBIT 10.25 STOCK PLEDGE AND SECURITY AGREEMENT ----------------------------------- THIS STOCK PLEDGE AND SECURITY AGREEMENT is made and entered into effective as of February 25, 1999, by and between UNIFIED FINANCIAL SERVICES, INC., a Delaware corporation, whose address is 431 North Pennsylvania Street, Indianapolis, Indiana 46204 (hereinafter called "Obligor"), and BANK ONE, KENTUCKY, NA, a national banking association, whose address is 416 West Jefferson Street, Louisville, Kentucky 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 --------------------------- the Obligor's Guaranty to Secured Party dated as of February 25, 1999 whereby the Obligor guaranteed the payment of the obligations set forth in Exhibit "A" attached thereto up to the maximum amount of $4,450,000.00, plus interest, fees, charges and costs as provided therein (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; (b) Obligor has received all necessary approvals from all appropriate regulatory authorities with respect to Obligor's acquisition of the Stock and acquisition of control of EUGI and CPFC; and (c) Obligor has the full power and authority to pledge the Stock to Secured Party pursuant to this Security Agreement, and 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 EUGI and CPFC, or in favor of any amendment to the Articles or Incorporation of EUGI and CPFC whereby EUGI and CPFC would be authorized to issue any additional capital stock or securities convertible into or exchangeable for any capital stock of EUGI and CPFC without the prior written consent of Secured Party. However, in the event CPFC becomes the subsidiary of EUGI, Secured Party agrees to release the stock of CPFC to EUGI. 7. Events of Default. Each of the following shall constitute ----------------- a Event of Default hereunder: a. If any warranty or representation made by Obligor herein or by the Borrowers as defined in the Loan Agreement dated October 18, 1996, as amended, among Commonwealth Premium Finance Corporation, John Robert Owens, D. Richard Meyer and Secured Party, and the Loan Agreement dated January 20, 1998, as amended, among Equity Underwriting Group, Inc., Equity Insurance Managers, Inc., 21st Century Claim Services, John Robert Owens, D. Richard Meyer and Secured Party (the "Loan Agreements"), shall prove to be untrue or incorrect in any material respect when made or effected and said default shall continue unremedied for a period of thirty (30) calendar days after date of written notice to Obligor. b. If any covenant made by Obligor herein or by the Borrowers in the Loan Agreements shall be broken or breached at any time and said default shall continue unremedied for a period of thirty (30) calendar days after date of written notice to Obligor. c. Failure of the Borrowers to make any payment of the Indebtedness when due. 2 d. The insolvency, the filing of voluntary or involuntary bankruptcy or for relief under the provisions of the National Bankruptcy Act, of, by or against any of the Borrowers or the Guarantor. e. The occurrence of any Event of Default as defined in the Loan Agreements other than a default described in a. and b. of this Section 7. 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 marshalling 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 or more lots; or (b) at a private sale or sales, and in one 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. Provided, however, Secured Party's right to sell the Stock is subject to the terms and provisions set forth in the Intercreditor and Escrow Agreement of even date. (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. c. After deducting all of Secured Party's costs and expenses of every kind, including, without limitation, legal fees and registration fees and expenses, if any, in connection with the 3 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, this Security Agreement or the Loan Agreements, 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. 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 Agreements, 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 4 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. 1104 Buttonwood Court Lexington, Kentucky 40515 ATTN: President and CEO with a copy to: Charles H. Binger Thompson Coburn One Mercantile Center, Suite 34007 St. Louis, Missouri 63101 If to Secured Party: Bank One, Kentucky, NA 416 West Jefferson Street Louisville, Kentucky 40202 with a copy to: Mark Boison Bank One, Kentucky, NA 201 East Main Street Lexington, Kentucky 40507 5 IN WITNESS WHEREOF, the parties hereto have entered into this Security Agreement effective as of the 25th day of February, 1999. BANK ONE, KENTUCKY, NA BY: /s/ Rhonda Lenney ---------------------------------- TITLE: Officer ------------------------------- UNIFIED FINANCIAL SERVICES, INC. BY: /s/ Timothy L. Ashburn ---------------------------------- TITLE: Chairman, CEO, President ------------------------------- 6 SCHEDULE A ---------- Certificate No. No. Of Shares Equity Underwriting Group, Inc. 14 1000 Commonwealth Premium Finance Corporation 6 1000 EX-10.26 12 LOAN AGREEMENT EXHIBIT 10.26 LOAN AGREEMENT -------------- Dated as of January 20, 1998 by and among EQUITY UNDERWRITING GROUP, INC. ("EUGI") EQUITY INSURANCE MANAGERS, INC. ("EIMI") 21ST CENTURY CLAIM SERVICE, INC. ("21st Century") (collectively the "Borrowers") and JOHN ROBERT OWENS and D. RICHARD MEYER (collectively the "Guarantors") and BANK ONE, KENTUCKY, NA LOAN AGREEMENT -------------- THIS LOAN AGREEMENT (the "Agreement") dated as of January 20, 1998 between EQUITY UNDERWRITING GROUP, INC., EQUITY INSURANCE MANAGERS, INC. and 21ST CENTURY CLAIM SERVICE, INC. (referred to herein as the "Borrowers"); JOHN ROBERT OWENS and D. RICHARD MEYER, individuals (referred to herein as the "Guarantors or individually as a "Guarantor") and BANK ONE, KENTUCKY, NA, a national banking association, 416 West Jefferson Street, Louisville, Kentucky 40202 (referred to herein as the "Bank"). R E C I T A L S: 1. The Borrowers have applied to the Bank for a Term Loan as defined herein in the amount of $1,250,000.00, which shall be secured by assets of the Borrowers and guaranteed by the Guarantors. 2. EIMI borrowed from the Bank the sum of $400,000.00, as evidenced by a Revolving Credit Note dated December 30, 1997, which is secured by assets of EIMI and guaranteed by the Guarantors. 3. EIMI has guaranteed the loan from the Bank to 21st Century, which loan is evidenced by a Term Note dated December 30, 1997, in the amount of $200,000.00, pursuant to a Guaranty dated December 30, 1997. 4. One of the conditions to the Bank making the loans as described herein is that the Borrowers and the Guarantors must enter into this Agreement setting forth the terms and conditions of the Loans. NOW, THEREFORE, in consideration of their mutual covenants, the financial accommodations extended to the Borrowers and the Guarantors herein 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 --------- DEFINITIONS ----------- Section 1.01 Defined Terms As used in this Agreement the following terms have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): "Advance" means any disbursement of funds to the Borrowers under the Notes. "Agreement" means this Loan Agreement, as amended, supplemented or modified from time to time. "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. "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 as described in Section 2.06. "Corporate Guaranty" means the guaranty by EIMI of the obligations of 21st Century to the Bank dated December 30, 1997. "Debt" means any and all (i) indebtedness or liability for borrowed money, or for the deferred purchase price of property or services (excluding trade obligations incurred in the ordinary course of business); (ii) obligations under letters of credit issued for the account of any Person; (iii) guarantees, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person, or otherwise to assure a creditor against loss. "Debt Service Coverage Ratio" means the earnings before interest, expenses, taxes, depreciation and amortization divided by current maturities of long term debt. "Event of Default" means any of the events specified in Section 7.01, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "GAAP" means generally accepted accounting principles in the United States. "Guaranty" means each of the personal guaranties of the Notes executed by each of the Guarantors. "Interest Coverage Ratio" means the earnings before interest expenses and taxes divided by interest expense. "Lexington Office" means the office of the Bank at 201 East Main Street, Lexington, Kentucky 40507. - 2 - "Lien" means any pledge, security interest, hypothecation, conditional assignment, deposit arrangement, encumbrance, lien (statutory or other), or other security agreement, or encumbrance of any kind or nature whatsoever (including, without limitation, any lien on unearned premiums and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing). "Loans" means the Revolving Credit Loan, the Term Loan and the 21st Century Loan. "Loan Documents" means this Agreement, the Notes, the Security Agreements, the UCC-1's, the Guaranties, and any additional documents required to be delivered by the Borrowers, the Guarantors, or any of them, under this Agreement, or otherwise evidencing, securing and/or relating to the Loan. "Notes" means the Revolving Credit Note, the Term Note and the 21st Century Note. "Obligations" means the obligations of the Borrowers, 21st Century and the Guarantors to the Bank under the Loan Documents. "Others" shall mean any Person as defined herein other than Bank or its affiliates. "Person" means any individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature. "Prime Rate" means a variable rate of interest announced from time to time by the Bank as its prime rate whether or not such rate is otherwise published, which rate may not be the Bank's lowest or best rate. "Revolving Credit Loan" or "Revolving Credit Note" shall have the meaning assigned to such terms in Section 2.01(a). "Security Agreements" mean the Security Agreements to be delivered by the Borrowers under the terms of this Agreement granting Bank a first priority security interest in all assets of the Borrowers; the Stock Pledge and Security Agreements to be delivered by the Guarantors to the Bank; and the Security Agreement dated December 30, 1997 from 21st Century to the Bank. "Term Loan" or "Term Note" shall have the same meaning assigned to such terms in Section 2.01(b). "21st Century Loan" or "21st Century Note" means the note from 21st Century to the Bank dated December 30, 1997, in the principal amount of $200,000.00 which was guaranteed by EIMI. "UCC-1's" means all filings under the Uniform Commercial Code as adopted in the various states in which filings may be made by Bank now or at any time in the future for purposes of perfecting any security interest granted by the Security Agreements. Section 1.02 Accounting Terms All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with that applied in the preparation of the financial statements referred to in Section 5.08, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. - 3 - ARTICLE II ---------- AMOUNT AND TERMS OF THE LOAN ---------------------------- Section 2.01 The Loans a. Revolving Credit Loan. The Bank has entered into the --------------------- Revolving Credit Loan as evidenced by the Revolving Credit Note dated December 30, 1997, in the amount of $400,000.00. Interest shall be at the Bank's Prime Rate which shall be payable monthly. b. Term Loan. The Term Loan from the Borrowers to the --------- Bank is evidenced by the Term Note in the amount of $1,250,000.00 and is dated January 20, 1998. The interest rate is the Bank's Prime Rate and is payable monthly for one (1) year at which time the Borrowers shall begin to pay monthly payments of principal and interest as provided therein. c. 21st Century Loan. The Bank has loaned $200,000.00 to ----------------- 21st Century as evidenced by the Term Note dated December 30, 1997, in the amount of $200,000.00 with payments of principal and interest as provided therein. Section 2.02 No Prepayment Premium The Borrowers may prepay the Notes, in whole or in part, at any time without incurring any premium or penalty. Any partial prepayment shall not change the amount or dates of payments due from the Borrowers under the Notes. Section 2.03 Method of Payment Borrowers shall make each payment under this Agreement and under the Notes in lawful money of the United States, to the Bank at the Lexington Office, in immediately available funds. 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. Section 2.04 Fees a. Revolving Credit Loan. The Borrowers shall pay this --------------------- fee in the amount of $2,640.00 at Closing. b. Term Loan. The Borrower shall pay a fee of --------- $12,500.00, of which $12,000.00 shall be paid at Closing and $500.00 paid on the anniversary date of the Loan. c. 21st Century Loan. A fee of $1,320.00 shall be paid ----------------- by 21st Century at Closing. Section 2.05 Guaranty by Guarantors a. Revolving Credit Loan. The Guarantors have guaranteed --------------------- this Loan as evidenced by the Guaranties dated December 30, 1997. - 4 - b. Term Loan. The Guarantors have guaranteed this Loan --------- as evidenced by their Guaranties dated January 20, 1998. c. 21st Century Loan. EIMI has guaranteed this Loan ----------------- evidenced by its Guaranty dated December 30, 1997. Section 2.06 Collateral The Borrowers and the Guarantors shall or have pledged (as the case may be) the following assets to the Bank to secure the Obligations to the Bank: a. Blanket Liens on Assets of the Borrowers. All of the ---------------------------------------- Borrowers shall execute and deliver to the Bank Security Agreements and UCC-1 financing statements whereby each of the Borrowers pledge and grant to the Bank a valid and enforceable security interest in all of their assets as described in Exhibit "A" attached to each of the Security Agreements which shall be duly perfected upon the recording of the UCC-1 financing statements in the Fayette County Clerk's office. b. Pledge of Stock by Owens and Meyer. Owens and Meyer ---------------------------------- shall each execute and deliver to the Bank their Stock Pledge and Security Agreements whereby each of them pledge and assign to the Bank all of their interest in their EUGI common stock as shown on Schedule "A" attached to each of the Stock Pledge and Security Agreements. All of said common stock shall be held in escrow by Vimont & Wills, PLLC, who shall act as Escrow Agent pursuant to the Intercreditor Agreement and Escrow Agreement dated January 20, 1998 (the "Escrow Agreement"). Further, the Escrow Agreement shall provide that the Escrow Agent shall hold the common stock owned by William W. Davis, Jr. ("Davis") and Hannah D. Emig ("Emig") in escrow pursuant to the terms of the Escrow Agreement and the Purchase and Sale Agreement dated January 20, 1998 (the "Purchase Agreement"). Upon payment by the purchasers under the Purchase Agreement to Davis and Emig on January 20, 1999, Davis, individually and as Trustee for Emig, shall subordinate thirty-nine (39) of their shares in favor of the Bank who shall then have a first and prior lien upon the shares owned by Owens and Meyer and also a first and prior lien on thirty-nine (39) of the shares owned by Davis and Emig. Further, upon payment of the balance due Davis and Emig under the Purchase Agreement, Davis, individually and as Trustee for Emig, shall release all of their interest in and to their remaining shares held by the Escrow Agent and shall further direct and authorize the Escrow Agent to release and transfer all of their shares to the Bank who shall then hold all of the then outstanding shares of EUGI as collateral. ARTICLE III ----------- CONDITIONS PRECEDENT -------------------- Section 3.01 Conditions Precedent to the Term Loan The obligation of the Bank to make the Term Loan is subject to the condition precedent that the Bank shall have received and approved on or before the closing each of the following, in form and substance reasonably satisfactory to the Bank and its counsel: a. Loan Documents. The Loan Documents duly executed and -------------- delivered by the Borrowers and the Guarantors. b. Insurance. Certificates of insurance coverage --------- satisfying all requirements as provided in Section 5.05. - 5 - c. Lien Report. A lien report from the Borrowers' ----------- counsel acceptable to the Bank identifying all of the financing statements and other Liens on file with respect to the Borrowers, which report shall reflect no prior filings against any of the Collateral except for such Liens as are to be paid in full and released prior to or in connection with the Loans or those Liens which have previously been disclosed to and approved by the Bank. d. Articles and By-Laws; Evidence of Existence and Good ---------------------------------------------------- Standing of the Borrowers. Certified copies of the Borrowers' Articles - ------------------------- and By-Laws, Certificate of Existence of the Borrowers issued by the Secretary of State of Kentucky and certificates of authority from each state in which qualification of the Borrowers is necessary or appropriate. e. Evidence of all Corporate Action by the Borrowers. ------------------------------------------------- Certified (as of the date of this Agreement) copies of all corporate action taken by the Borrowers, including resolutions of the Borrowers' Board of Directors, authorizing the execution, delivery, and performance of the Loan Documents. A certificate (dated as of the date of the closing) of the Secretary of each of the Borrowers certifying the names and true signatures of the officers of each of the Borrowers authorized to sign the Loan Documents to which it is a party and the other documents to be delivered by the Borrowers under this Agreement. f. Delivery of Intercreditor and Escrow Agreement. ---------------------------------------------- Executed copy of the Intercreditor and Escrow Agreement dated January 20, 1998. g. Other Documents. Such other approvals, opinions, or --------------- documents as the Bank may reasonably request. Section 3.02 Authorized Representative The Borrowers do hereby authorize and empower John Robert Owens and D. Richard Meyer or either of them acting alone, or such other individuals who are designated in writing by the Borrowers, to request Advances, direct or authorize the Bank as to such account(s) or such parties into which or to whom Advances are to be made (including the accounts of or to such authorized representatives), sign such instruments or documents as may be required from or on behalf of the Borrowers in connection with any such Advances, and any Advances made by the Bank to, at the request of, or at the direction of either such authorized representative(s) shall be deemed to have been received by the Borrowers and used for the benefit of the Borrowers, evidenced by the Notes, and entitled to the benefit and security of the Loan Documents, irrespective of the ultimate use of such funds. Such designation shall remain in full force and effect and the Bank may rely thereon until written notice of any change in the individuals designated has been provided to Bank accompanied by resolutions of the Borrowers effecting any such change and a current incumbency certificate. ARTICLE IV ---------- REPRESENTATIONS AND WARRANTIES ------------------------------ Each Borrower and Guarantor (where applicable) represent and warrant to the Bank as of the date hereof, which representations and warranties shall be deemed remade by each Borrower and Guarantor (where applicable) as of the date of this Closing and thereafter, that: - 6 - Section 4.01 Incorporation, Good Standing and Due Qualification of the Borrowers Each Borrower is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Kentucky; has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged; and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required by law or under this Agreement. Section 4.02 Corporate Power and Authority of the Borrowers The execution, delivery, and performance by the Borrowers of the Loan Documents have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Borrowers; (ii) contravene any provision of any of the Borrowers' Articles or By-Laws; (iii) violate any provision of any law, regulation, writ, judgment, injunction, decree or determination presently in effect having applicability to any of the Borrowers, other than the Liens to be granted in favor of Bank; (iv) result in a breach of or constitute a default under (whether with the giving of notice, passage of time, or both) any indenture or loan or credit agreement or any other agreement, lease, or instrument to which any Borrower is a party or by which it or its properties may be bound or affected; (v) result in, or require, the creation or imposition of any Lien, upon or with respect to any of the properties now owned or hereafter acquired by any Borrower; or (vi) cause any Borrower to be in default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award or any such indenture, agreement, lease, or instrument. Section 4.3 Legally Enforceable Agreement This Agreement is, and each of the other Loan Documents executed and/or delivered in connection with this Agreement are, legal, valid and binding obligations of each Borrower and Guarantor, as applicable, enforceable in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally. Section 4.04 Other Agreements None of the Borrowers are a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction or partnership restriction, which could have a material adverse effect on the business, properties, assets, operations or conditions, financial or otherwise, of any Borrower or the ability of any Borrower to carry out its respective obligations under the Loan Documents to which it is a party. None of the Borrowers are in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party. Section 4.05 Litigation There is no pending or threatened action or proceeding against or affecting any of the Borrowers or the Guarantors before any court, governmental agency or arbitrator, which may, in any one case or in the aggregate, materially and adversely affect the respective financial condition, operation, properties, or business of any of the Borrowers or the Guarantors or the ability of any of the Borrowers or the Guarantors to perform their respective obligations under the Loan Documents to which they are a party. - 7 - Section 4.06 No Liens Upon Collateral There are no liens on any of the Collateral (other than which shall be released at Closing or have been previously disclosed to the Bank) nor have either of the Borrowers previously assigned any of their rights to any of the Collateral. Section 4.07 Operation of Business Except as may have been disclosed in writing to and approved by the Bank, all of the Borrowers have made application for or otherwise possesses all licenses, permits, franchises, patents, copyrights, trademarks and trade names, or rights thereto, to conduct their businesses substantially as now conducted and as presently proposed to be conducted, and none of the Borrowers are in violation of any of the foregoing or any valid rights of others with respect to any of the foregoing. Section 4.08 Taxes and Reports All of the Borrowers have 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, and has paid, and will pay in the future, all real estate and personal property taxes, license fees and/or assessments due with respect to their assets. Section 4.09 Accuracy of Information All factual information heretofore or contemporaneously furnished by each Borrower and Guarantor in writing to the Bank for purposes of, or in connection with, this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by them to the Bank will be, true and accurate in every material respect on the date as of which such information is certified and as of the date of execution and delivery of this Agreement by the Bank, and such information is not, or shall not be, as the case may be, incomplete or omit to state any material fact necessary to make such information not misleading. Section 4.10 No Adverse Change No material adverse change has occurred in any of the Borrowers' businesses, or any of the Borrowers' or Guarantors' financial condition since the date of the most current financial statements provided by each Borrower and Guarantor to the Bank. Section 4.11 Registered Agent The registered agent for EUGI and EIMI is Richard E. Vimont, who is located at 155 E. Main Street, Suite 300, Lexington, Kentucky 40507. The registered agent for 21st Century is Robert M. Beck, Jr., who is located at 2300 Lexington Financial Center, Lexington, Kentucky 40507. Each Borrower shall give written notice within thirty (30) days of any change in the name or location of its registered agent. ARTICLE V --------- AFFIRMATIVE COVENANTS --------------------- So long as any portion of the Notes shall remain unpaid or the Bank shall have any obligation under this Agreement, the Borrowers and the Guarantors (where applicable) each covenant as follows: - 8 - Section 5.01 Maintenance of Existence Each Borrower will preserve and maintain its corporate existence and good standing in the jurisdiction of its incorporation, shall qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required, and shall not enter into any merger, consolidation or other arrangement whereby either Borrower, or a controlling interest in either Borrower, shall be acquired by any other Person unless, as a part thereof, the Loan is to be paid in full and this Agreement and the Loans shall be terminated. Section 5.02 Maintenance of Records Each Borrower will keep adequate, consolidated records and books of account in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions. Section 5.03 Maintenance of Properties Each Borrower will maintain, keep, and preserve all of its properties necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear and insured casualty damage or taking through the power of eminent domain excepted. Section 5.04 Conduct of Business Each Borrower will continue to engage in an efficient and economical manner in a business of substantially the same general type as conducted by each of them on the date of this Agreement. Section 5.05 Maintenance of Insurance Each Borrower will maintain insurance with financially sound and reputable insurance companies or associations, reasonably acceptable to the Bank, in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated. Specifically, each Borrower will maintain, with respect to each of their respective properties: a. Casualty. Insurance against loss or damage to all the -------- improvements to the Premises by fire and any of the risks covered by insurance of the type now known as "fire and extended coverage". b. Liability. Comprehensive public liability insurance --------- on an "occurrence basis" against claims for "personal injury," including, without limitation, bodily injury, death or property damage occurring on the Borrowers' properties; such insurance to afford immediate minimum protection to a limit of not less than that reasonably required by the Bank with respect to personal injury or death to any one or more persons or damages to property. All policies of insurance shall be issued by companies and in amounts in each company reasonably satisfactory to the Bank. Each Borrower shall furnish the Bank with an original certificate of insurance and a copy of all policies of required insurance. Prior to the expiration of each such policy, each Borrower shall furnish the Bank with evidence satisfactory to Bank of the payment of premium and the reissuance of a policy continuing insurance in force as required by this Agreement. The Borrowers shall give the Bank notice of any cancellations or material amendments or alterations of said policies. - 9 - Section 5.06 Compliance with Laws Each Borrower 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, state, county, municipal and other governments, departments, commissions, boards, courts, authorities, officials and officers. Section 5.07 Right of Inspection & Audit by Bank At any reasonable time and from time to time, each Borrower will permit the Bank or any agent or representative thereof to examine and make copies of and abstracts from the Borrower's records and books of account, and visit their properties and to discuss its affairs, finances, and accounts with any of their respective officers and their independent accountants. Without limiting the foregoing rights of the Bank, each Borrower agrees that without any prior notice to the Borrowers and not more frequently than two (2) times per calendar year, the Bank and its agents and employees may conduct an audit of each Borrower's records and books to determine each Borrower's compliance with this Agreement and the other Loan Documents. Section 5.08 Reporting Requirements The Borrowers shall furnish to Bank: a. Quarterly Reporting. As soon as available and in any ------------------- event within thirty (30) days after the end of each quarter, balance sheets as of the end of each quarter, statements of income and retained earnings as of the end of such quarter, and properly completed calculations necessary to test compliance with all of the financial covenants set forth herein, in form and content reasonably acceptable to the Bank, and all in reasonable detail, and all such financial statements shall be prepared in accordance with GAAP consistently applied and certified as correct by the Borrowers' chief financial officer. Provided, however, the Borrowers shall not be obligated to deliver the Borrowers' internally prepared balance sheet and income statement for the last quarter of Borrowers' fiscal year. b. Annual Financial Statements. As soon as available and --------------------------- in any event within one hundred twenty (120) days after the end of their fiscal year so long as any Obligations remain unpaid, a complete, unqualified, annual audit report of EIMI and 21st Century. The audited report shall consist of balance sheet, statement of profit and loss, application of funds, change in financial position and the like, prepared and certified by a firm of independent public accountants of recognized standing acceptable to the Bank. EUGI shall also provide an internally prepared annual financial statement which shall be on a consolidated basis. All of the foregoing shall be in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year and all such financial statements shall be prepared in accordance with GAAP consistently applied and certified as correct by each of the Borrowers' chief financial officer. c. Notice of Litigation. Promptly after the commencement -------------------- 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 or Guarantors which, if determined adversely, could have a material, adverse effect on any of their financial conditions, properties, or operations. - 10 - d. Notice of Defaults and Events of Default. As soon as ---------------------------------------- possible and in any event within ten (10) days after the occurrence of each Event of Default, a written notice setting forth the details of such Event of Default and the action which is proposed to be taken with respect thereto. e. Tax Returns. Copies of each of the Borrowers' ----------- federal and state income tax returns, and any amendments and extensions no later than the earlier of the date filed or one hundred twenty (120) days after the end of their fiscal year for so long as any portion of the Loans remains unpaid or the Bank has any obligations hereunder. In the event any Borrower files for an extension with the Internal Revenue Service, such Borrower shall provide to the Bank copies of the federal income tax return prior to the expiration of such extension period. f. Guarantors' Financial Statements and Tax Returns. On ------------------------------------------------ or before April 30 of each year, or no later than October 30 if an extension is filed, copies of each Guarantor's federal and state income tax returns, amendments and schedules, and a financial statement of assets, liabilities and net worth for each Guarantor by January 31, of each year, in form and content reasonably acceptable to the Bank, and all in reasonable detail. g. Fiscal Year Projections. EIMI shall provide the Bank ----------------------- with its fiscal year projections by January 31, of each year for so long as any portion of the Loans remains unpaid. h. Compliance Certificates. EIMI shall provide the Bank ----------------------- with a Compliance Certificate in the same form as attached hereto as Exhibit "A" within thirty (30) days after the end of the first three calendar quarters of each year which are internally prepared and then provide a Covenant Compliance Certificate within thirty (30) days after the end of the fiscal year based on the audited consolidated financial statement. i. General Information. Such other information ------------------- respecting the condition or operations, financial or otherwise, of any of the Borrowers or Guarantors, as the Bank may from time to time reasonably request. Section 5.09 Financial Covenants to Be Maintained by EIMI a. Net Worth. EIMI shall maintain a net worth, as --------- defined by GAAP, of not less than $300,000.00 based on the 1997 year end audited financial reports, which shall increase annually by the greater of fifty percent (50%) of net income or $200,000.00 over the previous year end audit reports. b. Interest Coverage Ratio. EIMI shall not permit the ----------------------- ratio of (i) its calendar quarterly earnings before interest expenses and taxes to (ii) calendar quarterly interest expenses to be less than 3.00 to 1.00, which shall be reported on a calendar quarterly basis. c. Debt Service Coverage Ratio. EIMI shall not permit --------------------------- the debt service ratio to be less than 1.5 to 1.0, which shall be reported on a calendar quarter basis. Section 5.10 Employment Considerations, Assignment of Life Insurance, Etc. The EIMI and EUGI shall maintain John Robert Owens as the President and CEO of each of the Borrowers and he shall also remain the majority shareholder of each of them. The Borrowers agree that the total compensation for John Robert Owens for any one (1) year shall be no greater than $300,000.00. Further, the Borrowers shall provide key man life insurance on the life of John Robert Owens of which $500,000.00 of said insurance shall be assigned to the Bank as collateral. The Borrowers shall have four - 11 - (4) weeks from the date of Closing in which to complete the assignment of the key man life insurance policy to the Bank. Section 5.11 Further Assurances The Borrowers and the Guarantors shall, upon request by the Bank, promptly cure any defects in the creation, issuance and delivery of the Notes and the execution and delivery of the other Loan Documents, including this Agreement. The Borrowers and the Guarantors, at their expense, promptly will execute and deliver to the Bank, upon request, all such other and further documents, agreements and instruments reasonably required to ensure compliance with or the accomplishment of the covenants and agreements of the Borrowers and the Guarantors in the Loan Documents, including this Agreement, or to evidence further and to describe more fully any Collateral or other property intended as security for the Loan or to correct any omissions in the Loan Documents, or to state more fully the obligations set out in this Agreement or in any of the other Loan Documents, or to perfect, protect or preserve any Liens created pursuant to any of the Loan Documents, or to make any recordings, to file any notices or to obtain any consents, all as may be necessary or determined by the Bank in good faith to be reasonably appropriate in connection therewith. Section 5.12 Taxes and Other Payment Obligations. The Borrowers shall pay and discharge, or cause to be paid and discharged, before any of them becomes in arrears: a. all taxes, assessments, governmental charges, levies, and claims for labor, materials or supplies which if unpaid might become a lien or charge upon any of Borrowers' property; and b. all of the Borrowers' other debts, obligations and liabilities as and when same become due. Provided, however, the Borrowers may refrain from paying any amount they would be required to pay pursuant to this section only if the validity or amount thereof is being contested in good faith by appropriate proceedings timely instituted which shall operate to prevent the collection or enforcement of the obligation contested, and provided that the Borrowers shall have set aside on their books appropriate reserves with respect thereto. ARTICLE VI ---------- NEGATIVE COVENANTS ------------------ So long as any portion of the Notes shall remain unpaid or the Bank shall have any obligation under this Agreement, the Borrowers and the Guarantors (where applicable) shall comply with the following negative covenants: Section 6.01 Liens on or Assignments of Collateral The Borrowers will not create, incur, assume or suffer to exist any Lien upon or with respect to any of the Collateral now owned or hereafter acquired, except: a. Liens in favor of the Bank; - 12 - b. 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 and for which appropriate reserves are maintained; c. 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 and for which appropriate reserves have been established; d. Liens under worker's compensation, unemployment insurance, social security, or similar legislation for sums which are not past due; e. 