ACQUISITION AND AFFILIATION AGREEMENT
By and Among
CITIZENS SECURITY GROUP INC.,
CITIZENS SECURITY MUTUAL INSURANCE COMPANY,
AND
MERIDIAN INSURANCE GROUP, INC.
March 20, 1996
ACQUISITION AND AFFILIATION AGREEMENT
This ACQUISITION AND AFFILIATION AGREEMENT ("Agreement") is made and
entered into as of March 20, 1996, by and among CITIZENS SECURITY GROUP INC.
("Citizens"), a business corporation organized under the laws of the State of
Minnesota, whose office and principal place of business is located at 406 Main
Street, Red Wing, Minnesota 55066, CITIZENS SECURITY MUTUAL INSURANCE COMPANY
("Citizens Mutual"), a mutual insurance company organized under the laws of the
State of Minnesota, whose office and principal place of business is located at
406 Main Street, Red Wing, Minnesota 55066, and MERIDIAN INSURANCE GROUP, INC.
("Meridian"), a business corporation organized under the laws of the State of
Indiana, whose office and principal place of business is located at 2955 North
Meridian Street, Indianapolis, Indiana 46208.
RECITALS
A. Citizens is a publicly-held insurance holding company. Citizens
directly owns all of the issued and outstanding shares of capital stock of
Citizens Fund Insurance Company ("Citizens Fund"), a stock insurance company
organized under the laws of the State of Minnesota, whose office and principal
place of business is located at 406 Main Street, Red Wing, Minnesota 55066, and
all of the issued and outstanding shares of capital stock of Insurance Company
of Ohio ("Citizens Ohio"), a stock insurance company organized under the laws of
the State of Ohio, whose office and principal place of business is located at
406 Main Street, Red Wing, Minnesota 55066. (Citizens Fund and Citizens Ohio
are sometimes referred to herein as the "Citizens Subsidiaries.") Citizens was
organized by Citizens Mutual, which presently owns
approximately 20% of the issued and outstanding shares of Citizens Common Stock
(as defined in Section 2.3) and all of the issued and outstanding shares of
Citizens Preferred Stock (as defined in Section 2.3). Citizens Mutual also owns
all of the issued and outstanding shares of capital stock of Mississippi Valley
Corporation ("Mississippi Valley"), a business corporation organized under the
laws of the State of Minnesota, whose office and principal place of business is
located at 406 Main Street, Red Wing, Minnesota 55066. (Citizens Mutual,
Citizens, Citizens Fund, Citizens Ohio and Mississippi Valley are collectively
referred to herein as the "Citizens Companies.")
B. Citizens Mutual, Citizens Fund and Citizens Ohio (collectively, the
"Citizens Insurance Companies") are jointly operated and managed under a
management services agreement and a reinsurance pooling agreement.
C. Meridian is a publicly-held insurance holding company. Meridian
directly owns all of the issued and outstanding shares of capital stock of
Meridian Security Insurance Company ("Meridian Security"), a stock insurance
company organized under the laws of the State of Indiana, whose office and
principal place of business is located at 2955 North Meridian Street,
Indianapolis, Indiana 46208. Meridian was organized by Meridian Mutual
Insurance Company ("Meridian Mutual"), a mutual insurance company organized
under the laws of the State of Indiana, whose office and principal place of
business is located at 2955 North Meridian Street, Indianapolis, Indiana 46208;
Meridian Mutual presently owns approximately 47% of the issued and outstanding
shares of common stock of Meridian. Meridian, Meridian Security and Meridian
Mutual (such companies are collectively referred to herein as the "Meridian
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Companies") are jointly operated and managed under a reinsurance pooling
agreement and shared management services arrangements.
D. The parties to this Agreement entered into a non-binding letter of
intent (the "Letter of Intent") dated January 29, 1996 and accepted by Citizens
and Citizens Mutual on February 1, 1996.
E. In order to consummate the acquisition of Citizens by Meridian as
contemplated by the Letter of Intent and this Agreement, Meridian will cause a
corporation to be formed under the laws of the State of Minnesota ("Merger
Company"). All of the issued and outstanding capital stock of Merger Company
will be owned by Meridian or by Meridian Security.
F. The Boards of Directors of Citizens, Citizens Mutual, Meridian and
Meridian Mutual have determined that it is in the best interest of their
respective corporations that Citizens be acquired by Meridian pursuant to the
merger of Merger Company with and into Citizens (the "Merger"), and the Boards
of Directors of Citizens Mutual, Meridian and Meridian Mutual have determined
that it would be in the best interests of their respective corporations that
Citizens Mutual become affiliated with Meridian, all upon and subject to the
terms and conditions of this Agreement.
G. Citizens, Citizens Mutual and Meridian desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated by the Letter of Intent and this Agreement and to
prescribe various conditions precedent to the transactions contemplated hereby.
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AGREEMENT
In consideration of the foregoing and the mutual representations,
warranties, covenants and agreements herein set forth, the parties to this
Agreement hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. MERGER. Subject to the terms and conditions of this
Agreement and the Plan of Merger substantially in the form attached hereto as
Exhibit A (the "Plan of Merger"), at the Effective Time (as defined in Section
1.2) Merger Company shall merge with and into Citizens in accordance with the
applicable laws of the State of Minnesota and the separate existence of Merger
Company shall cease (except insofar as continued by applicable law). Articles
of Merger, with the Plan of Merger attached, shall be filed with the Secretary
of State of the State of Minnesota in connection with the closing of the Merger
and other transactions contemplated by this Agreement (the "Closing").
SECTION 1.2. EFFECTIVE TIME OF THE MERGER AND CLOSING . Unless otherwise
agreed by the parties or otherwise provided by law, the Merger shall become
effective at 11:59 p.m., Eastern Standard Time, on a date as soon as practicable
after the conditions to the Merger pursuant to Articles VI and VII are satisfied
or waived, or such other date as the parties may agree (the "Effective Time").
The parties anticipate that the Effective Time will be on or about June 30,
1996. The Closing shall take place at the offices of Meridian, or such other
place as the parties may agree.
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SECTION 1.3. CONVERSION OF CITIZENS' SHARES. (a) At the Effective Time of
the Merger, the shares of Citizens Common Stock and Citizens Preferred Stock
issued and outstanding immediately prior to the Effective Time, and all rights
with respect thereto, shall by reason of the Merger and without any further
action on the part of the holders thereof, be cancelled and converted into
rights to receive cash (except for Dissenting Shares, as defined in Section
1.3(f)), as follows:
(i) CITIZENS COMMON STOCK. The holders of Citizens Common Stock shall
be entitled to receive, for each share held, an amount of cash equal
to the portion of the "Final Common Stock Merger Price" (as
hereinafter defined) which bears the same proportion to the total
Final Common Stock Merger Price as one share of Citizens Common
Stock bears to all issued and outstanding shares of Citizens Common
Stock as of the Effective Time. The term "Final Common Stock Merger
Price" as used in this Agreement means: $24,957,312, less 85.1% of
the Transaction Costs Adjustment, if any, as that term is defined in
Section 10.2.
(ii) CITIZENS PREFERRED STOCK. Citizens Mutual, as the holder of all of
the issued and outstanding shares of Citizens Preferred Stock, shall
be entitled to receive for all of such shares, an amount of cash
equal to: $4,375,000, less 14.9% of the Transaction Costs
Adjustment, if any, as that term is defined in Section 10.2.
No Dissenting Shares shall be converted into or represent a right to receive
cash. Dissenting Shares shall be subject to the provisions of Section 1.3(f).
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(b) Immediately following the Effective Time, each holder of an
outstanding certificate representing shares of Citizens Common Stock, upon
surrender of the certificate or certificates therefor, properly endorsed, to a
bank appointed by Citizens with the prior approval of Meridian (which approval
shall not be unreasonably withheld) to act as exchange agent (the "Exchange
Agent"), shall be entitled to receive the amount of cash as provided herein.
The cash payment will be made by check payable to the registered holder of each
certificate representing shares of Citizens Common Stock in the name of each
such holder, or to such other person as that holder may specify in writing to
the Exchange Agent. Immediately following the Effective Time, Citizens Mutual,
upon surrender to Citizens of the certificate or certificates representing the
Citizens Preferred Stock, properly endorsed, shall be entitled to receive the
amount of cash as provided herein. The cash payment shall be made by direct
wire transfer of funds to a bank account of Citizens Mutual specified in writing
to Meridian not less than two business days prior to the Closing, or in such
other manner as Citizens Mutual and Meridian may agree.
(c) All rights with respect to shares of Citizens Common Stock and
Citizens Preferred Stock owned by holders thereof as of the Effective Time shall
cease and terminate, notwithstanding that any certificates for such shares shall
not have been surrendered to the Exchange Agent or Citizens, and the holders of
such shares shall have no interest in nor claims against Citizens, the surviving
corporation in the Merger, except the right to receive the cash payment
specified herein, without interest (except for Dissenting Shares, the holders of
which shall be subject to Section 1.3(f)).
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(d) Meridian shall cause to be deposited with the Exchange Agent and
with Merger Company on or prior to Closing, funds immediately available as shall
be necessary for the cash distribution by the Exchange Agent and Citizens
described herein. No interest shall accrue or be payable with respect to any
funds held by the Exchange Agent or Merger Company or Citizens for the benefit
of the former holders of Citizens Common Stock or Citizens Preferred Stock. All
interest or other investment income earned on the funds on deposit with the
Exchange Agent shall, from time to time, be paid to Merger Company prior to the
Effective Time or to Citizens following the Effective Time.
(e) To the extent permitted by law, the appointment of the Exchange
Agent may be terminated by Citizens at any time after twelve months following
the Effective Time; and upon termination of such appointment, any unclaimed
funds for cash payments shall be returned to Citizens, as the surviving
corporation in the Merger, and thereafter the holders of certificates formerly
representing shares of Citizens Common Stock who have not received their cash
payments for whatever reason may surrender such certificates to Citizens and
(subject to applicable abandoned property, escheat and similar laws) receive in
exchange therefor the cash payment to which they are entitled under this
Agreement.
(f) Each share of Citizens Common Stock, the holder of which has taken
all of the steps required by Section 302A.473 of the Minnesota Business
Corporation Act (the "Minnesota Dissenters' Rights Statute") to establish such
holder's shares as dissenting shares as therein defined, is herein referred to
as a "Dissenting Share." Dissenting Shares owned by each holder thereof shall
not be converted into or represent the right to receive cash and shall be
entitled only to receive the value of such Dissenting Shares in accordance with
the Minnesota Dissenters'
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Rights Statute, provided that such holder complies with the procedures
contemplated by and set forth therein. If any holder of Dissenting Shares shall
effectively withdraw or lose such holder's dissenters' rights, such Dissenting
Shares shall be converted into the right to receive cash in accordance with the
provisions of Section 1.3(a).
(g) Citizens shall give Meridian (i) prompt notice of any written
notices, demands for payment, withdrawals of notices or demands and any other
instrument served pursuant to the Minnesota Dissenters' Rights Statute and
received by Citizens (such notice by Citizens shall, to the extent available to
Citizens, set forth the name and address of, and the number of shares of
Citizens Common Stock held by, the holder making such objection or giving such
notice), and (ii) the opportunity to direct all negotiations or proceedings with
respect to holders of Dissenting Shares. Citizens shall not voluntarily make
any payment with respect to any demands for payment for shares under the
Minnesota Dissenters' Rights Statute, and shall not, except with the prior
written consent of Meridian, settle or offer to settle any such demands.
SECTION 1.4. CONVERSION OF MERGER COMPANY'S SHARES. At the Effective Time
of the Merger, the shares of capital stock of Merger Company issued and
outstanding immediately prior to the Effective Time shall, by reason of the
Merger and without any further action on the part of the holder thereof, be
cancelled and converted into all of the issued and outstanding shares of capital
stock of Citizens. Immediately following the Effective Time, the holder of the
certificate representing all of the shares of capital stock of Merger Company
issued and outstanding immediately prior to the Effective Time, upon surrender
to Citizens of the certificate therefor, properly endorsed, shall be entitled to
receive a certificate representing all of the issued and outstanding shares of
capital stock of Citizens following the Effective Time.
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SECTION 1.5. EMPLOYEE STOCK OWNERSHIP PLAN. Prior to the Closing and the
Effective Time, Citizens and Citizens Mutual shall take such actions in
connection with the Citizens Security Employee Stock Ownership Plan (the "ESOP")
as may be necessary to:
(a) cause National City Bank of Minneapolis, as Trustee of the ESOP (the
"ESOP Trustee"), to surrender to the Exchange Agent the certificates
representing all shares of Citizens Common Stock owned by the ESOP for payment
at the Effective Time in accordance with the terms of the Merger;
(b) cause (i) the repayment, by ESOP Trustee, of the outstanding amounts due
under the Promissory Note of the ESOP dated October 30, 1992, executed on behalf
of the ESOP by the ESOP Trustee and payable to the order of Citizens Mutual (the
"ESOP Note"), (ii) the cancellation of the ESOP Note, and (iii) the release of
the assets held as collateral in the ESOP suspense account, as of the Effective
Time;
(c) allow for the allocation of the unallocated assets held by the ESOP,
after repayment of the outstanding amounts due under the ESOP Note, to the ESOP
participants as provided in the ESOP and to the fullest extent permitted by
applicable law, as soon as practicable after the Effective Time; and
(d) at the Effective Time, cause the ESOP participants who were employed by
Citizens Mutual as of February 8, 1996, to become fully vested in their ESOP
accounts and cause ESOP participation to be limited to those individuals
employed by Citizens Mutual on or before the Closing.