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; or f. Liens in favor of third parties which do not exceed $75,000.00 in the aggregate. Section 6.02 Mergers, Etc. The Borrowers will not merge, engage in a share exchange, or consolidate with any other entity, or sell, assign, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of their assets at any time hereafter owned by the Borrowers to any Person, or acquire all or substantially all of the assets or the business of any Person, without the prior written consent of the Bank which shall not be unreasonably withheld. Section 6.03 Advances or Loans to Insiders The Borrowers will not either lend funds or make other advances to shareholders or related entities, which in the aggregate would exceed $250,000.00, without the prior written consent of the Bank. Section 6.04 Additional Debt The Borrowers will not borrow from third party lenders nor shall they guarantee any additional indebtedness which in the aggregate exceeds $150,000.00, without the prior written consent of the Bank. ARTICLE VII ----------- EVENTS OF DEFAULT AND REMEDIES OF BANK -------------------------------------- Section 7.01 Events of Default Each of the following shall be an Event of Default under this Agreement: a. Payment Default. The Borrowers fail to pay any --------------- installment of principal or interest on the Notes when due without notice from the Bank. b. Other Defaults with Bank. The occurrence of a default ------------------------ under any other obligation or agreement of the Borrowers or the Guarantors to or with the Bank, whether now or hereafter arising and such default shall continue for a period of thirty (30) days after notice to the Borrowers or Guarantors from the Bank describing the nature of the default. - 13 - c. Breach of Warranty, Etc. Any representation or ------------------------ warranty made or deemed made by any of the Borrowers or the Guarantors in this Agreement, the Loan Documents, or in any other certificate, document, opinion, or financial or other statement furnished at any time under or in connection with any Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made. d. Breach of Covenant. Any of the Borrowers or the ------------------ Guarantors fail to perform or observe any term, covenant or agreement on their part to be performed or observed contained in any Loan Document (other than a failure to pay any sum to the Bank when due) to which any of them is a party and such failure shall continue for a period of thirty (30) days after notice to either Borrowers or the Guarantors from the Bank describing the nature of the failure. e. Bankruptcy/Insolvency. Any of the Borrowers or the --------------------- Guarantors (i) are unable to, or admit in writing their inability to, pay their debts as such debts become due; or (ii) make an assignment for the benefit of creditors, petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for them or a substantial part of their assets; or (iii) commence any proceeding under any bankruptcy; or (iv) have any such petition or application filed or any such proceeding commenced against them 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; or (v) by any act or omission indicate their 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 their properties; or (vi) suffer any such custodianship, receivership, or trusteeship to continue undischarged for a period of sixty (60) days or more. f. Defaults with Other Parties. The occurrence of a --------------------------- default under any other obligation or agreement of the Borrowers with other third parties, including without limitation, agreements with William W. Davis, Jr., individually and as Trustee for Hannah D. Emig, which default would have a material adverse effect upon the financial condition of the Borrowers in the opinion of the Bank. g. Termination of the Borrowers. Any of the Borrowers ---------------------------- (or any Person affiliated with any of them) take any action that is intended to result in the termination, dissolution or liquidation of either of the Borrowers. Section 7.02 Remedies of Bank in the Event of Default a. Acceleration, etc. Upon the occurrence of any Event ------------------ of Default set forth in section 7.01 hereof, the Bank may, by notice to the Borrowers: (i) declare its obligation to make Advances under this Agreement and the Notes terminated, whereupon the same shall forthwith terminate; (ii) declare the outstanding principal balance owing under the Notes, all interest thereon, and all other amounts payable under this Agreement or any Loan Document, or otherwise to be forthwith due and payable, whereupon the Notes, all such interest, and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Borrowers, without any action on the part of the Bank; (iii) avail itself of any and all remedies available to it in any of the Loan Documents, including, without limitation, appointment of receivers for the Collateral; and (iv) avail itself of any and all other or additional remedies available by law or in equity. b. File Action. Upon the occurrence of any Event of ----------- Default, the 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 - 14 - 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. c. Use of Collateral. Upon the occurrence of any Event ----------------- of Default, the Borrowers' rights 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 the Bank shall thereafter be entitled to take possession of, receive, sell, and collect same. d. Waiver of Marshaling of Assets. The Borrowers waive ------------------------------ any requirement of marshaling of assets and all other legal or equitable doctrines which might otherwise require the Bank to proceed against any Persons or any Collateral or any other property or with respect to any other rights in any particular order. e. Sale of Collateral. Upon the occurrence of any Event ------------------ of Default, the Bank shall have the right to sell the Collateral at public or private sale, and shall have the right to bid upon and purchase the Collateral at any sale. The Bank shall have the right to deliver the Collateral to the buyer at any public or private sale. This includes the right to sell all of the common stock held by the Escrow Agent which is owned by Davis, Emig, Owens or Meyer provided that Davis, both individually and as Trustee for Emig, and the Bank agree to mutually acceptable terms for the sale of stock. In such event the Bank and Davis may direct the Escrow Agent to release said stock to either Davis or the Bank for the sole purpose of selling same. f. No Waiver. Upon the occurrence of any Event of --------- Default, the 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, at the Bank's sole discretion. The failure of the Bank to exercise and enforce any rights or remedies shall not prevent the Bank from thereafter exercising or enforcing any such rights or remedies, nor shall such failure release any Person or property with respect to which the Bank has any rights or remedies, or in any way limit or diminish Bank's rights with respect to any such property or Person. g. Cumulative Rights. All of the Bank's rights and ----------------- remedies shall be cumulative to the greatest extent permitted by law, may be exercised successively or concurrently, from time to time, and shall be in addition to all of those rights and remedies afforded the Bank at law, or 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. h. Recovery. The Bank shall be entitled to recover from -------- the cumulative exercise of all remedies the sum of: (i) the outstanding principal amount of the Loan; (ii) all accrued but unpaid interest with respect to the principal amount of the Loan; (iii) any other amounts that either the Borrowers or Guarantors are required by this Agreement or the Loan Documents to pay to the Bank (for example, and without limitation, the reimbursement of reasonable expenses and legal fees, and late charges); and (iv) any costs, expenses or damages which the Bank is otherwise permitted to recover by the terms of this Agreement, the other Loan Documents, or at law or equity. - 15 - i. Application of Payments. All payments from the ----------------------- Borrowers to the Bank under the Note or any of the other Loan Documents, and payments to the Bank from the sale or other disposition of Collateral, shall all be applied by the Bank as follows: (i) to the payment of the costs and expenses of the Bank and the reasonable fees and expenses of its counsel in connection with the administration or enforcement of the Bank's rights and remedies against any of the Borrowers or the Guarantors, and the Collateral and sale or collection thereof; (ii) to the payment in full of all indebtedness referred to hereunder and under the Loan Documents, applying such amounts first to accrued interest and then to principal; and (iii) the balance, if any, to the Borrowers or to any third party entitled thereto. j. Appointment of the Bank as Attorney-In-Fact. The ------------------------------------------- Borrowers hereby appoint the Bank as the Borrowers' attorney-in-fact upon the occurrence of any Event of Default for the purpose of dealing with the Collateral, including the collection and disposition of same. The powers vested in said attorney are, and shall be deemed to be, coupled with an interest and cannot be revoked. ARTICLE VIII ------------ MISCELLANEOUS ------------- Section 8.01 Amendments, Etc. No amendment, modification, termination, or waiver of any provision of any Loan Document, nor consent to any departure by any of the Borrowers or the Guarantors from any Loan Document to which any of them is a party, shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 8.02 Notices, Etc. All notices required or provided for in this Agreement or under any of the other Loan Documents shall be made in writing and delivered either (i) personally, (ii) via certified mail with return receipt requested, (iii) by Federal Express or other nationally recognized, overnight courier service, or (iv) by facsimile, with the original by United States, first class, postage prepaid mail, to the party to whom directed at the addresses and facsimile numbers set forth below, or to such other addresses and numbers as may be designated by any party by the giving of notice of a change in its address or facsimile number as provided for herein. All notices given as provided for herein, other than by way of certified mail, shall be deemed effective upon personal delivery, the next business day after delivery to the overnight courier service or upon being faxed, as applicable. Notice given by way of certified mail shall be deemed effective upon receipt or refusal of receipt thereof. The addresses and facsimile numbers for notice to the parties hereto are as follows: If to the Borrowers: 3201 Nicholasville Road Lexington, KY 40512-4032 Facsimile: (606) 245-2550 If to John Robert Owens: 1905 Lakes Edge Drive Lexington, KY 40502 - 16 - If to D. Richard Meyer: 912 Witthuhn Way Lexington, KY 40503 with a copy to the Borrowers' and Guarantors' counsel: Robert M. Beck, Jr., Esq. Stites & Harbison 2300 Lexington Financial Center Lexington, KY 40507 Facsimile: (606) 253-9144 Richard E. Vimont, Esq. Vimont & Wills, PLLC 155 East Main Street, Suite 300 Lexington, KY 40507-1317 Facsimile: (606) 259-2927 If to the Bank: Robert Heiple Bank One, Kentucky, NA 201 East Main Street Lexington, KY 40507-2002 Facsimile: (606) 231-2732 with a copy to the Bank's counsel at: Harvie B. Wilkinson Stoll, Keenon & Park, LLP 201 East Main Street, Suite 1000 Lexington, KY 40507-1380 Facsimile: (606) 253-1093 Section 8.03 No Waiver; Remedies No failure on the part of the Bank to exercise, and no delay in exercising, any right, power, or remedy under any Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right under any Loan Documents preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law or in equity. Section 8.04 Successor and Assigns This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that neither the Borrowers nor the Guarantors may assign or transfer any of their rights under any Loan Document to which they are a party without the prior written consent of the Bank. Section 8.05 Costs, Expenses and Taxes The Borrowers agree to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery, filing, recording and administration of any and all of the Loan Documents, including, without limitation, the reasonable fees and out- of-pocket expenses of counsel for the Bank, and all costs and expenses, if any, in connection with the enforcement of any of the Loan Documents. In addition, the Borrowers shall pay any and all fees payable or determined to be payable in - 17 - connection with the execution, delivery, filing, and recording of any of the Loan Documents and the other documents to be delivered under any such Loan Documents. The Borrowers shall further pay all of the foregoing reasonable costs, including reasonable attorney fees, associated with modification of the Loan Documents, and preparation and recording of additional Loan Documents. Section 8.06 Right of Set Off Upon the occurrence and during the continuance of any Event of Default, the Bank is hereby authorized at any time and from time to time, without notice to the Borrowers (any such notice being expressly waived), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Borrowers against any and all of the obligations of the Borrowers, now or hereafter existing under this Agreement or the Notes or any other Loan Document, irrespective of whether or not the Bank shall have made any demand under this Agreement or the Notes or such other Loan Document and although such obligations may be unmatured. The Bank agrees promptly to notify the Borrowers 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 the Bank under this Section 8.06 are in addition to other rights and remedies (including, without limitation, other rights of set off) which the Bank may have. Section 8.07 Waiver of Jury Trial THE BANK, THE BORROWERS AND THE GUARANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE BANK, THE BORROWERS OR THE GUARANTORS. THE BORROWERS AND THE GUARANTORS ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. Section 8.08 Governing Law; Entire Agreement; Interpretation and Counterparts The substantive laws of the Commonwealth of Kentucky (without regard to provisions governing conflicts of laws) shall govern the construction of this Agreement, the Notes and each other Loan Document and the rights and remedies of the parties thereto, except to the extent that the laws of any applicable state shall govern the creation or perfection of the lien or security interest in Collateral located in such applicable state, the enforcement of the Bank's rights to such property and/or the realization of Bank's rights in such property as security for the Loan Obligations. Except as otherwise provided herein, this Agreement, the Notes and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. This Agreement may be executed in one or more counterparts, each of which shall be a duplicate original, but all of which shall constitute the same agreement. In the event of any conflict between any other Loan Document and the terms of this Agreement, the terms of this Agreement shall be deemed to govern any such conflict. To the extent any other Loan Document is not directly in conflict with the provisions hereof or can be reasonably construed in such a way as to be consistent with the terms of this Agreement, the terms of such other instrument or document shall govern. - 18 - Section 8.09 Severability of Provisions Any provision of any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. Section 8.10 Headings Article and Section headings in the Loan Documents are included in such Loan Documents for the convenience of reference only and shall not constitute a part of the applicable Loan Documents for any other purpose. Section 8.11 Jurisdiction and Venue The parties agree that the sole proper venue for the determination of any litigation commenced by either the Borrowers or the Guarantors against the 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 the Borrowers and the Guarantors expressly waive any right to a determination of any such litigation against the Bank by a court in any other venue. The Borrowers and the Guarantors further agree that service of process by any judicial officer or by registered or certified U.S. mail, as specified in Section 8.02 on Notices, shall establish personal jurisdiction over the Borrowers and the Guarantors, and the Borrowers and the Guarantors waive any rights under the laws of any state to object to jurisdiction within the Commonwealth of Kentucky. The Borrowers and the Guarantors acknowledge that this Agreement was negotiated, executed and delivered in the Commonwealth of Kentucky and shall be governed and construed in accordance with the laws thereof. Provided, however, nothing contained in this Section 8.11 shall prevent the Bank from bringing any action or exercising any rights against any security or against the Borrowers or the Guarantors personally, and any of their property, within any other state. Initiating such proceedings or taking such action in any other 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 and Guarantor 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 the laws of the Commonwealth of Kentucky or by any other state in an action brought by Bank in such state. Section 8.12 No Third Party Beneficiaries All conditions on the obligations of any party hereunder, including the obligation of the Bank to make Advances, are imposed solely and exclusively for the benefit of the other parties thereto and the Bank's successors and assigns and any permitted assigns of the Borrowers. No other Person, including any shareholder, officer or director of either Borrower, shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that the 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. - 19 - Section 8.13 No Agency The Bank is not the agent or representative of any of the Borrowers or the Guarantors, and neither the Borrowers nor the Guarantors are the agents or representatives of the Bank, and nothing in this Agreement shall be construed to make the Bank liable to anyone for goods delivered to or services performed with respect to the Collateral or for debts or claims accruing against either the Borrowers or the Guarantors. Nothing herein, nor the acts of the parties hereto, shall be construed to create a partnership or joint venture between the Bank and the Borrowers or Guarantors or any other relationship except as creditor, debtor, and guarantor. Section 8.14 Bank's Performance of the Borrowers' Covenants and Duties Should any of the 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, the Bank may, at its election and at the Borrowers' expense, perform or attempt to perform such covenant, duty or agreement on behalf of the Borrowers, but in no event shall the Bank have any obligation to do so. The Borrowers shall, at the request of the Bank, promptly pay, upon demand, any reasonable amount expended by the Bank in such performance or attempted performance to the Bank at the Lexington Office, together with interest thereon at the default rate under the Notes from the date such amount was requested by the Bank to be paid until paid; provided that the Bank does not assume and shall never have, except by a subsequent, express written undertaking of the Bank, any liability for the performance of any duties of the Borrower under or in connection with all or any part of the Collateral. The 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 the Bank may make an advance or that the Bank may pay. Section 8.15 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 the Bank shall operate as a waiver thereof, nor shall any right, power, remedy or privilege of the 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. Each such right, power, remedy or privilege may be exercised by the Bank, either independently or concurrently with others, and as often and in such order as the Bank may deem expedient. No waiver or consent granted by the Bank with respect to this Agreement, the indebtedness or any Loan Document or related writing shall be binding upon the Bank, unless specifically granted in writing by a duly authorized officer of the Bank, which writing shall be strictly construed. Section 8.16 Absence of Oral Representations The Borrowers and the Guarantors each represent and warrant that no promises, assurances or commitments have been made to them by the Bank or have been relied on by them regarding any extension, renewal or future financing, they understand and agree that the Bank is entitled to enforce this Agreement, the Notes and all other 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. The Borrowers and the Guarantors further acknowledge that (i) the Bank does not presently anticipate renewing, extending or further modifying the financing referenced in this Agreement, and (ii) the Bank anticipates the Notes will be fully paid in accordance with their terms on or before maturity. The Borrowers and the Guarantors each agree and represent to the Bank (which representation the Borrowers and the Guarantors acknowledge the Bank is relying on in executing this Agreement) that they will not rely on any (i) commitment or future financing, including, but not limited to, renewals, - 20 - extensions and modifications, unless signed in writing by the 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 effecting such waiver. Section 8.17 Indemnity The Borrowers and the Guarantors shall indemnify the Bank from and hold the Bank harmless against any loss suffered or liability incurred by the 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 the Borrowers' business, or otherwise arising out of or connected to the conduct of the Borrowers or the Guarantors, their officers, directors, employees or agents, in connection with any matters which are the subject of this Agreement. Section 8.18 Arbitration The Borrowers, the Guarantors 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 the Notes, any 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 in the city nearest the Borrower's address having an AAA regional office, or at any other place 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 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 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 either party. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this arbitration provision shall preclude either party from seeking equitable relief from a court of competent jurisdiction. The status of limitations, estoppel, waiver, laches and similar doctrines which would otherwise be applicable in an 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 any 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. - 21 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. EQUITY INSURANCE MANAGERS, INC. BY: /s/ John R. Owens ---------------------------------------- TITLE: President ------------------------------------- EQUITY UNDERWRITING GROUP, INC. BY: /s/ John R. Owens ---------------------------------------- TITLE: President ------------------------------------- 21ST CENTURY CLAIM SERVICE, INC. BY: /s/ John R. Owens ---------------------------------------- TITLE: Secretary/Treasurer ------------------------------------- /s/ John R. Owens ------------------------------------------- JOHN ROBERT OWENS /s/ D. Richard Meyer ------------------------------------------- D. RICHARD MEYER BANK ONE, KENTUCKY, NA BY: /s/ R. J. Heiple ---------------------------------------- TITLE: Executive Vice President ------------------------------------- - 22 - EX-10.27 13 GUARANTY OF PAYMENT AND PERFORMANCE EXHIBIT 10.27 GUARANTY OF PAYMENT AND PERFORMANCE ----------------------------------- ("Guaranty") Dated as of December 30, 1997 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 make the loan evidenced by that certain Amended and Restated Revolving Credit Note dated December 30, 1997, in the face principal amount of Two Hundred Thousand Dollars ($200,000.00) (the "Note") and made by 21ST CENTURY CLAIM SERVICE, INC. ("Borrower"), the undersigned, EQUITY INSURANCE MANAGERS, INC. (the "Guarantor") does hereby personally guarantee unconditionally to the holder of 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 their respective 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. The 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 the Borrower or of the Guarantor shall affect the obligations hereunder of the 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 asset or agreement by Guarantor. 3. The 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) All other notices to which Guarantor may otherwise be entitled; (e) Demand for payment under this Guaranty; (f) Notice of disposition of any security for the Note; (g) All rights of indemnity, exoneration, reimbursement, contribution and/or subrogation of Guarantor against Borrower; and (h) All suretyship and guarantor's defenses generally. 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 holder for the payment of the Note. The 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 the 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 the 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 the 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 the 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 will pay, to the extent allowable by law to Bank such further amount as shall be sufficient to reimburse fully Bank for all of its costs and expenses of enforcing its rights and remedies under the Note, including, without limitation, Bank's reasonable attorney's 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 KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS HE MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY, THE LOAN AGREEMENT OR ANY OTHER DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF BANK, BORROWER OR ANY GUARANTOR. GUARANTOR ACKNOWLEDGES AND AGREES THAT HE HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK. 10. The 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 - 2 - 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 the Guarantor shall be the sum of Two Hundred Thousand Dollars ($200,000.00), 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 January 30, 1999. Provided, however, the undersigned acknowledges and agrees that such termination shall not affect his 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. 15. The Guarantor has, to his 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 he has relied exclusively on his own independent investigation of Borrower for his decision to guarantee the Note. Guarantor agrees that he 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. I. 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. II. The provisions of this Guaranty shall be binding upon the Guarantor and his respective heirs, successors, legal representatives and assigns and shall inure to the benefit of the holder of the Note, and its successors, endorsees and assigns. - 3 - IN WITNESS WHEREOF, the Guarantor has executed this Guaranty to be effective as of the date and year first above written. /s/ John R. Owens, President --------------------------------------- EQUITY INSURANCE MANAGERS, INC. STATE OF KENTUCKY COUNTY OF FAYETTE Subscribed, acknowledged and sworn to before me this 30th day of December, 1997, by John Robert Owens, as President of Equity Insurance Managers, Inc., as Guarantor. My Commission Expires: July 11, 2000 -------------------- /s/ Judith W. Lis --------------------------------------- NOTARY PUBLIC, STATE AT LARGE - 4 - EX-10.28 14 SECURITY AGREEMENT EXHIBIT 10.28 SECURITY AGREEMENT ------------------ THIS SECURITY AGREEMENT is made and entered into effective as of the 20th day of January, 1998, by EQUITY UNDERWRITING GROUP, INC., a Kentucky corporation, with address of 3201 Nicholasville Road, Lexington, Kentucky 40503 (hereinafter referred to as "Debtor"); and BANK ONE, KENTUCKY, NA, a national banking association, 416 West Jefferson Street, Louisville, Kentucky 40202 (hereinafter referred to as "Secured Party"). IT IS AGREED BY THE PARTIES AS FOLLOWS: I. For value received, Debtor does hereby grant unto Secured Party a security interest in and to all the collateral described in numerical Paragraph two (2) hereof to secure all the indebtedness referred to in numerical Paragraph three (3) hereof. II. The collateral covered by this Security Agreement is (a) all of Debtor's property described in Schedule 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"). III. This Security Agreement is made as collateral security for: A. The payment of all sums due to Secured Party from Debtor and the other maker under the terms of that certain $1,250,000.00 Term Note dated as of January 20, 1998 (the "Note"); and B. All other liabilities and obligations of whatever kind or type of Debtor to Secured Party, including any 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 "Indebtedness"). IV. Debtor represents and warrants to Secured Party that: A. All of the Collateral is used or will be used for business. B. 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. C. Except as previously disclosed in writing, the Collateral is free and clear of all liens, encumbrances and adverse claims whatsoever; D. Debtor has the right to enter into this Security Agreement. V. Debtor covenants and agrees that: A. Debtor shall defend the Collateral against the claims and demands of all persons. B. Debtor shall not: 1. permit any loan or security interest (other than Secured Party's security interest granted herein and those liens previously disclosed in writing) to attach to any of the Collateral; 2. permit any of the Collateral to be levied upon under any legal process; or 3. dispose of or enter or agree to enter into any sale of any of the Collateral, which is in excess of $50,000.00 per sale and $100,000.00 in the aggregate on an annual basis, whether or not inventory, without prior written consent of Secured Party. C. Debtor shall insure or have insured the tangible 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 shall, in its sole and absolute discretion, whether or not any Event of Default, as defined in this Security Agreement, has occurred, have the right to place and effect such insurance as Secured Party deems appropriate at the Debtor's 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 default rate of interest due under the Note.- D. Debtor shall keep the Collateral consisting of tangible property in good condition. 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. 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. If such approval is given, Debtor agrees 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. 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 Statements, and, if paid by the Secured Party, Debtors will reimburse Secured Party therefor upon demand of 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, sell the Collateral, including, but not limited to, the execution in Debtor's name as Debtor's irrevocable attorney-in-fact: 1. notifications and agreements to sell where sale is permitted, 2. any documents or papers necessary or helpful to comply with the terms of any agreements relative to any of the Collateral, and 2 3. UCC-1 (and other) Financing Statements covering the Collateral and 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 obligation to or commitment for loan(s) from Secured Party, this power of attorney shall become null and void upon Secured Party's receipt of written notification from Debtor to such effect. I. The Indebtedness shall be paid to Secured Party in accordance with the terms thereof. 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 expenses Secured Party may incur in connection with any such inspection(s) and appraisal(s). VI. Upon the occurrence of any "Event of Default," which, for the purposes of this Security Agreement means any default in, or breach of, any covenant, agreement, representation or warranty by Debtor under the provisions of any document evidencing any of the Indebtedness or other obligations of Debtor to Secured Party or of any other agreement regarding any of the Indebtedness, this Security Agreement, the Note, and any mortgage(s) or other security agreement(s) securing or otherwise relating to any of the Indebtedness, Secured Party shall have all rights and remedies in and against the Collateral and otherwise of a secured party under the Uniform Commercial Code and the other applicable law of Kentucky (and all such other states where any part of the Collateral may be located, if applicable) and all other applicable laws and all rights provided herein, in all other documents evidencing, securing or related to any of the Indebtedness, or in any other applicable security or loan agreement, all of which rights and remedies shall, to the full extent permitted by law, be cumulative. In addition, Secured Party may require Debtor, at Debtor's sole expense, to assemble the Collateral and make it available to Secured Party at the place or places to be designated by Secured Party and Debtor. Secured Party shall have the right to sell the Collateral at public or private sale. Debtor agrees to pay to Secured Party, as part of the Indebtedness, all amounts paid by Secured Party, including, but not limited to: A. Secured Party's attorney's fees, to the extent not prohibited by applicable law, in connection with the enforcement of any of Debtor's obligations hereunder or contained in the documents evidencing the Indebtedness, with interest thereon at the highest rate provided for in any of the Indebtedness; B. taxes, levies and prior liens and insurance on, repairs to, maintenance of, or transporting or otherwise caring for, the Collateral; and C. expenses incurred in taking possession of or preserving the Collateral. VII. The requirement of reasonable notice of the time and place of disposition of Collateral by Secured Party shall be conclusively deemed to have been met if such notice is mailed, postage prepaid, to Debtor's address specified above at least ten (10) days before the time of the sale or 3 disposition. Secured Party may bid upon and purchase any or all of the Collateral at any public sale thereof. Secured Party may dispose of all or any part of the Collateral at one or more times and from time to time and in one or more lots or parcels, and upon such terms and conditions, including a credit sale, as Secured Party determines in its sole discretion. Secured Party shall apply the net proceeds of any such disposition of the Collateral (after deducting therefrom all costs incurred in connection therewith, or incidental to the holding, preparing for sale, in whole or in part, of the Collateral, including Secured Party's attorney's fees and court costs) to the Indebtedness and any other obligations of Debtor to Secured Party in the order elected by Secured Party in its sole discretion, and any remaining proceeds shall be paid to the Debtor or such other party as is entitled thereto. VIII. 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 any indebtedness arising under subsequent transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new indebtedness or additional indebtedness whether or not all or any prior indebtedness has been satisfied, and notwithstanding the death, incapacity or bankruptcy of Debtor, or any other event or proceeding affecting Debtor. IX. 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 the Secured Party by virtue of any other agreement now existing or subsequently entered into by and between the parties hereto and any statute or rule of law. Secured Party may exercise its right of set off with respect to the Indebtedness in the same manner as if the Indebtedness were unsecured. Any waiver, forbearance, 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. X. DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SECURITY AGREEMENT OR ANY OTHER DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SECURED PARTY, DEBTOR AND ANY GUARANTORS. DEBTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT TO SECURED PARTY. XI. The Debtor agrees that the sole proper venue for the determination of any litigation commenced by either Debtor or Secured Party 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 Debtor expressly waives any right to a determination of any such litigation against Debtor by a court in any other venue. Debtor further agrees that service of process by any judicial officer or by registered or certified U.S. mail shall establish personal jurisdiction over Debtor, and Debtor 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 Secured Party in such state. 4 XII. The laws of the Commonwealth of Kentucky shall govern the construction of this Security Agreement and the rights, remedies and duties of the parties hereto, unless the laws of the state where the Collateral or part thereof is situated dictate that the laws of such other state shall govern with respect thereto. XIII. This Security Agreement shall bind Debtor and Debtor's heirs, successors and assigns and shall inure to the benefit of Security Party and its successors and assigns. XIV. Time shall be of the essence in the performance of each of the Debtor's obligations under this Security Agreement. XV. A judicial decree, order or judgment holding any provision herein invalid or unenforceable shall not in any way impair or preclude enforcement of the remaining provisions herein, and 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. XVI. 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, attach this Security Agreement or any other document executed pursuant hereto or in connection herewith with any person or organization which registers, sells or 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 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. EQUITY UNDERWRITING GROUP, INC. BY: /s/ John R. Owens ------------------------------------- TITLE: President ---------------------------------- BANK ONE, KENTUCKY, NA BY: /s/ R. J. Heiple ------------------------------------- TITLE: Executive Vice President ---------------------------------- 5 EX-10.29 15 SECURITY AGREEMENT EXHIBIT 10.29 SECURITY AGREEMENT ------------------ THIS SECURITY AGREEMENT is made and entered into effective as of January 20, 1998, by EQUITY INSURANCE MANAGERS, INC., a Kentucky corporation, with address of 3201 Nicholasville Road, Lexington, Kentucky 40503 (hereinafter referred to as "Debtor"); and BANK ONE, KENTUCKY, NA, a National Banking Association, 416 West Jefferson Street, Louisville, Kentucky 40202 (hereinafter referred to as "Secured Party"). IT IS AGREED BY THE PARTIES AS FOLLOWS: I. For value received, Debtor does hereby grant unto Secured Party a security interest in and to all the collateral described in numerical Paragraph two (2) hereof to secure all the indebtedness referred to in numerical Paragraph three (3) hereof. II. The collateral covered by this Security Agreement is (a) all of Debtor's property described in Schedule 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"). III. This Security Agreement is made as collateral security for: a. The payment of all sums due to Secured Party from Debtor and the other maker under the terms of that certain $400,000.00 Revolving Credit Note dated as of December 30, 1997; and b. The payment of all sums due to Secured Party from Debtor and the other maker under the terms of that certain $1,250,000.00 Term Note dated as of January 20, 1998 (the Revolving Credit Note and the Term Note are referred to collectively as the "Note"); c. All other liabilities and obligations of whatever kind or type of Debtor to Secured Party, including any guarantees of the Debtor to Secured Party, including, without limitation the Guaranty of the loan from 21st Century Claim Service, Inc. dated December 30, 1997, 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 "Indebtedness"). IV. Debtor represents and warrants to Secured Party that: A. All of the Collateral is used or will be used for business. B. 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. C. Except as previously disclosed in writing, the Collateral is free and clear of all liens, encumbrances and adverse claims whatsoever; D. Debtor has the right to enter into this Security Agreement. V. Debtor covenants and agrees that: A. Debtor shall defend the Collateral against the claims and demands of all persons. B. Debtor shall not: 1. permit any loan or security interest (other than Secured Party's security interest granted herein and those liens previously disclosed in writing) to attach to any of the Collateral; 2. permit any of the Collateral to be levied upon under any legal process; or 3. dispose of or enter or agree to enter into any sale of any of the Collateral, which is in excess of $50,000.00 per sale and $100,000.00 in the aggregate on an annual basis, whether or not inventory, without prior written consent of Secured Party. C. Debtor shall insure or have insured the tangible 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 shall, in its sole and absolute discretion, whether or not any Event of Default, as defined in this Security Agreement, has occurred, have the right to place and effect such insurance as Secured Party deems appropriate at the Debtor's 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 default rate of interest due under the Note. D. Debtor shall keep the Collateral consisting of tangible property in good condition. 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. 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. If such approval is given, Debtor agrees 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. 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 Statements, and, if paid by the Secured Party, Debtors will reimburse Secured Party therefor upon demand of Secured Party. 2 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, sell the Collateral, including, but not limited to, the execution in Debtor's name as Debtor's irrevocable attorney-in-fact: 1. notifications and agreements to sell where sale is permitted, 2. any documents or papers necessary or helpful to comply with the terms of any agreements relative to any of the Collateral, and 3. UCC-1 (and other) Financing Statements covering the Collateral and 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 obligation to or commitment for loan(s) from Secured Party, this power of attorney shall become null and void upon Secured Party's receipt of written notification from Debtor to such effect. I. The Indebtedness shall be paid to Secured Party in accordance with the terms thereof. 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 expenses Secured Party may incur in connection with any such inspection(s) and appraisal(s). VI. Upon the occurrence of any "Event of Default," which, for the purposes of this Security Agreement means any default in, or breach of, any covenant, agreement, representation or warranty by Debtor under the provisions of any document evidencing any of the Indebtedness or other obligations of Debtor to Secured Party or of any other agreement regarding any of the Indebtedness, this Security Agreement, the Note, the Loan Agreement of even date, the Guaranty dated December 30, 1997, and any mortgage(s) or other security agreement(s) securing or otherwise relating to any of the Indebtedness, Secured Party shall have all rights and remedies in and against the Collateral and otherwise of a secured party under the Uniform Commercial Code and the other applicable law of Kentucky (and all such other states where any part of the Collateral may be located, if applicable) and all other applicable laws and all rights provided herein, in all other documents evidencing, securing or related to any of the Indebtedness, or in any other applicable security or loan agreement, all of which rights and remedies shall, to the full extent permitted by law, be cumulative. In addition, Secured Party may require Debtor, at Debtor's sole expense, to assemble the Collateral and make it available to Secured Party at the place or places to be designated by Secured Party and Debtor. Secured Party shall have the right to sell the Collateral at public or private sale. Debtor agrees to pay to Secured Party, as part of the Indebtedness, all amounts paid by Secured Party, including, but not limited to: 3 A. Secured Party's attorney's fees, to the extent not prohibited by applicable law, in connection with the enforcement of any of Debtor's obligations hereunder or contained in the documents evidencing the Indebtedness, with interest thereon at the highest rate provided for in any of the Indebtedness; B. taxes, levies and prior liens and insurance on, repairs to, maintenance of, or transporting or otherwise caring for, the Collateral; and C. expenses incurred in taking possession of or preserving the Collateral. VII. The requirement of reasonable notice of the time and place of disposition of Collateral by Secured Party shall be conclusively deemed to have been met if such notice is mailed, postage prepaid, to Debtor's address specified above at least ten (10) days before the time of the sale or disposition. Secured Party may bid upon and purchase any or all of the Collateral at any public sale thereof. Secured Party may dispose of all or any part of the Collateral at one or more times and from time to time and in one or more lots or parcels, and upon such terms and conditions, including a credit sale, as Secured Party determines in its sole discretion. Secured Party shall apply the net proceeds of any such disposition of the Collateral (after deducting therefrom all costs incurred in connection therewith, or incidental to the holding, preparing for sale, in whole or in part, of the Collateral, including Secured Party's attorney's fees and court costs) to the Indebtedness and any other obligations of Debtor to Secured Party in the order elected by Secured Party in its sole discretion, and any remaining proceeds shall be paid to the Debtor or such other party as is entitled thereto. VIII. 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 any indebtedness arising under subsequent transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new indebtedness or additional indebtedness whether or not all or any prior indebtedness has been satisfied, and notwithstanding the death, incapacity or bankruptcy of Debtor, or any other event or proceeding affecting Debtor. IX. 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 the Secured Party by virtue of any other agreement now existing or subsequently entered into by and between the parties hereto and any statute or rule of law. Secured Party may exercise its right of set off with respect to the Indebtedness in the same manner as if the Indebtedness were unsecured. Any waiver, forbearance, 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. X. DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SECURITY AGREEMENT OR ANY OTHER DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SECURED PARTY, DEBTOR AND ANY GUARANTORS. DEBTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT 4 CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT TO SECURED PARTY. XI. The Debtor agrees that the sole proper venue for the determination of any litigation commenced by either Debtor or Secured Party 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 Debtor expressly waives any right to a determination of any such litigation against Debtor by a court in any other venue. Debtor further agrees that service of process by any judicial officer or by registered or certified U.S. mail shall establish personal jurisdiction over Debtor, and Debtor 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 Secured Party in such state. XII. The laws of the Commonwealth of Kentucky shall govern the construction of this Security Agreement and the rights, remedies and duties of the parties hereto, unless the laws of the state where the Collateral or part thereof is situated dictate that the laws of such other state shall govern with respect thereto. XIII. This Security Agreement shall bind Debtor and Debtor's heirs, successors and assigns and shall inure to the benefit of Security Party and its successors and assigns. XIV. Time shall be of the essence in the performance of each of the Debtor's obligations under this Security Agreement. XV. A judicial decree, order or judgment holding any provision herein invalid or unenforceable shall not in any way impair or preclude enforcement of the remaining provisions herein, and 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. XVI. 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, attach this Security Agreement or any other document executed pursuant hereto or in connection herewith with any person or organization which registers, sells or 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 with respect to the Collateral to Secured Party and otherwise as Secured Party deems appropriate. 5 IN TESTIMONY WHEREOF, witness the signature of the parties hereto, to be effective the day, month and year first above written. EQUITY INSURANCE MANAGERS, INC. BY: /s/ John R. Owens ------------------------------------ TITLE: President --------------------------------- BANK ONE, KENTUCKY, NA BY: /s/ R. J. Heiple ------------------------------------ TITLE: Executive Vice President --------------------------------- 6 EX-10.30 16 SECURITY AGREEMENT EXHIBIT 10.30 SECURITY AGREEMENT ------------------ THIS SECURITY AGREEMENT is made and entered into effective as of the 30th day of December, 1997, by 21ST CENTURY CLAIM SERVICE, INC., a Kentucky corporation, with address of 3201 Nicholasville Road, Lexington, Kentucky 40503 (hereinafter referred to as "Debtor"); and BANK ONE, KENTUCKY, NA, a National Banking Association, 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 two (2) hereof to secure all of the indebtedness referred to in numerical Paragraph three (3) hereof. 2. The collateral covered by this Security Agreement is (a) all of Debtor's property described in Schedule 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 payment of all sums due to Secured Party from Debtor and the other makers under the terms of that certain $200,000.00 Term Note dated as of December 30, 1997 (the "Note"); and b. All other liabilities and obligations of whatever kind or type of Debtor to Secured Party, including any 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 "Indebtedness"). 4. Debtor represents and warrants to Secured Party that: a. All of the Collateral is used or will be used for business. b. Debtor is 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. c. Except as previously disclosed in writing, the Collateral is free and clear of all liens, encumbrances and adverse claims whatsoever. d. Debtor has the right to enter into this Security Agreement. 5. Debtor covenants and agrees that: a. Debtor shall defend the Collateral against the 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 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, whether or not inventory, without prior written consent of Secured Party. c. Debtor shall insure or have insured the tangible 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 shall, in its sole and absolute discretion, whether or not any Event of Default, as defined in this Security Agreement, has occurred, have the right to place and effect such insurance as Secured Party deems appropriate at the Debtor's 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 default rate of interest due under the Note. d. Debtor shall keep the Collateral consisting of tangible property in good condition. 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. 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. If such approval is given, Debtor agrees 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. 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 Statements, and, if paid by the Secured Party, Debtors will reimburse Secured Party therefor upon demand of 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 the case of an Event of Default hereunder, sell the Collateral, including, but not limited to, the execution 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 filing and recordation of same wherever Secured Party deems appropriate, with Debtor to - 2 - 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 obligation to or commitment for loan(s) from Secured Party, this power of attorney shall become null and void upon Secured Party's receipt of written notification from Debtor to such effect. i The Indebtedness shall be paid to Secured Party in accordance with the terms thereof. 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 expenses Secured Party may incur in connection with any such inspection(s) and appraisal(s). 6. Upon the occurrence of any "Event of Default," which, for the purposes of this Security Agreement means any default in, or breach of, any covenant, agreement, representation or warranty by Debtor under the provisions of any document evidencing any of the Indebtedness or other obligations of Debtor to Secured Party or of any other agreement regarding any of the Indebtedness, this Security Agreement, the Note, and any mortgage(s) or other security agreement(s) securing or otherwise relating to any of the Indebtedness, Secured Party shall have all rights and remedies in and against the Collateral and otherwise of a secured party under the Uniform Commercial Code and the other applicable law of Kentucky (and all such other states where any part of the Collateral may be located, if applicable) and all other applicable laws and all rights provided herein, in all other documents evidencing, securing or related to any of the Indebtedness, or in any other applicable security or loan agreement, all of which rights and remedies shall, to the full extent permitted by law, be cumulative. In addition, Secured Party may require Debtor, at Debtor's sole expense, to assemble the Collateral and make it available to Secured Party at the place or places to be designated by Secured Party and Debtor. Secured Party shall have the right to sell the Collateral at public or private sale. Debtor agrees to pay to Secured Party, as part of the Indebtedness, all amounts paid by Secured Party, including, but not limited to: a. Secured Party's attorney's fees, to the extent not prohibited by applicable law, in connection with the enforcement of any of Debtor's obligations hereunder or contained in the documents evidencing the Indebtedness, with interest thereon at the highest rate provided for in any of the Indebtedness; b. taxes, levies and prior liens and insurance on, repairs to, maintenance of, or transporting or otherwise caring for, the Collateral; and c. expenses incurred in taking possession of or preserving the Collateral. 7. The requirement of reasonable notice of the time and place of disposition of Collateral by Secured Party shall be conclusively deemed to have been met if such notice is mailed, postage prepaid, to Debtor's address specified above at least ten (10) days before the time of the sale or disposition. Secured Party may bid upon and purchase any or all of the Collateral at any public sale thereof. Secured Party may dispose of all or any part of the Collateral at one or more times and from time to time and in one or more lots or parcels, and upon such terms and conditions, including a credit sale, as Secured Party determines in its sole discretion. Secured Party shall apply the net proceeds of any such disposition of the Collateral (after deducting therefrom all costs incurred in connection therewith, or incidental to the - 3 - holding, preparing for sale, in whole or in part, of the Collateral, including Secured Party's attorney's fees and court costs) to the Indebtedness and any other obligations of Debtor to Secured Party in the order elected by Secured Party in its sole discretion, and any remaining proceeds shall be paid to the Debtor or such other party as is entitled thereto. 8. 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 any indebtedness arising under subsequent transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new indebtedness or additional indebtedness whether or not all or any prior indebtedness has been satisfied, and notwithstanding the death, incapacity or bankruptcy of Debtor, or any other event or proceeding affecting Debtor. 9. 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 the Secured Party by virtue of any other agreement now existing or subsequently entered into by and between the parties hereto and any statute or rule of law. Secured Party may exercise its right of set off with respect to the Indebtedness in the same manner as if the Indebtedness were unsecured. Any waiver, forbearance, 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. 10. DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SECURITY AGREEMENT OR ANY OTHER DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SECURED PARTY, DEBTOR AND ANY GUARANTORS. DEBTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT TO SECURED PARTY. 11. The Debtor agrees that the sole proper venue for the determination of any litigation commenced by either Debtor or Secured Party 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 Debtor expressly waives any right to a determination of any such litigation against Debtor by a court in any other venue. Debtor further agrees that service of process by any judicial officer or by registered or certified U.S. mail shall establish personal jurisdiction over Debtor, and Debtor 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 Secured Party in such state. 12. The laws of the Commonwealth of Kentucky shall govern the construction of this Security Agreement and the rights, remedies and duties of the parties hereto, unless the laws of the state where the Collateral or part thereof is situated dictate that the laws of such other state shall govern with respect thereto. 13. This Security Agreement shall bind Debtor and Debtor's heirs, successors and assigns and shall inure to the benefit of Secured Party and its successors and assigns. - 4 - 14. Time shall be of the essence in the performance of each of the Debtor's obligations under this Security Agreement. 15. A judicial decree, order or judgment holding any provision herein invalid or unenforceable shall not in any way impair or preclude enforcement of the remaining provisions herein, and 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. 16. 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, attach this Security Agreement or any other document executed pursuant hereto or in connection herewith with any person or organization which registers, sells or 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 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. 21ST CENTURY CLAIM SERVICE, INC. BY: /s/ John R. Owens -------------------------------- TITLE: Secretary/Treasurer ----------------------------- BANK ONE, KENTUCKY, NA BY: /s/ R. J. Heiple -------------------------------- TITLE: Executive Vice President ----------------------------- - 5 - 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 imitation, 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 and 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 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 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 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 - 2 - 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 with limitation, (a) the 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; (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 and (c) all contract rights thereunder. 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. 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"). - 3 - 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 financing statement and security agreement signed by it: 21ST CENTURY CLAIMS SERVICE, INC. BY: /s/ John R. Owens ------------------------------------ TITLE: Secretary/Treasurer --------------------------------- "DEBTOR" - 4 - EX-10.31 17 FIRST AMENDMENT TO LOAN AGREEMENT EXHIBIT 10.31 FIRST AMENDMENT TO LOAN AGREEMENT --------------------------------- This First Amendment to Loan Agreement (the "Amendment") is dated and effective as of July 23, 1998, by, between and among EQUITY UNDERWRITING GROUP, INC., EQUITY INSURANCE MANAGERS, INC. and 21ST CENTURY CLAIM SERVICES, all Kentucky corporations (collectively referred to herein as "Borrowers"); JOHN ROBERT OWENS and D. RICHARD MEYER, individuals, (referred to herein as the "Guarantors" or individually as a "Guarantor"); and BANK ONE, KENTUCKY, NA, a national banking association (referred to herein as "Bank"). RECITALS -------- 1. Borrowers, Guarantors and Bank are parties to that certain Loan Agreement dated as of January 20, 1998 (the "Loan Agreement"). 2. Borrowers, Guarantors and Bank have agreed to an extension of the maturity date of the Revolving Credit Note dated December 30, 1997, in the principal amount of $400,000.00 (as defined in the Loan Agreement), and further desire to enter into this Amendment to document other amendments in the terms of the Loan Agreement. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and agreements contained herein and in the Loan Agreement, and intending to be legally bound hereby, covenant and agree as follows: 1. Amendment of Section 5.08 Reporting Requirements. Section ------------------------------------------------ 5.08 of the Loan Agreement is hereby deleted and replaced with the following: Section 5.08 Reporting Requirements Borrowers shall furnish to Bank: a. Quarterly Reporting. Within sixty (60) days after the end ------------------- of each fiscal quarter, Borrowers shall provide Bank with balance sheets as of the end of each quarter, statements of income and retained earnings as of the end of such fiscal quarter, and properly completed calculations necessary to test compliance with all of the financial covenants set forth herein, in form and content reasonably acceptable to Bank, and all in reasonable detail, and all such financial statements shall be prepared in accordance with GAAP consistently applied and certified as correct by Borrowers' chief financial officer. Provided, however, Borrowers shall not be obligated to deliver the Borrowers' internally prepared balance sheet and income statement for the last month of Borrowers' fiscal year. b. Annual Financial Statements. Within one hundred twenty --------------------------- (120) days after the end of their fiscal year, and for all fiscal years thereafter so long as any Obligations remain unpaid, a complete, unqualified, annual audit report of EIMI and 21st Century. The audited report shall consist of balance sheet, statement of profit and loss, application of funds, change in financial position and the like, prepared and certified by a firm of independent public accountants of recognized standing acceptable to the Bank. EUGI shall also provide an internally prepared annual financial statement which shall be on a consolidated basis. All of the foregoing shall be in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year and all such financial statements shall be prepared in accordance with GAAP consistently applied and certified as correct by Borrowers' chief financial officer. c. Notice of Litigation. Promptly after the commencement -------------------- thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting Borrowers or either Guarantor which, if determined adversely, could have a material, adverse effect on Borrowers or a Guarantor's financial condition, properties, or operations. d. Notice of Defaults and Events of Default. As soon as ---------------------------------------- possible and in any event within ten (10) days after the occurrence of each Default or Event of Default, a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken with respect thereto. e. Compliance Base Certificates. EIMI shall provide Bank with ---------------------------- a Compliance Certificate in the same form as attached hereto as Exhibit "A" within sixty (60) days after the end of the first three calendar quarters of each year which are internally prepared and then provide a Covenant Compliance Certificate within one hundred twenty (120) days after the end of the fiscal year based on the audited consolidated financial statement. f. Guarantors' Financial Statements and Tax Returns. Within ------------------------------------------------ thirty (30) days after filing, copies of each Guarantor's federal and state income tax returns, amendments and schedules. Within ninety (90) days after the anniversary date of receipt of the last financial statement, Guarantors shall provide a financial statement of assets, liabilities and net worth for each Guarantor, in form and content reasonably acceptable to Bank, and all in reasonable detail. g. Fiscal Year Projections. EIMI shall provide the Bank with ----------------------- its fiscal year projections within one hundred twenty (120) days of fiscal year end. h. General Information. Such other information respecting ------------------- the condition or operations, financial or otherwise, of Borrowers or any Guarantor, as Bank may from time to time reasonably request. 2. Amendment of Article VIII of the Loan Agreement. Article ----------------------------------------------- VIII of the Loan Agreement is amended as follows: 8.19 Year 2000 Provisions (a) Representation and Warranties. Borrowers represent ----------------------------- and warrant as follows to Bank that: (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 the Loan Documents or Bank's commitment to make advances under the Loan Documents is outstanding: i. Borrowers will use good faith efforts to ensure that by December 31, 1998, all devices, systems, machinery, information technology, computer software and hardware, and other date sensitive technology (jointly and severally the "Systems") necessary for Borrowers to carry on its business 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 Borrowers' 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. - 2 - ii. Borrowers will: (1) undertake a detailed inventory, review and assessment of all areas within their businesses and operations that could be adversely affected by the failure of Borrowers to be Year 2000 Compliant on a timely basis; (2) develop a detailed plan and time line for becoming Year 2000 Compliant on a timely basis; and (3) implement that plan in accordance with that timetable in all material respects. iii. By December 31, 1998, Borrowers will make written inquiry of each of their key suppliers, vendors, and customers, and will obtain in writing confirmations from all such persons, as to whether such persons have initiated programs to become Year 2000 Compliant and on the basis of such confirmations, Borrowers will make a good faith effort to ensure that all such persons will be or become so compliant. For purposes hereof, "key suppliers, vendors and customers" refers to those suppliers, vendors, and customers of Borrowers whose business failure would, with reasonable probability, result in a material adverse change in the business, properties, condition (financial or otherwise), or prospects of Borrowers. For purposes of this paragraph, Bank, as lender of funds under the terms of the Loan Documents, confirms to Borrowers that Bank has initiated its own corporate-wide Year 2000 program with respect to its lending activities. iv. Borrowers will make a good faith effort to ensure that the fair market value of all real and personal property, if any, pledged to Bank as Collateral to secure the Loan Documents is not and shall not be less than currently anticipated or subject to substantial deterioration in value because of the failure of such Collateral to be Year 2000 Compliant. (b) Affirmative Covenants. Borrowers covenant and agree --------------------- with Bank that, while any Loan Documents is in effect, Borrowers will: i Furnish such additional information, statements and other reports with respect to Borrowers' 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 Borrowers' representations and warranties with respect to its being or becoming Year 2000 Compliant to no longer be true (hereinafter referred to as a "Change in Circumstances") then Borrowers shall 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 Bank requests of Borrowers in connection with the Notice and/or Change of Circumstances. iii. Give any representative of Bank access during all business hours to, and permit such representative to examine, copy or make excerpts from, any and all books, records and documents in the possession of Borrowers and relating to its affairs, and to inspect any of the properties and Systems of Borrowers, 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. 3. Continuing Security. The Indebtedness as evidenced by the ------------------- Note shall continue to be secured by all of the Loan Documents and collateral described in the Loan Agreement. - 3 - 4. No Defenses or Setoffs. As of the date hereof, neither ---------------------- Borrowers nor Guarantors are aware of any defenses, credits or setoffs to the payment of the Indebtedness evidenced by the Note, or to the enforceability of the Note, the Loan Agreement, or the Loan Documents against the Borrowers or Guarantors, nor are there any claims, actions or causes of action which could be asserted against the Bank relating to the transactions evidenced by the Note, the Loan Agreement, this Amendment or any of the transactions relating thereto. 5. Limited Effect of Amendment. Except as specifically --------------------------- amended herein, the terms and conditions of the Note, the Loan Agreement, the Guaranties, the Loan Documents, and all other existing agreements between the parties are unaffected by this Amendment and shall continue to be binding upon Borrowers, Guarantors and the Bank. Further, the term "Note" shall include the Revolving Credit Note dated effective as of July 23, 1998, with a maturity date of June 30, 1999, in the amount of $400,000.00 between the Bank and Borrowers. 6. Full Force and Effect of Loan Documents. The Loan --------------------------------------- Documents as defined in the Loan Agreement, including the Amended and Restated Revolving Credit Note dated effective as of July 23, 1998, in the amount of $400,000.00, between the Bank and Borrowers, are valid and enforceable in accordance with their terms and shall continue to remain in full force and effect. BANK ONE, KENTUCKY, NA BY: /s/ Rhonda Lenney ------------------------------------ TITLE: Officer --------------------------------- EQUITY INSURANCE MANAGERS, INC. BY: /s/ John R. Owens ------------------------------------ TITLE: President --------------------------------- EQUITY UNDERWRITING GROUP, INC. BY: /s/ John R. Owens ------------------------------------ TITLE: President --------------------------------- 21ST CENTURY CLAIM SERVICES, INC. BY: /s/ John R. Owens ------------------------------------ TITLE: President --------------------------------- /s/ John R. Owens --------------------------------------- JOHN ROBERT OWENS /s/ D. Richard Meyer --------------------------------------- D. RICHARD MEYER - 4 - EX-10.32 18 AMENDED AND RESTATED REVOLVING CREDIT NOTE EXHIBIT 10.32 AMENDED AND RESTATED REVOLVING CREDIT NOTE ------------------------------------------ ("Note") EQUITY INSURANCE MANAGERS, INC. a Kentucky corporation 3201 Nicholasville Road Lexington, Kentucky 40503 $400,000.00 DATE: July 23, 1998 Executed at Lexington, Kentucky 1. FOR VALUE RECEIVED, EQUITY INSURANCE MANAGERS, INC. ("Borrower"), promises to pay to the order of BANK ONE, KENTUCKY, NA, a national banking association (the "Bank"), the principal sum of FOUR HUNDRED THOUSAND DOLLARS ($400,000.00) 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 if 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 is an amendment and restatement of the Note dated December 30, 1997. 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. 3. Borrower shall repay this Note by paying all accrued interest monthly beginning on June 30, 1998 and continuing on the thirtieth day of each month until July 30, 1999 (the "Maturity Date") at which time all outstanding principal and accrued interest shall be due and payable in full. Interest on this Note will be computed on the basis of the actual number of days elapsed over an assumed year of 360 days. Borrower shall make each payment under this Note not later than 12:00 p.m. (Noon), Louisville, Kentucky, Eastern time, on the date when due, in lawful money of the United States of America, to Bank at 416 West Jefferson Street, Louisville, Kentucky 40202-3244, 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 included in the computation of the payment of interest. 4. If any amount due hereunder is past due for more than fifteen (15) days (whether by lapse of time or by reason of acceleration under the provisions hereof), or upon the occurrence of any Event of Default defined hereinbelow, the interest rate on the entire principal balance and all matured interest installments outstanding shall increase by three percent (3%) per annum and shall continue at that rate as long as any amount due is more than fifteen (15) days late; provided, however, that the total interest rate charged Borrower shall not exceed the maximum rate of interest allowed by law 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. Any payment on this Note that is overdue for more than fifteen (15) days from its due date shall be increased by an amount equal to the lesser of $250.00 or five percent (5%) of the overdue payment. 5. Bank and Borrower 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 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 in the city nearest the Borrower's address having an AAA regional office, or at any other place 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 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 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 either party. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this arbitration provision shall preclude either party from seeking equitable relief from a court of competent jurisdiction. The status of limitations, estoppel, waiver, laches and similar doctrines which would otherwise be applicable in an 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 any 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. 2 6. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment or principal or interest when due under this Note or any other indebtedness owing now or hereafter by Borrower to Bank; (b) failure of Borrower or any other party to comply with or perform any term, obligation, covenant or condition contained in this Note or in any other promissory note, credit agreement, loan agreement, guaranty, security agreement, mortgage, deed of trust or any other instrument, agreement or document, whether now or hereafter existing, executed in connection with this Note (the Note and all such other instruments, agreements, and documents shall be collectively known herein as the "Related Documents"); (c) any representation or statement made or furnished to Lender herein, in any of the Related Documents or in connection with any of the foregoing is false or misleading in any material respect; (d) Borrower dissolves (regardless of whether election to continue is made), any member withdraws from Borrower, any member dies, or any of the members or Borrower or any other party liable for the payment of this Note, whether as maker, endorser, guarantor, surety or otherwise, becomes insolvent or bankrupt, has a receiver or trustee appointed for any part of its property, makes an assignment for the benefit of its creditors, or any proceeding is commenced either by any such party or against it under any bankruptcy or insolvency laws; (e) the occurrence of any event of default specified in any of the other Related Documents or in any other agreement now or hereafter arising between Borrower and Bank; (f) the occurrence of any event which permits the acceleration of the maturity of any indebtedness owing now or hereafter by Borrower to any third party; or (g) the liquidation, termination, dissolution, death or legal incapacity of Borrower or any other party liable for the payment of this Note, whether as maker, endorser, guarantor, surety, or otherwise. 7. 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. Upon default, including failure to pay upon final maturity, Bank, at its option, may also, if permitted under applicable law, do one or both of the following: (a) increase the applicable interest rate on this Note 3.00 percentage points, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). The interest rate will not exceed the maximum rate permitted by applicable law. 8. 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. 9. The 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; 3 (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; (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. 10. Bank shall have the right to set off, at all times and 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, whether held by Bank in a fiduciary capacity or otherwise, 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. 11. The Borrower agrees that it will pay to the 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. 12. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF BANK AND BORROWER. BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK. 13. The 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 4 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. 14. 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. 15. 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. 16. 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. 17. 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. 18. 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. EQUITY INSURANCE MANAGERS, INC. BY: /s/ D. R. Meyer ---------------------------- TITLE: President ------------------------- 5 EX-10.33 19 SECOND AMENDMENT TO LOAN AGREEMENT EXHIBIT 10.33 SECOND AMENDMENT TO LOAN AGREEMENT ---------------------------------- This Second Amendment to Loan Agreement (the "Amendment") is dated and effective as of February 25, 1999, by, between and among EQUITY UNDERWRITING GROUP, INC., EQUITY INSURANCE MANAGERS, INC. and 21ST CENTURY CLAIM SERVICES, all Kentucky corporations (collectively referred to herein as the "Borrowers"); UNIFIED FINANCIAL SERVICES, INC., a Delaware corporation (referred to herein as the "Guarantor"); and BANK ONE, KENTUCKY, NA, a national banking association (referred to herein as the "Bank"). RECITALS -------- 1. The Borrowers, the Guarantor and the Bank desire to amend the Loan Agreement dated as of January 20, 1998 (the "Loan Agreement") as amended by the First Amendment to Loan Agreement dated as of July 23, 1998 (the "First Amendment"). 2. The parties herein have agreed to enter into this Second Amendment in order to further amend the terms and conditions as set forth in the Loan Agreement and the First Amendment. 3. The loan documents described in the Loan Agreement and the First Amendment and this Agreement and the other documents and notes referred to herein shall collectively be referred to as the "Loan Documents". All of the present notes and the notes referred to herein are collectively referred to as the "Notes" and the aggregate amount owed to the Bank under the Notes and the other Loan Documents shall be referred to as the "Indebtedness". NOW, THEREFORE, the parties, in consideration of the mutual covenants and agreements contained herein, covenant and agree as follows: 1. Modification of Term Loan. The term loan as defined in ------------------------- the Loan Agreement shall be amended to provide for a maturity date of June 20, 1999, with payments due on the 20th day of each month. The amended term loan shall be evidenced by the Amended and Restated Term Note dated February 25, 1999. 2. Extension of Additional Credit. The Bank shall provide ------------------------------ the Borrowers with an additional loan in the principal amount of $800,000.00, which shall have a maturity date of June 30, 1999. It shall be evidenced by the Term Note dated February 25, 1999. 3. Renewal of 21st Century Note. The Bank agrees to renew ---------------------------- the 21st Century Note to June 30, 1999, which shall be evidenced by the Renewal 21st Century Note dated as of January 30, 1999. 4. Substitution of Guaranties. The Bank hereby agrees to -------------------------- accept the Guaranty of the Guarantor as evidenced by the Guaranty dated February 18, 1999 (the "Guaranty"), in substitution of the Guaranties of John Robert Owens and D. Richard Meyer, and the Bank further agrees that John Robert Owens and D. Richard Meyer are hereby deemed to be released of their obligations as Guarantors of the aforementioned Loans which they have guaranteed upon execution and delivery of all documents required herein. 5. Additional Reporting Requirements. In addition to the --------------------------------- reporting requirements contained in the Loan Agreement, as amended, the Guarantor shall, within sixty (60) days after the end of each fiscal quarter (and beginning with the March 31, 1999 quarter end), provide Bank with balance sheets, statements of income and retained earnings as of the end of such fiscal quarter, and properly completed calculations necessary to test compliance with all of the financial covenants set forth herein, in form and content reasonably acceptable to Bank, and all in reasonable detail, and all such financial statements shall be internally prepared in accordance with GAAP consistently applied and certified as correct by Guarantor's chief financial officer. Provided, however, the Guarantor shall not be obligated to deliver the Guarantor's internally prepared balance sheet and income statement for the last month of the Guarantor's fiscal year. 6. Collateral. The Indebtedness shall continue to be secured ---------- by the Security Agreements dated January 20, 1998, from the Borrowers whereby the Borrowers pledged to the Bank a valid and enforceable security interest in all of their assets as described in each of the Security Agreements. Further, the Guarantor shall execute and deliver to the Bank its Stock Pledge and Security Agreement whereby the Guarantor pledges and assigns to the Bank all of its interest in the Common Stock of Equity Underwriting Group, Inc. and Commonwealth Premium Finance Corporation (the "Stock") as shown on Schedule A attached to the Stock Pledge and Security Agreement dated February 25, 1999. 7. Conditions Precedent. The obligation of the Bank to enter -------------------- into this Agreement and the other Loan Documents is subject to the condition precedent that the Bank shall have received and approved on or before the closing each of the following, in form and substance reasonably satisfactory to the Bank: a. This Agreement, the Amended and Restated Term Note, the Term Note, the Renewal 21st Century Note, the Guaranty and the Stock Pledge and Security Agreement shall be duly executed and delivered by the Borrowers and the Guarantor to the Bank. b. Lien Report. A lien report from the counsel for the ----------- Guarantor, which states that the Bank has first and prior lien on the Stock. c. Articles and By-Laws; Evidence of Existence/Good ------------------------------------------------- Standing of the Guarantor. Certified copies of the Guarantor's - ------------------------- Articles and By-Laws and the Certificate of Existence/Good Standing of the Guarantor issued by the Secretary of State of Delaware. d. Evidence of Corporate Action by the Borrowers and the ------------------------------------------------------ Guarantor. Certified copies of all corporate action taken by the - --------- Borrowers and the Guarantor, including resolutions of the Borrowers and the Guarantor authorizing the execution, delivery and performance of the Loan Documents. A certificate of the Secretary of the Guarantor certifying the names and true signatures of officers of the Guarantor authorized to sign the aforementioned documents to which it is a party. e. Opinion of Counsel. The Borrowers and the Guarantor ------------------ shall provide the Bank with an opinion of counsel satisfactory to the Bank regarding such matters as the validity and enforceability of the Loan Documents. 8. Representations and Warranties of the Borrowers. Each of ----------------------------------------------- the Borrowers represents and warrants to the Bank as follows: a. Good Standing and Due Qualification. Each Borrower ----------------------------------- is a corporation, duly incorporated, validly existing and is duly qualified and in good standing under the laws of each jurisdiction in which such qualification is required by law. - 2 - b. Corporate Power and Authority. The execution, ----------------------------- delivery and performance by the Borrowers of the Loan Documents have been duly authorized by all necessary corporate action. c. Legally Enforceable Loan Documents. The Loan ---------------------------------- Documents executed and/or delivered in connection with this Agreement are legal, valid and binding obligations of each Borrower and enforceable in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors rights generally. d. No Adverse Change. No material adverse change has ----------------- occurred in any of the businesses of either of the Borrowers and no material adverse change has occurred in the financial condition of either of the Borrowers since the date of the most current financial information provided to the Bank. e. No Defenses or Setoffs. As of the date hereof, the ---------------------- Borrowers are not aware of any defenses, credits or setoffs to the payment of the Indebtedness evidenced by the Notes, or to the enforceability of the Notes, or the Loan Documents, nor are there any claims, actions or causes of action which could be asserted against the Bank relating to the transactions evidenced by any of the Loan Documents. f. Limited Effect of Amendment. Except as specifically --------------------------- amended herein, the terms and conditions of the Notes, the Loan Documents and all other existing agreements between the parties are unaffected by this Amendment and shall continue to be binding upon the Borrowers and the Bank and continue to remain in full force and effect. 9. Representations and Warranties of the Guarantor. The ----------------------------------------------- Guarantor represents and warrants to the Bank as follows: a. Good Standing and Due Qualification. The Guarantor ----------------------------------- is a corporation, duly incorporated, validly existing and is duly qualified and in good standing under the laws of Delaware. b. Corporate Power and Authority. The execution, ----------------------------- delivery and performance by the Guarantor of the Loan Documents to which it is a party have been duly authorized by all necessary corporate action. c. Legally Enforceable Loan Documents. The Loan ---------------------------------- Documents executed and/or delivered by the Guarantor are legal, valid and binding obligations of the Guarantor and enforceable in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors rights generally. 10. Affirmative Covenants. So long as any portion of the --------------------- Notes shall remain unpaid, the Borrowers each agree to fully comply with all of the affirmative convents contained in the Loan Agreement and the First Amendment. Further, the Borrowers shall fully comply with the negative covenants contained in the Loan Agreement and the First Amendment. 11. Notices. 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: - 3 - If to Borrower: 220 Lexington Green Circle Lexington, Kentucky 40503 ATTN: Robert Owens with a copy to: Robert M. Beck, Jr. Stites & Harbison 2300 Lexington Financial Center Lexington, Kentucky 40507 If to Guarantor: Unified Financial Services, Inc. 1104 Buttonwood Court Lexington, Kentucky 40515 ATTN: President and CEO with a copy to: Charles H. Binger Thompson Coburn One Mercantile Center, Suite 34007 St. Louis, Missouri 63101 If to Bank: Bank One, Kentucky, NA 416 West Jefferson Street Louisville, Kentucky 40202 with a copy to: Mark Boison Bank One, Kentucky, NA 201 East Main Street Lexington, Kentucky 40507 12. Entire Agreement. This Amendment and the other Loan ---------------- Documents constitute the entire understanding among the parties with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. This Agreement may not be amended without the prior written consent of all parties herein. BANK ONE, KENTUCKY, NA BY: /s/ Rhonda Lenney -------------------------------------- TITLE: Officer ----------------------------------- EQUITY INSURANCE MANAGERS, INC. BY: /s/ John R. Owens -------------------------------------- TITLE: President ----------------------------------- - 4 - EQUITY UNDERWRITING GROUP, INC. BY: /s/ John R. Owens -------------------------------------- TITLE: President ----------------------------------- 21ST CENTURY CLAIM SERVICES, INC. BY: /s/ John R. Owens -------------------------------------- TITLE: Secretary/Treasurer ----------------------------------- UNIFIED FINANCIAL SERVICES, INC. BY: /s/ Timothy L. Ashburn -------------------------------------- TITLE: Chairman, CEO, President ----------------------------------- - 5 - EX-10.34 20 AMENDED AND RESTATED TERM NOTE EXHIBIT 10.34 AMENDED AND RESTATED TERM NOTE ------------------------------ ("Note") EQUITY UNDERWRITING GROUP, INC. a Kentucky corporation 220 Lexington Green Circle Lexington, Kentucky 40503 EQUITY INSURANCE MANAGERS, INC. a Kentucky corporation 220 Lexington Green Circle Lexington, Kentucky 40503 $1,250,000.00 DATE: February 25, 1999 Executed at Lexington, Kentucky 1. FOR VALUE RECEIVED, EQUITY UNDERWRITING GROUP, INC. and EQUITY INSURANCE MANAGERS, INC. (collectively the "Borrower"), promises to pay to the order of BANK ONE, KENTUCKY, NA, a national banking association (the "Bank"), the principal sum of One Million Two Hundred Fifty Thousand Dollars ($1,250,000.00) 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 if 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 $26,041.67 per month plus accrued interest monthly beginning on March 20, 1999 and continuing on the 20th day of each month until June 20, 1999 (the "Maturity Date") at which time all outstanding principal and accrued interest shall be due and payable in full. Interest on this Note will be computed on the basis of the actual number of days elapsed over an assumed year of 360 days. 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 January 20, 1998, which has been amended by the First Amendment to Loan Agreement dated July 23, 1998 and by the Second Amendment to Loan Agreement dated of even date. This Note, the Loan Agreement, as amended, and all other documents defined in the Loan Agreement, as amended, as loan documents shall be collectively referred to herein as the "Loan Documents". 4. The obligations evidenced by this Note or the Loan Agreement, as amended, are secured by the Security Agreements dated January 20, 1998, and the Stock Pledge and Security Agreement dated of even date from Unified Financial Services, Inc., which secures its Guaranty dated of even date, in favor of the Bank. 5. If any amount due hereunder is past due for more than ten (10) days Borrower will be charged five percent (5%) of the regularly scheduled payment up to the maximum amount of $1,500.00 with a minimum of $25.00 per late charge. Upon the occurrence of any Event of Default defined hereinbelow, the interest rate on the entire principal balance and all matured interest installments outstanding shall increase by three percent (3%) per annum; provided, however, that the total interest rate charged Borrower shall not exceed the maximum rate of interest allowed by law 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 8.18 of the Loan Agreement. 7. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment or principal or interest within ten (10) days of its due date under this Note or any other indebtedness owing now or hereafter by Borrower to Bank; (b) failure of Borrower or any other party to comply with or perform any term, obligation, covenant or condition contained in this Note or in any other promissory note, credit agreement, loan agreement, guaranty, security agreement, mortgage, deed of trust or any other instrument, agreement or document, within thirty (30) days after receipt of written notice, whether now or hereafter existing, executed in connection with this Note or the other Loan Documents; (c) any representation or statement made or furnished to Lender herein, in any of the Loan Documents or in connection with any of the foregoing is false or misleading in any material respect and said default shall continue unremedied for a period of thirty (30) days after date of written notice; (d) Borrower dissolves, becomes insolvent or bankrupt, has a receiver or trustee appointed for any part of its property, makes an assignment for the benefit of its creditors, or any proceeding is commenced either by any such party or against it under any bankruptcy or insolvency laws; (e) the occurrence of any event of default specified in any of the other Loan Documents or in any other agreement now or hereafter arising between Borrower and Bank; (f) the occurrence of any event which permits the acceleration of the maturity of any indebtedness owing now or hereafter by Borrower to any third party; or (g) the liquidation, termination, dissolution, death or legal incapacity of Borrower or any other party liable for the payment of this Note, whether as maker, endorser, guarantor, surety, or otherwise. 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. Upon default, including failure to pay upon final maturity, Bank, at its option, may also, if permitted under applicable law, do one or both of the following: (a) increase the applicable interest rate on this Note by 3%, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). The interest rate will not exceed the maximum rate permitted by applicable law. 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. The 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; and (c) 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. 11. Upon and Event of Default, Bank shall have the right to set off, at all times and 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 fiduciary capacity or otherwise, 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. The Borrower agrees that it will pay to the 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 HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF BANK AND BORROWER. BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK. 14. The 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. 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. DATED as of the day and year first above written. EQUITY UNDERWRITING GROUP, INC. BY: /s/ John R. Owens ---------------------------------- TITLE: President ------------------------------- EQUITY INSURANCE MANAGERS, INC. BY: /s/ John R. Owens ---------------------------------- TITLE: President ------------------------------- EX-10.35 21 TERM NOTE EXHIBIT 10.35 TERM NOTE --------- ("Note") EQUITY UNDERWRITING GROUP, INC. a Kentucky corporation 220 Lexington Green Circle Lexington, Kentucky 40503 EQUITY INSURANCE MANAGERS, INC. a Kentucky corporation 220 Lexington Green Circle Lexington, Kentucky 40503 $800,000.00 DATE: February 25, 1999 Executed at Lexington, Kentucky 1. FOR VALUE RECEIVED, EQUITY UNDERWRITING GROUP, INC. and EQUITY INSURANCE MANAGERS, INC. (collectively the "Borrower"), promises to pay to the order of BANK ONE, KENTUCKY, NA, a national banking association (the "Bank"), the principal sum of Eight Hundred Thousand Dollars ($800,000.00) 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 if 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 accrued interest monthly beginning on March 20, 1999 and continuing on the 20th day of each month until June 20, 1999 (the "Maturity Date") at which time all outstanding principal and accrued interest shall be due and payable in full. Interest on this Note will be computed on the basis of the actual number of days elapsed over an assumed year of 360 days. 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 the Second Amendment to Loan Agreement dated of even date. This Note, the Second Amendment to Loan Agreement and all other documents defined therein shall be collectively referred to herein as the "Loan Documents". 4. The obligations evidenced by this Note or the other Loan Documents are secured by the Security Agreements dated January 20, 1998, and the Stock Pledge and Security Agreement dated of even date from Unified Financial Services, Inc., which secures its Guaranty dated of even date, in favor of the Bank. 5. If any amount due hereunder is past due for more than ten (10) days Borrower will be charged five percent (5%) of the regularly scheduled payment up to the maximum amount of $1,500.00 with a minimum of $25.00 per late charge. Upon the occurrence of any Event of Default defined hereinbelow, the interest rate on the entire principal balance and all matured interest installments outstanding shall increase by three percent (3%) per annum; provided, however, that the total interest rate charged Borrower shall not exceed the maximum rate of interest allowed by law 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 8.18 of the Loan Agreement. 7. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment or principal or interest within ten (10) days of its due date under this Note or any other indebtedness owing now or hereafter by Borrower to Bank; (b) failure of Borrower or any other party to comply with or perform any term, obligation, covenant or condition contained in this Note or in any other promissory note, credit agreement, loan agreement, guaranty, security agreement, mortgage, deed of trust or any other instrument, agreement or document, within thirty (30) days after receipt of written notice, whether now or hereafter existing, executed in connection with this Note or the other Loan Documents; (c) any representation or statement made or furnished to Lender herein, in any of the Loan Documents or in connection with any of the foregoing is false or misleading in any material respect and said default shall continue unremedied for a period of thirty (30) days after date of written notice; (d) Borrower dissolves, becomes insolvent or bankrupt, has a receiver or trustee appointed for any part of its property, makes an assignment for the benefit of its creditors, or any proceeding is commenced either by any such party or against it under any bankruptcy or insolvency laws; (e) the occurrence of any event of default specified in any of the other Loan Documents or in any other agreement now or hereafter arising between Borrower and Bank; (f) the occurrence of any event which permits the acceleration of the maturity of any indebtedness owing now or hereafter by Borrower to any third party; or (g) the liquidation, termination, dissolution, death or legal incapacity of Borrower or any other party liable for the payment of this Note, whether as maker, endorser, guarantor, surety, or otherwise. 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, 2 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. Upon default, including failure to pay upon final maturity, Bank, at its option, may also, if permitted under applicable law, do one or both of the following: (a) increase the applicable interest rate on this Note by 3%, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). The interest rate will not exceed the maximum rate permitted by applicable law. 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. The 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; and (c) 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. 11. Upon an Event of Default, Bank shall have the right to set off, at all times and 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 fiduciary capacity or otherwise, 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. The Borrower agrees that it will pay to the 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 HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS 3 NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF BANK AND BORROWER. BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK. 14. The 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. 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. 4 DATED as of the day and year first above written. EQUITY UNDERWRITING GROUP, INC. BY: /s/ John R. Owens --------------------------------- TITLE: President ------------------------------ EQUITY INSURANCE MANAGERS, INC. BY: /s/ John R. Owens --------------------------------- TITLE: President ------------------------------ 5 EX-10.36 22 RENEWAL TERM NOTE EXHIBIT 10.36 RENEWAL TERM NOTE ----------------- ("Note") 21ST CENTURY CLAIM SERVICE, INC. a Kentucky corporation 220 Lexington Green Circle Lexington, Kentucky 40503 $160,004.00 DATE: January 30, 1999 Executed at Lexington, Kentucky 1. FOR VALUE RECEIVED, 21ST CENTURY CLAIM SERVICE, INC. ("Borrower"), promises to pay to the order of BANK ONE, KENTUCKY, NA, a national banking association (the "Bank"), the principal sum of One Hundred Sixty Thousand Four Dollars ($160,004.00) 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 one percent (1%) greater than 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 if 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 is mentioned in a Loan Agreement dated January 20, 1998, which has been amended by the First Amendment to Loan Agreement dated July 23, 1998 and by the Second Amendment to Loan Agreement dated of even date. The Note, the Loan Agreement, as amended, and all other documents defined in the Loan Agreement, as amended, as loan documents shall be collectively referred to herein as the "Loan Documents". 3. Borrower shall repay this Note by paying a fixed principal payment of $3,333.00 per month plus accrued interest monthly beginning on February 28, 1999 and continuing on the thirtieth day of each month until June 30, 1999 (the "Maturity Date") at which time all outstanding principal and accrued interest shall be due and payable in full. Interest on this Note will be computed on the basis of the actual number of days elapsed over an assumed year of 360 days. 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. 4. This is a renewal of the note dated December 30, 1997 and is not a novation of said note. This Note shall continue to be secured by the Security Agreements dated January 20, 1998 and by the Stock Pledge and Security Agreement dated of even date from Unified Financial Services, Inc. which secures its Guaranty dated of even date, in favor of the Bank. 5. If any amount due hereunder is past due for more than ten (10) days, the Borrower will be charged five percent (5%) of the regularly scheduled payment up to the maximum amount of $1,500.00 with a minimum of $25.00 per late charge. Upon the occurrence of any Event of Default defined hereinbelow, the interest rate on the entire principal balance and all matured interest installments outstanding shall increase by three percent (3%) per annum; provided, however, that the total interest rate charged Borrower shall not exceed the maximum rate of interest allowed by law 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 8.18 of the Loan Agreement. 7. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment or principal or interest within ten (10) days of its due date under this Note or any other indebtedness owing now or hereafter by Borrower to Bank; (b) failure of Borrower or any other party to comply with or perform any term, obligation, covenant or condition contained in this Note or in any other promissory note, credit agreement, loan agreement, guaranty, security agreement, mortgage, deed of trust or any other instrument, agreement or document, within thirty (30) days after receipt of written notice, whether now or hereafter existing, executed in connection with this Note or the other Loan Documents; (c) any representation or statement made or furnished to Lender herein, in any of the Loan Documents or in connection with any of the foregoing is false or misleading in any material respect and said default shall continue unremedied for a period of thirty (30) days after date of written notice; (d) Borrower dissolves, becomes insolvent or bankrupt, has a receiver or trustee appointed for any part of its property, makes an assignment for the benefit of its creditors, or any proceeding is commenced either by any such party or against it under any bankruptcy or insolvency laws; (e) the occurrence of any event of default specified in any of the other Loan Documents or in any other agreement now or hereafter arising between Borrower and Bank; (f) the occurrence of any event which permits the acceleration of the maturity of any indebtedness owing now or hereafter by Borrower to any third party; or (g) the liquidation, termination, dissolution, death or legal incapacity of Borrower or any other party liable for the payment of this Note, whether as maker, endorser, guarantor, surety, or otherwise. 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. Upon default, including failure to pay upon final maturity, Bank, at its option, may also, if permitted under - 2 - applicable law, do one or both of the following: (a) increase the applicable interest rate on this Note 3%, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). The interest rate will not exceed the maximum rate permitted by applicable law. 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. The 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; and (c) 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. 11. Upon an Event of Default, Bank shall have the right to set off, at all times and 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 fiduciary capacity or otherwise, 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. The Borrower agrees that it will pay to the 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 HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF BANK AND BORROWER. BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT - 3 - CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK. 14. The 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. 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. DATED as of the day and year first above written. 21ST CENTURY CLAIM SERVICE, INC. BY: /s/ John R. Owens ---------------------------------- TITLE: Secretary/Treasurer ------------------------------- - 4 - EX-10.37 23 429 PENNSYLVANIA BUILDING OFFICE LEASE EXHIBIT 10.37 429 PENNSYLVANIA BUILDING OFFICE LEASE -------------------------------------- THIS INDENTURE ("Lease") WITNESSETH that 429 Penn Partners, an Indiana partnership (hereinafter referred to as "Landlord"), in consideration of the rent herein reserved and the covenants to be performed by Unified Holdings, Inc., An Delaware Corporation (hereinafter referred to as "Tenant"), does hereby grant, demise, and lease to Tenant the following described premises upon the terms and conditions hereinafter set out: ARTICLE I PREMISES Section 1.1 Initial Premises. Landlord hereby leases to Tenant ---------------------------- and Tenant hereby leases from Landlord, a portion of the First floor, consisting of approximately 9,959 rentable square feet of space, (hereinafter referred to as "Premises") of the building situated at 429 N. Pennsylvania, Indianapolis, Marion County, Indiana 46204, (the entire building with its appurtenances is hereinafter referred to as the "Real Estate"). The Premises are shown and designated on the attached Exhibit A which is incorporated herein by reference. Tenant will also retain approximately 861 rentable square feet of space located on the 3rd floor of the "Real Estate" and designated on the attached floor plan as shown on Exhibit B which is incorporated herein by reference. Section 1.2 Storage Space. Provided that Tenant is not in default ------------------------- hereunder, Landlord hereby grants to Tenant the right to approximately 1,500 rentable square feet located in the Lower Level of the "Real Estate" and designated on the attached floor plan as shown on Exhibit C which is incorporated herein by reference. ARTICLE II TERM Section 2.1 Term. The term of this Lease (hereinafter referred to ---------------- as "term" or "Term") shall be as herein provided, for a period of one hundred (120) months, commencing on January 1, 1998 and ending on December 31, 2007. In the event Landlord is unable to deliver possession of the Premises at the commencement of the term, Landlord shall not be liable for any damage thereby nor shall this Lease be void or voidable, but Tenant shall not be liable for any rent until either (i) the day any of Tenant's personnel first occupy a part of the Premises for carrying on the normal functions of Tenant's business in the Premises, or (ii) the 30th day following the giving by Landlord to Tenant of written notice stating that the Premises are ready for occupancy by Tenant -- whichever event occurs first. ARTICLE III OCCUPANCY AND USE Section 3.1 Use and Occupancy. Tenant shall use and occupy the ----------------------------- Premises for general office use and for no other purposes except with the prior written consent of the Landlord. Tenant shall be allowed the non-exclusive use of the common tenant areas including, without limitation, lobby, hallways, entryways, restrooms, stairways, elevators (including freight elevators), corridors and sidewalks of the Real Estate owned by Landlord (hereinafter referred to as "Common Areas") in conjunction with and so as not to interfere with the other tenants in the building. Tenant shall use the Premises for no unlawful purpose or act; shall commit or permit no waste or damage to the Premises or common areas; shall comply with and obey all laws, regulations, or orders of any governmental authority or agency, directions of the Landlord, including building rules and regulations as changed or modified from time to time by Landlord on reasonable notice to Tenant, all of which are and will be a part of this Lease; shall not do or 1 permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other Tenants or occupants of the building or injure or annoy them; and shall not do or permit anything to be done which will increase the rate of fire insurance upon the building. Landlord shall not be responsible to Tenant for the non- performance by any other Tenant or occupant of the Real Estate of any of the rules and regulations, but agrees to take reasonable measures to assure such other Tenant's performance. Section 3.2 Condition of Premises. Landlord shall make, at its --------------------------------- sole expense, the following improvements to the "Premises" as designated on the attached Exhibit D "Workletter", which is incorporated herein by reference. ARTICLE IV RENT Section 4.1 Base Rent. Tenant shall pay the following amounts as Base Rent for said Premises without relief from valuation and appraisement laws and without offset or deduction: First Floor Space ----------------- Number of Monthly Period Months Installments ------ --------- ------------ 1/1/98-12/31/03 72 $14,523.55 1/1/04-12/31/07 48 $15,353.47 Storage Space Lower Level ------------- 1/198-12/31/07 120 $313.00 Third Floor Space ----------------- 1/l/98-12/31/98 12 $1,165.94 The above monthly installments are due, without notice or demand, in advance on or before the first day of each calendar month of the Term at 429 North Pennsylvania Street, Lower Level, Indianapolis, Indiana 46204, or such other place as Landlord may from time to time designate in writing. In the event the obligation to pay rental or any sum hereunder commences on a day other than the first day of any calendar month, Tenant shall pay the pro-rata share of rent or other sum due for the unexpired portion of the month in addition to and concurrently with payment of the rental or other sum due for the first full month following such partial month. Section 4.2 Additional Rent. Commencing January 1, 1998 and --------------------------- continuing for the balance of the Term, in addition to the Base Rent set out in Section 4.1, the Tenant agrees to pay its proportionate share, as defined below, of any annual increase in total actual Operating Costs for the Real Estate over the Landlord's Share of Operating Costs, without relief from valuation and appraisement laws and without offset or deduction. a) Operating Costs - shall mean the annual aggregate of those expenses incurred by the Landlord during a particular calendar year in connection with the operation, maintenance, and repair of the 2 Real Estate in accordance with sound management and accounting principles and practices generally accepted with respect to the operation, maintenance, and repair of first-class office buildings, which expenses shall include (i) Uncontrollable Costs, i.e., real estate taxes, insurance premiums and utility charges, and (ii) Controllable Costs, including but not limited to repair and maintenance costs, security costs, janitorial costs, legal and accounting costs, management fees and capital improvements required by new governmental laws or regulations, but excluding expenditures for other capital improvements for rebuilding of office space for other tenants. Operating Costs shall not include the costs of the Additional services provided by Landlord to Tenant (if any) under Section 5.1 (a) hereof, which costs shall be deducted from the annual aggregate of Operating costs for purposes of computing the Tenants proportionate share of Operating Costs under subsection (c) below. b) Landlord's Share of Operating Costs - Shall be an amount equal to $4.75 time the rentable square feet in the Premises. c) Tenant's Proportionate Share of Operating Costs - Shall be the amount (if any) by which the product of Operating Costs during a particular calendar year times (10.84), (the current ratio of the rentable square feet in the Premises to the rentable square feet in the Real Estate) exceeds the Landlord's Share of Operating costs. Landlord represents that the rentable square feet in the Real Estate is 102,200 as of the date of this Lease. d) Payment of Tenant's Proportionate Share of Operating Costs - The amount of Tenant's proportionate share of Operating Costs for each calendar year (herein referred to as the "Annual Rental Adjustment") shall be estimated annually by Landlord, and written notice thereof (including documentation supporting such estimates) shall be given to Tenant at least thirty (30) days prior to the beginning of each month, at the same time the Base Rent installment is due, an amount equal to one-twelfth (1/12) of the estimated Annual Rental Adjustment. e) Increases in Estimated Annual Rental Adjustment - If real estate taxes, utility charges, or janitorial costs increase during a calendar year, Landlord may, only once per year, increase the estimated Annual Rental Adjustment during such year by giving Tenant written notice to that effect, and thereafter Tenant shall pay to Landlord, in each of the remaining months of such year, an amount equal to the amount of such increase in the estimated Annual Rental Adjustment divided by the number of months remaining in such year. f) Provisions Concerning Actual Rental Adjustment - Within ninety (90) days after the end of each calendar year, Landlord shall prepare and deliver to Tenant a statement showing Tenants actual Annual Rental Adjustment. Within thirty (30) days after receipt of the aforementioned statement, Tenant shall pay to Landlord, or