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SECTION 1.6. STOCK OPTIONS. Prior to the Closing and the Effective Time,
Citizens shall make any necessary amendments to or adjustments in outstanding
stock options for the purchase of shares of Citizens Common Stock, or the plan
under which those options were issued, so that: (a) such options may be
exercised immediately prior to the Effective Time (including payment to Citizens
in cash of the exercise price), (b) the shares of Citizens Common Stock issued
in respect of such exercises may be tendered for payment in accordance with the
terms of the Merger, and (c) any unexercised options and any stock option plans
of Citizens shall, as of the Effective Time, terminate, no longer be
exercisable, and otherwise not represent any claim against Citizens or Merger
Company for the issuance of capital stock or other securities or for the payment
of cash or other consideration.
SECTION 1.7. BOARD OF DIRECTORS OF CITIZENS MUTUAL. At the Effective Time,
the Board of Directors of Citizens Mutual shall be reconstituted so that it
consists of the six current directors of Meridian Security, plus the current
Vice President of Marketing of Citizens Mutual and the current President of
Citizens Mutual.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CITIZENS AND CITIZENS MUTUAL
Citizens and Citizens Mutual hereby represent and warrant to Meridian as
follows; SUBJECT, HOWEVER, to the exceptions set forth on the attached
Disclosure Schedule which specifies the particular section or sections to which
each exception relates; and FURTHER SUBJECT to the exception that the
representations and warranties of Citizens Mutual set forth in this Article II
and pertaining solely to Citizens or to the Citizens Subsidiaries are limited
and made to the
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knowledge of Citizens Mutual, its officers, directors and employees who are not
officers, directors or employees of Citizens or the Citizens Subsidiaries:
SECTION 2.1. ORGANIZATION. Each of Citizens and Citizens Mutual is a
corporation duly organized and validly existing under the laws of the State of
Minnesota. Each of Citizens and Citizens Mutual has the corporate power and
authority to own, operate and lease its properties and assets and to carry on
its business as now being conducted.
SECTION 2.2. ORGANIZATION OF SUBSIDIARIES. Citizens Mutual has no direct or
indirect subsidiaries other than Citizens (and its subsidiaries) and Mississippi
Valley, and Citizens has no direct or indirect subsidiaries other than the
Citizens Subsidiaries. Schedule 2.2 sets forth for Mississippi Valley and for
each Citizens Subsidiary the authorized capital stock, the number of shares duly
issued and outstanding, and the owners of such shares and the number of shares
held by each owner. The shares of capital stock of Mississippi Valley owned by
Citizens Mutual, and the shares of capital stock of each Citizens Subsidiary
owned directly or indirectly by Citizens are duly authorized, validly issued,
fully paid and non-assessable, and are owned free and clear of any liens,
claims, charges or encumbrances. No equity security of Mississippi Valley or
either Citizens Subsidiary is or may be required to be issued by reason of any
option, warrant, right to subscribe to, call, or commitment of any character
whatsoever relating to, or security or right convertible into, shares of any
capital stock, and there are no contracts, commitments, understandings, or
arrangements by which Mississippi Valley or either Citizens Subsidiary is bound
to issue additional shares of its capital stock, or options, warrants, or rights
to purchase or acquire any additional shares of its capital stock. None of the
Citizens Companies has any investment in any partnership, joint venture or
limited liability company, and all loans
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or advances to its independent insurance agents are listed on Schedule 2.2
(including the relevant amounts, outstanding balances and dates thereof). Each
of Mississippi Valley and the Citizens Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and authority to
own or lease its properties and carry on its business as now being conducted.
SECTION 2.3. CAPITALIZATION. The authorized capital stock of Citizens
consists of (i) 5,000,000 shares of preferred stock, par value $0.01 per share,
of which the only authorized series is 1,250,000 shares of Series A Preferred
Stock, par value $0.01 per share (the "Citizens Preferred Stock"), and (ii)
10,000,000 shares of common stock, par value $0.01 per share (the "Citizens
Common Stock"). As of the date of this Agreement, the only issued and
outstanding shares of Citizens' capital stock are 1,250,000 shares of Citizens
Preferred Stock and 1,661,585 shares of Citizens Common Stock. The only
outstanding options, warrants, or other rights to purchase shares of Citizens
Common Stock or Preferred Stock are the employee and nonemployee director stock
options covering a total of 335,000 shares of Citizens Common Stock referred to
in Section 1.6 above. All shares of capital stock of Citizens which are
outstanding as of the date hereof, or which will be outstanding immediately
prior to the Effective Time, are or will be duly authorized, validly issued,
fully paid and non-assessable, and are not or will not be subject to or issued
in violation of, any preemptive rights. Except as set forth above, there are no
shares of capital stock of Citizens authorized or outstanding and there are no
subscriptions, options to purchase shares of the capital stock of Citizens,
conversion or exchange rights, warrants, preemptive rights or other
arrangements, claims or commitments of any nature whatsoever (whether firm or
conditional) obligating Citizens to issue, transfer, deliver
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or sell, or cause to be issued, transferred, delivered or sold, additional
shares of the capital stock or other securities or interests of Citizens or
obligating Citizens to grant, extend or enter into any such agreement or
commitment.
SECTION 2.4. AUTHORITY TO CONDUCT INSURANCE BUSINESS. Each of Citizens
Mutual and the Citizens Subsidiaries is an insurance company licensed or
authorized to write the kinds of insurance coverage set forth on Schedule 2.4 in
its respective state of incorporation and in each of the jurisdictions specified
in such schedule in which it writes insurance. Each of Citizens Mutual and the
Citizens Subsidiaries holds a license and is fully qualified as a foreign
insurer to conduct its business in each of those jurisdictions, and there is no
other jurisdiction in which the failure to hold a license or to be so qualified
to conduct the business as now being conducted by the respective company would
have a material adverse effect on the business of the Citizens Companies
(considered as a whole) or on the consolidated results of operations or
consolidated financial condition of Citizens and the Citizens Subsidiaries
(considered as a whole) or of Citizens Mutual and Mississippi Valley (considered
as a whole) (hereinafter referred to as a "Citizens Material Adverse Effect").
No license or certificate of authority identified in Schedule 2.4 has been
revoked, restricted, suspended, limited or modified nor is any license or
certificate of authority the subject of, nor, to the knowledge of Citizens or
Citizens Mutual, is there a basis for, a proceeding for, or a threatened
proceeding for, revocation, restriction, suspension, limitation or modification,
nor is Citizens Mutual or either of the Citizens Subsidiaries operating under
any formal or informal agreement or understanding with the licensing authority
of any
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state that restricts its authority to do business or requires any such company
to take, or refrain from taking, any action.
SECTION 2.5. CONSENTS AND APPROVALS AND NO DEFAULTS. The execution and
delivery by Citizens and Citizens Mutual of this Agreement, the performance by
Citizens and Citizens Mutual of their obligations hereunder, and the
consummation by Citizens and Citizens Mutual of the transactions contemplated
hereby do not require Citizens or Citizens Mutual to obtain any consent,
approval or action of, or make any filing with or give any notice to, any
corporation, person or firm or any public, governmental or judicial authority,
OTHER THAN any consents or approvals from, or any filings or notices to, any
corporations, persons or firms in connection with any agreements or other
instruments that individually or in the aggregate are not material to Citizens
or Citizens Mutual. This Agreement is the valid and binding obligation of each
of Citizens and Citizens Mutual, enforceable against each of them in accordance
with its terms, subject to bankruptcy, receivership, insolvency, reorganization,
moratorium or similar laws affecting or relating to creditors' rights generally
and subject to general principles of equity. Provided the required approvals of
agencies of any government (including, without limitation, the Insurance
Division of the Minnesota Department of Commerce (the "Minnesota Department")
and the Ohio Department of Insurance (the "Ohio Department")) are obtained,
neither the execution, delivery, and performance by Citizens or Citizens Mutual
of this Agreement, nor the consummation of the transactions contemplated hereby,
nor compliance by Citizens or Citizens Mutual with any of the provisions hereof,
will:
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(A) violate, conflict with, or result in a breach of any provisions of,
or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by,
or result in a right of termination or acceleration of, or
result in the creation of any lien, security interest, charge,
or encumbrance upon any of the properties or assets of the
Citizens Companies under, any of the terms, conditions, or
provisions of:
(i) their respective articles of incorporation or by-laws, or
(ii) any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement, or other material instrument or
obligation to which any of the Citizens Companies is a party
or by which any of such companies may be bound, or to which
any Citizens Company or any of their properties or assets may
be subject; or
(iii) any governmental license, permit or authorization material to
the business of any Citizens Company; or
(B) violate any judgment, ruling, order, writ, injunction, decree,
statute, rule, or regulation applicable to any Citizens Company or
any of their respective properties or assets.
SECTION 2.6. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Citizens and
Citizens Mutual has all requisite corporate power and authority to enter into
and deliver this Agreement, and the execution and delivery hereof has been duly
approved and authorized by the Boards of Directors
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of Citizens and Citizens Mutual. Subject to approvals by the holders of the
Citizens Preferred Stock and the Citizens Common Stock and such approvals of
governmental agencies having regulatory authority over the Citizens Companies
(including the Minnesota Department and the Ohio Department) and such further
action of the Board of Directors of Citizens and Citizens Mutual as may be
required by the Minnesota Insurance Law or the Indiana Insurance Law, Citizens
and Citizens Mutual have or will have all requisite corporate power and
authority to effectuate the Merger. The holders of Citizens Preferred Stock and
the holders of Citizens Common Stock are entitled to vote as separate classes on
the Merger in person or by proxy at a meeting convened to approve the Merger
(with each such holder being entitled to one vote per share), and the vote at
such meeting is the only vote of the holders of Citizens Preferred Stock or
Citizens Common Stock necessary to approve the Merger.
SECTION 2.7. GAAP FINANCIAL STATEMENTS. Citizens has previously delivered
to Meridian true and complete copies of audited financial statements (the "GAAP
Financial Statements") for the years ended December 31, 1993, December 31, 1994,
and December 31, 1995 for Citizens (prepared on a consolidated basis). The GAAP
Financial Statements so provided were prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis and
present fairly, in all material respects, the financial condition, results of
operations and changes in financial position of Citizens as of the dates or for
the periods covered thereby, in conformity with GAAP. Citizens has also
previously delivered to Meridian true and complete copies of the internally
prepared unaudited financial statements for the years ended December 31, 1993,
December 31, 1994, and December 31, 1995, for Mississippi Valley (the
"Mississippi Valley Financial Statements"). The Mississippi Valley Financial
Statements were
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prepared by personnel of Citizens Mutual based on the accounting records of
Mississippi Valley, which accounting records were prepared by personnel of
Citizens Mutual in the ordinary course and in accordance with customary
business practices, and the Mississippi Valley Financial Statements fairly
present in all material respects the financial condition and results of
operations of Mississippi Valley for the periods covered by the Mississippi
Valley Financial Statements.
SECTION 2.8. STATUTORY FINANCIAL STATEMENTS. (a) Citizens has previously
delivered to Meridian true and complete copies of the audited statutory
financial statements of Citizens Mutual and each Citizens Subsidiary (including
statements of operations, unassigned surplus and cash flows) for the fiscal
years ended December 31, 1990 to 1995 (the "Audited SAP Financials"). The
Audited SAP Financial Statements present fairly in all material respects the
financial condition of the respective companies at such dates and results of
operations for such periods and were prepared in accordance with statutory
accounting principles ("SAP").
(b) Annual Statements required to be filed with applicable insurance
regulatory authorities on the respective forms prescribed or permitted by such
authorities (the "Annual Statements") for Citizens Mutual and each Citizens
Subsidiary for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 have
been filed with the appropriate regulatory authorities in all jurisdictions in
which such filing is required. The Annual Statements were prepared in
accordance with accounting practices prescribed or permitted by such regulatory
authorities, applied on a consistent basis throughout the related periods except
as otherwise stated therein, and presented fairly in all material respects the
statutory financial position of the respective
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company at the dates of, and the statutory results of operations for the
respective company for the periods covered by, such statutory statements.
SECTION 2.9. RESERVES. The aggregate actuarial reserves and other actuarial
amounts held in respect of liabilities with respect to Citizens Mutual and each
of the Citizens Subsidiaries as established or reflected in their respective
financial statements as of December 31, 1995:
(a) (i) were determined in accordance with generally accepted actuarial
standards consistently applied, (ii) were fairly stated in accordance with sound
actuarial principles, and (iii) were based on reasonable and appropriate
actuarial assumptions;
(b) met the requirements of the applicable insurance laws of the States of
Minnesota and Ohio, or any other state having such jurisdiction in all material
respects; and
(c) were adequate (under generally accepted actuarial standards consistently
applied) to cover the total amount of all reasonably anticipated matured and
unmatured liabilities of Citizens Mutual and each Citizens Subsidiary under all
outstanding insurance policies pursuant to which Citizens Mutual or either
Citizens Subsidiary has any liability.