Landlord shall credit (refunded if at the end of the Term) against the next rent Tenant's actual Annual Rental Adjustment for the preceding calendar year and the last day of a calendar year, then Tenant shall pay a daily pro-rata proportionate share of such Operating Costs for said partial calendar year. g) Tenant Verification - During the thirty (30) day period following the delivery of Landlord's statement of the Tenant's actual Annual Rental Adjustment, Tenant audit, at reasonable times and in a reasonable manner, such of Landlord's books of account and records as pertain to and contain information concerning Operating Costs in order to verify the amounts thereof. If any such audit shall disclose an inaccuracy in Landlord's statement of actual adjustment less than three percent (3%) of such adjustments, prompt payment of a deficiency by Tenant or refund of an overpayment by Landlord, as appropriate, shall be made, and if any such audit, shall disclose any such inaccuracy which exceeds three percent (3%) of such acceptable independent certified 3 public accountant to verify the inaccuracy or resolve any other issue arising from such audit, whose opinion on such matters shall be binding on both parties whose fees shall be paid by the party which is responsible for any such inaccuracy. Section 4.3 Delinquency Charges and Interest. If any portion of -------------------------------------------- the Base Rent, the Annual Rental Adjustment, or any other charges to Tenant are not paid within ten (10) days of date due, a delinquency service charge equal to five percent (5%) of the total delinquent amount will be added as Additional Rent and paid by Tenant upon demand by Landlord. All amounts past due for more than thirty (30) days will bear interest from due date thereof to the date of payment at the rate of eighteen percent (18%) per year until paid. All such interest shall be deemed payable by Tenant as Additional Rent. ARTICLE V SERVICES, ALTERATIONS AND REPAIRS Section 5.1 Services. Provided that Tenant shall not be in -------------------- default hereunder and subject to the provisions elsewhere contained in this Lease, Landlord will furnish the following services: a) Heating, ventilation, and air-conditioning between the hours of 8:00 a.m. to 6:00 p.m. Monday through Friday and 9:00 a.m. to 1:00 p.m. on Saturday of each week except on all generally recognized holidays. Landlord will also furnish, or cause to be furnished, to Tenant such services ("Additional Services") at such other times specified by Tenant, and Tenant agrees to pay the cost thereof (as determined by Landlord) as Additional Rent at the same time Base Rent and other Additional Rent is due. However, if Landlord decides in its sole discretion that such services should be provided by way of a separate power meter for the Premises, Tenant agrees to pay the cost of such services directly to the involved utility and the Base Rental and Additional Rental amounts shall be adjusted to delete any charges for such services. b) Electrical current (an annual rate of four (4) watts per square foot in the Premises) sufficient for the operation of standard lighting, typewriters, calculators, small office copying machines, personal computers, and other machines of similar low electrical consumption, but not including electrical current for data processing equipment or any other item of electrical equipment which singly consumes more than five hundred (500) watts per hour at rated capacity or requires a voltage other than one hundred twenty (120) volts single phase, and provided that if the installation of any of Tenant's equipment, or any special electrical equipment installed by Landlord to service Tenant's equipment, requires any modifications to the Real Estate's electrical system or any additional air conditioning or ventilating capacity above that provided by the Real Estate's standard systems, then the electrical modifications and/or additional air conditioning and/or ventilating equipment shall be provided by Tenant and the installation and operating costs of such additional modifications and/or equipment will be the obligation of the Tenant; c) Water at those points of supply provided for the general use of Tenants; d) Automatic elevator service; e) Cleaning and janitorial services on Monday through Friday of each week, excluding generally recognized holidays, to provide standard cleaning only; f) Washing Tenant's exterior windows at reasonable intervals established by Landlord; 4 g) Replacement of all lamps, bulbs, tubes and ballasts for the standard lighting fixtures as required from time to time as a result of normal usage; h) Security is provided weekday after-hours and 24-hour basis on weekends; provided however, Landlord shall not be liable to Tenant for losses due to theft or burglary, or for damages done by persons in the Real Estate; i) Repair and maintenance to the extent specified elsewhere in this Lease. No interruptions or suspensions of such services when necessary by reason of governmental regulation, labor disputes, civil commotion or riot, accident or emergency, or for repairs, alterations or improvements considered desirable or necessary by Landlord or for any other reason beyond the control of Landlord shall be construed as an eviction of Tenant or work an abatement or diminution of rent or render Landlord or its agents or employees liable for damages either to person, business or property suffered by Tenant, its employees, licensees or invitees by reason of any such interruptions, or release Tenant from any of its obligations under this Lease. In the event Landlord believes that Tenant's use of electricity is in excess of four (4) watts per square foot, Landlord shall employ an electrical expert who will perform a survey of electricity usage and who will render an opinion as to the quantity of electricity used by Tenant. If the survey indicates that Tenant's annual electrical consumption is in excess of four (4) watts per square foot in the Premises, Tenant shall pay as Additional Rent the cost of the survey together with the cost to the Landlord of such excess electrical consumption. In the event an electrical current can no longer be furnished by Landlord via a common meter and included with the rent set out in Article IV, Tenant shall procure its own electricity direct from Indianapolis Power and Light, and the rent set out in Article IV shall be adjusted by Landlord in an amount equal to the tenant's monthly electrical expense. Landlord shall not in any way be liable or responsible to Tenant for any loss or damage or expense which Tenant may sustain or incur if, during the term of this Lease and beyond Landlord's control, either the quality or character of electrical current is changed or is no longer available or suitable for Tenant's requirements. Section 5.2 Alterations to Premises. Landlord shall not be ----------------------------------- obligated to make any alterations, additions, improvements or decorations to the Premises, except as specifically agreed by and between Landlord and Tenant as provided in Section 3.2. In the event any such alterations, additions, improvements or decorations are made following written request by Tenant and approval by Landlord, such alterations, additions, improvements or decorations shall be made at Tenant's sole expense by Landlord or by someone under Landlord's supervision and control, and upon billing therefor by Landlord, Tenant shall promptly remit the amount of such expense. However, Tenant may retain outside vendors to perform alterations, additions or improvements if said vendors are approved by Landlord. Such approval shall not be unreasonably withheld. No alterations, improvements, or additions shall be made to the Premises by Tenant nor shall Tenant affix or cause to be affixed to the Real Estate or Premises, including the windows, any sign, advertisement or notice without the prior written consent of Landlord. In the absence of a written agreement to the contrary, all alterations, repairs or improvements except unattached movable trade fixtures, office furniture and equipment of Tenant shall be and remain the property of Landlord. The removal of Tenant's property upon termination or expiration of the Lease shall be governed by Article XVI hereof. Section 5.3 Repairs. Subject to the provisions of Article XV, ------------------- Landlord shall maintain and make necessary repairs to the foundation, roof, the atrium windows and walls, exterior walls, and the structural elements of the Real Estate, to the electrical, plumbing, heating, ventilation and air-conditioning systems of the Real Estate and to the Common Areas of the Real Estate, provided that (a) Landlord shall not be 5 responsible for the maintenance or repair of any such systems which are located within the Premises and are supplemental or special to the Real Estate's standard systems; and (b) the cost of performing any of said maintenance or repairs caused by the negligence of Tenant, its employees, agents, servants, licensees, subtenants, contractors or invitees, shall be paid by Tenant, except to the extent of insurance proceeds, if any, actually collected by Landlord with regard to the damage necessitating such repairs. Landlord shall repair and maintain such items in a condition comparable to first-class office space in Indianapolis, Indiana, except for damage caused by Tenant, its employees or invitees in excess of ordinary wear and tear. Tenant, at its expense, shall keep and maintain the Premises in good order, condition and repair and in accordance with all applicable legal, governmental and quasi-governmental requirements, ordinances and rules (including the Board of Fire Underwriters). Tenant shall promptly and adequately repair all damage to the Premises and replace or repair all damaged or broken glass in the interior of the Premises, fixtures or appurtenances. If Tenant fails to perform any of its obligations set forth in this Section 5.3, Landlord may, in its sole discretion, perform the same, and Tenant shall pay to Landlord the cost therefor upon demand. Tenant's obligation to repair under this paragraph shall not include (a) damages caused by Landlord or its employees, agents or invitees, or (b) damages or losses caused by fire or other casualty not caused by Tenant, or by other causes beyond Tenant's reasonable control. ARTICLE VI LIENS Tenant shall keep the premises demised hereunder free from any liens, including but not limited to mechanics' liens. If any Statement of Intention to hold a mechanic's lien shall be filed, Landlord at its option may compel the prosecution of an action for the foreclosure of such mechanic's lien by the lienor. If any such Statement of Intention to hold a mechanic's lien shall be filed and an action commenced to foreclose the lien, Tenant, upon demand by Landlord, shall cause the lien to be released by the filing of a written undertaking with a surety approved by the court and obtaining an order from the court releasing the property from such lien. In the event any lien attaches to the Premises by virtue of an act or failure to act on the part of Tenant, Landlord shall have the right, but no obligation, to pay the amount of such lien to cause its release and such amount shall be considered additional rent to be paid to it by Tenant on demand with interest at twelve percent (12%) per year from the date that Landlord pays such lien, provided, however, that if an undertaking is filed with the court and the Real Estate is released from said lien, as hereinabove provided, Landlord's right to pay such lien shall be suspended until a final judgment is entered in such action against Tenant. Nothing provided herein shall preclude Tenant from contesting in good faith the assertion of any lien. All liens and encumbrances created or suffered by Tenant shall attach to Tenant's interest only. ARTICLE VII ASSIGNMENT AND SUBLETTING Tenant shall not assign this lease nor sublet the Premises in whole or in part without the Landlord's written consent, which consent shall not be unreasonably withheld. Any sublease executed by Tenant shall be expressly subject to the terms and conditions of this Lease, and Tenant shall continue to be liable for the performance of the terms and conditions of this Lease, including, but not limited to, the payment of rent set out in Article IV. Landlord shall have the right to assign this Lease without Tenant's consent. 6 ARTICLE VIII LANDLORD'S NON-LIABILITY AND INDEMNIFICATION OF LANDLORD Section 8.1 Non-Liability of Landlord. Landlord and its partners, ------------------------------------- employees, servants and agents shall not be liable for any injury or damage to persons or property resulting from any cause whatsoever in the Premises, unless caused by or due to the sole negligence of Landlord, its agents, servants, or employees or a breach or default in the performance by Landlord of any covenant or agreement on its part to be performed under this Lease. Landlord or its agents shall not be liable for any damage or loss caused by or due to the negligence of Landlord, its agents, servants or employees or a breach or default in the performance by Landlord of any covenant or agreement on its part to be performed under this Lease. Section 8.2 Indemnification of Landlord. Tenant agrees to assume --------------------------------------- the risk of, be responsible for, have the obligation to insure against, and to indemnify and save Landlord and its partners, employees, and agents, harmless from and against any and all liabilities, damages, expenses, fees, penalties, actions, causes of actions, suits, costs (including attorneys' fees), claims or judgments arising from injury during the term to persons or property within or without the Premises occasioned wholly or in part by any act or acts, omission or omissions of Tenant, its agents, servants, contractors, employees, invitees or licensees. ARTICLE IX INSURANCE Tenant, in order to enable it to meet its obligation to insure against the liabilities specified in this lease, agrees to place and maintain, at Tenant's own expense, with insurance companies qualified to do business in the State of Indiana and acceptable to Landlord, public liability and property damage insurance naming Landlord as an additional named insured, protecting the Landlord and Tenant from all causes, including their own negligence, and having a minimum combined single limit coverage for bodily injury and property damage of not less than One Million Dollars ($1,000,000.00). Such policy or policies shall contain a clause that the insurer will not cancel or change the insurance without thirty (30) days prior written notice to Landlord. Tenant shall furnish Landlord with certificates of insurance evidencing such coverage. Should Tenant fail to carry such insurance after a request to do so, Landlord shall have the right to obtain such insurance and collect the cost thereof from the Tenant as Additional Rent payable hereunder. Tenant shall not conduct or permit to be conducted any activity, or place any equipment, materials or other items in, on or about the Premises or the Real Estate, which will in any way increase the rate of fire or liability or casualty insurance on the Real Estate. Should Tenant fail to comply with the foregoing covenant on its part to be performed, Tenant shall reimburse Landlord for such increased amount upon written demand therefor from Landlord, the same to be considered Additional Rent payable hereunder. ARTICLE X WAIVER OF SUBROGATION Tenant and Landlord agree that insurance carried by either of them against loss or damage by fire or other casualty shall contain a clause whereby the insurer waives its rights to subrogation against the other party. Upon request, each party agrees to furnish evidence of such waiver to the other party. ARTICLE XI HOLDING OVER Tenant shall pay Landlord for each day Tenant retains possession of the Premises or part thereof after termination hereof, by lapse of time or otherwise, 1.25 times the amount of the daily fixed rental, 7 based upon the rent in effect on the last day prior to the date of such termination, as adjusted in accordance with the terms of this Lease, and also pay all damages sustained by Landlord by reason of such retention, including reasonable attorney's fees, or, if Landlord gives notice to Tenant of Landlord's election thereof, such holding over shall constitute a renewal of this Lease for a period from month to month, but if the Landlord does not so elect, acceptance by Landlord of rent after such termination shall not constitute a renewal; this provision shall not be deemed to waive Landlord's right of re-entry or any other right hereunder or at law. ARTICLE XII RIGHTS RESERVED TO LANDLORD Landlord shall have the following rights exercisable without notice (except as expressly provided to the contrary in this Lease) and without liability to Tenant for damage or injury to property, person or business (all claims for damage being hereby released) and without effecting an eviction or disturbance of Tenant's use or possession or giving rise to any claim for offset or abatement of rent: a) To change the name or street address of Tenant's space upon one hundred and eighty (180) days prior written notice to Tenant; b) To install and maintain signs and other facilities on the exterior and interior or the Real Estate except Landlord; c) To design and/or approve or disapprove, prior to installation, all types of window coverings of the Premises and to control all interior lighting and other facilities that may be visible from outside the Premises; d) To have pass-keys to Premises, and all portions thereof; e) To grant anyone the exclusive right to conduct any business or render any service in the Real Estate, provided such exclusive right shall not operate to exclude Tenant from the use expressly permitted by Section 3.1; f) To decorate, remodel, repair, alter or otherwise prepare the Premises for reoccupancy during the last six (6) months of the term hereof, if during or prior to such time Tenant vacates the Premises, or at any time after Tenant abandons the Premises; g) To enter the Premises to make inspections, repairs, alterations or additions in or to the Premises or the Real Estate or to exhibit the Premises to prospective tenants, purchasers of the Real Estate, or others at reasonable hours and at any time in the event of an emergency, and to perform any acts related to the safety, protection, preservation, reletting, sale or improvement of the Premises or the Real Estate. In the exercise of its right under this subparagraph, Landlord shall not unreasonably interfere with the conduct of Tenant's business; h) To have access to all mailchutes (if any) according to the rules of the United States Post office; i) To require all persons entering or leaving the Real Estate during such hours as Landlord may from time to time reasonably determine, to identify themselves to a security person by registration or otherwise; to establish the right to enter or leave and to exclude or expel any peddler, solicitor or unruly or loud person at any time from the Premises or the Real Estate; 8 j) To close the Real Estate during times of emergency and, subject to Tenant's right to admittance (24 hours per day, seven days per week) under such reasonable regulations as shall be prescribed from time to time by Landlord, after regular business hours, provided, however, that Landlord shall give written or oral notice to Tenant at least one hour before closing the Building under such circumstances, except in cases life- threatening circumstances in which case no notice shall be required; k) To approve or disapprove the weight, size and location of safes, files, bookshelves, and other heavy equipment and articles in and about the Premises, and to require all such items to be moved in and out of the Estate and the Premises only at such times and in such manner as Landlord shall direct and in all events at Tenant's sole risk and responsibility; l) To decorate, alter, repair or improve the Real Estate at any time, and Landlord and its representatives for that purpose may enter on or about the Premises with such material as Landlord may deem necessary, may erect scaffolding and other necessary structures on or about the Premises and may close or temporarily suspend operation of entrances, doors, corridors, elevators or other common facilities. Tenant waives any claim for damages, including the loss of business resulting there from. In the exercise of its rights under this subparagraph, Landlord shall not unreasonably interfere with the conduct of Tenant's business; m) To do or to permit to be done any work in or about any adjacent or nearby building, land, street, or alley. ARTICLE XIII INSOLVENCY OR BANKRUPTCY The appointment of a receiver to take possession of all or substantially all of the assets of Tenant, or an assignment by Tenant for the benefit of creditors or any action taken or suffered by Tenant under any insolvency, bankruptcy, or reorganization act, shall constitute a breach of this Lease by Tenant, unless any such action or proceeding is dismissed or discharged within sixty (60) days after the same is filed. In no event shall this Lease be assigned by operation of law or by voluntary or involuntary bankruptcy proceedings or otherwise and in no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency, or reorganization proceedings. ARTICLE XIV DEFAULT In the event of any breach of this Lease by Tenant, after receipt by Tenant of fifteen (15) days written notice of default (except there shall be no notice requirement for Tenant's failure to pay rent), Landlord, independent of any other rights or remedies it may have by law or otherwise, shall have the immediate right of re-entry and may remove all persons and property from the Premises. Such property may be removed and stored at the cost of and for the account of Tenant. Should Landlord elect to re-enter as herein provided, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided for by law, Landlord may either terminate this Lease or may terminate the right of Tenant to possession of the Premises without terminating the Lease, in which latter event, Landlord shall be obligated to mitigate its damages by actively seeking to relet said Premises or any part thereof for the account of Tenant (as hereinbelow provided) for such term or terms (which may be for a term extending beyond the term of this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord in the exercise of Landlord's sole discretion may deem advisable with the right to make alterations and repairs to said Premises. Upon each such reletting (a) Tenant shall be immediately liable to pay to Landlord, in addition to any indebtedness other than rent due hereunder, the cost and expense of such reletting and of such alterations and repairs incurred by Landlord, and the amount, if any, by which 9 the rent reserved in this Lease for the period of such reletting (up to but not beyond the term of this Lease) exceeds the amount agreed to be paid as rent for the Premises for such period of such reletting; or (b) at the option of Landlord, rents received by Landlord from such reletting shall be applied first, to the payment of any indebtedness, other than rent due hereunder from Tenant to Landlord; second, to the payment of any reasonable costs and expenses of such reletting and of such alterations and repairs; third, to the payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same may become due and payable hereunder. If Tenant should breach this Lease, in addition to any other remedy Landlord may have, Landlord may recover from Tenant all damages Landlord may incur by reason of such breach, including the cost of recovering the Premises, and including the rent reserved and charged in this Lease for the remainder of the stated term, all of which amounts shall be immediately due and payable (together with attorney's fees) from Tenant to Landlord. Landlord's remedies hereunder are cumulative and not intended to be exclusive of any other remedies or other means of redress to which Landlord may be lawfully entitled in case of a breach of this Lease by Tenant. ARTICLE XV DAMAGE BY FIRE AND EMINENT DOMAIN If, during the term of this Lease, the Premises are damaged or made untenantable by fire or other casualty, cause, condition or thing whatsoever, or the Real Estate in which the Premises are located is substantially damaged or made untenantable from fire or other casualty, cause, condition or thing whatsoever, whether or not the Premises are damaged, and the Landlord shall determine not to restore it, Landlord may, by notice to Tenant given within thirty (30) days after such damage, terminate this Lease. In such case Tenant shall pay the rent apportioned to the time of damage and shall immediately surrender the Premises to the Landlord upon Landlord's request therefor. Unless the Lease is terminated as hereinabove provided, Landlord shall substantially restore the Premises (to the extent of the Building Standard improvements), with reasonable promptness. Tenant's rent shall abate proportionately to the area of usable space during the period of repair. If, as a result of a fire or other casualty, cause, condition or thing whatsoever, a substantial portion of the Real Estate or the Common Areas is damaged to such extent as to substantially interfere with Tenant's use of the Premises, or if the Premises are made partially or wholly untenantable, and in either case if the Landlord's architect determines that the Premises cannot be restored within one hundred and eighty (180) days after Landlord is able to take possession of the damaged space and Premises, then either party may terminate this Lease by written notice to the other given not later than thirty (30) days after the date of certification by Landlord's architect. In all cases, due allowance shall be made for reasonable delays caused by adjustment or insurance loss, strikes, labor difficulties or any cause beyond the Landlord's reasonable control. Landlord shall have no duty to restore, repair or replace Tenant's above-building-standard fixtures or leasehold improvements, including but not limited to, wall and floor coverings, light fixtures, built-in cabinets and bookshelves. If, during the term of this Lease, all or a substantial part of the Premises, or if a substantial part of the Real Estate (Including the Common Areas and Parking Garage) in which the Premises are located (whether or not the Premises are affected) shall be taken or condemned by any competent authority for any public or quasi-public use or purpose and, as a result, Tenant is unable to conduct its normal business activities from the Premises, the Term of this Lease shall end upon and not before the date when the possession of the part so taken shall be required for such use or purpose. If any condemnation proceeding shall be instituted in which it is sought to take or damage any part of the Real Estate is changed by any competent authority and such partial taking or change of grade makes it necessary or desirable to remodel the Real Estate to conform to the taking or changed grade, Landlord shall have the right to cancel this Lease upon not less than thirty (30) days prior written notice to Tenant. In either of the events above referred to, rent at the then current rate shall be apportioned as of the date of the termination. 10 ARTICLE XVI SURRENDER OF PREMISES At the end of the term or any renewal thereof or other sooner termination of this Lease, the Tenant will peaceably deliver up to the Landlord possession of the Premises, together with all improvements or additions upon or belonging to the same, by whomsoever made, in the same condition as received or first installed, ordinary wear and tear and damage by fire, earthquake, Act of God, Landlord's breach, other conditions beyond Tenant's reasonable control or the elements alone excepted. Upon the termination of this Lease, Tenant shall, at Tenant's sole cost, remove all counters, trade fixtures, office furniture and equipment installed by Tenant, unless otherwise agreed to in writing by Landlord. Tenant shall also repair any damage caused by such removal. Property not so removed shall be deemed abandoned at the termination of this Lease by the Tenant and title to the same shall thereupon pass to Landlord. Tenant shall indemnify the Landlord against any loss or liability resulting from delay by Tenant in so surrendering the Premises, including without limitation, any claims made by any succeeding tenant based on such delay. ARTICLE XVII WAIVER The waiver by Landlord of any term, covenant, or condition herein contained shall not be deemed to be a waiver of such term, covenant, or condition or any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant, or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. ARTICLE XVIII NOTICES All notices and demands which may or are required to be given by either party to the other hereunder shall be in writing and shall be sent by United States certified or registered mail, postage prepaid, addressed to Tenant at: 429 North Pennsylvania Street First Floor Indianapolis, Indiana 46204 and addressed to the Landlord at: 429 Penn Partners 429 North Pennsylvania Street Lower Level Indianapolis, Indiana 46204 or to such other firm or to such other place as Landlord may from time to time designate in writing. 11 ARTICLE XIX ABANDONMENT If Tenant shall abandon or vacate the Premises before the end of the term or any other event shall happen entitling Landlord to take possession thereof, Landlord may take possession of said Premises, relet the same without such action being deemed an acceptance of a surrender of this Lease or in any way terminating the Tenant's liability hereunder, and Tenant shall remain liable to pay the rent herein reserved and any other damages suffered by Landlord, less the net amount actually realized from such reletting after deduction of any expenses incident to such repossessions and reletting. ARTICLE XX SUBORDINATION In consideration of the execution of this Lease by Landlord, Tenant accepts this Lease subject to any deeds of conveyance and any existing or future deeds of trust, master leases, security interests or mortgages and all renewals, modifications, extensions, consolidations and replacements of the foregoing which might now or hereafter constitute a lien upon the Real Estate (or the land upon which it is situated or improvements therein or thereon) or upon the Premises, and to zoning ordinances and other building and fire ordinances and governmental regulations relating to the use of the property. Although no instrument or act on the part of Tenant shall be necessary to effectuate such subordination, Tenant shall, nevertheless, for the purpose of confirmation at any time hereafter, on demand in the form(s) prescribed by Landlord, execute any instruments, estoppel certificates, release or other documents that may be requested or required by any purchaser or any holder of any superior interest for the purposes of subjecting and subordinating this Lease to such deed or conveyance or to the lien of any such deed in trust, master lease, security interest, mortgage, or superior interest Tenant hereby appoints Landlord attorney- in-fact, irrevocably, to execute and deliver any such instrument or document for Tenant should Tenant fail or refuse to do so. ARTICLE XXI MISCELLANEOUS PROVISIONS Section 21.1 Governing Law. This Lease shall be governed by the -------------------------- laws of the State of Indiana. Section 21.2 Writing Controls. It is agreed that Landlord has not ----------------------------- made any statement, promise or agreement or taken upon itself any engagement whatsoever verbally or in writing in conflict with the terms of this Lease or that in any way modifies, varies, alters, enlarges, or invalidates any of its provisions and that no obligations of Landlord shall be implied in addition to the obligations herein stated. Section 21.3 Air and Light. This Lease does not grant or -------------------------- guarantee Tenant a continuance of light and air over any property adjoining the Leased Premises. Section 21.4 Landlord's Covenants. Landlord covenants that (a) it --------------------------------- has full power and authority to perform its obligations under the Lease and (b) Tenant, upon paying the rent herein provided and performing all the covenants of this Lease by it to be performed, shall have quiet possession of the Premises, and the use with other persons of the Common Areas and Parking Garage, during the term hereof. Section 21.5 No Option. Submission of this Lease for examination ---------------------- or signature by Tenant does not constitute a reservation or option for the Premises. This instrument becomes effective as a Lease only upon execution and delivery by both Landlord and Tenant. 12 Section 21.6 Time. Time is of the essence of this Lease and each ----------------- and all of its provisions. Section 21.7 Binding Effect. This Lease shall be binding upon and --------------------------- inure to the benefit of the respective parties hereto and their heirs, administrators, successors and assigns. This provision does not allow Tenant's assignment of the Lease except as provided under Article VII. Section 21.8 Severability. The invalidity or unenforceability of ------------------------- any particular provision of this Lease, in whole or in part, shall not affect the other provisions of this Lease and in such an event, this Lease shall be construed in all other aspects as if the invalid or unenforceable provision or part thereof was omitted. Section 21.9 Modification of Lease. This Lease cannot be modified ---------------------------------- unless evidenced by a written agreement signed by both parties hereto. Section 21.10 Memorandum of Lease. The parties agree not to --------------------------------- record a copy of this Lease, but Tenant may, at its expense, prepare and record a Memorandum of Lease in a form mutually agreeable to the parties. IN WITNESS WHEREOF. the parties have caused this Lease to be executed by their duly authorized representatives this 7th day of November 1997 TENANT: UNIFIED HOLDINGS, INC. Witness: By: /s/ Carol J. Highsmith By: /s/ Lynn E. Wood ----------------------------- ------------------------------- Printed: Carol J. Highsmith Printed: Lynn E. Wood ------------------------ -------------------------- Title: President ---------------------------- LANDLORD: Witness: 429 PENN PARTNERS By: /s/ John MacPherson By: /s/ Leo Stenz ----------------------------- ------------------------------- Printed: John MacPherson Printed: Leo Stenz ------------------------ -------------------------- Title: General Partner ---------------------------- 13 EXHIBIT D WORKLETTER ---------- This workletter is attached to and forms a part of the certain office lease between 429 Penn Partners ("Landlord") and Unified Holdings, Inc. ("Tenant") dated January 1, 1998 (" Lease"), pursuant to which Landlord had leased to Tenant office space in the building situated at 429 N. Pennsylvania, Indianapolis. Landlord desires to make improvements to the premises, and Tenant desires to have Landlord make them, upon the terms and conditions in this Workletter. SYSTEMS WORK ------------ Unified will provide licensed contractors and supervise the following: Wiring Voice and Data Move Prime Computer Pershing Line Move Dictaphone SunGard line Move T1 Circuits Nasdaq line Install Digital Lines Quotron Security System Re-install Landlord will pay from invoice, for the above work, with a not to exceed limit of $27,600.00. Any savings from the not to exceed amount would be retained by the Landlord. ELECTRICAL/HVAC WORK -------------------- Stenz Construction will perform and supervise the following work, with the sole cost the responsibility of the Landlord. All necessary Power, PBX, Prime to computer room. Dedicated circuit for Xerox Copier. Dedicated HVAC unit and controls for Computer Room. 14 CONSTRUCTION WORK ----------------- Stenz Construction will perform the following work, with the sole cost the responsibility of the Landlord. Remove wall in computer room. Paint all wood trim and door frames. Replace carpet with linoleum in computer room. Install door from breakroom to vending area. Install door in hall leading from reception area to rear of space. (Under existing bulkhead ) MOVING EXPENSE -------------- Will be the sole responsibility of the Tenant, with Landlord contributing 50% of invoiced amount not to exceed $3,500.00. MAINTENANCE WORK ---------------- Stenz Management will provide necessary cleaning and carpet shampooing. ADDITIONALLY ------------ Landlord will retain the use of all portable partitions and workstations currently used by Unified, that are located on the 4th floor, for the Term of Unified's Lease Agreement. 15 EX-10.38 24 FIRST ADDENDUM TO LEASE EXHIBIT 10.38 FIRST ADDENDUM TO LEASE ----------------------- This First Addendum is entered into this 25th day of June, 1998, by and between 429 Penn Partners, an Indiana Partnership ("Landlord") and Unified Financial Services, Inc. (formerly known as Unified Holdings, Inc.) a Delaware Corporation ("Tenant"). WHEREAS, on the 1st day of January, 1998, Landlord and Tenant entered into a Lease for Premises in the building community known as 429 Pennsylvania Center ("Building"), upon the terms and conditions set forth therein ("Lease"); and WHEREAS, Tenant desires to add to the Premises Additional Space on the first floor consisting of approximately 877 rentable square feet of the Building, all on the terms and conditions set forth in the Lease, except as hereinafter provided; NOW, THEREFORE, in consideration of the Premises and each act performed by either party with respect hereto, the parties agree as follows: 1. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord that certain building space shown and designated as Area (B) on the plot plan attached hereto and made a part hereof as Exhibit "E" subject to all of the terms, provisions, conditions and covenants of the Lease, the same as if the Additional Space had been a part of the original Premises described therein, subject, however, to the terms and conditions of this First Addendum, which shall not be contingent of any corporate acquisitions. 2. Commencing on September 1, 1998, and continuing for the period ending December 31, 2003, the Base Rent for the Additional space shall be One Thousand Two Hundred and Seventy Eight Dollars 96/100 ($1,278.96) per month. For the period January 1, 2004 thru December 31, 2007, the Base rent for the Additional space shall be One Thousand Three Hundred Fifty Two Dollars and 05/100 ($1,352.05) per month in advance on or before the first day of each calendar month. 3. Additional Space is offered in its current condition except for the following: New carpet, painting, install (2) two single glass entry doors, similar to existing style (designated on Exhibit "E"), electrical, voice and data wiring for general office use, expand existing security system similar to general office usage, remove circuit board as indicated on (Exhibit "E"), add dedicated circuit for copier and reconstructing up to 12 feet of Tenant Walls. All work will be completed in accordance with Building Standard Allocations which is attached and made a part hereof as Exhibit "D". 4. Provided that Tenant is not in default hereunder, Tenant shall have, during the Term hereof, continuing Right of Assignment and Subletting as outlined in Article VII of the Lease. 5. In all other respects, the Terms and Provisions of the Lease shall remain the same and in full force and effect. 6. Tenant will be released from a portion of the Lease consisting of 1,116 rentable square feet located on the 3rd floor at a rental rate of $1,165.94. Tenant must remove all equipment and Tenant installed upgrades on or before June 30, 1998. Executed on the day and year first above written. UNIFIED FINANCIAL SERVICES, INC. (formerly known as) UNIFIED HOLDINGS INC. 429 PENN PARTNERS By: /s/ Leo Stenz By: /s/ Tony Ghoston; /s/ Carol J. Highsmith --------------------- ------------------------------------------- Printed: Leo Stenz Printed: Tony Ghoston; Carol J. Highsmith ---------------- -------------------------------------- Title: General Partner Title: CIO; Secretary ------------------ ---------------------------------------- "LANDLORD" "TENANT" - 2 - EX-10.39 25 LEASE AGREEMENT EXHIBIT 10.39 OFFICE LEASE AGREEMENT for EQUITY INSURANCE MANAGERS, INC. INDEX