SECTION 2.10. NO UNDISCLOSED LIABILITIES. As of December 31, 1995, none of
the Citizens Companies had any debts, obligations or liabilities of whatever
kind or nature, either direct or indirect, absolute or contingent, matured or
unmatured (the "Citizens Liabilities"), except debts, obligations and
liabilities that are fully reflected in, or reserved against on, the GAAP
Financial Statements or the Audited SAP Financial Statements, except for
liabilities arising from the ordinary course of business that are not required
to be reflected in a balance sheet prepared in
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accordance with GAAP or SAP (as the case may be). Since such date, there
have been no changes in the Citizens Liabilities except for changes arising
from the ordinary course of business, none of which changes, individually or
in the aggregate, have had a Citizens Material Adverse Effect.
SECTION 2.11. REGULATORY FILINGS. Citizens has previously delivered to
Meridian true and complete copies of all filings which were made by Citizens,
Citizens Mutual or any Citizens Subsidiary within the past three years with the
Minnesota Department, the Ohio Department or any other department of insurance
in any jurisdiction where Citizens, Citizens Mutual or any Citizens Subsidiary
is required to make such filings. Each of such filings, as of its respective
date, complied as to form and content in all material respects with the
provisions of applicable law.
SECTION 2.12 . SEC REPORTS. Citizens has delivered to Meridian (i) each
registration statement, Current Report on Form 8-K, Quarterly Report on Form 10-
Q, annual report to shareholders, and proxy statement or information statement
prepared by it since January 1, 1992, (ii) an Annual Report on Form 10-K for
each of the years ended December 31, 1991, 1992, 1993 and 1994, and (iii) a
Quarterly Report on Form 10-Q for each of the periods ended March 31, June 30
and September 30, 1995, each in the form (including exhibits) filed with
Securities and Exchange Commission (collectively, the "Citizens SEC Reports").
As of its respective date, each of the Citizens SEC Reports did not contain any
untrue statements of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not
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misleading. Each of the balance sheets included in or incorporated by reference
into the Citizens SEC Reports (including the related notes and schedules) fairly
presents the financial position of Citizens as of its date, and each of the
statements of income, of shareholders' equity and of cash flows included in or
incorporated by reference into the Citizens SEC Reports (including the related
notes and schedules) fairly presents the results of operations, shareholders'
equity and cash flows, as the case may be, of Citizens for the period set forth
therein (subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material to Citizens in amount or effect), in each
case in accordance with generally accepted accounting principals consistently
applied during the periods involved, except as may be noted therein. Other than
the Citizens SEC Reports, Citizens has not filed any other definitive reports or
statements with the Securities and Exchange Commission since January 1, 1992.
SECTION 2.13. LITIGATION. There are no proceedings or investigations (other
than claims in the ordinary course of the insurance business), pending or
threatened against, relating to, involving or otherwise affecting any of the
Citizens Companies, which individually exceed $10,000 or in the aggregate may
have a Citizens Material Adverse Effect.
SECTION 2.14. COMPLIANCE WITH LAW. (a) None of the Citizens Companies is in
violation in any material respect (or, with notice or lapse of time or both,
would be in violation in any material respect) of any term or provision of any
applicable law, regulation, rule, ordinance, order, judgment, writ or injunction
of any federal, state or local government or instrumentality or agency thereof,
or of any court, which violation may reasonably be expected to have a Citizens
Material Adverse Effect, and Citizens and Citizens Mutual are not aware of any
facts or circumstances which may constitute or result in any such violation.
20
(b) None of the Citizens Companies is a party to any contract with or
other undertaking to, or is subject to any order by, or is a recipient of any
supervisory letter or other oral or written communication of any kind from, any
governmental entity that (i) currently materially and adversely affects the
business of the Citizens Companies (considered as a whole) or the consolidated
financial condition of either Citizens and the Citizens Subsidiaries (considered
as a whole) or Citizens Mutual and Mississippi Valley (considered as a whole),
including without limitation, reserve adequacy, investment, sales or trade
practices and policies, underwriting practices and policies, or management, or
(ii) may reasonably be expected to materially and adversely affect the business
or financial condition of any of the Citizens Companies. None of Citizens,
Citizens Mutual or any Citizens Subsidiary has been advised by a governmental
entity that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any order, contract or other
communication of the kind described above in this Section 2.14.
SECTION 2.15. PROPERTIES. Each of Citizens Companies has good title to all
properties and assets material to the conduct of its business, which it purports
to own, including, without limitation, all property reflected in the GAAP
Financial Statements or Audited SAP Financial Statements or Mississippi Valley
Financial Statements dated December 31, 1995, or acquired since that date
(except in all cases to the extent such assets or properties have been sold or
otherwise disposed of in the ordinary and usual course of business since that
date). All such properties and assets are owned, free and clear of all liens,
charges and encumbrances, other than (i) those set forth on Schedule 2.15,
(ii) any liens and assessments for taxes not yet due and payable or being
contested in good faith by appropriate proceedings, and (iii) such imperfections
21
of title, or encumbrances and liens, if any, as do not materially detract from
the value or interfere with the actual or intended use of the properties owned
by any of the Citizens Companies or otherwise materially impair the business
operations of any of the Citizens Companies. All material leases pursuant to
which any of the Citizens Companies leases real or personal property are valid
and binding on the respective Citizens Company, enforceable against such
Citizens Company in accordance with their respective terms subject to
bankruptcy, receivership, insolvency, reorganization, moratorium or similar laws
affecting or relating to creditors' rights generally and subject to general
principles of equity (and Citizens and Citizens Mutual do not know of any reason
that such leases would not be valid and binding upon or enforceable against the
other parties thereto), and there is not under any of such leases any existing
default or event of default on the part of any Citizens Company, or any event
which with notice or lapse of time, or both, would constitute a default on the
part of any Citizens Company (and Citizens and Citizens Mutual do not know of
any default, event of default or event which with notice or lapse of time, or
both, would constitute a default, in each case on the part of the other party
thereto), the consequence of which would have a Citizens Material Adverse
Effect.
SECTION 2.16. INTELLECTUAL PROPERTY. There are no copyrights, trademarks,
trade names, service marks or patents covered under federal or state common law
or statutory law, whether or not registered, used by any of the Citizens
Companies (the "Intellectual Property") that are material to the conduct of
their respective businesses. Set forth on Schedule 2.16 is a listing of any
federal or state registered Intellectual Property that any of the Citizens
Companies uses in the conduct of its respective business. There are no
infringement suits pending, or to the best
22
knowledge of Citizens or Citizens Mutual threatened, against any of the Citizens
Companies with respect to the Intellectual Property, and neither Citizens nor
Citizens Mutual knows of any fact or condition which could give rise to any such
infringement suit.
SECTION 2.17. ENVIRONMENTAL LAWS AND PERMITS. Each of the Citizens
Companies is in compliance with any and all laws, regulations, rules,
ordinances, orders, judgments, permits, agreements, licenses or other
governmental restrictions or requirements relating to health, the environment or
the release by such Citizens Company of any materials into the environment, now
in effect in any and all jurisdictions, in which the Citizens Companies are or
from time to time may be doing business (collectively the "Environmental Laws"),
except where such failure to comply would not have a Citizens Material Adverse
Effect.
SECTION 2.18. TAXES. (a) All federal income tax returns required to be
filed by the Citizens Companies have been properly and timely filed with the
Internal Revenue Service, (b) all state and local income tax returns required
to be filed by the Citizens Companies have been properly and timely filed with
the appropriate state or local taxing authorities, except where the failure so
to file such state and local income tax returns would not have a Citizens
Material Adverse Effect, and (c) all federal, state and local tax information
returns required to be filed by the Citizens Companies have been properly and
timely filed with the appropriate federal, state or local taxing authorities,
except where the failure so to file such information returns would not have a
Citizens Material Adverse Effect. Such income tax returns were true, correct
and complete in all material respects at the time filed, and the Citizens
Companies have paid all taxes shown to be due on such returns. The Citizens
Companies have adequately reserved, in
23
accordance with GAAP, on the GAAP Financial Statements, and in accordance with
SAP, on the Audited SAP Financial Statements, for the payment of all unpaid
federal, state and local taxes, including interest and penalties, payable in
respect of any taxable event or period (including interim periods) ending on the
dates of such financial statement and for all periods prior thereto. There are
no outstanding deficiencies, assessments or proceedings for the assessment or
collection of taxes or any material dispute as to taxes against or involving any
of the Citizens Companies.
SECTION 2.19. EMPLOYEE BENEFIT PLANS. (a) Except for the Citizens
Companies, there are no other trades or businesses, whether or not incorporated,
which, together with any of the Citizens Companies, would be deemed to be a
"single employer" within the meaning of Code Sections 414(b), (c) or (m) of the
Internal Revenue Code of 1986, as amended (the "Code").
(b) Schedule 2.19 sets forth a true and a complete list of (i) each employee
benefit plan, as defined in Section 3 (3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") that any of the Citizens Companies
currently maintains or has maintained within the three year period preceding the
Effective Time (the "ERISA Plans"), and (ii) each other plan, arrangement,
program and agreement providing employee benefits, including, but not limited
to, deferred compensation, bonuses, severance pay and fringe benefits, that are
presently maintained for the benefit of any current or former employees of any
of the Citizens Companies (the ERISA Plans and each other plan listed on
Schedule 2.19 hereafter, collectively, the "Plans"). Citizens has delivered or
made available to Meridian copies of all Plans and any related documents or
instruments establishing the Plans or any related trusts or funding
24
arrangements; the most recent determination letter, or any outstanding request
for a determination letter, from the Internal Revenue Service (the "IRS") with
respect to each ERISA Plan intended to satisfy the requirements of Code Section
401(a) and a copy of the application on which the determination letter or
request for determination letter is based; actuarial valuations, if applicable,
for the most recent three plan years for which such valuations are available;
current summary plan descriptions; annual returns/reports on Form 5500 and
summary annual reports for each of the most recent three plan years; Form 5310
and any related filings with the IRS, the Department of Labor ("DOL") or the
Pension Benefit Guaranty Corporation ("PBGC") within the last five years
preceding the date of this Agreement; and any material correspondence to or from
the IRS, DOL or PBGC within the last three years preceding the Effective Time in
connection with any Plan.
(c) Each ERISA Plan intended to be qualified under Code Section 401(a) has
received a favorable determination letter from the IRS that the Plan, in its
current form, is qualified and satisfies all legal requirements, including the
requirements of the Tax Reform Act of 1986 and subsequent legislation enacted
through the date hereof. Nothing has occurred since the dates of the respective
IRS favorable determination letters that could adversely affect the
qualification of the Plans and their related trusts.
(d) None of the Citizens Companies currently maintains or contributes to, or
has ever maintained or contributed to, a "multiemployer plan" as defined in
ERISA Section 3(37), and none of the Citizens Companies currently maintains or
contributes to a defined benefit pension plan, as defined in ERISA Section 3
(35). None of the Citizens Companies has any unpaid liability or is threatened
with any liability for the termination of any Plan, and each terminated
25
Plan was terminated in accordance with all provisions of applicable law. Each
terminated ERISA Plan that was intended to be qualified under Code Section
401(a) received a favorable determination letter from the IRS that such Plan was
qualified upon termination.
(e) The written terms of each of the Plans, and any related trust agreement,
group annuity contract, insurance policy or other funding arrangement are in
substantial compliance with all applicable laws, rules and regulations,
including without limitation, the rules and regulations promulgated by the DOL,
PBGC or IRS pursuant to the provisions of ERISA and the Code, and each of such
Plans has been administered in substantial compliance with such requirements.
(f) Except with respect to income taxes on benefits paid or provided, no
income, excise or other tax or penalty (federal or state) has been waived or
excused, has been paid or is owed by any person (including, but not limited to,
any Plan, any Plan fiduciary or any of the Citizens Companies) with respect to
the operations of, or any transactions with respect to, any Plan. No action has
been taken by any of the Citizens Companies, nor has there been any failure by
any of the Citizens Companies to take any action, nor is any action or failure
to take action contemplated by any of the Citizens Companies, that would subject
any person or entity to any liability, tax or penalty imposed by the IRS, DOL,
or PBGC, in connection with any Plan. No reserve for any taxes or penalties has
been established with respect to any Plan by any of the Citizens Companies, nor
has any advice been given to any of the Citizens Companies with respect to the
need to establish such a reserve.
26
(g) There are no (i) actions, suits, arbitrations or claims (other than
routine claims for benefits), (ii) legal, administrative or other proceedings or
governmental investigations or audits, or (iii) complaints to or by any
governmental entity, which are pending, anticipated or threatened, against any
Plan or its assets, or against any Plan fiduciary or administrator, or against
any of the Citizens Companies or their officers or employees with respect to any
Plan.
(h) The present value of the future cost of post-retirement medical benefits
that any of the Citizens Companies is obligated to provide, calculated on the
basis of actuarial assumptions Citizens Mutual considers reasonable estimates of
future experience and which have been provided to Meridian, does not exceed the
amount specified on Schedule 2.19.
(i) None of the Citizens Companies, nor any of the Plans, nor any trust
created thereunder, nor any trustee or administrator thereof has engaged in a
transaction in connection with which any of the Citizens Companies, any of the
Plans, any such trust, or any trustee or administrator thereof, or any party
dealing with the Plans or related trusts could be subject to either a civil
penalty assessed pursuant to ERISA Sections 409 or 502 or a tax imposed pursuant
to Code Sections 4975 or 4976. None of the Citizens Companies is, or, as a
result of any actions, omissions, occurrences or state of facts existing prior
to or at the Effective Time, may become liable for any tax imposed under Code
Sections 4978 or 4978(B).
27
(j) There are no leased employees, as defined in Code Section 414(n), that
must be taken into account with respect to the requirements under Code Section
414(n)(3).
(k) Total employer contributions to each Plan with respect to the most
recent plan year are listed in Scheduled 2.19 and the employer contributions to
all Plans required for the current plan year are not estimated to be materially
more than contributions for the prior plan year.
(l) Each Plan may be terminated directly or indirectly by Meridian, in its
discretion, at any time after the Effective Time of the Merger in accordance
with its terms, without any liability to Meridian, or any of the Citizens
Companies, to any person, entity or government agency for any conduct, practice
or omission of any of the Citizens Companies which occurred prior to the
Effective Time of the Merger, except for liabilities to and the rights of the
employees thereunder accrued prior to the Effective Time of the Merger, or if
later, the time of termination, and except for continuation rights required by
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or other
applicable law.
SECTION 2.20. CONTRACTS AND COMMITMENTS. None of the Citizens Companies is
in default under any material agreement, commitment, arrangement, lease,
insurance policy, or other instrument, whether entered into in the ordinary
course of business or otherwise, and there has not occurred any event that, with
the lapse of time or giving of notice or both, would constitute such a default,
except, in all cases, where such default would not have a Citizens Material
Adverse Effect.
28
SECTION 2.21. RELATED PARTY TRANSACTIONS. None of the Citizens Companies has
made any loan to any director, officer or other affiliate of any of the Citizens
Companies which remains outstanding, nor has any of the Citizens Companies
entered into any agreement for the purchase or sale of any property or services
from or to any director, officer or other affiliate of any of the Citizens
Companies.
SECTION 2.22. NO FINDERS. None of the Citizens Companies has made any
representation, contract or commitment by which any such party or Meridian might
be obligated to pay any finder's fee, brokerage commission or similar payment
for bringing the parties together or bringing about the transactions
contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MERIDIAN
Meridian represents and warrants to Citizens and Citizens Mutual that:
SECTION 3.1. ORGANIZATION. Meridian is a corporation duly organized and
validly existing under the laws of the State of Indiana and has the corporate
power and authority to carry on its business as it is now being conducted and to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby.
SECTION 3.2. CORPORATE POWER AND AUTHORITY, ETC. The execution, delivery
and performance by Meridian of this Agreement and the consummation by Meridian
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Meridian. This Agreement has been
duly and validly executed and delivered by Meridian and constitutes the valid
and binding obligation of Meridian, enforceable against it in accordance
29
with its terms, subject to bankruptcy, receivership, insolvency, reorganization,
moratorium or similar laws affecting or relating to creditors' rights generally
and subject to general principles of equity.
SECTION 3.3. NO CONFLICTS. The execution, delivery and performance by
Meridian of this Agreement and the consummation by Meridian of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time, or both, (i) violate any provision of law, statute, rule or regulation
to which Meridian is subject, (ii) violate any order, judgment or decree
applicable to Meridian or (iii) conflict with, or result in a breach or default
under, any term or condition of the Articles of Incorporation or By-Laws of
Meridian or any material agreement or other material instrument to which
Meridian or any of its subsidiaries is a party or by which any of them may be
bound; except for violations, conflicts, breaches or defaults which in the
aggregate would not materially hinder or impair the consummation of the
transactions contemplated hereby.
SECTION 3.4. CONSENTS. Except as set forth on Schedule 3.4, no consent,
approval or authorization of, exemption by, or filing with, any governmental or
regulatory authority, or any third party, is required in connection with the
execution, delivery and performance by Meridian of this Agreement or the
consummation by Meridian of the transactions contemplated hereby.
30
SECTION 3.5. FUNDS AVAILABLE. Meridian and Merger Company have or will have
available to them sufficient funds to perform all of their respective
obligations pursuant to this Agreement.
SECTION 3.6. MERGER COMPANY. At or prior to the Closing:
(a) Merger Company shall be a corporation duly organized and validly
existing under the laws of the State of Minnesota, with the corporate power and
authority to adopt, deliver and perform the Plan of Merger and to consummate the
transactions of Merger Company contemplated thereby and by this Agreement.
(b) The adoption, delivery and performance by Merger Company of the Plan of
Merger and the consummation by Merger Company of the transactions contemplated
thereby and by this Agreement shall have been duly authorized by all necessary
corporate action on the part of Merger Company, and the Plan of Merger shall
have been duly and validly adopted by Merger Company and constitute its valid
and binding obligation, enforceable against Merger Company in accordance with
its terms, subject to bankruptcy, receivership, insolvency, reorganization,
moratorium or similar laws affecting or relating to creditors' rights generally
and subject to general principles of equity.
(c) The adoption, delivery and performance by Merger Company of the Plan of
Merger and the consummation by Merger Company of the transactions contemplated
thereby and by this Agreement will not, with or without the giving of notice or
the lapse of time, or both, (i) violate any provision of law, statute, rule or
regulation to which Merger Company is subject, (ii) violate any order, judgment
or decree applicable to Merger Company, or (iii) conflict with, or result in a
breach or default under, any term or condition of the Articles of Incorporation
or By-Laws of Merger Company.
31
SECTION 3.7. GAAP FINANCIAL STATEMENTS. Meridian has previously delivered
to Citizens and Citizens Mutual true and complete copies of audited financial
statements (the "Meridian GAAP Financial Statements") for the years ended
December 31, 1993, December 31, 1994, and December 31, 1995 for Meridian
(prepared on a consolidated basis). The Meridian GAAP Financial Statements so
provided were prepared in accordance with GAAP applied on a consistent basis and
present fairly, in all material respects, the financial condition, results of
operations and changes in financial position of Meridian as of the dates or for
the periods covered thereby, in conformity with GAAP.
SECTION 3.8. STATUTORY FINANCIAL STATEMENTS. (a) Meridian has previously
delivered to Citizens and Citizens Mutual true and complete copies of (i) the
audited combined statutory financial statements of Meridian Mutual and
affiliates (including statements of operations, unassigned surplus and cash
flows) for the fiscal years ended December 31, 1990 to 1994 (the "Meridian
Audited SAP Financial Statements"), and (ii) the unaudited combined statutory
financial statements of Meridian Mutual and affiliates for the interim periods
ended March 31, 1995, June 30, 1995 and September 30, 1995 (the "Meridian
Unaudited Interim SAP Financials"). The Meridian Audited SAP Financial
Statements present fairly in all material respects the combined financial
condition of Meridian Mutual and affiliates at such dates and results of
operations for such periods and were prepared in accordance with SAP, and the
Meridian Unaudited Interim SAP Financial Statements present fairly in all
material respects the combined financial condition of Meridian Mutual and
affiliates at such dates and results of operations for such periods and were
prepared in accordance with SAP, except for the absence
32
of notes and subject to normal year-end adjustments which are not material to
the Meridian Companies in amount or effect.
(b) Annual Statements required to be filed with applicable insurance
regulatory authorities on the respective forms prescribed or permitted by such
authorities (the "Meridian Annual Statements") for Meridian Mutual and Meridian
Security for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 have
been filed with the appropriate regulatory authorities in all jurisdictions in
which such filing is required. The Meridian Annual Statements were prepared in
accordance with accounting practices prescribed or permitted by such regulatory
authorities, applied on a consistent basis throughout the related periods except
as otherwise stated therein, and presented fairly in all material respects the
statutory financial position of the respective company at the dates of, and the
statutory results of operations for the respective company for the periods
covered by, such statutory statements.
SECTION 3.9. RESERVES. The aggregate actuarial reserves and other actuarial
amounts held in respect of liabilities with respect to Meridian Mutual and
Meridian Security as established or reflected in their combined financial
statements as of September 30, 1995:
(a) (i) were determined in accordance with generally accepted
actuarial standards consistently applied, (ii) were fairly stated in
accordance with sound actuarial principles, and (iii) were based on
reasonable and appropriate actuarial assumptions;
33
(b) met the requirements of the applicable insurance laws of the State
of Indiana, or any other state having such jurisdiction, in all material
respects; and
(c) were adequate (under generally accepted actuarial standards
consistently applied) to cover the total amount of all reasonably anticipated
matured and unmatured liabilities of Meridian Mutual and Meridian Security
under all outstanding insurance policies pursuant to which Meridian Mutual or
Meridian Security has any liability;
SUBJECT, HOWEVER, to normal year-end adjustments which shall not be material to
the Meridian Companies in amount or effect.
SECTION 3.10. NO UNDISCLOSED LIABILITIES. None of the Meridian Companies has
any debts, obligations or liabilities of whatever kind or nature, either direct
or indirect, absolute or contingent, matured or unmatured (the "Meridian
Liabilities"), except debts, obligations and liabilities that are fully
reflected in, or reserved against on, the Meridian GAAP Financial Statements,
the Meridian Audited SAP Financial Statements or the Meridian Unaudited Interim
SAP Financial Statements, except for liabilities arising from the ordinary
course of business that are not required to be reflected in a balance sheet
prepared in accordance with GAAP or SAP (as the case may be), and except for
changes in the Meridian Liabilities arising from the ordinary course of business
since the respective dates of such financial statements, none of which changes,
individually or in the aggregate, have had a Meridian Material Adverse Effect.
SECTION 3.11. REGULATORY FILINGS. Meridian has previously delivered or made
available to Citizens and Citizens Mutual true and complete copies of all
filings which were made by the Meridian Companies within the past three years
with the Indiana Department of Insurance (the "Indiana Department") or any other
department of insurance in any jurisdiction where any of the
34
Meridian Companies is required to make such filings. Each of such filings, as
of its respective date, complied as to form and content in all material respects
with the provisions of applicable law.
SECTION 3.12 . SEC REPORTS. Meridian has delivered or made available to
Citizens and Citizens Mutual (i) each registration statement, Current Report on
Form 8-K, Quarterly Report on Form 10-Q, annual report to shareholders, proxy
statement or information statement prepared by it since January 1, 1992, (ii) an
Annual Report on Form 10-K for each of the years ended December 31, 1991, 1992,
1993 and 1994, and (iii) a Quarterly Report on Form 10-Q for each of the periods
ended March 31, June 30 and September 30, 1995, each in the form (including
exhibits) filed with Securities and Exchange Commission (collectively, the
"Meridian SEC Reports"). As of its respective date, each of the Meridian SEC
Reports did not contain any untrue statements of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading. Each of the balance sheets included in or incorporated by
reference into the Meridian SEC Reports (including the related notes and
schedules) fairly presents the financial position of Citizens as of its date,
and each of the statements of income, of shareholders' equity and of cash flows
included in or incorporated by reference into the Meridian SEC Reports
(including the related notes and schedules) fairly presents the results of
operations, shareholders' equity and cash flows, as the case may be, of Meridian
for the period set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which will not be material to Meridian in
amount or effect), in each case in accordance with generally accepted accounting
principals consistently applied during the periods involved, except as may
35
be noted therein. Other than the Meridian SEC Reports, Meridian has not filed
any other definitive reports or statements with the Securities and Exchange
Commission since January 1, 1992.
SECTION 3.13. LITIGATION. There are no proceedings or investigations (other
than claims in the ordinary course of the insurance business), pending or
threatened against, relating to, involving or otherwise affecting any of the
Meridian Companies, which individually or in the aggregate may have a material
adverse effect on the business, results of operations or financial condition of
the Meridian Companies (considered as a whole) (a "Meridian Material Adverse
Effect").
SECTION 3.14. COMPLIANCE WITH LAW. (a) None of the Meridian Companies is in
violation in any material respect (or, with notice or lapse of time or both,
would be in violation in any material respect) of any term or provision of any
applicable law, regulation, rule, ordinance, order, judgment, writ or injunction
of any federal, state or local government or instrumentality or agency thereof,
or of any court, which violation may reasonably be expected to have a Meridian
Material Adverse Effect, and Meridian and Meridian Mutual are not aware of any
facts or circumstances which may constitute or result in any such violation.
(b) None of the Meridian Companies is a party to any contract with or
other undertaking to, or is subject to any order by, or is a recipient of any
supervisory letter or other oral or written communication of any kind from, any
governmental entity that (i) currently materially and adversely affects the
business, results of operations or financial condition of the Meridian Companies
(considered as a whole), including without limitation, reserve adequacy,
36
investment, sales or trade practices and policies, underwriting practices and
policies, or management, or (ii) may reasonably be expected to materially and
adversely affect the business, results of operations or financial condition of
any of the Meridian Companies. None of the Meridian Companies has been advised
by a governmental entity that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any order, contract or
other communication of the kind described above in this Section 3.14.