Section Name Page - ------- ---- ---- 1. Definitions and Certain Basic Provisions 1 ---------------------------------------- 2. Lease and Demise 2 ---------------- 3. Term 2 ---- 4. Use 3 --- 5. Base Rental 3 ----------- 6. Base Rental Adjustment 4 ---------------------- 7. Basic Costs Defined 4 ------------------- 8. Completion of Leasehold Improvements 6 ------------------------------------ 9. Acceptance of Premises and Building By Tenant 6 --------------------------------------------- 10. Services to Be Furnished By Landlord 6 ------------------------------------ 11. Keys and Locks 7 -------------- 12. Graphics 8 -------- 13. Maintenance and Repairs by Landlord 8 ----------------------------------- 14. Repairs by Tenant 8 ----------------- 15. Care of Premises 8 ---------------- 16. Peaceful Enjoyment 8 ------------------ 17. Holding Over 8 ------------ 18. Alterations, Additions, and Improvements 9 ---------------------------------------- 19. Legal Use and Violations of Insurance 9 ------------------------------------- 20. Laws and Regulations; Building Rules 9 ------------------------------------ 21. Nuisance 10 -------- 22. Entry by Landlord 10 ----------------- 23. Assignment and Subletting 10 ------------------------- 24. Transfers by Landlord 12 --------------------- 25. Subordination to Mortgage 12 ------------------------- 26. Mechanic's Lien 13 --------------- 27. Estoppel Certificate 13 -------------------- 28. Events of Default 13 ----------------- 29. Lien for Rent 15 ------------- 30. Attorneys' Fees 15 --------------- 31. No Implied Waiver 16 ----------------- 32. Casualty Insurance 16 ------------------ 33. Liability Insurance 16 ------------------- 34. Indemnity 16 --------- 35. Waiver of Subrogation Rights 17 ---------------------------- 36. Casualty Damage 17 --------------- 37. Condemnation 18 ------------ 38. Damages from Certain Causes 18 --------------------------- 39. Notice and Cure 18 --------------- 40. Personal Liability 19 ------------------ 41. Notice 19 ------ 42. Captions 19 -------- 43. Entirety and Amendments 19 ----------------------- 44. Severability 19 ------------ 45. Binding Effect 19 -------------- - i - 46. Number and Gender of Words 19 -------------------------- 47. Recordation 19 ----------- 48. Governing Law 19 ------------- 49. Interest Rate 20 ------------- 50. Force Majeure 20 ------------- 51. Rules and Regulations 20 --------------------- 52. Reserved Rights 20 --------------- 53. Approval by Landlord's Mortgagees 21 --------------------------------- 54. Brokers 21 ------- 55. Substitute Space 21 ---------------- 56. Time of Essence 22 --------------- 57. Best Efforts 22 ------------ 58. No Reservation 22 -------------- 59. Consents 22 -------- 60. Legal Authority 22 --------------- 61. Hazardous Materials 22 ------------------- 62. Exhibits, Riders and Addenda 23 ---------------------------- 63. Waiver of Jury Trial 23 -------------------- EXHIBITS: - -------- EXHIBIT A DESCRIPTION OF LAND EXHIBIT B FLOOR PLAN OF PREMISES EXHIBIT C BUILDING RULES AND REGULATIONS EXHIBIT D WORK LETTER EXHIBIT E RIGHT OF REFUSAL
- ii - OFFICE LEASE AGREEMENT (Kentucky) THIS LEASE AGREEMENT ("Lease") is entered into as of the 4th day of November, 1996, between MIF REALTY L.P., a Delaware limited partnership doing business in Kentucky as MIF Realty Limited Partnership ("Landlord"), whose address is c/o GE Capital Realty Group, Inc., 16479 Dallas Parkway, Suite 400, Dallas, Texas 75248, Attention: Asset Management and Legal Department, and Equity Insurance Managers, Inc. ("Tenant"), whose address is 3201 Nicholasville Road, Suite 600, Lexington, Kentucky 40503. W I T N E S S E T H: 1. Definitions and Certain Basic Provisions. The following ---------------------------------------- capitalized terms shall have the meaning indicated for purposes of this Lease: (a) Tenant's Guarantor (if applicable, attach Guaranty as an exhibit): N/A (b) "Building": Landlord's property known as Lexington Green II located at 3201 Nicholasville Road in the City of Lexington Fayette County, Kentucky, the land on which such property is located being described or shown on Exhibit A attached hereto. --------- (c) "Premises": the leased premises located in the Building and being conclusively deemed to contain 18,370 square feet of Net Rentable Area (as hereinafter defined), as shown on the floor plans attached as Exhibit B hereto. --------- (d) "Commencement Date": The earlier of sixty days after receipt by Landlord of a fully executed copy of this Lease or January 1, 1997, which date may be extended in accordance with Section 3 below. See Section 1 of the Addendum. (e) "Lease Term": Commencing on the Commencement Date and continuing for five (5) years and zero (0) months after the Commencement Date; provided that if the Commencement Date is a date other than the first day of a calendar month, the Lease Term shall be extended by the number of days remaining in the calendar month in which the Commencement Date occurs. See Section 2 of the Addendum. (f) "Base Rental": Year Rent/SF Annual Rent Monthly Rent ------------------------------------------------------ 1-2 $14.00 $257,180 $21,431.67 3-5 $15.00 $275,550 $22,962.50 Base Rental is subject to adjustment in accordance with Section 6 of this Lease. (g) "Security Deposit": $0.00, such Security Deposit being due and payable upon execution of this Lease. (h) "Net Rentable Area": (i) in the case of a single tenancy floor, all floor area measured from the inside surface of the outer glass or exterior wall of the Building to the inside surface of the opposite outer glass wall or exterior wall of the Building, excluding only the areas ("service areas") within the outside walls used for elevator mechanical rooms, building stairs, fire towers, elevator shafts, flues, vents, stacks, vertical pipe shafts and vertical ducts, but including any such areas which are for the specific use of a particular tenant such as special stairs or elevators, plus an allocation of the square footage of the Building's elevator and main mechanical rooms and ground floor lobby, and (ii) in the case of a partial floor, all floor areas within the inside surface of the outer glass or exterior wall enclosing the portion of the Premises on such floor and measured to the midpoint of the walls separating areas leased by or held for lease to other tenants or from areas devoted to corridors, elevator foyers, restrooms, mechanical rooms, janitor closets, vending areas and other similar facilities for the use of all tenants on the particular floor ("common areas"), but including a proportionate part of the common areas located on such floor based upon the ratio which the tenant's Net Rentable Area on such floor bears to the aggregate Net Rentable Area on such floor, plus an allocation of the square footage of the Building's elevator and main mechanical rooms and ground floor lobby. No deductions from Net Rentable Area are made for columns or projections necessary to the Building. If Landlord and Tenant shall at any time disagree regarding any calculation of the Net Rentable Area of any space required to be made hereunder for any purpose, the Net Rentable Area of such space shall be determined in good faith and in accordance with the provisions of this Paragraph by Landlord's architect (the "Architect"), whose determination thereof shall be conclusive upon each of the parties. Landlord and Tenant shall each pay fifty percent of the Architect's fees and expenses in respect of any such determination. See Section 1(h) of the Addendum. 2. Lease and Demise. Subject to the terms and conditions ---------------- hereinafter set forth, and each in consideration of the duties, covenants, and obligations of the other hereunder, Landlord does hereby lease to Tenant, and Tenant does hereby lease from Landlord, the Premises. 3. Term. (a) Subject to the terms and conditions set forth ---- herein, this Lease shall continue in force for the Lease Term. (b) If the Premises are not ready for occupancy by Tenant on the Commencement Date, Landlord shall not be liable for any costs, claims, damages, or liabilities incurred by Tenant as a result thereof, and the Lease Term and the obligations of Tenant hereunder shall nonetheless commence and continue in full force and effect; provided, however, if the Premises are not ready for occupancy on the Commencement Date due to omission, delay, or default on the part of Landlord, the Lease Term shall not commence until the Premises are ready for occupancy by Tenant. In such event, the Commencement Date shall be deemed to be postponed to the date the Premises are ready for occupancy, whereupon the Lease Term shall commence. Such postponement of rent and of the Commencement Date of this Lease shall constitute full settlement of all claims that Tenant might otherwise have against Landlord by reason of the Premises not being ready for occupancy by Tenant on the stated Commencement Date. Should the Lease Term commence on a date other than that specified in Paragraph 1(d) above, Landlord will send Tenant a written statement of such adjusted Commencement Date, and Tenant will, if Landlord requests, confirm such adjusted date in writing. The Premises shall be deemed to be ready for occupancy on the first to occur of (i) the date that all work required to be completed pursuant to the terms of the Work Letter attached hereto as Exhibit D has been --------- substantially completed (except for minor finishing jobs); provided, however, that if such work is delayed because of a default or failure, or both of Tenant, then the Premises shall also be deemed ready for occupancy when such work would have been substantially completed if Tenant's default or failure had not occurred; such date shall be deemed to have occurred on the date there is delivered to Tenant a certificate from Landlord's architect that all improvements required to be constructed by Landlord in the Premises under the terms of this Lease are substantially complete (except for minor finishing jobs) (or would have been complete but for the default or failure of Tenant), which certificate shall be binding and conclusive upon Tenant in the absence of bad faith and collusion on the part of or between Landlord and Landlord's architect, or (ii) the date on which Tenant begins occupancy of the Premises. See Section 4 of the Addendum. - 2 - 4. Use. The Premises are to be used and occupied by Tenant --- solely for office purposes and for no other purpose or use without the prior written consent of Landlord. 5. Base Rental. (a) Tenant hereby agrees to pay to Landlord, ----------- without any set off or deduction whatsoever, the Base Rental. Tenant shall also pay, as additional rent, all other sums of money that become due and payable by Tenant to Landlord under this Lease (Base Rental, any adjustment thereto pursuant to Paragraph 6 hereof, any basic parking charge or adjustment thereto, and all other sums of money due and payable by Tenant to Landlord under this Lease are sometimes hereinafter collectively called "rent"). Tenant shall also pay with each Base Rental payment the amount of any transaction privilege, sales, or similar taxes incurred by Landlord on the rent transactions. The annual Base Rental, as adjusted from time to time pursuant to Paragraph 6 hereof, shall be due and payable in advance in twelve (12) equal installments on the first (1st) day of each calendar month during the term of this Lease and any extensions or renewals thereof, and Tenant hereby agrees to pay Base Rental as so adjusted to Landlord at Landlord's address provided herein (or such other address as may be designated by Landlord in writing from time to time) monthly, in advance, and without demand. If the term of this Lease commences on a day other than the first (1st) day of a month, then the first installment of Base Rental as adjusted pursuant hereto shall be prorated, based on thirty (30) days per month, and such installment so prorated shall be paid in advance on the Commencement Date. (b) Upon the execution of this Lease, Tenant agrees to pay to Landlord the Security Deposit, to be held by Landlord as security for the performance by Tenant of Tenant's covenants and obligations under this Lease, it being expressly understood that the Security Deposit shall not be considered an advance payment of rental or measure of Landlord's damages in case of default by Tenant. Upon default by Tenant, Landlord, from time to time, without prejudice to any other remedy, may (but shall not be required to) apply the Security Deposit against any arrearages of Base Rental, or other rent, or any other damage, injury, expense or liability caused to Landlord by such default on the part of Tenant. Should all or any portion of the Security Deposit be used for the purposes described above during the Lease Term, then Tenant shall remit to Landlord on the first day of the month following notice of such use the amount necessary to restore Security Deposit to its original balance. Tenant's failure to restore the Security Deposit upon notice from Landlord shall be a material breach of this Lease. No interest shall be payable on the Security Deposit and Landlord shall have no obligation to keep the security deposit separate from its general funds unless otherwise required by applicable law. See Section 5 of the Addendum. (c) If Tenant fails to pay any regular monthly installment of rent by the tenth (10th) day of the month in which the installment is due, or any other amount constituting rent within ten (10) days after accrual thereof or billing therefor, there shall be added to such unpaid amount a late charge of five percent (5%) of the installment or amount due in order to compensate Landlord for the extra administrative expenses incurred. See Section 6 of the Addendum. (d) Notwithstanding anything to the contrary contained herein, Landlord hereby grants Tenant a rental abatement in the amount of $15,000.00 to be applied to Base Rental in the second month of the Lease Term. Except for the rental abatement specified above, Tenant shall be obligated to make all other payments which Tenant is obligated to make pursuant to the terms of this Lease. Tenant agrees that if, at any time during the term of this Lease, there is a default or event of default under this Lease by Tenant, the value of the rental abatement shall be deemed an additional obligation payable by Tenant. Upon the occurrence of a default or an event of default by Tenant under the terms of the Lease, - 3 - Tenant shall be required to pay the value of the rental abatement upon demand of Landlord and any other amounts owed under the terms of this Lease. See Section 7 of the Addendum. 6. Base Rental Adjustment. The Base Rental payable hereunder ---------------------- shall be adjusted from time to time in accordance with the following provisions: (a) Tenant shall pay Tenant's Proportionate Share (hereinafter defined) of Basic Costs in excess of the Basic Costs for calendar year 1997 ("Excess Basic Costs"). Prior to January 1 of each calendar year during the Lease Term, Landlord shall provide an estimate of Excess Basic Costs for the forthcoming calendar year. Tenant shall pay Base Rental for such forthcoming calendar year adjusted upward by Tenant's Proportionate Share of the amount of such forthcoming year's estimated Excess Basic Costs, or downward if the estimate of Excess of Basic Costs for such forthcoming calendar year is less than the prior year's estimate, but in no event shall Base Rental be less than the amount specified in Paragraph 1. (b) By June 1 of each calendar year during the Lease Term commencing June 1, 1999, or as soon thereafter as possible, Landlord shall furnish to Tenant a statement of Landlord's Basic Costs for the previous calendar year or partial calendar year, if applicable. If actual Basic Costs are greater than Landlord's estimate thereof, a lump sum payment (which payment shall be deemed a payment of rent hereunder for all purposes) will be made from Tenant to Landlord within thirty (30) days of the delivery of such statement equal to Tenant's Proportionate Share of the amount by which actual Excess Basic Costs exceeded Landlord's estimate thereof. If actual Excess Basic Costs are less than Landlord's estimate thereof, Landlord shall promptly after delivery of such statement (but in no event within less than thirty (30) days) make a lump sum payment to Tenant (or at Landlord's option, Landlord may credit such lump sum amount against the rent installment due in the immediately succeeding month) equal to Tenant's Proportionate Share of the amount by which estimated Excess Basic Costs exceeded the actual amount thereof. The effect of this reconciliation payment or credit, as applicable, is that Tenant will pay during the Lease Term Tenant's Proportionate Share of Excess Basic Costs, and no more. (c) All rent attributable to Excess Basic Costs shall be paid by Tenant in the proportion that the Net Rentable Area of the Premises bears to ninety-five percent (95%) of the Net Rentable Area of the Building ("Tenant's Proportionate Share"). 7. Basic Costs Defined. "Basic Costs" consist of all ------------------- operating expenses of the Building, the land on which the Building is located, and parking areas, facilities, structures and drives thereon, and any future additions or improvements thereto (collectively, the "Complex"). All operating expenses shall be computed on the accrual basis in accordance with generally accepted accounting principles consistently applied. Operating expenses consist of all expenses, costs, and disbursements (but not specific costs billed to and paid by specific tenants) of every kind and nature that Landlord shall pay or become obligated to pay in connection with the ownership and operation of the Complex, including, but not limited to the following: See Section 8 of the Addendum. (a) Wages, salaries, and fees of all employees of Landlord and/or Landlord's agents (whether paid directly by Landlord itself or reimbursed by Landlord to such other party) engaged in the operation, maintenance, leasing, or security of the Complex and personnel who may provide traffic control relating to ingress and egress from the parking areas of the Complex to the surrounding public streets. All taxes, insurance, and benefits for employees providing these services are also included. See Section 9 of the Addendum. - 4 - (b) Cost of all supplies, materials and equipment rented or used in the operation or maintenance of the Complex. (c) Cost of all utilities for the Complex including, but not limited to, the cost of water and power, gas, heating, lighting, air conditioning and ventilating for the Complex. (d) Management costs and the cost of all maintenance, janitorial, and service agreements for the Complex and the equipment therein including, but not limited to, alarm service, window cleaning, elevator maintenance, security service, traffic control, and janitorial service. (e) Cost of all insurance relating to the Complex, including, but not limited to, the cost of fire and extended coverage insurance, rental loss or abatement insurance, casualty and liability insurance applicable to the Complex and Landlord's personal property used in connection therewith. See Section 10 of the Addendum. (f) All taxes, assessments, and other governmental charges, whether federal, state, county or municipal (other than federal taxes on Landlord's net income and Landlord's franchise taxes), and whether they be by taxing districts or authorities presently taxing the Complex or by others, subsequently created or otherwise, and any other taxes and assessments attributable to the Complex or its operation. It is agreed that Tenant will be responsible for ad valorem taxes on its personal property and on the value of leasehold improvements to the extent that the same exceed standard Building allowances. (g) Costs of repairs and general maintenance (excluding repairs and general maintenance paid by proceeds of insurance or by Tenant or other third parties, and alterations attributable solely to tenants of the Building other than Tenant). (h) Amortization of the cost of capital investment items which are primarily for the purpose of reducing operating costs or which may be required by governmental authority. All such costs shall be amortized over the reasonable life of the capital investment items by including in Basic Costs the annual amortized amount thereof, with the reasonable life and amortization schedule being determined by Landlord in accordance with generally accepted accounting principles, but in no event to extend beyond the reasonable life of the Building. See Section 11 of the Addendum. (i) Landlord's central accounting costs applicable to the Complex. See Section 12 of the Addendum. (j) Cost of an office in the Building maintained for management of the Complex. See Section 12 of the Addendum. Landlord and Tenant agree that the foregoing enumeration of specific types of costs and expenses is intended as illustrative only and shall not be construed so as to limit the inclusion of any types of costs or expenses otherwise intended to be included within the term Basic Costs but not set forth above or to obligate Landlord to provide any services contemplated thereby. In addition to the direct costs described above, Landlord shall have the right to establish reserves for capital improvements, repairs and maintenance as Landlord may from time to time deem necessary or appropriate. The amount of such reserves shall be an additional component of Basic Costs. Should such capital improvements be necessary due to casualty damage, ordinary wear and tear, compliance with any governmental law, ordinance or requirement or for any other reason, the cost of such capital improvements in excess of the currently available reserves shall be amortized over a period of time designated by Landlord in its reasonable discretion as a component of Basic Costs. - 5 - Notwithstanding any other provision herein to the contrary, if the Building is not fully occupied during any year of the Lease Term, an adjustment shall be made in computing the Basic Costs for such year so that the Basic Costs shall be computed for such year as though the Building had been fully occupied during such year. Tenant at its expense shall have the right at any reasonable time within twelve (12) months after the end of an applicable year for which additional rent is due, upon prior written notice to Landlord, to audit Landlord's books and records relating to this Lease for the immediately preceding calendar year in which Base Rental was adjusted pursuant to Paragraph 6 hereof; or at Landlord's sole discretion, Landlord will provide at Tenant's expense such audit prepared by a certified public accountant. See Section 13 of the Addendum. 8. Completion of Leasehold Improvements. Tenant shall submit ------------------------------------ to Landlord for approval full definitive plans and specifications for all leasehold improvements (the "Leasehold Improvements") to be constructed or installed or other work to be performed by Tenant in the Premises, including but not limited to, all architectural, electrical and mechanical plans, room finish schedules, millwork detail, and air conditioning layout drawings, all in accordance with the terms and provisions of the Work Letter attached hereto as Exhibit D. The Work --------- Letter sets forth certain dates by which plans and specifications for the Leasehold Improvements must be prepared, reviewed and approved, and further describes the circumstances, if applicable, under which the Commencement Date hereof may be delayed. 9. Acceptance of Premises and Building By Tenant. The taking --------------------------------------------- of possession of the Premises by Tenant shall be conclusive evidence (a) that Tenant accepts the Premises as suitable for the purposes for which the same are leased, (b) that Tenant accepts the Building and each and every part and appurtenance thereof as being in a good and satisfactory condition, and (c) that Landlord has fully complied with Landlord's obligations contained in this Lease with respect to the construction of the Building and the Leasehold Improvements. 10. Services to Be Furnished By Landlord. During Tenant's ------------------------------------ occupancy of the Premises, Landlord shall furnish (as a part of the Basic Costs of the Complex) the following services: (a) Hot and cold water at those points of supply provided for general use of other tenants in the Building and central heat and air conditioning in season, at such temperatures and in such amounts as are considered by Landlord to be standard; provided, however, such service at times other than normal business hours (as set forth in Exhibit C Building Rules and Regulations) for the Building shall be - --------- furnished only upon the prior request of Tenant, who shall bear the entire cost thereof. (b) Routine maintenance and electric lighting service for all public areas and special service areas of the Building in the manner and to the extent deemed by Landlord to be standard. (c) Janitorial service, Mondays through Fridays, exclusive of holidays. (d) Electrical facilities to furnish sufficient power for typewriters, word processors, photocopying machines, personal computers, and other machines of similarly low electrical consumption (total consumption not to exceed one (1) watt per square foot of Net Rentable Area per month) but not for electronic data processing equipment, special lighting in excess of Building standard, or any other item of electrical equipment which (singly) consumes more than 0.5 kilowatts at rated capacity or requires a voltage other than 120 volts single phase. If Tenant's electrical equipment requires additional air conditioning capacity above that provided by the Building standard system, then the additional air conditioning installation and operating costs will be payable by Tenant on demand therefor by Landlord. - 6 - (e) All Building standard fluorescent bulb replacement in all areas of the Building and all incandescent bulb replacement in public areas, toilet and restroom areas, and stairwells. (f) Security to the Complex. Landlord shall be the sole determinant of the type and amount of security services to be provided, if any. Landlord shall not be liable to Tenant, and Tenant hereby waives any claim against Landlord for (i) any unauthorized or criminal entry of third parties into the Premises or Complex, (ii) any damage to persons or property, or (iii) any loss of property in and about the Premises or Complex from an unauthorized or criminal acts of third parties, regardless of any action, inaction, failure, breakdown or insufficiency of security. (g) Passenger elevator(s) for ingress to and from the Premises (if applicable). See Section 14 of the Addendum. At Landlord's election Landlord may cause to be installed and maintained at Tenant's expense, metering devices for any utility service provided to the Premises and Tenant will reimburse Landlord within ten (10) days after invoicing by Landlord for the cost of such utility service. Landlord shall be deemed to have observed and performed the terms and conditions to be performed by Landlord under this Lease, including those relating to the provisions of utilities and services, if Landlord acts in accordance with a directive, policy or request of a governmental or quasi-governmental authority servicing the public interest in the fields of energy, conservation or security. Tenant shall pay to Landlord on demand, and as additional rental, the costs incurred by Landlord for (a) extra cleaning work in the Premises required because of (i) misuse or neglect on the part of Tenant or Tenant's permitted subtenants or the employees or visitors of Tenant or Tenant's permitted subtenants, (ii) the use of portions of the Premises for special purposes requiring greater or more difficult cleaning work than office areas (including, without limitation, kitchens, breakrooms, reproduction rooms, computer areas or similar facilities in the Premises), (iii) interior glass partitions or unusual quantity of interior glass surfaces, and (iv) non-building standard materials or finishes installed by Tenant or at Tenant's request, and (b) removal from the Premises and the Building of any refuse and rubbish of Tenant that in Landlord's judgement exceeds that ordinarily accumulated in business office occupancy or at times other than Landlord's standard cleaning times. Water, gas, electrical, and sewer services included in the foregoing Building services will be provided through available public utilities. The failure by Landlord to any extent to furnish these services, any cessation, malfunction, fluctuation, variation, or interruption thereof, or any breakdown or malfunction of equipment in the Complex resulting from causes beyond the reasonable control of Landlord shall not render Landlord liable in any respect for damages, direct or consequential, to either persons or property, nor be construed as an eviction of Tenant, nor work an abatement of rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement hereof. Should any of Tenant's office equipment or machinery breakdown, be damaged, or for any cause cease to function properly as a result of the cessation, malfunction, fluctuation, variation, interruption, or breakdown of services or equipment in the Complex, Tenant shall have no claim for rebate, offset or reduction of rent or damages. 11. Keys and Locks. Landlord shall furnish Tenant a Building -------------- standard number of keys for each corridor entering the Premises. Additional keys will be furnished at a charge by Landlord on receipt of an order signed by Tenant. All keys shall remain the property of Landlord. No additional locks shall be allowed on any door of the Premises without Landlord's written permission, and Tenant shall not make or permit to be made any duplicate keys, except those furnished by Landlord. Upon termination of this - 7 - Lease, Tenant shall surrender to Landlord all keys to the Premises, and give to Landlord the explanation of the combination of all locks for safes, safe cabinets, and vault doors, if any, in the Premises. 12. Graphics. Landlord shall provide and install, at Tenant's -------- cost, chargeable against any available Tenant improvement allowance, all letters or numerals on doors in the Premises. All such letters and numerals shall be in the standard graphics for the Building, and no others shall be used or permitted on the Premises. Landlord also agrees to provide and install, at Tenant's cost, a listing on the Building directory board. 13. Maintenance and Repairs by Landlord. Unless otherwise ----------------------------------- stipulated herein, Landlord shall not be required to make any improvements or repairs of any kind or character on the Premises during the Lease Term, except such repairs as may be deemed necessary by Landlord for normal maintenance operations. The obligation of Landlord to maintain and repair the Premises shall be limited to the repair of Building standard items. Any Leasehold Improvements will, at Tenant's written request, be maintained by Landlord at Tenant's expense, at a cost or charge equal to all costs incurred in such maintenance plus an additional charge to cover overhead, which costs and charges shall be payable by Tenant on demand therefor by Landlord. See Section 15 of the Addendum. 14. Repairs by Tenant. Tenant shall repair or replace, at ----------------- Tenant's cost and expense, any damage done to the Complex, or any part thereof, caused by Tenant or Tenant's agents, employees, invitees, or visitors, and shall restore the Complex to the same or as good a condition as it was prior to such damage. All repairs and replacements shall be effected in compliance with all building and fire codes and other applicable laws and regulations. If Tenant fails to make such repairs or replacements promptly, Landlord may, at its option, make the repairs or replacements, and Tenant shall pay the cost thereof to Landlord on demand. Any repairs required to be made by Tenant to the mechanical, electrical, sanitary, heating, ventilating, air conditioning or other system of the Building shall be performed only by contractor(s) designated by Landlord and only upon the prior written approval of Landlord as to the work to be performed and materials to be furnished in connection therewith. Any other repairs in or to the Building, the Complex, and the facilities and systems thereof for which Tenant is responsible shall be performed by Landlord at Tenant's expense; but Landlord may, at Landlord's option, before commencing any such work or at any time thereafter, require Tenant to furnish to Landlord such security, in form (including, without limitation, a bond issued by a corporate surety licensed to do business in the state in which the Building is situated) and in such amount as Landlord shall deem necessary to assure the payment for such work by Tenant. 15. Care of Premises. Tenant shall not commit or allow any ---------------- waste or damage to be committed on any portion of the Premises, and at the termination of this Lease, by lapse of time or otherwise, to deliver possession of the Premises to Landlord in as good a condition as at the Commencement Date, ordinary wear and tear excepted. Upon any termination of this Lease, Landlord shall have the right to reenter and resume possession of the Premises. 16. Peaceful Enjoyment. Tenant shall be entitled to hold and ------------------ enjoy the Premises subject to the terms hereof, provided that Tenant timely pays the rent and other sums herein required to be paid by Tenant and timely performs all of Tenant's covenants and agreements herein contained. This covenant and any and all other covenants and agreements of Landlord contained in the Lease shall be binding upon Landlord and its successors only with respect to breaches occurring during its or their respective periods of ownership of Landlord's interest hereunder. 17. Holding Over. If after expiration or other termination of ------------ this Lease Tenant holds over without the prior written consent of Landlord, Tenant shall, throughout the entire holdover period, pay - 8 - rent equal to the greater of twice the Base Rental (with such adjustments to Base Rental as would otherwise have been in effect if the Lease Term had continued during such period of holding over) or the prevailing market rent determined by Landlord, plus all other amounts that would otherwise have been payable hereunder as rent had the Lease Term continued through the period of such holding over by Tenant; provided, however, that Landlord's acceptance of any such payment shall not constitute nor imply any consent by Landlord to any such holding over by Tenant. No holding over by Tenant after the expiration of the Lease Term shall be construed to extend the Lease Term; and in the event of any unauthorized holding over, Tenant shall indemnify, defend and hold Landlord harmless from and against all claims for damages (and reimburse Landlord upon demand for any sums paid in settlement of any such claims) by any other Tenant or prospective Tenant to whom Landlord may have leased all or any part of the Premises effective before or after the expiration of the Lease Term and by any broker claiming any commission or fee in respect of any such lease or offer to lease. Any holding over with the written consent of Landlord shall thereafter constitute this Lease a lease from month to month under the terms and provisions of this Lease, to the extent applicable to a tenancy from month to month, with a Base Rental of one and one-half (1 1/2) times that payable at the end of the Lease Term. See Section 16 of the Addendum. 