SECTION 3.15. AUTHORITY TO CONDUCT INSURANCE BUSINESS. Each of Meridian
Mutual and Meridian Security is an insurance company licensed or authorized to
write insurance coverages in its state of incorporation, and each of Meridian
Mutual and Meridian Security holds a license and is fully qualified as a foreign
insurer to conduct its respective business in each jurisdiction in which such
licensure or qualification is required therefor, and there is no other
jurisdiction in which the failure to hold a license or to be so qualified to
conduct the business as is now being conducted by the respective company would
have a Meridian Material Adverse Effect. No such license or certificate of
authority has been revoked, restricted, suspended, limited or modified nor is
any license or certificate of authority the subject of, nor, to the knowledge of
Meridian, is there a basis for, a proceeding for, or a threatened proceeding
for, revocation, restriction, suspension, limitation or modification, nor is
Meridian Mutual or Meridian Security operating under any formal or informal
agreement or understanding with the licensing authority of any state that
restricts its authority to do business or requires any such company to take, or
refrain from taking, any action.
37
SECTION 3.16. PROPERTIES. Each of Meridian Companies has good title to all
properties and assets material to the conduct of its business, which it purports
to own, including, without limitation, all property reflected in the Meridian
GAAP Financial Statements or Meridian Audited SAP Financial Statements, or
acquired since the date of such financial statements, except (a) in all cases to
the extent such assets or properties have been sold or otherwise disposed of in
the ordinary and usual course of business since that date or (b) to the extent
such failure to have good title would not have a Meridian Material Adverse
Effect.
SECTION 3.17. INTELLECTUAL PROPERTY. There are no infringement suits
pending, or to the best knowledge of Meridian, threatened, against any of the
Meridian Companies with respect to any copyright, trademark, trade name, service
mark, or patent covered under federal or state common law or statutory law,
whether or not registered, used by any of the Meridian Companies in a way that
is material to the conduct of their respective businesses, which would have a
Meridian Material Adverse Effect, and neither Meridian nor Meridian Mutual knows
of any fact or condition which could give rise to any such infringement suit.
SECTION 3.18. ENVIRONMENTAL LAWS AND PERMITS. Each of the Meridian
Companies is in compliance with any and all laws, regulations, rules,
ordinances, orders, judgments, permits, agreements, licenses or other
governmental restrictions or requirements relating to health, the environment or
the release by such Meridian Company of any materials into the environment, now
in effect in any and all jurisdictions, in which the Meridian Companies are or
from time to time may be doing business, except where such failure to comply
would not have a Meridian Material Adverse Effect.
38
SECTION 3.19. TAXES. (a) All federal income tax returns required to be
filed by the Meridian Companies have been properly and timely filed with the
Internal Revenue Service, (b) all state and local income tax returns required
to be filed by the Meridian Companies have been properly and timely filed with
the appropriate state or local taxing authorities, except where the failure so
to file such state and local income tax returns would not have a Meridian
Material Adverse Effect, and (c) all federal, state and local tax information
returns required to be filed by the Meridian Companies have been properly and
timely filed with the appropriate federal, state or local taxing authorities,
except where the failure so to file such information returns would not have a
Meridian Material Adverse Effect. Such income tax returns were true, correct
and complete in all material respects at the time filed, and the Meridian
Companies have paid all taxes shown to be due on such returns. The Meridian
Companies have adequately reserved, in accordance with GAAP, on the GAAP
Financial Statements, and in accordance with SAP, on the Audited SAP Financial
Statements, for the payment of all unpaid federal, state and local taxes,
including interest and penalties, payable in respect of any taxable event or
period (including interim periods) ending on the dates of such financial
statement and for all periods prior thereto, except where any deficiencies would
not have a Meridian Material Adverse Effect. There are no outstanding
deficiencies, assessments or proceedings for the assessment or collection of
taxes or any material dispute as to taxes against or involving any of the
Meridian Companies that would have a Meridian Material Adverse Effect.
39
SECTION 3.20. EMPLOYEE BENEFIT PLANS. All employee benefit plans, as
defined in Subsection 3(3) of ERISA, and all other arrangements, agreements, or
programs for deferred compensation, bonuses, severance pay, or employee fringe
benefits covering current or former employees of the Meridian Companies that the
Meridian Companies currently maintain or to which the Meridian Companies
contribute, or are obligated to contribute, and all related trusts and insurance
contracts comply in form and in operation in all material respects with all
applicable laws and regulations, including, without limitation, the applicable
requirements of ERISA and the Code, except where any failure to comply would not
have a Meridian Material Adverse Effect.
SECTION 3.21. CONTRACTS AND COMMITMENTS. None of the Meridian Companies is
in default under any material agreement, commitment, arrangement, lease,
insurance policy, or other instrument, whether entered into in the ordinary
course of business or otherwise, and there has not occurred any event that, with
the lapse of time or giving of notice or both, would constitute such a default,
except, in all cases, where such default would not have a Meridian Material
Adverse Effect.
ARTICLE IV
PRE-CLOSING COVENANTS
From the date hereof through the Closing Date, the parties covenant and agree
as follows:
SECTION 4.1. GENERAL. Each of the parties will use its good faith efforts
to take all action and to do all things necessary, proper or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including, without limitation, the Merger, the reconfiguration of the Citizens
Mutual Board of Directors as contemplated by Section 1.7, and
40
the satisfaction, but not waiver, of the closing conditions set forth in
Articles VI and VII below); PROVIDED, HOWEVER, that nothing contained in this
Agreement shall constitute an obligation or agreement of Citizens Mutual to vote
its shares of Citizens Common Stock and Citizens Preferred Stock in favor of the
Merger and other transactions contemplated by this Agreement at the meeting of
the shareholders of Citizens contemplated by Section 4.5(a).
SECTION 4.2. NOTICES AND CONSENT. Each of the parties to this Agreement
will, individually and in cooperation with the other parties, give any notices
to, make any filing with, and use good faith efforts to obtain any
authorizations, consents, and approvals of, governments and governmental
agencies and any other third parties that are necessary, proper or advisable in
connection with the transactions contemplated by this Agreement (including,
without limitation, the Merger and the reconfiguration of the Citizens Mutual
Board of Directors as contemplated by Section 1.7). Without limiting the
generality of the foregoing, each of the parties will file any Notification and
Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act, will use good faith
efforts to obtain a waiver from the applicable waiting period, and will make any
further filings pursuant thereto that may be necessary, proper or advisable.
SECTION 4.3. OPERATION OF BUSINESS. Except as set forth in Schedule 4.3, as
otherwise contemplated by this Agreement or as Meridian may otherwise consent to
in writing: (a) each of the Citizens Companies will: (i) operate only in the
ordinary course of business in substantially the same manner as its business has
historically been conducted; (ii) use good faith efforts to keep available the
services of its present executive officers and key employees; and
41
(iii) use good faith efforts to preserve its relationships with employees and
agents, lenders, suppliers, policyholders, licensors and licensees, insurance
departments and others having material business dealings with the Citizens
Companies; and (b) none of the Citizens Companies will: (i) issue, sell or
deliver any shares of its capital stock or issue or sell any securities
convertible into or exchangeable for, or options with respect to, or warrants to
purchase or rights to subscribe to any of its capital stock; (ii) effect any
recapitalization, reclassification, stock dividend, stock split or similar
change in capitalization; (iii) merge with or into, consolidate or otherwise
combine with, or acquire all or substantially all of the assets of, any other
entity (except as may be permitted under Section 4.6 of this Agreement);
(iv) make any commitments that extend beyond the Closing Date in an amount
individually exceeding $25,000; (v) change any provision of its Articles of
Incorporation or By-Laws or similar governing documents; (vi) permit any
material insurance policy naming it as a beneficiary or a loss payable payee to
be cancelled or terminated or any of the coverage thereunder to lapse unless
simultaneously with such termination or cancellation replacement policies
reasonably satisfactory to Meridian are in full force and effect; (vii) enter
into any material contract, lease or other agreement other than in the ordinary
course of business, that extends by its terms beyond the Effective Time; (viii)
amend or cancel or agree to the amendment or cancellation of any reinsurance
agreement, treaty or arrangement; (ix) make any material change in any
accounting methods or practices; (x) effect any increases in salary, bonuses or
otherwise increase or enhance any employee or officer compensation or benefits
other than in the ordinary course of business consistent with past practices or
make any employment commitments to existing employees that extend by their terms
beyond the Effective Time, except such as are consistent
42
with Section 5.4 and Section 7.10(c) hereof; or (xi) enter into any agreement
or understanding to do any of the things described in clauses (i) through (x)
above.
SECTION 4.4. FULL ACCESS. Citizens and Citizens Mutual shall permit
representatives of Meridian to have full access at all reasonable times to all
premises, properties, personnel, books, records (including tax records),
contracts, and documents of or pertaining to the Citizens Companies.
SECTION 4.5. SHAREHOLDERS' MEETING. (a) Citizens shall prepare and file
with the Securities and Exchange Commission (the "SEC"), as soon as is
reasonably practicable, the required proxy materials relating to shareholder
approval of the Merger and shall use its good faith efforts to obtain clearance
by the SEC of the mailing of such material to the Citizens shareholders. After
such clearance is obtained, Citizens shall promptly call a meeting of its
shareholders to be held at the earliest date that is reasonably practicable for
the purpose of voting on this Agreement and the transactions contemplated
hereby. Subject to the provisions of Section 4.5(b) hereof, Citizens shall,
through its Board of Directors, recommend to its shareholders approval of the
Merger and of the other transactions contemplated by this Agreement (to the
extent such shareholder approval is required for such other transactions).
(b) The Board of Directors of Citizens may fail to make the foregoing
recommendation, or withdraw, modify or change any such recommendation in a
manner adverse to Meridian or approval of the Merger, if such Board of
Directors, after having consulted with and considered the advice of outside
counsel, has reasonably determined in good faith that the making of such
recommendation, or the failure to withdraw, modify or change its recommendation,
would
43
constitute a breach of the fiduciary duty of the members of such Board of
Directors under applicable law.
SECTION 4.6. ACQUISITION NEGOTIATIONS. During the period from the date of
this Agreement to the Effective Time, Citizens shall not without the prior
written consent of Meridian authorize or permit any of its officers, directors,
employees or agents to directly or indirectly solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which constitutes, a
Takeover Proposal (as defined below), or recommend or endorse any Takeover
Proposal, or participate in any discussions or negotiations, or provide third
parties with any nonpublic information, relating to any such inquiry or proposal
or otherwise facilitate any effort or attempt to make or implement a Takeover
Proposal; provided, however, that, following prior written notice to Meridian,
Citizens may, and may authorize and permit its officers, directors, employees
and agents to,
(i) provide a third party with nonpublic information (subject to
execution of an appropriate confidentiality agreement requiring, that all
confidential or non-public information provided to such third party or its
representatives shall be used exclusively for the purpose of evaluating the
possible Takeover Proposal and not for any other purpose) or otherwise
facilitate any offer or attempt by that third party to make a Takeover
Proposal,
(ii) participate in discussions and negotiations with that third party
relating to any Takeover Proposal, and
(iii) recommend or endorse any Takeover Proposal with or by that third
party,
44
if the Board of Directors of Citizens, after having consulted with and
considered the advice of outside counsel, has reasonably determined in good
faith that the failure to do so would cause the members of such Board of
Directors to breach their fiduciary duties under applicable law. The prior
written notice to Meridian required by the foregoing sentence shall include the
identity of the third party and shall be maintained by Meridian on a
confidential basis. As used in this Agreement, "Takeover Proposal" shall mean,
with respect to any person, any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving any of the Citizens
Companies or any proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, any of the Citizens
Companies other than the transactions contemplated or permitted by this
Agreement.
SECTION 4.7. POLICYHOLDERS' MEETING. Citizens Mutual shall promptly call a
meeting of its policyholders to be held at the earliest date that is reasonably
practicable for the purpose of ratifying this Agreement and voting on the
reconstitution of the Board of Directors of Citizens Mutual, as contemplated by
Section 1.7 of this Agreement, and Citizens Mutual shall (absent the existence
of an event which has a Meridian Material Adverse Effect), through its Board of
Directors, recommend to its policyholders the ratification of this Agreement and
the approval of such reconstitution of the Board of Directors, as contemplated
by Section 1.7 of this Agreement.
45
SECTION 4.8. REPRESENTATION LETTER OF ESOP TRUSTEE. Citizens and Citizens
Mutual shall use their good faith efforts to cause the ESOP Trustee to provide
to Meridian and Citizens Mutual the ESOP Trustee's written representations,
dated the date of Closing and substantially in the form of Exhibit J
(Representation Letter of ESOP Trustee), that the ESOP Trustee has made an
independent investigation of the proposed Merger and the transactions
contemplated by this Agreement (including use of the Merger proceeds to pay the
outstanding balance due under the ESOP Note) and determined that such Merger and
transactions are in the best interests of the ESOP and its beneficiaries, and
that all allocated and unallocated ESOP Shares have been voted in accordance
with the provisions of the ESOP and applicable laws.
ARTICLE V
OTHER COVENANTS
The parties agree as follows with respect to the period following the
Closing:
SECTION 5.1. GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes and interest of this
Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
party reasonably may request, all at the sole cost and expense of the requesting
party.
SECTION 5.2. CONTINUITY OF IDENTITY AND OPERATIONS FOR CITIZENS INSURANCE
COMPANIES. Meridian acknowledges the importance of Citizens Mutual and the
Citizens Subsidiaries to the community of Red Wing, Minnesota. Accordingly,
through at least December 31, 1999,
46
Meridian shall cause Citizens Mutual to continue to operate under its present
corporate name and shall cause Citizens Mutual and the Citizens Subsidiaries to
continue to maintain substantial business operations and employment in the Red
Wing, Minnesota, area.
SECTION 5.3. INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. (a) For a
period of at least five years after the Effective Time, Meridian shall not, and
shall not permit any of its affiliates to, take any action to change, alter or
diminish the rights to indemnification and reimbursement or advancement of
expenses by the Citizens Companies now existing in favor of each present and
former director, officer, employee and agent of any of the Citizens Companies
(the "Indemnified Parties") as provided in their respective articles or
certificate of incorporation in effect on the date hereof; PROVIDED that, in the
event any claim or claims are asserted or made within such five-year period, all
rights to indemnification and reimbursement or advancement of expenses with
respect of any such claim or claims shall continue until final disposition of
any and all such claims.
(b) To the extent not otherwise provided for in the rights to
indemnification referred to in Section 5.3(a) hereof, Meridian shall, subject to
the terms set forth herein, indemnify and hold harmless an Indemnified Party,
and advance costs and expenses (including reasonably attorneys' fees) as
incurred, in each case to the fullest extent permitted under applicable law
(PROVIDED, the person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification), in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to the transactions contemplated by
this Agreement, for a period of five years after the Effective Time; PROVIDED
47
that, in the event any claim or claims are asserted or made within such five-
year period, all rights to such indemnification and advancement of expenses in
respect of the defense of any such claim or claims shall continue until final
disposition of any and all such claims.
(c) Any Indemnified Party wishing to claim indemnification under
Section 5.3(a) or (b), upon learning of any such claim, action, suit, proceeding
or investigation, shall promptly notify Meridian thereof, but the failure to so
notify shall not relieve Meridian of any liability it may have to such
Indemnified Party except to the extent such failure materially prejudices
Meridian. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) Meridian
shall have the right to assume the defense thereof, and Meridian shall not be
liable to such Indemnified Parties for any advancement of legal expenses of
other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that, if Meridian elects
not to assume such defense or if counsel for the Indemnified Parties advises
that there are issues which raise conflicts of interest between Meridian and the
Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to
them, and Meridian shall advance all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; PROVIDED, HOWEVER, that (i) Meridian shall be obligated to advance
costs and expenses for only one firm of counsel for all Indemnified Parties in
any jurisdiction unless the use of one counsel for such Indemnified Parties
would present such counsel with a conflict of interest, and (ii) all Indemnified
Parties shall cooperate in good faith in the defense of any such matter. If
full indemnity is not available with respect to any Indemnified Party, Meridian
and the
48
Indemnified Party shall contribute to the amount payable in such proportion as
is appropriate to reflect faults and benefits.
(d) For a period of five years from the Effective Time, Meridian shall
use good faith efforts to provide that portion of directors' and officers'
liability insurance that serves to reimburse the present and former officers and
directors of each of the Citizens Companies (determined immediately prior to the
Effective Time) with respect to claims against such officers and directors
arising from facts or events which occurred before the Effective Time but were
not previously reported to the Citizens Companies' insurance carriers, which
insurance shall contain substantially at least the same coverage and amounts,
and contain terms and conditions substantially no less advantageous, as that
coverage currently provided by the Citizens Companies; provided, that officers
and directors of the Citizens Companies may be required to make application and
provide customary representations and warranties to Meridian's or the Citizens
Companies' insurance carrier for the purpose of obtaining such insurance; and
provided, further, that such coverage will have a single aggregate for such
five-year period in an amount not less than the annual aggregate of such
coverage currently provided by the Citizens Companies.
(e) The provisions of this Section 5.3 shall survive the Closing ,
shall be binding on all successors and assigns of Meridian, and are intended to
be for the benefit of, and shall be enforceable by, each Indemnified Party and
his or her heirs and representatives.
SECTION 5.4. CITIZENS EMPLOYEES. This Section 5.4 sets forth certain
agreements of Meridian with Citizens and Citizens Mutual regarding the employees
of Citizens Mutual (the "Citizens
49
Employees") following the Closing. At or prior to the Closing, Meridian and
Citizens Mutual shall provide a joint letter to each of the Citizens Employees
establishing the applicable agreements contained in this Section 5.4.
(a) The Citizens Employees listed on Schedule 5.4(a) will be offered
continued employment in Red Wing, Minnesota in their present or similar
capacities with Citizens Mutual (and at not less than their current cash
compensation levels) until the earlier of (i) the date on which such Citizens
Employees are offered employment with Vis'n (as defined in Section 6.15 hereof)
or (ii) the first anniversary date of the date of the Closing; and until the
earlier of such dates the employment of such Citizens Employees may not be
terminated except for failure to meet reasonable performance expectations
consistent with their respective job descriptions, failure to comply with
applicable employment policies, or misconduct.
(b) The Citizens Employees listed on Schedule 5.4(b) will be offered
continued employment in Red Wing, Minnesota in their present or similar
capacities with Citizens Mutual (and at not less than their current cash
compensation levels) after the date of the Closing, and, during the period
beginning on such Closing date through December 31, 1997, the employment of such
Citizens Employees may not be terminated except for failure to meet reasonable
performance expectations consistent with their respective job descriptions,
failure to comply with applicable employment policies, or misconduct. Such
employment shall continue to be in Red Wing, Minnesota throughout such period.
(c) The Citizens Employees listed on Schedule 5.4(c) will be offered
continued employment in Red Wing, Minnesota in their present or similar
capacities with Citizens Mutual (and at not less than their current cash
compensation levels) after the date of the Closing, and,
50
during the period beginning on such Closing date through December 31, 1998, the
employment of such Citizens Employees may not be terminated except for failure
to meet reasonable performance expectations consistent with their respective job
description, failure to comply with applicable employment policies, or
misconduct. Such employment shall continue to be in Red Wing, Minnesota
throughout such period.
(d) Continued employment following the Closing is not contemplated with
respect to the Citizens Employees listed on Schedule 5.4(d). In the event the
employment of any such Citizens Employee is terminated on or after the date of
the Closing, such terminated Citizens Employee will be offered a severance
package, substantially as follows: (i) supervisory employees would be offered
their then current salary and benefits for a period of eight weeks, plus an
additional week for each full year of service with Citizens Mutual as of the
time of termination of employment, and (ii) non-supervisory employees would be
offered their then current salary and benefits for a period of four weeks, plus
an additional week for each full year of service with Citizens Mutual as of the
date of termination of employment.
(e) No severance package (other than existing arrangements or agreements
contemplated by this Agreement) or offer of continued employment will be made to
the Citizens Employees and other persons listed on Schedule 5.4(e). Citizens
and Citizens Mutual represent and warrant that the Schedules provided for in
this Section 5.4 include all of the Citizens Employees.
51
(f) All employment policies and benefit plans for continuing employees of
Citizens Mutual will continue in full force and effect until December 31, 1996.
Effective January 1, 1997, all existing Citizens Mutual employee benefit plans
will be terminated or merged into or amended to be consistent with Meridian
employee benefit plans, and all other existing Citizens Mutual employment
policies and practices will be changed to be consistent with Meridian employment
policies and practices. For purposes of determining participation and vesting
(but not for calculating benefits) under the employee benefit plans of Meridian,
each Citizens Employee will be credited with his or her length of service while
employed by Citizens Mutual. After December 31, 1996, and except as otherwise
provided in this Section 5.4, Citizens Employees will be governed by Meridian's
employment policies and practices as they may be changed from time to time.
(g) The provisions of this Section 5.4 are not intended and shall not be
construed to give any Citizens Employee or any person other than the parties to
this Agreement any legal or equitable right, remedy or claim under or in respect
of this Agreement. Any rights of the Citizens Employees contemplated by this
Section 5.4 shall be established by and arise under the separate joint letter to
be provided to each of the Citizens Employees, as contemplated by this Section
5.4 and by Section 7.10.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF MERIDIAN
The obligations of Meridian under this Agreement shall, at the option of
Meridian, be subject to the satisfaction, at or prior to the time of the
Closing, of the following conditions:
52
SECTION 6.1. NO MISREPRESENTATION OR BREACH OF COVENANTS OR WARRANTIES. As
of the time of Closing, (a) there shall have been no material breach by Citizens
or Citizens Mutual in the performance of any of its covenants and agreements
herein, (b) each of the representations and warranties of Citizens and Citizens
Mutual contained in this Agreement shall have been true and correct as of the
date of execution of this Agreement, and (c) each of the representations and
warranties of Citizens and Citizens Mutual contained in this Agreement, without
regard to any qualification, materiality threshold or reference to immateriality
or a Citizens Material Adverse Effect, shall be true and correct as of the date
of the Closing as though made on and as of such date (PROVIDED, that each of the
representations and warranties made as of a particular date need only be true
and correct as of that date), except for any inaccuracies which, individually or
in the aggregate, have not had a Citizens Material Adverse Effect; PROVIDED,
HOWEVER, that there shall be deemed not to be such a Citizens Material Adverse
Effect to the extent that such effect is the result of the announcement of the
Merger or the result of transactions contemplated by this Agreement.
SECTION 6.2. OFFICERS' CERTIFICATES. Citizens and Citizens Mutual shall
have delivered to Meridian a certificate, dated the date of the Closing and
executed by the chief executive officer and by the chief financial officer or an
executive vice president of Citizens and Citizens Mutual, certifying that the
conditions set forth in Section 6.1 hereof have been fulfilled. In addition,
Citizens and Citizens Mutual shall have delivered to Meridian a certificate,
dated the date of the Closing and executed by the corporate secretary or
assistant corporate secretary of Citizens and Citizens Mutual, certifying as to:
the articles of incorporation, by-laws and corporate existence of each of the
Citizens Companies; that the resolutions (true and complete copies of which
shall
53
be attached to the certificate) of the Boards of Directors of Citizens and
Citizens Mutual with respect to this Agreement and the transactions
contemplated hereby have been duly and validly adopted and are in full force
and effect; that the resolutions (true and complete copies of which shall be
attached to the certificate) of the shareholders of Citizens with respect to
this Agreement and the transactions contemplated hereby have been duly and
validly adopted and are in full force and effect; that any resolutions (true
and complete copies of which shall be attached to the certificate) of the
policyholders or members of Citizens Mutual with respect to this Agreement
and the transactions contemplated hereby, if any such resolutions are
required, have been duly and validly adopted and are in full force and
effect; and as to the incumbency and signatures of certain officers of
Citizens and Citizens Mutual.
SECTION 6.3. LETTER AS TO TRANSACTION COST. Citizens and Citizens Mutual
shall have delivered to Meridian a letter, dated the date of the Closing and
executed by the chief financial officer and the treasurer of Citizens and
Citizens Mutual, setting forth all Transaction Costs (as defined in Section
10.2) paid or incurred by the Citizens Companies (whether paid or payable before
or after the Effective Time), in connection with this Agreement or the
transactions contemplated hereby, and specifying in reasonable detail the amount
of such Transaction Costs in a manner that will enable the parties to determine
the amount of the Transaction Costs Adjustment, if any, as that term is defined
in Section 10.2. Such letter shall be based upon facts and such good faith
estimates as may be reasonable under the circumstances; provided, however, that
the letter shall clearly indicate the amounts that are estimated and the basis
for the estimates.
54
SECTION 6.4. APPROVAL OF CITIZENS' SHAREHOLDERS AND CITIZENS MUTUAL'S
POLICYHOLDERS. (a) The Merger shall have been approved and adopted at a duly
called meeting of the shareholders of Citizens by the requisite vote of the
issued and outstanding shares of Citizens Common Stock and Citizens Preferred
Stock entitled to vote thereon, voting as separate classes.
(b) This Agreement and the reconstitution of the Board of Directors of
Citizens Mutual, as contemplated by Section 1.7 of this Agreement, shall have
been approved at a duly called meeting of the policyholders of Citizens Mutual
by the requisite vote of policyholders entitled to vote thereon.
SECTION 6.5. DISSENTING SHARES. The holders of not more than 5% of the
issued and outstanding shares of Citizens Common Stock at the Effective Time
shall have delivered written notice of intent to demand payment of the fair
value of their shares of Citizens Common Stock pursuant to the Minnesota
Dissenters' Rights Statute, and Citizens Mutual shall not have delivered written
notice of intent to demand payment of the fair value of the shares of Citizens
Preferred Stock pursuant to the Minnesota Dissenters' Rights Statute.