18. Alterations, Additions, and Improvements. Tenant shall ---------------------------------------- not permit the Premises to be used for any purpose other than that stated in Paragraph 4 hereof or make or allow to be made any alterations or physical additions in or to the Premises, or place signs on the Premises which are visible from outside the Premises, without first obtaining the written consent of Landlord in each such instance. Tenant agrees to indemnify Landlord and hold Landlord harmless against any loss, liability, claim, or damage resulting from any work done by Tenant in or to the Premises. Any and all alterations, physical additions, or improvements, including Leasehold Improvements, when made to the Premises by Tenant, shall be done in a good and workmanlike manner, lien-free and in accordance with all applicable laws, codes, regulations, and requirements and shall at once become the property of Landlord and shall be surrendered to Landlord upon termination of this Lease by lapse of time or otherwise; provided, however, this clause shall not apply to trade fixtures, movable equipment, or furniture owned by Tenant, which, if Tenant is not in default, may be (or if requested by Landlord, shall be) removed by Tenant upon termination of this Lease. Tenant agrees specifically that no food, soft drink, or other vending machine will be installed within the Premises. See Section 17 of the Addendum. 19. Legal Use and Violations of Insurance. Tenant shall not ------------------------------------- occupy or use, or permit any portion of the Premises to be occupied or used, for any business or purpose that is unlawful, disreputable or extra-hazardous in any manner, or permit anything to be done that could in any way increase the rate or result in the denial or reduction of fire, liability or any other insurance coverage on the Complex and/or its contents. If, by reason of Tenant's acts or conduct of business, there shall be an increase in the rate of insurance on the Building or the Building's contents, then Tenant shall pay such increase to Landlord immediately upon demand as additional rental. 20. Laws and Regulations; Building Rules. ------------------------------------ (a) Tenant shall comply at its sole cost and expense with all laws, ordinances, statutes, rules and regulations of any state, federal, municipal, or other government or governmental agency or quasi-governmental agency having jurisdiction of the Premises that relate to the use, condition or occupancy of the Premises and the conduct of Tenant's business thereon, including, without limitation, compliance with the Americans with Disabilities Act of 1990, as amended and any regulations promulgated thereunder. Tenant will comply with the rules of the Complex adopted and altered by Landlord from time to time for the safety, care, and cleanliness of the Premises and Complex and for the - 9 - preservation of good order therein, all changes to which will be sent by Landlord to Tenant in writing and shall be thereafter carried out and observed by Tenant. (b) Tenant acknowledges that it will be wholly responsible for any accommodations or alterations which need to be made to the Premises to accommodate disabled employees and customers of Tenant, including requirements under the Americans with Disabilities Act and the Texas Architectural Barriers Act. Any alterations made to the Premises in order to comply with either statute must be made solely at Tenant's expense and in compliance with all terms and requirements of the Lease. Landlord agrees to make reasonable efforts to ensure that the Complex is in compliance with the applicable disability access laws as of the date hereof. If a complaint is received by Landlord from either a private or government complaint regarding disability access to the common areas of the Complex, Landlord reserves the right to mediate, contest, comply with or otherwise respond to such complaint as Landlord deems to be reasonably prudent under the circumstances. If Landlord decides to make alterations to the common areas of the Complex in response to any such complaints or in response to legal requirements Landlord considers to be applicable to the common areas of the Complex, the cost of such alterations shall be included in the Basic Costs under the Lease. Landlord and Tenant agree that so long as the governmental entity or entities charged with enforcing such statutes have not expressly required Landlord to take specific action to effectuate compliance with such statutes, Landlord shall be conclusively deemed to be in compliance with such statutes. In the event Landlord is required to take action to effectuate compliance with such statutes, Landlord shall have a reasonable period of time to make the improvements and alterations necessary to effectuate such compliance, which period of time shall be extended by any time necessary to cause any necessary improvements and alterations to be made. See Section 18 of the Addendum. 21. Nuisance. Tenant shall conduct its business and control -------- its agents, employees, invitees, and visitors in such manner as not to create any nuisance, or interfere with, annoy, or disturb any other tenant or Landlord in its operation of the Complex. 22. Entry by Landlord. Tenant shall permit Landlord and its ----------------- agents and representatives to enter any part of the Premises at all reasonable hours (and in emergencies at all times) to inspect the same, or to show the Premises to prospective tenants, purchasers, mortgagees, or insurers, to clean or make repairs, alterations, or additions thereto, as Landlord may deem necessary or desirable. Tenant shall not be entitled to any abatement or reduction of rent by reason of such entry. 23. Assignment and Subletting. See Section 19 of the Addendum. ------------------------- (a) Tenant shall not, without the prior written consent of Landlord, (i) assign or in any manner transfer this Lease or any estate or interest therein, or (ii) permit any assignment of this Lease or any estate or interest therein by operation of law, or (iii) sublease the Premises or any part thereof, or (iv) grant any license, concession, or other right of occupancy of any portion of the Premises, or (v) permit the use of the Premises by any parties other than Tenant, its agents and employees. For purposes hereof, the merger or consolidation of Tenant with or into any other corporation or other entity, a sale or other transfer of fifty percent (50%) or more of Tenant's capital stock or other analogous ownership interest, or a sale or other transfer of fifty percent (50%) or more of Tenant's assets shall be deemed an assignment of this Lease. Consent by Landlord to one or more assignments or sublettings shall not operate as a waiver of Landlord's rights as to any subsequent assignments and subletting. All such money or other consideration not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and shall be promptly paid or delivered to Landlord. Notwithstanding any assignment or subletting consented to by Landlord, Tenant and any guarantor of Tenant's obligations under this Lease shall at all times remain fully responsible and liable for the payment of the rent herein specified and for - 10 - compliance with all of Tenant's other obligations under this Lease. If any event of default should occur while the Premises or any part thereof are then assigned or sublet, Landlord, in addition to any other remedies herein provided or provided by law, may at its option collect directly from such assignee or subtenant all rents becoming due to Tenant under such assignment or sublease, and apply such rent against any sums due to Landlord by Tenant hereunder, and Tenant hereby directs any such assignee or subtenant to make such payments of rent directly to Landlord upon receipt of notice from Landlord. No direct collection by Landlord from any such assignee or subtenant shall be construed to constitute a novation or a release of Tenant or any guarantor of Tenant from the further performance of its obligations hereunder. Receipt by Landlord of rent from any assignee, subtenant or occupant of the Premises shall not be deemed a waiver of the covenant contained in this Lease against assignment and subletting or a release of Tenant from any obligation under this Lease. The receipt by Landlord to any such assignee or subtenant obligated to make payments of rent shall be a full and complete release, discharge, and acquittance to such assignee or subtenant to the extent of any such amount of rent so paid to Landlord. Landlord is authorized and empowered, on behalf of Tenant, to endorse the name of Tenant upon any check, draft, or other instrument payable to Tenant evidencing payment of rent, or any part thereof, and to apply the proceeds therefrom in accordance with the terms hereof. Tenant shall not mortgage, pledge, or otherwise encumber its interest in this Lease or in the Premises. Any attempted assignment or sublease or encumbrance by Tenant in violation of the terms and covenants of this paragraph shall be void and constitute an event of default under this Lease. (b) Notwithstanding anything to the contrary contained herein, and without prejudice to Landlord's right to require a written assumption from each assignee, any person or entity to whom this Lease is assigned including, without limitation, assignees pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. Paragraph 101 et seq. (the "Bankruptcy Code") shall automatically be deemed, by acceptance of such assignment or sublease or by taking actual or constructive possession of the Demised Premises, to have assumed all obligations of Tenant arising under this Lease effective as of the earlier of the date of such assignment or sublease or the date on which the assignee or sublessee obtains possession of the Demised Premises. In the event this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord and shall remain the exclusive property of Landlord and not constitute the property of Tenant or Tenant's estate within the meaning of the Bankruptcy Code. In the event of any default described in subsection 28(a)(iv) below, in order to provide Landlord with the assurances contemplated by the Bankruptcy Code, in connection with any assignment and assumption of this Lease Tenant must fulfill the following obligations, in addition to any other reasonable obligations that Landlord may require, before any assumption of this Lease is effective: (i) all defaults under subsection (a) of Section 28 of this Lease must be cured within ten (10) days after the date of assumption, (ii) all other defaults under Section 28 of this Lease other than under subsection (a)(iv) of Section 28 must be cured within fifteen (15) days after the date of assumption; (iii) all actual monetary losses incurred by Landlord (including, but not limited to, reasonable attorneys' fees) must be paid to Landlord within ten (10) days after the date of assumption; and (iv) Landlord must receive within ten (10) days after the date of assumption a security deposit in the amount of six (6) months Base Rental (using the Base Rental in effect for the first full month immediately following the assumption) and an advance prepayment of Base Rental in the amount of three (3) months Base Rental (using the Base Rental in effect for the first full month immediately following the assumption), both sums to be held by Landlord in accordance with Section 5(b) above and deemed to be rent under this Lease for the purposes of the Bankruptcy Code as amended and from time to time in effect. In the event this Lease is assumed in accordance with the requirements of the Bankruptcy Code and this Lease, and is subsequently assigned, then, in addition to any other reasonable obligations that Landlord may require and in order to provide Landlord with the assurances contemplated by the Bankruptcy Code, Landlord shall be provided with (i) a financial statement of the proposed assignee prepared in accordance with - 11 - generally accepted accounting principles consistently applied, though on a cash basis, which reveals a net worth in an amount sufficient, in Landlord's reasonable judgment, to assure the future performance by the proposed assignee of Tenant's obligations under this Lease; or (ii) a written guaranty by one or more guarantors with financial ability sufficient to assure the future performance of Tenant's obligations under this Lease, such guaranty to be in form and content satisfactory to Landlord and to cover the performance of all of Tenant's obligations under this Lease. (c) If Tenant requests Landlord's consent to an assignment of the Lease or subletting of all or a part of the Premises, Tenant shall submit to Landlord in writing, at least sixty (60) days in advance of the date on which Tenant desires to make such an assignment or sublease, notice of the name of the proposed assignee or subtenant and the proposed commencement date of such assignment or subletting, together with copies of all agreements entered into or contemplated to be entered into regarding such subletting or assignment, and such information as Landlord may request regarding the nature and character of the business of the proposed assignee or subtenant. Landlord shall have the option (to be exercised within thirty (30) days after Landlord's receipt of Tenant's submission of written request and all information requested by Landlord in connection therewith), (i) to permit Tenant to assign or sublet such space to the proposed assignee or subtenant (in which event Tenant shall deliver to Landlord fully-executed legible, correct and complete copies of all agreements relating to such assignment or subletting); if, however, the rental or other consideration payable in respect of such subletting or assignment exceeds the rent payable hereunder by Tenant, then all such excess rent and other consideration shall be deemed additional rent owed by Tenant to Landlord, and shall be payable to Landlord by Tenant in the same manner and on the same terms as installments of Base Rental are payable by Tenant hereunder (or upon Tenant's receipt thereof, whichever is earlier); or (ii) to refuse to consent to Tenant's assignment or subleasing of such space and to continue this Lease in full force and effect as to the entire Premises; or (iii) to cancel this Lease (or the applicable portion thereof as to a partial subletting) as of the commencement date stated in the above-mentioned notice from Tenant of its desire to enter into such subletting or assignment, in which event the term of this Lease, and the tenancy and occupancy of the Premises (or the applicable portion thereof as to a partial subletting) by Tenant thereunder, shall terminate as if the cancellation date was the original termination date of this Lease. If Landlord should fail to notify Tenant in writing of such election within such thirty (30) day period, Landlord shall be deemed to have elected option (ii) above. If Landlord elects to exercise option (i) above, Tenant agrees to provide, at its expense and at a location approved by Landlord, direct access from such sublet space to a public corridor of the Building. Notwithstanding Landlord's consent to any assignment or subletting, no further or subsequent assignment or subletting shall be permitted unless Landlord consents in writing thereto. 24. Transfers by Landlord. Landlord shall have the right to --------------------- transfer and assign, in whole or in part, all its rights and obligations hereunder and in the Complex and other property referred to herein, and in such event and upon such transfer (any such transferee to have the benefit of, and be subject to, the rights and obligations of Landlord hereunder), Landlord shall be released from any further obligations hereunder, and Tenant agrees to look solely to such successor in interest of Landlord for the performance of such obligations. 25. Subordination to Mortgage. This Lease is subject and ------------------------- subordinate to any mortgage or deed of trust that may now or hereafter encumber the Complex, and to all renewals, modifications, consolidations, replacements, and extensions thereof. This clause shall be self-operative and no further instrument of subordination need be required by any mortgagee or beneficiary; provided that any such mortgagee or beneficiary may elect to make this Lease superior to such mortgage or deed of trust by written instrument delivered to Tenant. In confirmation of such subordination, however, Tenant shall, within five (5) days after Landlord's request, execute any certificate or instrument evidencing such - 12 - subordination that Landlord or its lender may request. Tenant hereby constitutes and appoints Landlord as Tenant's attorney-in-fact to execute any such certificate or instrument for and on behalf of Tenant. In the event of the enforcement by the mortgagee or beneficiary under any such mortgage or deed of trust of the remedies provided for by law or by such mortgage or deed of trust, Tenant will, at the option of any person or party succeeding to the interest of Landlord as a result of such enforcement, attorn to and automatically become the Tenant of such successor in interest without change in the terms or other provisions of this Lease; provided, however, that such successor in interest shall not be bound by (a) any payment of rent or additional rent for more than one (1) month in advance, except advance rental payments expressly provided for in this Lease; (b) any modification of this Lease made without the written consent of such mortgagee or beneficiary or such successor in interest; (c) liable for any act or omission of Landlord; or (d) subject to any offset or defense arising prior to the date such successor in interest acquired title to the Building. Upon request by any mortgagee or beneficiary, Tenant shall execute and deliver an instrument or instruments confirming the attornment provided for herein. 26. Mechanic's Lien. Tenant shall not permit any mechanic's --------------- lien or liens to be placed upon the Premises, the Leasehold Improvements thereon or the Complex during the term hereof caused by or resulting from any work performed, materials furnished, or obligation incurred by or at the request of Tenant, and nothing contained in this Lease shall be deemed as constituting the consent or request of Landlord, express or implied, to any contractor, subcontractor, laborer, or materialman for the performance of any labor or the furnishing of any material for any specific improvement, alteration, or repair to the Premises, or any part thereof, nor as giving Tenant any authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any mechanic's or other liens against the interest of Landlord in the Premises. If a lien is filed upon the interest of Landlord or Tenant in the Premises, the Leasehold Improvements or the Complex, Tenant shall cause the same to be discharged of record within ten (10) days after the filing of same. If Tenant shall fail to discharge such mechanic's lien within such period, then, in addition to any other right or remedy of Landlord, Landlord may discharge the same, either by paying the amount claimed to be due, or by procuring the discharge of such lien by deposit in court or bonding. Any amount paid by Landlord for any of the aforesaid purposes, or for the satisfaction of any other lien not caused by Landlord, with interest thereon at the rate hereinafter provided from the date of payment, shall be paid by Tenant to Landlord immediately on demand as rent. 27. Estoppel Certificate. Tenant will, at any time and from -------------------- time to time, within three (3) days from any written request by Landlord, execute, acknowledge, and deliver to Landlord a statement in writing executed by Tenant certifying to Landlord and/or any party designated by Landlord that Tenant is in possession of the Premises under the terms of this Lease, that this Lease is unmodified and in full effect (or, if there have been modifications, that this Lease is in full effect as modified, and setting forth such modifications), the dates to which the rent has been paid, that to the knowledge of Tenant no default exists hereunder or specifying each such default of which Tenant may have knowledge, and such other matters as may be reasonably requested by Landlord. Any such statement by Tenant may be relied upon by any prospective purchaser or mortgagee of the Complex. 28. Events of Default. (a) The following events shall be ----------------- events of default by Tenant under this Lease: (i) Tenant shall fail or refuse to pay any installment of the rent hereby reserved or other sum of money payable hereunder or under any other agreement between Landlord and Tenant when due and such failure or refusal shall continue for ten (10) days after such payment shall become due and payable. - 13 - (ii) Tenant shall fail or refuse to comply with any term, provision, or covenant of this Lease, other than the payment of rent, or any term, provision, or covenant of any other agreement between Landlord and Tenant, and shall not cure such failure or refusal within fifteen (15) days after written notice thereof from Landlord to Tenant. (iii) Tenant or any guarantor of Tenant's obligations hereunder (hereinafter called "Guarantor") shall become insolvent, make a transfer in fraud of creditors, make a general assignment for the benefit of creditors, or admit in writing its inability to pay its debts as they become due. (iv) Tenant or any Guarantor shall file a petition under any section or chapter of the Federal Bankruptcy Code, as amended from time to time, or under any similar law or statute of the United States or any State thereof, or an order for relief shall be entered against Tenant or any Guarantor in any bankruptcy or insolvency proceedings, or a petition or answer proposing the entry of an order for relief against Tenant or any Guarantor in a bankruptcy or its reorganization proceedings under any present or future federal or state bankruptcy or similar law shall be filed in any court and not discharged or denied within thirty (30) days after its filing. (v) A receiver, trustee or custodian shall be appointed for all or substantially all of the assets of Tenant or any Guarantor or of the Premises or any of Tenant's property located therein in any proceeding brought by Tenant or any Guarantor, or any such receiver, trustee or custodian shall be appointed in any proceeding brought against Tenant or any Guarantor and shall not be discharged within thirty (30) days after such appointment, or Tenant or such Guarantor shall consent to or acquiesce in such appointment. (vi) Tenant's leasehold interest hereunder shall be taken in execution or other process of law in any action against Tenant. (vii) Tenant shall cease to conduct its business in the Premises or shall vacate any substantial portion of the Premises, whether or not rent continues to be paid. (viii) Tenant shall fail or refuse to move into or take possession of the Premises within fifteen (15) days after the Commencement Date. (b) If an event of default occurs, Landlord shall have the right to pursue any one or more of the following remedies in addition to all other rights or remedies provided herein or at law or in equity: (i) Landlord may terminate this Lease or, without terminating this Lease, terminate Tenant's right of possession and forthwith repossess the Premises by forcible entry and detainer suit or otherwise without liability for trespass or conversion and be entitled to recover as damages a sum of money equal to the total of (A) the cost of recovering the Premises, (B) the unpaid rent due and payable at the time of termination, plus interest thereon at the rate hereinafter specified from the due date, (C) the balance of the rent for the remainder of the term less the fair market value of the Premises for such period, and (D) any other sum of money and damages owed by Tenant to Landlord. (ii) Landlord may terminate Tenant's right of possession and may repossess the premises by forcible entry or detainer suit or otherwise without liability for trespass or conversion, without demand or notice of any kind to Tenant and without terminating this Lease, - 14 - in which event Landlord may, but shall be under no obligation to, relet the same for the account of Tenant for such rent and upon such terms as shall be satisfactory to Landlord. For the purpose of such reletting, Landlord is authorized to decorate or to make any repairs, changes, alterations, or additions in or to the Premises that may be necessary or convenient. If Landlord exercises the remedies provided in this subparagraph, Tenant shall pay to Landlord, and Landlord shall be entitled to recover from Tenant, an amount equal to the total of the following: (A) unpaid rent, plus interest at the rate hereinafter provided, owing under this Lease the for all periods of time that the Premises are not relet; plus (B) the cost of recovering possession, and all of the costs and expenses of such decorations, repairs, changes, alterations, and additions, and the expense of such reletting and of the collection of the rent accruing therefrom to satisfy the rent provided for in this Lease to be paid; plus (C) any deficiency in the rentals and other sums actually received by Landlord from any such reletting from the rent and additional rent required to be paid under this Lease with respect to the periods the Premises are so relet, and Tenant shall satisfy and pay any such deficiency upon demand therefor from time to time. Tenant agrees that Landlord may file suit to recover any sums falling due under the terms of this subparagraph from time to time; and that no delivery or recovery of any portion due Landlord hereunder shall be a defense in any action to recover any amount not theretofore reduced to judgment in favor of Landlord, nor shall such reletting be construed as an election on the part of Landlord to terminate this Lease unless a written notice of such intention be given to Tenant by Landlord. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous default. (iii) Offset against any rents, damages, or other sums of money owed by Tenant any security deposit and/or any advance rent applicable to any time period after the occurrence of the default and any sums which would then or thereafter otherwise be due from Landlord to Tenant. (iv) Landlord may alter locks and other security devices at the Premises. 29. Lien for Rent. Tenant hereby grants to Landlord a lien ------------- and security interest on all property of Tenant now and hereafter placed in or upon the Premises, and such property shall be and remain subject to such lien and security interest of Landlord for payment of all rent hereunder. The provisions of this paragraph relating to such lien and security interest shall constitute a security agreement under the Uniform Commercial Code so that Landlord shall have and may enforce a security interest on all property of Tenant now or hereafter placed in or on the Premises by Tenant, including, but not limited to, all fixtures, machinery, equipment, furnishings, and other articles of personal property. Tenant shall execute from time to time as debtor such financing statements or continuation statements as Landlord may hereafter reasonably request in order to perfect such security interests. Landlord may at its election at any time file a copy of this Lease as a financing statement. Landlord, as secured party, shall be entitled to all of the rights and remedies afforded a secured party under the Uniform Commercial Code in addition to the landlord's liens and rights provided by law or by the other terms and provisions of this Lease. See Section 20 of the Addendum. 30. Attorneys' Fees. If Tenant defaults in the performance of --------------- any terms, covenants, agreements, or conditions contained in this Lease and Landlord places the enforcement of this Lease or the collection of any rent due or to become due hereunder, or recovery of the possession of the Premises in the hands of an attorney, or files suit upon the same, Tenant agrees to pay Landlord's reasonable attorneys' fees and expenses. In addition, if Tenant requests any consent or other action on the part of Landlord, in connection with which Landlord deems it necessary for any documents to be prepared or - 15 - reviewed by its counsel, Tenant shall pay all reasonable attorneys' fees and expenses incurred by Landlord in such connection. See Section 21 of the Addendum. 31. No Implied Waiver. The failure of Landlord to insist at ----------------- any time upon the strict performance of any covenant or agreement or to exercise any option, right, power, or remedy contained in this Lease shall not be construed as a waiver or a relinquishment thereof for the future. The waiver of or redress for any violation of any term, covenant, agreement, or condition contained in this Lease shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. No express waiver shall affect any condition other than the one specified in such waiver and that one only for the time and in the manner specifically stated. A receipt by Landlord of any rent with knowledge of the breach of any covenant or agreement contained in this Lease shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of rent due under this Lease shall be deemed to be other than on account of the earliest rent due hereunder, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided. 32. Casualty Insurance. Landlord shall maintain fire and ------------------ extended coverage insurance on the portion of the Complex constructed by Landlord. Such insurance shall be maintained with an insurance company authorized to do business in the State in which the Building is located, in amounts and with deductibles desired by Landlord at the expense of Landlord (as a part of the Basic Costs), and payments for losses thereunder shall be made solely to Landlord. Tenant shall maintain at its expense fire and extended coverage insurance on all of its personal property, including removable trade fixtures, located in the Premises and on all additions and improvements made by Tenant and not required to be insured by Landlord above. Tenant shall also maintain business interruption insurance covering the Premises. If the annual premiums to be paid by Landlord shall exceed the standard rates because Tenant's operations, contents of the Premises, or improvements with respect to the Premises beyond Building standard result in extra-hazardous exposure, Tenant shall pay the excess amount of the premium upon request therefor by Landlord. See Section 22 of the Addendum. 33. Liability Insurance. Tenant shall, at its expense, ------------------- maintain a policy or policies of comprehensive general liability insurance, with coverages acceptable to Landlord, with the premiums thereon fully paid on or before the due date, issued by and binding upon an insurance company with an A.M. Best Rating of at least A-VII and acceptable to Landlord, such insurance to afford minimum protection in limits of not less than $1,000,000.00 Combined Single Limits of coverage for Personal Injury and Property Damage and $1,000,000.00 Annual Aggregate. At least fifteen (15) days prior to Tenant's occupancy of the Leased Premises, Tenant shall deliver to Landlord a copy of all policy provisions intended to be included in the coverage to be provided by Tenant, and a valid certificate of insurance issued to Landlord, effective as of the dates applicable under the terms of this Lease, which certificate of insurance shall include, without limitation: (A) provisions requiring notice by the insurer to Landlord at least thirty (30) days in advance of any contemplated, intended or effective cancellation, nonrenewal, or material change or modification of coverage provisions or limits; and (B) a Waiver of Subrogation in favor of Landlord and agents, employees, servants, officers, directors, contractors, and subcontractors of Landlord, with respect to the insurance coverage and claims of Tenant. See Section 23 of the Addendum. 34. Indemnity. Landlord shall not be liable to Tenant, or to --------- Tenant's agents, contractors, servants, employees, customers, or invitees, and Tenant shall indemnify, defend and hold harmless - 16 - Landlord, Landlord's asset manager, Landlord's subasset manager, Landlord's partners, any subsidiary or affiliate of Landlord and the officers, directors, shareholders, partners, employees, managers, independent contractors, attorneys and agents of any of the foregoing (collectively, the "Indemnitees") from and against any and all claims, demands, causes of action, judgments, costs and expenses, and all losses and damages (including consequential and punitive damages) arising from the use by Tenant or its agents, independent contractors, servants, employees, customers, or invitees of the Premises or the Complex or from the conduct of its business or from any activity, work, or other acts or things done, permitted or suffered by Tenant in or about the Premises or the Complex, and shall further indemnify, defend and hold harmless the Indemnitees from and against any and all claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any act, omission or negligence or willful or criminal misconduct of Tenant, or by Tenant or its agents, independent contractors, servants, employees, customers, or invitees and from all reasonable costs, attorneys' fees and disbursements, and liabilities incurred in the defense of any such claim or any action or proceeding which may be brought against, out of or in any way related to this Lease. Upon notice from Landlord, Tenant shall defend any such claim, demand, cause of action or suit at Tenant's expense by counsel satisfactory to Landlord in its sole discretion. As a material part of the consideration to Landlord for this Lease, Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause, and Tenant hereby waives all claims with respect thereto against Landlord. The provisions of this Section shall survive the expiration or sooner termination of this Lease. See Section 24 of the Addendum. 35. Waiver of Subrogation Rights. Anything in this Lease to ---------------------------- the contrary notwithstanding, Landlord and Tenant each hereby waives all rights of recovery, claim, action, or cause of action, against the other, its agents, officers, or employees, for any loss or damage that may occur to the Premises any Leasehold Improvements, or the Complex of which the Premises are a part, by reason of fire, the elements, or any other cause which is insured against under the terms of standard fire and extended coverage insurance policies referred to in Paragraph 32 hereof or is otherwise insured against under an insurance policy maintained by the party suffering such loss or damage, regardless of cause or origin, including any negligence of the other party hereto and/or its agents, officers, or employees, and each party covenants that is no insurer shall hold any right of subrogation against such other party. Each party hereto agrees to give immediately to any insurer that has issued to it policies of fire and extended coverage insurance written notice of the mutual waiver contained in this provision and to have such policies endorsed, if necessary, to prevent the invalidation of insurance coverage by reason of such mutual waiver. 36. Casualty Damage. If the Premises or any part thereof --------------- shall be damaged by fire or other casualty, Tenant shall give prompt written notice thereof to Landlord. If the Complex shall be so damaged by fire or other casualty that substantial alteration or reconstruction of the Complex shall, in Landlord's sole opinion, be required (whether or not the Premises shall have been damaged by such fire or other casualty), or if any mortgagee or beneficiary under a mortgage or deed of trust covering the Complex should require that the insurance proceeds payable as a result of said fire or other casualty be applied to the balance of the mortgage debt, Landlord may, at its option, terminate this Lease and the term and estate hereby granted by notifying Tenant in writing of such termination within sixty (60) days after the date such insurance proceeds are applied to such mortgage debt, in which event the Base Rental hereunder shall be abated as of the date of such damage. If Landlord does not thus elect to terminate this Lease, Landlord shall within one hundred eighty (180) days after the date of such damage commence to repair and restore the Complex and shall proceed with reasonable diligence to restore the Complex (except that Landlord shall not be responsible for delays outside its control) to substantially the same condition in which it was immediately prior to the happening of the casualty, except that Landlord shall not be required to rebuild, repair, or replace any part of Tenant's furniture or furnishings or fixture and - 17 - equipment removable by Tenant under the provisions of this Lease, but such work shall not exceed the scope of the work done by Landlord in originally constructing the Complex and installing Building standard items in the Premises, nor shall Landlord in any event be required to spend for such work an amount in excess of the insurance proceeds actually received by Landlord as a result of the fire or other casualty. Tenant agrees that promptly after completion of such work by Landlord, Tenant will proceed with reasonable diligence and at Tenant's sole cost and expense to restore, repair and replace all alterations, additions, improvements, fixtures and equipment installed by Tenant. Landlord shall not be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting in any way from such damage or the repair thereof, except that, subject to the provisions of the next sentence, Landlord shall allow Tenant a fair diminution of rent during the time and to the extent the Premises are unfit for occupancy. If the Premises or any other portion of the Complex be damaged by fire or other casualty resulting from the fault or negligence of Tenant or any of Tenant's agents, employees, or invitees, the rent hereunder shall not be diminished during the repair of such damage, and Tenant shall be liable to Landlord for the cost and expense of the repair and restoration of the Complex caused thereby to the extent such cost and expense is not covered by insurance proceeds. Any insurance which may be carried by Landlord or Tenant against loss or damage to the Complex or to the Premises shall be for the sole benefit of the party carrying such insurance and shall be under its sole control. Tenant shall use proceeds from insurance carried by Tenant to repair and restore Tenant's property. See Section 25 of the Addendum. 