SECTION 6.6. REGULATORY APPROVAL. All approvals, authorizations and
consents from governmental and regulatory bodies required for the transactions
contemplated by this Agreement and to permit the business currently carried on
by the Citizens Companies to continue to be carried on substantially in the same
manner following the Effective Time, shall have been obtained and shall be in
full force and effect (including, without limitation, approvals by appropriate
insurance regulators in the states of Minnesota, Indiana and Ohio), and Meridian
shall have been furnished with appropriate evidence, reasonably satisfactory to
it and its counsel,
55
of the granting of such approvals, authorizations and consents. There shall not
have been any action taken by any court, arbitration tribunal or any
governmental or regulatory body prohibiting or making illegal at the time of the
Closing or the Effective Time any of the transactions contemplated by this
Agreement.
SECTION 6.7. HART-SCOTT-RODINO. The waiting period required under the Hart-
Scott-Rodino Act, including any extension thereof, shall have terminated or
expired prior to the time of the Closing.
SECTION 6.8. THIRD PARTY CONSENTS. All consents, permits and approvals from
parties to material contracts or other material agreements with the Citizens
Companies required in connection with the transactions contemplated hereby shall
have been obtained (including, without limitation, any consents required for the
continued use by the Citizens Companies of computer software or hardware
material to the business of the Citizens Companies licensed or leased to
Citizens Mutual for use by any of the other the Citizens Companies).
SECTION 6.9. BOARDS OF DIRECTORS. The respective Boards of Directors of the
Citizens Companies shall be reconstituted as follows:
(a) CITIZENS SUBSIDIARIES: The six current directors of Meridian
Security, plus the current President and the current Vice President of
Marketing of Citizens.
56
(b) CITIZENS MUTUAL: The six current directors of Meridian Security,
plus the current Vice President of Marketing of Citizens Mutual and the
current President of Citizens Mutual.
(c) MISSISSIPPI VALLEY CORPORATION: Such persons as may be designated
by Meridian not less than five days prior to the Closing.
In addition, any amendments to the articles or certificate of incorporation or
bylaws of any of the Citizens Companies necessary for the foregoing shall have
been adopted and become effective.
SECTION 6.10. OFFICERS. Each officer of each of the Citizens Insurance
Companies shall have tendered his or her resignation as an officer, effective as
of the Effective Time, and arrangements reasonably satisfactory to Meridian
shall have been made providing for the appointment of the Chief Executive
Officer of Meridian as the Chairman of the Board, President and Chief Executive
Officer of each of the Citizens Insurance Companies, effective at the Effective
Time. In addition, each officer of each other Citizens Company shall have
tendered his or her resignation as an officer, effective as of the Effective
Time.
SECTION 6.11. REINSURANCE POOLING AGREEMENT. All regulatory approvals
necessary for the execution of the Reinsurance Pooling Agreement, substantially
in the form of Exhibit B, by all parties thereto shall have been obtained, and
the Citizens Insurance Companies shall have entered into that Pooling
Reinsurance Agreement, effective as of the Effective Time.
SECTION 6.12. MANAGEMENT SERVICES AGREEMENTS. All regulatory approvals
necessary for the execution of the Management Services Agreements, substantially
in the forms of Exhibits C-1 and C-2, by all parties thereto shall have been
obtained, and the Citizens Insurance
57
Companies shall have entered into those Management Services Agreements,
effective as of the Effective Time.
SECTION 6.13. NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, there
shall have been no material adverse change in the business of the Citizens
Companies (considered as a whole) or in the consolidated results of operations
or consolidated financial condition of either Citizens (considered as a whole)
or Citizens Mutual (considered as a whole); PROVIDED, HOWEVER, that there shall
be deemed not to be such a material adverse change to the extent that such
change is the result of the announcement of the Merger or the result of
transactions contemplated by this Agreement.
SECTION 6.14. CERTAIN PERSONNEL MATTERS. (a) Spencer Broughton shall have
entered into the Consulting Services Agreement, substantially in the form of
Exhibit D.
(b) Scott Broughton shall have entered into the Employment Agreement,
substantially in the form of Exhibit E.
SECTION 6.15. VIS'N MATTERS. Scott Broughton, Kirk Simmons, Meridian and
Citizens Mutual shall have entered into a letter agreement (the "Vis'n Letter")
regarding a corporation to be organized by Scott Broughton and Kirk Simmons
("Vis'n"). The Vis'n Letter shall provide among other matters that, upon Vis'n's
formation and Meridian's reasonable satisfaction that Vis'n is then or will be
authorized to conduct business and to enter into the contracts and transactions
contemplated by this Section 6.15, Vis'n or Vis'n and Citizens Mutual, as the
case may be, will do the following:
(a) Vis'n will offer employment, with at least substantially the
same compensation as provided by Citizens Mutual, to the Citizen employees
listed on Schedule 5.4(a), such
58
employment to be effective on or about the commencement date of the Claims
Administration Agreement and Software and Hardware Systems Agreement referred to
in Sections 6.15(c) and (d) hereof; and Vis'n will immediately reimburse
Citizens Mutual or Meridian for any required payments in respect of unused
vacation time or personal leave time made to such Citizens Employees who accept
Visn's employment offer (or will allow Citizens Mutual or Meridian to deduct
such payments from amounts otherwise payable to Vis'n under the Claims
Administration Agreement and Software and Hardware Support Agreement referred to
in Sections 6.15(c) and (d) hereof);
(b) Vis'n and Citizens Mutual will enter into the Real Estate Sublease
Agreement, substantially in the form of Exhibit F.
(c) Vis'n and Citizens Mutual will enter into the Claims Administration
Agreement, substantially in the form of Exhibit G.
(d) Vis'n and Citizens Mutual will enter into the Software and Hardware
Support Agreement, substantially in the form of Exhibit H.
(e) Vis'n and Citizens Mutual will enter into the Office Equipment Lease
Agreement, substantially in the form of Exhibit I.
(f) Vis'n will pay $3,000 of the monthly consulting fees payable by
Citizens Mutual to Michael L. Halvorson under a certain Independent Consultant
Agreement with Citizens Mutual.
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SECTION 6.16. ESOP AND PLAN MATTERS. The actions to be taken by or in
respect of the ESOP described in Section 1.5 shall have been taken.
SECTION 6.17. OPINION OF COUNSEL FOR CITIZENS AND CITIZENS MUTUAL.
Meridian shall have received from separate counsel for Citizens and for Citizens
Mutual, opinions dated the date of the Closing, in form and substance reasonably
satisfactory to Meridian.
SECTION 6.18. FAIRNESS OPINION. The fairness opinion Meridian has received
from the investment banking firm of McDonald & Company Securities, Inc., to the
effect that the consideration to be paid by Meridian to the shareholders of
Citizens pursuant to the Merger is fair, from a financial point of view, to the
shareholders of Meridian, shall have been updated to the time of Closing in form
and substance reasonably satisfactory to the Board of Directors of Meridian.
SECTION 6.19. HALVORSON ARRANGEMENTS. The First Amended Software Agreement,
dated March 21, 1996, between Michael L. Halvorson and Citizens Mutual shall be
in effect.
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ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF
CITIZENS AND CITIZENS MUTUAL
The obligations of Citizens and Citizens Mutual under this Agreement shall,
at the option of Citizens and Citizens Mutual, be subject to the satisfaction,
at or prior to the time of the Closing, of the following conditions:
SECTION 7.1. NO MISREPRESENTATION OR BREACH OF COVENANTS OR WARRANTIES. As
of the time of the Closing, (a) there shall have been no material breach by
Meridian in the performance of any of its covenants herein, (b) each of the
representations and warranties of Meridian contained in this Agreement shall
have been true and correct as of the date of the execution of this Agreement,
and (c) each of the representations and warranties of Meridian contained in this
Agreement, without regard to any qualification, materiality threshold or
reference to immateriality or a Meridian Material Adverse Effect, shall be true
and correct as of the date of the Closing as though made on and as of such date
(provided, that each of the representations and warranties made as of a
particular date need only be true and correct as of that date), except for any
inaccuracies which, individually or in the aggregate, have not had a Meridian
Material Adverse Effect; PROVIDED, HOWEVER, that there shall be deemed not to be
such a Meridian Material Adverse Effect to the extent that such effect is the
result of the announcement of the Merger or the result of transactions
contemplated by this Agreement.
SECTION 7.2. SHAREHOLDER AND POLICYHOLDER APPROVAL. (a) The Merger shall
have been approved and adopted at a duly called meeting of the shareholders of
Citizens by the requisite
61
vote of the issued and outstanding shares of Citizens Common Stock and Citizens
Preferred Stock entitled to vote thereon, voting as separate classes.
(b) This Agreement and the reconstitution of the Board of Directors of
Citizens Mutual, as contemplated by Section 1.7 of this Agreement, shall have
been approved at a duly called meeting of the policyholders of Citizens Mutual
by the requisite vote of such policyholders entitled to vote thereon.
SECTION 7.3. OFFICERS' CERTIFICATES. Meridian shall have delivered to
Citizens and Citizens Mutual a certificate, dated the date of the Closing and
executed by the chief executive officer and by the chief financial officer or an
executive vice president of Meridian, certifying that the conditions set forth
in Section 7.1 hereof have been fulfilled. In addition, Meridian shall have
delivered to Citizens and Citizens Mutual a certificate, dated the date of the
Closing and executed by the corporate secretary or assistant corporate secretary
of Meridian and Merger Company, certifying as to: the articles of incorporation,
by-laws and corporate existence of Meridian and Merger Company; that the
resolutions (true and complete copies of which shall be attached to the
certificate) of the Boards of Directors of Meridian and Merger Company with
respect to this Agreement and the transactions contemplated hereby have been
duly and validly adopted and are in full force and effect; and as to the
incumbency and signatures of certain officers of Meridian and Merger Company.
SECTION 7.4. REGULATORY APPROVAL. All approvals, authorizations and
consents from governmental and regulatory bodies required for the transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect (including, without limitation, approvals by appropriate
insurance regulators in the states of Minnesota, Indiana and Ohio), and
62
Citizens and Citizens Mutual shall have been furnished with appropriate
evidence, reasonably satisfactory to it and its counsel, of the granting of such
approvals, authorizations and consents. There shall not have been any action
taken by any court, arbitration tribunal or any governmental or regulatory body
prohibiting or making illegal at the time of the Closing or the Effective Time
any of the transactions contemplated by this Agreement.
SECTION 7.5. HART-SCOTT-RODINO. The waiting period required under the
Hart-Scott-Rodino Act, including any extension thereof, shall have terminated or
expired prior to the time of the Closing.
SECTION 7.6. BOARDS OF DIRECTORS. Arrangements reasonably satisfactory to
Citizens and Citizens Mutual shall have been made providing for: (a) the Boards
of Directors of each of the Citizens Subsidiaries to include the current
President and the current Vice President of Marketing of Citizens, (b) for the
Board of Directors of Citizens Mutual to include the current Vice President of
Marketing of Citizens Mutual and the current President of Citizens Mutual, and
(c) for the Board of Directors of Meridian to include the current President of
Citizens and Citizens Mutual; in each case, as of immediately following the
Effective Time.
SECTION 7.7. THIRD PARTY CONSENTS. All consents, permits and approvals from
parties to material contracts or other material agreements with the Meridian
Companies required in connection with the transactions contemplated hereby shall
have been obtained.
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SECTION 7.8. REINSURANCE POOLING AGREEMENT. All corporate and regulatory
approvals necessary for the execution of the Reinsurance Pooling Agreement
substantially in the form of Exhibit B, by all parties thereto, shall have been
obtained; and Meridian Mutual and Meridian Security shall have entered into that
Reinsurance Pooling Agreement, effective as to the Effective Time.
SECTION 7.9. MANAGEMENT SERVICES AGREEMENTS. All corporate and regulatory
approvals necessary for the execution of the Management Services Agreements
substantially in the forms of Exhibit C-1 and C-2, by the respective parties
thereto, shall have been obtained; and Meridian, Meridian Mutual and Meridian
Security shall have entered into those Management Services Agreements, effective
as of the Effective Time.
SECTION 7.10. CERTAIN PERSONNEL MATTERS. (a) Meridian shall have entered
into the Consulting Services Agreement with Spencer Broughton, substantially in
the form of Exhibit D.
(b) Meridian shall have entered into the Employment Agreement with Scott
Broughton, substantially in the form of Exhibit E.
(c) The letter or letters to Citizens Employees referred to in
Section 5.4, in a form or forms reasonably satisfactory to Citizens and Citizens
Mutual, shall have been provided to such Citizens Employees, or arrangements
therefor reasonably satisfactory to Citizens and Citizens Mutual shall have been
made.
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SECTION 7.11. VIS'N MATTERS. The Vis'n Letter referred to in Section 6.15
shall have been entered into.
SECTION 7.12. NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, there
shall have been no material adverse change in the business, results of
operations or financial condition of the Meridian Companies (considered as a
whole); PROVIDED, HOWEVER, that there shall be deemed not to be such a material
adverse change to the extent that such change is the result of the announcement
of the Merger or the result of transactions contemplated by this Agreement.
SECTION 7.13. OPINION OF COUNSEL FOR MERIDIAN. Citizens and Citizens
Mutual shall have received from counsel for Meridian, an opinion dated the date
of the Closing, in form and substance reasonably satisfactory to Citizens and
Citizens Mutual.