37. Condemnation. If the Premises shall be taken or condemned ------------ for public purpose to such extent as to render the Premises untenantable, this Lease shall, at the option of either party, cease and terminate as of the date of such taking or condemnation. Either party may exercise such option to terminate by written notice to the other party within fifteen (15) days after such taking or condemnation. All proceeds from any taking or condemnation of the Premises shall belong to and be paid to Landlord. Upon termination pursuant to this Section, Tenant shall immediately vacate the Premises. 38. Damages from Certain Causes. Landlord shall not be liable --------------------------- to Tenant for any delay or for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition, or order of government body or authority, or for any damage or inconvenience which may arise through repair or alteration of, or failure to repair, any part of the Complex or Premises necessitated by such causes. Tenant, to the fullest extent permitted under applicable law, hereby waives any claim or cause of action which may now exist or hereafter arise under any applicable deceptive trade practices law or consumer protection law or any successor statute. 39. Notice and Cure. In the event of any act or omission by --------------- Landlord that would give Tenant the right to damages from Landlord or the right to termination this Lease by reason of a constructive or actual eviction from all or part of the Premises or otherwise, Tenant shall not sue for such damages or exercise any such right to terminate until it shall have given written notice of such act or omission to Landlord and to the holder(s) of the indebtedness or other obligations secured by any mortgage or deed of trust affecting the Premises, and a reasonable period of time for remedying such act or omission shall have elapsed following the giving of such notice, during which time Landlord and such holder(s), or either of them, their agents or employees, shall be entitled to enter upon the Premises and do therein whatever may be necessary to remedy such act or omission. During the period after the giving of such notice and during the remedying of such act or omission, the Base Rental payable by Tenant for such period as provided in this Lease shall be abated and apportioned only to the extent that any part of the Premises shall be untenantable. - 18 - 40. Personal Liability. The liability of Landlord, any, agent ------------------ of Landlord, or any of their respective officers, directors, shareholders, or employees to Tenant for or in respect of any default by Landlord under the terms of this Lease or in respect of any other claim or cause of action shall be limited to the interest of Landlord in the Complex, and Tenant agrees to look solely to Landlord's interest in the Complex for the recovery and satisfaction of any judgment against Landlord, any agent of Landlord, or any of their respective officers, directors, shareholders, and employees. 41. Notice. Any notice, communication, request, reply or ------ advice (hereinafter collectively called "notice") provided for in this Lease must be in writing, and shall, unless otherwise expressly provided in this Lease, be given or be served by depositing the same in the United States mail, postpaid and certified and addressed to the party to be notified, with return receipt requested, or by delivering the same in person to an officer of such party, or by consigning the same to a recognized overnight delivery service operating on a nationwide basis, addressed to the party to be notified. Notice deposited in the mail in the manner hereinabove described shall be effective, unless otherwise stated in this Lease, three (3) days after it is so deposited. Notice given in any other manner shall be effective upon delivery. The addresses for the delivery of any notices hereunder shall, until changed as herein provided, be those specified on the first page of this Lease. A party hereto may change its address by at least fifteen (15) days written notice to the other party delivered in compliance with this paragraph; provided, however, that no such notice shall be effective until actually received by the other party and provided further that during the Lease Term any notice to Tenant shall be deemed duly given if delivered to Tenant at the Premises. 42. Captions. The captions and headings appearing in this -------- Lease are solely for convenience and shall not be given any effect in construing this Lease. 43. Entirety and Amendments. This Lease embodies the entire ----------------------- contract between the parties hereto, relative to the subject matter hereof. Except as otherwise herein provided, no variations, modifications, changes, or amendments hereof shall be binding upon any party hereto unless in writing, executed by a duly authorized officer or agent of the particular party. Landlord and Tenant have fully negotiated the provisions of this Lease and, notwithstanding any rule or principle of law or equity to the contrary, no provision of the Lease shall be construed in favor of or against either party by virtue of the authorship or purported authorship thereof. 44. Severability. If any term or provision of this Lease ------------ shall be invalid or unenforceable to any extent, the remainder of this Lease shall be not be affected thereby, and each term and provision of this Lease shall be valid and enforced to the fullest extent permitted by law. 45. Binding Effect. All covenants and obligations contained -------------- within this Lease shall bind and inure to the benefit of Landlord, its successors and assigns, and shall be binding upon Tenant, its permitted successors and assigns. 46. Number and Gender of Words. All personal pronouns used in -------------------------- this Lease shall include the other gender, whether used in the masculine, feminine, or neuter gender, and the singular shall include the plural whenever and as often as may be appropriate. 47. Recordation. Tenant shall not record this Lease or any ----------- memorandum thereof. 48. Governing Law. This Lease and the rights and obligations ------------- of the parties hereto shall be interpreted, construed, and enforced in accordance with the laws of the State of Kentucky. - 19 - 49. Interest Rate. All past due rents or other sums payable ------------- by Tenant hereunder, and any sums advanced by Landlord for Tenant's account pursuant to applicable provisions hereof, shall bear interest from the date due or advanced until paid at the maximum lawful rate in effect at the time such payment was due or sum was advanced, or if there is no ascertainable maximum lawful rate then in effect, at a rate of eighteen percent (18%). See Section 27 of the Addendum. 50. Force Majeure. Whenever a period of time is herein ------------- prescribed for the taking of any action by Landlord, Landlord shall not be liable or responsible for, and there shall be excluded from the computation of such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, war governmental laws, regulations or restrictions, or any act, omission, delay, or neglect of Tenant or any of Tenant's employees or agents, or any other cause whatsoever beyond the control of Landlord. 51. Rules and Regulations. Tenant shall comply with the Rules --------------------- and Regulations of Landlord in the form of Exhibit C as well as all --------- changes therein and additions thereto that may from time to time be adopted by Landlord for the operation and protection of the Building and the protection and welfare of its tenants and invitees. Landlord expressly reserves the right at any time and from time to time to make such reasonable changes in and additions to such Rules and Regulations, provided, however, that such changes shall not become effective and a part of this Lease until a copy thereof shall have been delivered to Tenant. 52. Reserved Rights. Without limiting in any way Landlord's --------------- right to promulgate rules and regulations, Landlord shall have the following rights, exercisable without notice and without liability to Tenant for damage or injury to property, persons or business and without effecting an eviction, constructive or actual, or disturbance of Tenant's use or possession or giving rise to any claim for set off or abatement of rent: (a) To change the Building's and/or the Complex's name, design or street address (b) To approve, restrict, install, affix, maintain, and remove any and all signs on the exterior and interior of the Building. See Section 28 of the Addendum. (c) To designate and approve, prior to installation, all types of window shades, blinds, drapes, awnings, window ventilators and other similar equipment and to control all internal lighting that may be visible from the exterior of the Building. (d) To designate, restrict and control all sources from which Tenant may obtain ice, drinking water, towels, toilet supplies, shoe shining, catering, food and beverages, or like or other services on the Premises and in general to reserve to Landlord the exclusive right to designate, limit, restrict and control any business and any service in or to the Building and its tenants. See Section 29 of the Addendum. (e) To retain at all times, and to use in appropriate instances, keys to all doors within and to the Premises. (f) To decorate and to make repairs, alterations, additions, changes or improvements, whether structural or otherwise, in and about the Complex, or any part thereof, and for such purposes to enter upon the Premises and, during the continuance of any such work, to temporarily close doors, entryways, public space and corridors in the Complex, to interrupt or temporarily suspend Complex services and facilities and to change the arrangement and location of entrances or passageways, doors and - 20 - doorways, corridors, elevators, stairs, toilets or other public parts of the Complex, all without abatement of rent or affecting any of Tenant's obligations hereunder, so long as the Premises are reasonably accessible. (g) To have and retain a paramount title to the Premises free and clear of any act of Tenant purporting to burden or encumber them. (h) To grant to anyone the exclusive right to conduct any business or render any service in or to the Complex, provided such exclusive right shall not operate to exclude Tenant from the use expressly permitted herein. (i) To approve the weight, size and location of safes and other heavy equipment and articles in and about the Premises and the Complex, and to require all such items and furniture and similar items to be moved into and out of the Complex and the Premises only at such times and in such manner as Landlord shall direct in writing. Movements of Tenant's property into or out of the Complex and within the Complex are entirely at the risk and responsibility of Tenant, and Landlord reserves the right to require permits before allowing any such property to be moved into or out of the Complex. See Section 30 of the Addendum. (j) To prohibit the placing of vending or dispensing machines of any kind in or about the Premises without the prior written permission of Landlord. See Section 31 of the Addendum. (k) To have access for Landlord and other Tenants of the Complex to any mail chutes located on the Premises according to the rules of the United States Postal Service. (l) To take all such reasonable measures as Landlord may deem advisable for the security of the Complex and its occupants, including without limitation, the closing of the Complex after normal business hours and on Saturdays, Sundays and holidays; subject, however to Tenant's right to admittance when the Complex is closed after normal business hours under such reasonable regulations as Landlord may prescribe from time to time which may include, by way of example but not of limitation, that persons entering or leaving the Complex, whether or not during normal business hours, identify themselves to a security officer by registration or otherwise and that such persons establish their right to enter or leave the Complex. 53. Approval by Landlord's Mortgagees. Landlord's execution --------------------------------- and delivery of this Lease are expressly subject to and conditioned upon approval of all of the provisions of this Lease by any lenders furnishing financing in respect of the Building. 54. Brokers. Tenant represents and warrants that Tenant has ------- had no dealing with any broker other than Faulkner, Hinton & Barnett Real Estate Corporation, Inc. in connection with the negotiation or execution of this Lease, and Tenant agrees to indemnify Landlord and hold Landlord harmless from any and all costs, expenses or liability for commissions or other compensation claimed by any broker or agent other than the party named above with respect to this Lease. 55. Substitute Space. Landlord reserves the right at any time ---------------- prior to tender of possession of the Premises to Tenant or during the term of this Lease after the Commencement Date and upon sixty (60) days' prior notice ("Substitution Notice") to substitute comparable space ("Substitute Space") elsewhere within the Building for the Premises. Landlord shall reimburse Tenant for all reasonable, out of pocket expenses involved in Tenant's relocation to Substitute Space. See Section 32 of the Addendum. - 21 - 56. Time of Essence. Time is of the essence of this Lease and --------------- each and every provision of this Lease. 57. Best Efforts. Whenever in this Lease there is imposed ------------ upon Landlord the obligation to use Landlord's best efforts or reasonable efforts or diligence, Landlord will be required to exert such efforts or diligence only to the extent the same are economically feasible and will not impose upon Landlord extraordinary financial or other burdens. 58. No Reservation. Submission by Landlord of this instrument -------------- to Tenant for examination or signature does not constitute a reservation of or option for lease. This Lease will be effective as a lease or otherwise only upon execution and delivery by both Landlord and Tenant. 59. Consents. In all circumstances under this Lease where the -------- prior consent of one party (the "consenting party"), whether it be Landlord or Tenant, is required before the other party (the "requesting party") is authorized to take any particular type of action, such consent shall not be withheld in a wholly unreasonable and arbitrary manner; however, the requesting party agrees that its exclusive remedy if it believes that consent has been withheld improperly (including, but not limited to, consent required from Landlord pursuant to Section 23) shall be to institute litigation either for a declaratory judgment or for a mandatory injunction requiring that such consent be given (with the requesting party hereby waiving any claim for damages, attorneys' fees or any other remedy unless the consenting party refuses to comply with a court order or judgment requiring it to grant its consent). 60. Legal Authority. If Tenant is a corporation (including --------------- any form of professional association), then each individual executing or attesting this Lease on behalf of such corporation covenants, warrants and represents that he is duly authorized to execute or attest and deliver this Lease on behalf of such corporation. If Tenant is a partnership (general or limited) or limited liability company, then each individual executing this Lease on behalf of the partnership or company hereby covenants, warrants and represents that he is duly authorized to execute and deliver this Lease on behalf of the partnership or company in accordance with the partnership agreement or membership agreement, as the case may be, or an amendment thereto, now in effect. Lessee represents and warrants to Lessor that neither Lessee nor any partner, related entity or affiliate of Lessee is in any way affiliated with MIF Gen-Par L.P., MIF Sponsor, Inc., JE Robert Company, Goldman Sachs & Co., GE Capital Realty Group, Inc., General Electric Capital Corporation, General Electric Company or any affiliate of General Electric Company. The preceding representation and warranty shall survive the execution and delivery of this Lease and Lessee agrees to notify Lessor if at any time during the term of this Lease, including any renewal or option period, the preceding representation and warranty becomes untrue. 61. Hazardous Materials. (a) During the term of this Lease, ------------------- Tenant shall comply with all Environmental Laws and Environmental Permits (each as defined in Section 61(d) hereof) applicable to the operation or use of the Premises, will cause all other persons occupying or using the Premises to comply with all such Environmental Laws and Environmental Permits, and will immediately pay or cause to be paid all costs and expenses incurred by reason of such compliance. (b) Tenant shall not generate, use, treat, store, handle, release or dispose of, or permit the generation, use, treatment, storage, handling, release or disposal of Hazardous Materials (as defined in Section 61(d) hereof) on the Premises, or the Complex, or transport or permit the transportation of Hazardous Materials to or from the Premises or the Complex except for limited quantities used or stored at the Premises and required in connection with the routine operation and maintenance of the Premises, and then only upon the written consent of Landlord and in compliance with all applicable Environmental Laws and Environmental Permits. - 22 - (c) Tenant agrees to defend, indemnify and hold harmless Landlord from and against all obligations (including removal and remedial actions), losses, claims, suits, judgments, liabilities, penalties, damages (including consequential and punitive damages), costs and expenses (including attorneys' and consultants' fees and expenses) of any kind or nature whatsoever that may at any time be incurred by, imposed on or asserted against such Indemnitees directly or indirectly based on, or arising or resulting from (a) the actual or alleged presence of Hazardous Materials on the Complex which is caused or permitted by Tenant and (b) any Environmental Claim relating in any way to Tenant's operation or use of the Premises (the "Hazardous Materials Indemnified Matters"). The provisions of this Section 61 shall survive the expiration or sooner termination of this lease. (d) As used herein, the following terms shall have the following meanings: "Hazardous Materials" means (i) petroleum or petroleum products, natural or synthetic gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and radon gas; (ii) any substances defined as or included in the, definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or "pollutants," or words of similar import, under any applicable Environmental Law; and (iii) any other substance exposure which is regulated by any governmental authority. "Environmental Law" means any federal, state or local statute, law, rule, regulation, ordinance, code, policy or rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, health, safety or Hazardous Materials, including without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq.; the Resource -- --- Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq.; the -- --- Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et seq.; -- --- the Clean Water Act, 33 U.S.C. Sections 1251 et seq.; the Toxic Substances -- --- Control Act, 15 U.S.C. Sections 2601 et seq.; the Clean Air Act, 42 U.S.C. -- --- Sections 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Sections 300f -- --- et seq.; the Atomic Energy Act, 42 U.S.C. Sections 2011 et seq.; the - -- --- -- --- Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections 136 et seq.; the Occupational Safety and Health Act, 29 U.S.C. Sections 651 - -- --- et seq. "Environmental Claims" means any and all administrative, regulatory - -- --- or judicial actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, investigations, proceedings, consent orders or consent agreements relating in any way to any Environmental Law or any Environmental Permit, including without limitation (i) any and all Environmental Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and all Environmental Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Permits" means all permits, approvals, identification numbers, licenses and other authorizations required under any applicable Environmental Law. 62. Exhibits, Riders and Addenda. Exhibits A through E and ---------------------------- any other exhibits, riders and addenda attached hereto are incorporated herein and made a part of this Lease for all purposes. 63. Waiver of Jury Trial. LANDLORD AND TENANT HEREBY -------------------- KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LEASE OR ANY DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF EITHER PARTY ARISING OUT OF OR RELATED IN ANY MANNER WITH THE PREMISES (INCLUDING - 23 - WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS LEASE OR ANY CLAIMS OR DEFENSES ASSERTING THAT THIS LEASE WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR LANDLORD TO ENTER AND ACCEPT THIS LEASE. [REMAINDER OF PAGE IS LEFT INTENTIONALLY BLANK] - 24 - IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in multiple original counterparts as of the date and year first above written. LANDLORD: MIF REALTY, L.P., a Delaware limited partnership doing business in Kentucky as MIF Realty Limited Partnership Signed in the By: MIF GEN-PAR L.P., a Delaware presence of: limited partnership, doing business in Kentucky as MIF Gen-Par Limited Partnership, /s/ Athena Bayman its general partner - -------------------------- Signature By: MIF SPONSOR, INC., Athena Bayman a Delaware corporation, - -------------------------- its general partner Printed Name By: /s/ Michael Hudspeth ----------------------------- /s/ Chuck Hixson Name: Michael Hudspeth - -------------------------- ----------------------- Signature Title: Vice President ---------------------- Chuck Hixson - -------------------------- Printed Name TENANT: EQUITY INSURANCE MANAGERS, INC., a Kentucky corporation Signed in the Presence of: /s/ Catherine Gillispie By: /s/ John R. Owens - -------------------------- ------------------------------ Signature Name: John R. Owens ------------------------ Title: President ----------------------- Catherine Gillispie - -------------------------- Print Name /s/ Jean L. Watson - -------------------------- Signature Jean L. Watson - -------------------------- Print Name - 25 - State of Texas ) ) County of Dallas ) Before me, a Notary Public, personally appeared Michael Hudspeth, known to me to be the Vice President of MIF Realty L.P., a Delaware limited partnership doing business in Kentucky as MIF Realty Limited Partnership, who executed the foregoing and attached Lease pursuant to authority granted by the said limited partnership. /s/ Beth Jones ---------------------------- Notary Public My commission expires: 2/18/97 - ----------------------- State of Kentucky ) ) County of Fayette ) Before me, a Notary Public, personally appeared John Robert Owens, known to me to be the President of Equity Insurance Managers, Inc., who executed the foregoing and attached Lease pursuant to authority granted by the said corporation. /s/ Judith W. Lis ---------------------------- Notary Public My commission expires: July 20, 2000 - ----------------------- - 26 - EXHIBIT E ---------- RIGHT OF REFUSAL ---------------- Landlord hereby grants to Tenant a right of refusal to include under this Lease all or any portion of the ROR Floor (defined below) upon the terms and conditions set forth in this Exhibit E. As used --------- herein, "ROR Floor" shall mean the 4th Floor, of the Building. It is --------- understood and agreed that Tenant's right of refusal described in this Exhibit E applies only to space which has been previously occupied by - --------- a tenant and is being vacated by such tenant, and that such right does not extend to Landlord's initial leasing of the ROR Floor. Tenant's right of refusal shall be continuous but shall be subject and subordinate to any renewal options, expansion options, rights of refusal or similar rights now held by any present tenants of the Building or hereafter granted to any initial tenants of the Building (the "Superior Tenants") as an inducement for the Superior Tenants to ---------------- enter into their leases with Landlord, all of which rights Landlord may give the Superior Tenants in its sole discretion. Whenever Landlord shall notify any Superior Tenant that any portion of the ROR Floor is available for lease by it under its expansion option, Landlord shall send a copy of said notice to Tenant and from and after the date any such tenants involved give written notice to Landlord that they elect not to lease any relevant space out of the ROR Floor, or if no such rights then exist in favor of any Superior Tenant, then from and after the date on which the tenant occupying all or any portions of any ROR Floor gives written notice to Landlord that it is vacating said floor or portion or fails to exercise any right of renewal, and if this Lease is then in full force and effect and Tenant is not then in default of any of its covenants contained in this Lease, Landlord shall offer to Tenant in writing (the "Notice") ------ the right to include said space under this Lease, upon the following terms and conditions: (a) the Base Rental for any such space shall be the Base Rental in effect for the Premises at the time said portion is made available to Tenant; (b) Tenant may not assign this right of refusal except to a permitted assignee of all of Tenant's rights under this Lease; (c) the leasehold improvements will be provided in their then existing condition at the time said space is made available to Tenant; (d) Notwithstanding anything herein to the contrary, the initial term for any ROR Floor or part thereof added to this Lease pursuant to this right of refusal shall terminate when the Term of this Lease for the initial Leased Premises terminates or expires. Tenant shall exercise its right of refusal, if at all, within fifteen (15) days after the Notice is received by Tenant; provided, -------- however, Tenant agrees to use its reasonable efforts to respond in as - ------- short a time period as the circumstances dictate (e.g., a tenant abandons its premises without notice to Landlord). Tenant's obligation to pay rent for such space shall commence on the later of (i) the date the prior tenant vacates such space and said space is made available to Tenant in the condition described in (c) above or (ii) the date when Tenant exercises its right of refusal. EX-10.40 26 ADDENDUM EXHIBIT 10.40 ADDENDUM -------- This Addendum made and entered into this 4th day of November, 1996 by and between MIF Realty L.P., a Delaware limited partnership doing business in Kentucky as MIF Realty Limited Partnership ("Landlord") and Equity Insurance Manager's Inc. ("Tenant"). WHEREAS Landlord and Tenant have entered into an Office Lease Agreement and wish to amend, alter and delete certain provisions therein; Now, for valuable considerations including the recitations set out hereinabove the terms and conditions set out hereinbelow and Tenant signing the aforementioned Lease Agreement, it is agreed as follows: 1. Section 1(d) is amended as follows: "Commencement date" the lease shall commence on February 1, 1997. 2. Section 1(e) is amended as follows: "Lease Term": Commencing on the Commencement Date and continuing for five (5) years and three (3) months after the Commencement Date. 3. Section 1(h) is amended as follows: "Net Rentable Area": It is agreed between the Landlord and the Tenant that the net rentable area shall be: 18,370 square feet. 4. Section 3(b) is amended to provide that if the Premises are not ready for occupancy 180 days after the Commencement Date, Tenant may cancel this Lease by written notice to Landlord delivered within thirty (30) days after the expiration of such 180 day period. 5. Section 5(b) is deleted. 6. Section 5(c) is amended such that the interest rate is 2%. 7. Section 5(d) is amended such that the amount of the rental abatement is $64,295.01 which sum shall apply to the first three months rent under the Lease. 8. "Basic Costs" shall not include costs incurred by Landlord for alterations or improvements which are considered to be capital improvements or replacements under generally accepted accounting principles except as provided in Section 7(h) of the Lease. 9. Section 7(a) is amended to delete the word "leasing." 10. Section 7(e) is amended to delete the words "rental loss or abatement insurance." 11. Section 7(h) is amended to the extent that it shall not apply to the cost of any capital investment items which are primarily for the purpose of satisfying governmental requirements when such condition existed on the Commencement Date. 12. Section 7(i) and (j) are deleted in their entirety. 13. The last literary paragraph of Section 7 is amended to delete the words "or at Landlord's sole discretion, Landlord will provide at Tenant's expense such audit prepared by a Certified Public Accountant." 14. Section 10(g) is amended such as to delete the last sentence of the last literary paragraph. 15. Paragraph 13 is amended to read as follows: Unless otherwise stipulated herein, Landlord shall not be required to make any improvements or repairs of any kind or character on the Premises during the Lease Term, except such repairs as may be deemed necessary by Landlord for normal maintenance operations. The obligations of Landlord to maintain and repair the Premises shall be limited to the repair of Building standard items. Any Leasehold Improvements will, at Tenant's written request, be maintained by Landlord at Tenant's expense, at a cost or charge equal to all costs incurred in such maintenance. 16. The last sentence of Section 17 is redrafted to read as follows: Any holding over with the written consent of Landlord shall thereafter constitute this Lease a lease from month to month under the terms and provisions of this lease, to the extent applicable to a tenancy from month to month, with a Base Rental of one times that payable at the end of the Lease Term. 17. Section 18 is amended such that the consent of the Landlord shall not be unreasonably withheld with respect to non- structural alterations that do not affect the HVAC, - 2 - plumbing, electrical or mechanical systems. The last sentence in Section 18 is deleted in its entirety. 18. Section 20(b) is amended to delete the words "Texas Architectural Barrier's Act" and to add in their place "or any similar state statute." 19. Section 23 is amended to provide that Landlord's consent will not be unreasonably withheld or delayed. 20. Section 29 is deleted in its entirety. 21. Section 30 is amended to read as follows: Attorney's Fees --------------- If a party defaults in the performance of any terms, covenants, agreements, or conditions contained in this Lease which requires a party to place a dispute in the hands of an attorney, or to file suit on same, the unsuccessful party in such litigation shall pay the other party all reasonable attorney's fees and expenses incurred by the successful party. 22. Section 32 is amended to delete the sentence "Tenant shall also maintain business interruption insurance covering the premises." 23. Section 33 is amended to require the insurance policy subject to the provisions of this Section to be issued by the binding on an insurance company with an A.M. Best rating of at least A. 24. ADD: Landlord shall require the property manager to carry third party liability insurance with limits of at least $2,000,000 with an insurance company with an A.M. Best rating of at least A. 25. Section 36 shall be amended to add the following sentence: If Landlord is unable to repair the Premises and put them in a tenantable position within six (6) months, the Tenant may terminate this Lease at the expiration of such six (6) month period. 26. Section 48 shall be amended to delete the word "Texas" and insert in its place the word "Kentucky." - 3 - 27. Section 49 is amended such that the interest rate to be charged is the prime rate charged by Bank One Lexington N.A. adjusted monthly. 28. No change. 29. Section 52(d) is deleted. 30. Section 52(i) is deleted. 31. Section 52 (j) is amended to add the following sentence: It is understood and agreed that the Tenant may place in the break room on the demised premises vending and dispensing machines for coffee, tea, soft drinks and water. 32. Section 55 is deleted in its entirety. 33. No insurance related entity or an entity occupying less than one-half of the net rentable space in the building shall be allowed to place exterior signage on the building without Tenant's approval. [REMAINDER OF PAGE INTENTIONALLY BLANK] - 4 - IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum in multiple original counter parts as of the day and year first above written. LANDLORD MIF REALTY, L.P., A Delaware limited partnership doing business in Kentucky as MIF Realty Limited Partnership Signed in the presence of: By: MIF GEN-PAR L.P., a Delaware limited partnership doing business in Kentucky as MIF Gen-Par Limited Partnership, its general partner /s/ Athena Bayman - ----------------------- Signature By: MIF SPONSOR, INC., a Delaware corporation, its general partner Athena Bayman - ----------------------- Printed Name By: /s/ Michael Hudspeth -------------------------- Name: Michael Hudspeth ------------------------ Title: Vice President ----------------------- TENANT: EQUITY INSURANCE MANAGERS, INC., a Kentucky corporation Signed in the presence of: /s/ Richard E. Vimont - ----------------------- Signature By: /s/ John R. Owens ------------------------------ Name: John R. Owens ---------------------------- Title: President --------------------------- Richard E. Vimont - ----------------------- Printed Name /s/ Judith W. Lopez - ----------------------- Signature Judith W. Lopez - ----------------------- Printed Name - 5 - EX-10.41 27 AMENDMENT AND EXTENSION OF LEASE EXHIBIT 10.41 Mr. Bobby Owens 220 Lexington Green Circle Suite 600 Lexington, Kentucky 40503 RE: Amendment and Extension of lease dated November 4, 1996 by and between MIF Realty L.P., a Delaware Limited Partnership doing business in Kentucky as MIF Realty Group, Inc., and Equity Insurance Managers which was subsequently assigned to Nashville Mini Storage, L.P. Dear Mr. Owens: On behalf of Nashville Mini Storage, L.P. ("Lessor"), LaSalle Partners, Inc., as Lessor's exclusive agent, is pleased to submit this Amendment to Lessor's existing lease with Equity Insurance Managers ("Lessee"). This Amendment sets forth the terms and condition under which Lessor are extending the existing lease with Equity Insurance Managers. 1. BUILDING 1.1 NAME Lexington Green II 1.2 ADDRESS 200 Lexington Green Road, Suite 600 Lexington, Kentucky 40503 2. PREMISES 2.1 LOCATION AND SIZE The Premises consist of the 1,710 square feet located on the fourth floor. 3. LEASE EXTENSION TERM 3.1 The term of the lease shall run concurrent with your existing lease. Start Date: January 1, 1999 Expiration Date: December 31, 2001 3.2 COMMENCEMENT DATE The Commencement date shall be January 1, 1999. 4. BASE RENT RATES 4.1 The lease rate shall be $16.00 per square foot for the remainder of the term. 5. CONSTRUCTION 5.1 TENANT ALLOWANCE All leasehold improvements will be constructed by a contractor and subcontractors selected by Lessor. There will be an allowance provided by Lessor not to exceed $630.00. Any cost over and above will be paid by Lessee. 6. ACCEPTANCE Should this amendment meet with the approval of Lessee, please execute all three originals of this Amendment and return them to LaSalle's Lexington office. After execution by the Lessor, we will return one original to you. All other terms and conditions of the current and existing lease shall remain the same. AGREED, APPROVED AND ACCEPTED LESSEE: EQUITY INSURANCE MANAGER BY: /s/ John R. Owens ----------------------------- NAME: John R. Owens --------------------------- TITLE: President -------------------------- DATE: 2/23/99 --------------------------- LESSOR: NASHVILLE MINI STORAGE, L.P. BY: /s/ Terri Patton - President -------------------------------- BY: STORAGE CONCEPTS, INC. NAME: Terri Patton ------------------------------ TITLE: GENERAL PARTNER DATE: 3/1/99 ------------------------------ EX-21.1 28 LIST OF SUBSIDIARIES Exhibit 21.1 LIST OF SUBSIDIARIES (as of March 31, 1999) Corporation State ----------- ----- Unified Management Corporation Indiana Unified Fund Services, Inc. Indiana First Lexington Trust Company Kentucky Health Financial, Inc. Kentucky Resource Benefit Planners, 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 21st Century Claims Service, Inc. Kentucky Equity Insurance Administrators, Inc. Kentucky Equity Insurance Managers of Illinois, L.L.C. (d/b/a Irland & Rogers) (55% owned) Illinois M. Wilson & Associates, Inc. Kentucky Commonwealth Premium Finance Corporation Kentucky Strategic Fund Services, Inc. Delaware Smart Associates, Inc. Delaware Unified University, Inc. Delaware Archer Trading, Inc. Delaware Unified Aviation, Inc. Delaware HFI Acquisition Corporation Kentucky FAP Acquisition Corporation Kentucky VSX Technologies, Inc. New York Unified Capital Resources, Inc. New York EX-23.1 29 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 12, 1999, with respect to the consolidated financial statements of the Company as of and for the years ended December 31, 1998 and 1997, appearing in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998. /s/ Larry E. Nunn & Associates, LLC Columbus, Indiana April 8, 1999 EX-27.1 30 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 a part of the Company's annual report on Form 10-KSB and is qualified in its entirety by reference to such report. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 10,342,501 726,131 8,912,229 (38,326) 0 20,172,541 4,455,749 (2,913,498) 26,695,936 14,502,720 0 27,174 0 1,672 0 26,695,936 0 22,971,836 0 8,488,788 13,287,695 36,875 356,453 1,283,239 150,458 1,132,781 0 0 0 1,132,781 0.47 0.42
EX-27.2 31 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 a part of the Company's annual report on Form 10-KSB and is qualified in its entirety by reference to such report. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 2,566,394 858,154 6,439,985 (2,041) 0 9,994,617 3,937,382 (2,472,022) 14,200,342 9,264,444 0 21,728 0 8,486 8,583 14,200,342 0 19,249,217 0 7,370,121 12,896,629 16,135 87,258 (654,786) (376,853) (277,933) 0 0 0 (277,933) (0.24) (0.23)
-----END PRIVACY-ENHANCED MESSAGE-----