SECTION 7.14. FAIRNESS OPINIONS. The fairness opinion Citizens has received
from the investment banking firm of Goldsmith, Agio, Helms Securities, Inc., to
the effect that the consideration to be received in the Merger by the holders of
Citizens Common Stock and Citizens Preferred Stock is fair to such holders from
a financial point of view, shall have been updated to the date of the proxy
statement referred to in Section 4.5(a) and to the time of Closing, in form and
substance reasonably satisfactory to the Board of Directors of Citizens.
SECTION 7.15. PAYMENT OF ESOP NOTE. The ESOP note shall have been repaid as
contemplated by Section 1.5(b).
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ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
SECTION 8.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made in this Agreement by the parties hereto
shall not survive the Closing. Notwithstanding the foregoing, the covenants set
forth in Article V shall survive the Effective Time.
ARTICLE IX
TERMINATION
SECTION 9.1. TERMINATION. This Agreement and the transactions contemplated
by this Agreement may be terminated at any time prior to the filing of the
Articles of Merger with the Secretary of State of Minnesota, whether before or
after action by the shareholders of Citizens as contemplated by Section 4.5(a),
of this Agreement and without further approval by the shareholders of Citizens:
(a) By mutual written consent of Meridian, Citizens and Citizens Mutual;
(b) By Citizens and Citizens Mutual, by written notice to Meridian, if the
number of votes in favor of the Merger and this Agreement cast by the
shareholders of Citizens and required for the consummation of the Merger shall
not have been obtained at the meeting of Citizens' shareholders or at any
adjournment thereof duly held for such purpose;
(c) By either Citizens and Citizens Mutual, on the one hand, or by Meridian,
on the other hand, by written notice to the other, if the Minnesota Department
fails by September 30, 1996, to approve, or give its consent to any of the
material transactions contemplated by this
66
Agreement that the Minnesota Department is required to approve or consent to
under applicable law;
(d) By Meridian, in the event a condition set forth in Article VI of this
Agreement cannot be satisfied;
(e) By Citizens and Citizens Mutual, in the event a condition set forth in
Article VII of this Agreement cannot be satisfied; or
(f) By either Meridian, on the one hand, or by Citizens and Citizens Mutual,
on the other hand, by written notice to the other if the Merger is not
consummated by September 30, 1996.
SECTION 9.2. TERMINATION FEE. (a) If Citizens and Meridian fail to
consummate the Merger and:
(i) Citizens enters into a letter of intent, commitment letter or other
written agreement with a third party regarding a merger, consolidation, sale
of assets or other similar transaction involving Citizens or Citizens Mutual
prior to January 1, 1997; and
(ii) Meridian shall have complied with all of its obligations under
this Agreement required to be performed by it through the date of the
earliest relevant event described in Section 9.2(a)(i); and
(iii) this Agreement shall not have been terminated by mutual
written consent of all of the parties pursuant to Section 9.1(a);
then Citizens shall promptly pay to Meridian an amount equal to $586,646 PLUS
the amounts of
67
all Transaction Costs paid or incurred by Meridian or its affiliates, and
Citizens and Citizens Mutual shall have no further liability or obligation to
Meridian with respect to this Agreement.
(b) If Citizens and Meridian fail to consummate the Merger and:
(i) either (A) the Board of Directors of Citizens refuses or fails to
make the recommendation to the shareholders of Citizens contemplated by
Section 4.5(a), or withdraws, modifies or changes any such recommendation in
a manner adverse to Meridian or to approval of the Merger, (B) any party
terminates this Agreement pursuant to Section 9.1(c) because the Minnesota
Department does not approve the Merger due to the amount of consideration to
be received by any shareholders in the Merger, (C) Citizens Mutual shall not
have voted its shares of Citizens Common Stock or Citizens Preferred Stock in
favor of the Merger and other transactions contemplated by this Agreement at
the meeting of the shareholders of Citizens contemplated by Section 4.5(a)
(it being understood that Citizens Mutual is not obligated by this Agreement
or otherwise to vote in favor of the Merger and such transactions) or (D) the
First Amended Software Agreement, dated March 21, 1996, between Michael L.
Halvorson and Citizens Mutual shall not have remained in effect; and
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(ii) Meridian shall have complied with all of its obligations under
this Agreement required to be performed by it through the date of the
earliest relevant event described in Section 9.2(b)(i); and
(iii) this Agreement shall not have been terminated by mutual written
consent of all of the parties pursuant to Section 9.1(a),
then Citizens shall pay and reimburse to Meridian all Transaction Costs paid or
incurred by Meridian or its affiliates, promptly upon receipt from Meridian of a
reasonably detailed accounting thereof; and Citizens and Citizens Mutual shall
have no further liability or obligations to Meridian with respect to this
Agreement except as may arise under Section 9.2(a).
SECTION 9.3. SURVIVAL OF RIGHTS. Except as otherwise provided in
Sections 9.1 and 9.2, nothing in this Article IX or in this Agreement shall be
construed as limiting the rights of any party in the event of a breach by any
party of this Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and shall be given by confirmed telecopy
or registered mail addressed:
69
(a) If to Citizens or Citizens Mutual:
Mr. Scott S. Broughton
President, Chief Operating Officer and Chief Financial Officer
Citizens Security Group Inc.
Citizens Security Mutual Insurance Company
406 Main Street
Red Wing, Minnesota 55066
Fax: (612) 388-0538
If to Citizens, a copy to:
Jay L. Swanson, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Fax: (612) 340-8738
If to Citizens Mutual, a copy to:
Thomas H. Borman, Esq.
Maslon Edelman Borman & Brand
3300 Norwest Center
90 S. Seventh Street
Minneapolis, Minnesota 55402-4140
Fax: (612) 672-8397
(b) If to Meridian:
Ms. Norma J. Oman
President and Chief Executive Officer
Meridian Insurance Group, Inc.
2955 North Meridian Street
Indianapolis, Indiana 46208
Fax: (317) 927-8119
with copies to:
J. Mark McKinzie, Esq.
General Counsel
2955 North Meridian Street
Indianapolis, Indiana 46208
Fax: (317) 931-7930
70
and
Tibor D. Klopfer, Esq.
Baker & Daniels
300 North Meridian Street, Suite 2700
Indianapolis, Indiana 46204
Fax: (317) 237-1000
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section 10. 01 will (i) if delivered
personally, be deemed given upon delivery, (ii) if delivered by facsimile
transmissions, be deemed given when sent and confirmation or receipt is
received, and (iii) if delivered by mail in the manner described above, be
deemed received on the date of receipt. Any party from time to time may change
its address for the purpose of notices to that party by giving notice to the
other parties hereto specifying a new address, but no such notice will be deemed
to have been given until it is actually received by the party sought to be
charged with the contents thereof.
SECTION 10.2. EXPENSES. (a) Except as otherwise provided herein, each party
hereto shall pay its own expenses, including without limitation, legal and
accounting fees and expenses, incident to its negotiation and preparation of
this Agreement and to its performance and compliance with the provisions
contained herein ("Transaction Costs").
(b) In the event that the aggregate Transaction Costs paid or incurred
by the Citizens Companies exceed $650,000, the excess over that amount (the
"Transaction Costs Adjustment") shall reduce the amount of cash payable to the
holders of Citizens Common Stock and Citizens Preferred Stock, as provided in
Section 1.3(a). The parties acknowledge that the Transaction Costs Adjustment,
if any, may be based in part upon reasonable good faith estimates
71
and projections made immediately prior to the Closing and shall be determined in
the manner provided in Section 6.3.
SECTION 10.3. TITLES AND HEADINGS. Titles and headings to Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
SECTION 10.4. NO THIRD-PARTY BENEFICIARIES. Except as otherwise provided in
Section 5.3 of this Agreement, nothing in this Agreement or in any agreement
attached hereto as an exhibit is intended or shall be construed to give any
person, other than the parties hereto any legal or equitable right, remedy or
claim under or in respect of this Agreement or any agreement attached hereto as
an exhibit or any provision contained herein or therein.
SECTION 10.5. ENTIRE AGREEMENT. This Agreement, together with the contracts
executed and delivered pursuant hereto, supersedes all prior discussions and
agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement, including documents, certificates and contracts
executed and delivered pursuant hereto, contains the sole and entire agreement
between the parties hereto with respect to the subject matter hereof.
Notwithstanding the foregoing, the parties agree that the terms and conditions
of the Confidentiality and Non-Disclosure Agreement shall continue to remain in
full force and effect.
SECTION 10.6. PUBLIC ANNOUNCEMENTS. At all times at or before the Closing,
Citizens and Citizens Mutual and Meridian will consult with the other before
issuing or making any reports, statements, or releases to the public with
respect to this Agreement or the transactions contemplated hereby and will use
good faith efforts to obtain the other party's approval of the text of any
public report, statement, or releases to be made on behalf of such party. If
either
72
party is unable to obtain the approval of its public report, statement, or
release from the other party and such report, statement, or release is, in the
opinion of legal counsel to such party, required by law in order to discharge
such party's disclosure obligations, then such party may make or issue the
legally required report, statement, or release and promptly furnish the other
party with a copy thereof.
SECTION 10.7. WAIVER. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof. A waiver on
one occasion will not be deemed to be a waiver of the same or any other breach
on a future occasion. All remedies, either under this Agreement, or by law or
otherwise afforded, will be cumulative and not alternative, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such terms or conditions.
SECTION 10.8. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the state of Indiana without giving
effect to any choice or conflicts of law provision or rule (whether of the State
of Indiana or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Indiana.
SECTION 10.9. BINDING EFFECT. This Agreement is binding upon and will inure
to the benefit of the parties and their respective successors and permitted
assignees.
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SECTION 10.10. NO ASSIGNMENT. This Agreement or any right or obligation
hereunder may not be assigned by any party hereto without the prior written
consent of the other parties hereto and any attempt to do so will be void.
SECTION 10.11. INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future law,
and if the rights or obligations of the parties under this Agreement will not be
materially and adversely affected thereby: (a) such provision will be fully
severable; (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof; (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom; and (d) in lieu of such illegal, invalid or
unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
SECTION 10.12. CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any party. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise.
SECTION 10.13. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement, and shall become a binding agreement when one or more counterparts
have been signed by each of the parties and delivered to each of the other
parties.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
MERIDIAN INSURANCE GROUP, INC.
By:/s/ Norma J. Oman
------------------------------
Norma J. Oman, President and
Chief Executive Officer
CITIZENS SECURITY GROUP INC.
By:/s/ Scott S. Broughton
------------------------------
Name: Scott S. Broughton
Title: President, Chief Operating Officer,
and Chief Financial Officer
CITIZENS SECURITY MUTUAL
INSURANCE COMPANY
By: /s/ Scott S. Broughton
------------------------------
Name: Scott S. Broughton
Title: President, Chief Operating Officer,
and Chief Financial Officer
EXHIBITS
TO
ACQUISITION AND AFFILIATION AGREEMENT *
- - - - - - - - - - - - - - - - - -
Exhibit A: Plan of Merger (Section 1.1).
Exhibit B: Reinsurance Pooling Agreement (Section 6.11).
Exhibit C-1: Management Services Agreement - Meridian Mutual and Affiliates
(Section 6.12).
Exhibit C-2: Management Services Agreement - Citizens Mutual and Affiliates
(Section 6.12).
Exhibit D: Spencer Broughton Consulting Services Agreement, and attached
form of Stock Option Agreement (Section 6.14(a)).
Exhibit E: Scott Broughton Employment Agreement, and attached forms of
Consulting Services Agreement and Stock Option Agreement
(Section 6.14 (b)).
Exhibit F: Vis'n, Inc. Real Estate Sublease Agreement
(Section 6.15(b)).
Exhibit G: Vis'n, Inc. Claims Administration Agreement
(Section 6.15(c)).
Exhibit H: Vis'n, Inc. Software and Hardware Support Agreement
(Section 6.15(d)).
Exhibit I: Vis'n, Inc. Office Equipment Lease Agreement
(Section 6.15(e)).
Exhibit J: Representation Letter of ESOP Trustee
(Section 4.8)
- ----------
* Pursuant to Item 601(b)(2) of Regulation S-K, the Company agrees to furnish
supplementally a copy of any omitted schedule to the Commission upon request.
SCHEDULES
TO
ACQUISITION AND AFFILIATION AGREEMENT *
Schedule 2.2: Subsidiaries, Liens, Loan and Investments
Schedule 2.4: Licenses and Agreements with Licensing Authorities
Schedule 2.5: Consents, Approvals and Termination Rights
Schedule 2.6: Citizens Mutual Policyholder Approval
Schedule 2.10: Undisclosed Liabilities
Schedule 2.13: Litigation
Schedule 2.16: Registered Intellectual Property Rights and Factors Affecting
Intellectual Property
Schedule 2.19: Employee Benefit Plans
Schedule 2.21: Related Party Transactions
Schedule 2.22: Financial Advisory Fees
Schedule 4.3: Operation of Business
Schedule 5.4: Employee Lists
- ------
* Pursuant to Item 601(b)(2) of Regulation S-K, the Company agrees to furnish
supplementally a copy of any omitted schedule to the Commission upon request.