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EXHIBIT 2.3
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT ("AGREEMENT") is made and entered into
effective as of December 12, 1997 between CHASWIL UNITED CORP., an Ohio
corporation with principal offices c/o United Liberty Life Insurance
Company, Suite 400, 120 West Fifth Street, Cincinnati, Ohio 45202 ("CHASWIL")
and CITIZENS FINANCIAL CORPORATION, a Kentucky corporation with principal
offices at Suite 300, 12910 Shelbyville Road, Louisville, Kentucky 40243
("CITIZENS").
RECITALS
WHEREAS, United Liberty Life Insurance Company ("UNITED"), an Ohio
corporation, is authorized to issue 5,000,000 shares of $1.00 par value
common stock ("UNITED COMMON STOCK"), of which 1,586,691 shares are issued
and outstanding (the "SHARES"); and
WHEREAS, Chaswil owns, of record and beneficially, all of the Shares;
and
WHEREAS, Chaswil desires to sell the Shares to Citizens and/or its
Designated Subsidiary, and Citizens desires to acquire the Shares from
Chaswil directly or with or through its Designated Subsidiary pursuant to
the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties and agreements herein contained and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the conditions set forth herein, the parties
hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The capitalized terms used in this Agreement and
not otherwise defined herein shall have the meanings specified in EXHIBIT
A. Unless the context otherwise requires, such capitalized terms shall
include the singular and plural and the conjunctive and disjunctive forms
of the terms defined.
ARTICLE 2
SALE OF SHARES AND CLOSING
2.1 PURCHASE AND SALE. Chaswil agrees to sell to Citizens and/or to
Citizens' Designated Subsidiary, and Citizens agrees to purchase, either
directly or with or through
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its Designated Subsidiary, from Chaswil the Shares at the Closing pursuant
to the terms and subject to the conditions set forth in this Agreement,
including without limitation the provisions of SECTION 11.1 relating to
termination of this Agreement under certain conditions.
2.2 PURCHASE PRICE. The consideration for the Shares (the "PURCHASE
PRICE") shall be equal to:
(a) Seven Million Eight Hundred Thousand Dollars ($7,800,000)(the
"BASELINE AMOUNT");
(b)plus or minus, as applicable, the aggregate of the adjustments to
the Baseline Amount set forth in SECTION 2.3(B); and
(c)plus or minus, as applicable, the aggregate of the further
adjustments to the Baseline Amount set forth in SECTION 2.3(C); and
(d)plus, as applicable, the further adjustment to the Baseline Amount
set forth in SECTION 2.4.
2.3 ADJUSTMENTS TO BASELINE AMOUNT.
(a) Not later than ten (10) days prior to the date of the Closing,
Chaswil will cause United to deliver to Citizens and Chaswil a statement
(the "PRE-CLOSING STATEMENT") of the Pre-Closing Balance Sheet Adjustment.
Not later than sixty (60) days after the Closing occurs, Citizens shall
cause United to prepare and deliver to Citizens and Chaswil a statement
(the "CLOSING STATEMENT") of the Closing Balance Sheet Adjustment. The
Pre-Closing Statement shall be accompanied by [i] a review report of
Deloitte & Touche, LLP or, if it declines to serve, another accounting firm
of national reputation selected by Chaswil ("CHASWIL AUDITORS") to the
effect that the Pre-Closing Statement was prepared in accordance with this
SECTION 2.3 and [ii] the related Workpapers. The Closing Statement shall
be accompanied by [i] a review report of Ernst & Young, LLP or, if it
declines to serve, another accounting firm of national reputation selected
by Citizens ("CITIZENS AUDITORS") to the effect that the Closing Statement
was prepared in accordance with this SECTION 2.3 and [ii] the related
Workpapers. Citizens shall have the right to have Citizens Auditors review
the Pre-Closing Statement and the related Workpapers of the Chaswil
Auditors, Chaswil shall have the right to have Chaswil Auditors review the
Closing Statement and the related Workpapers of the Citizens Auditors, and
Chaswil and Citizens shall be allowed access to the books and records of
United for purposes of the foregoing. Subject to the procedures described
in SECTION 2.3(D) with respect to the resolution of disputes concerning the
Pre-Closing Statement and the Closing Statement, the Pre-Closing Statement
and the Closing Statement shall constitute the basis for adjustments, if
any, to Chaswil's Baseline Amount as provided in SECTIONS 2.3(B) and (C).
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(b) Subject to the provisions of SECTION 11.1(G), if applicable,
Chaswil's Baseline Amount shall be adjusted at the Closing by adding to or
subtracting from, as applicable, the Baseline Amount the Pre-Closing
Balance Sheet Adjustment as set forth in the Pre-Closing Statement.
(c) Not later than ten (10) days after receiving the Closing
Statement, Citizens shall communicate in writing to Chaswil the amount of
the Closing Balance Sheet Adjustment as set forth in the Closing Statement.
If such amount is negative, it shall be referred to herein as Chaswil's
"POST-CLOSING PAYABLE." If such amount is positive, it shall be referred to
herein as Chaswil's "POST-CLOSING RECEIVABLE." Subject to the provisions
of SECTION 2.3(D), Chaswil shall direct Escrow Bank to pay in cash the full
amount of Chaswil's Post-Closing Payable, if any, to Citizens not later
than five (5) days after Chaswil's receipt of notice thereof from Citizens
or Citizens shall pay in cash the full amount of Chaswil's Post-Closing
Receivable, if any, not later than ten (10) days after receiving the
Closing Statement.
(d) Not later than five (5) days after receiving the Pre-Closing
Statement, Citizens shall have the right to provide to Chaswil a written
statement (including any Workpapers reviewed or prepared by Citizens
Auditors) of any discrepancy in or proposed adjustment to the Pre-Closing
Balance Sheet Adjustment set forth in the Pre-Closing Statement. The
parties shall promptly cooperate in good faith for the purpose of resolving
any such discrepancies or proposed adjustments, which resolution, if
achieved, shall be binding upon the parties and not subject to dispute or
review. If the parties cannot resolve such discrepancies or proposed
adjustments to their mutual satisfaction prior to the Closing, then either
party may, at its option, exercise its right to terminate this Agreement
pursuant to SECTION 11.1(G), failing which the Pre-Closing Balance Sheet
Adjustment as set forth in the Pre-Closing Statement shall be utilized for
the purposes of SECTION 2.3(B) and SECTION 2.5(A)..
Not later than ten (10) days after receiving the Closing Statement,
Chaswil shall have the right to provide to Citizens a written statement
(including Workpapers reviewed or prepared by Chaswil Auditors) of any
discrepancy in or proposed adjustment to the Closing Balance Sheet
Adjustment set forth in the Closing Statement. The parties shall promptly
cooperate in good faith for the purpose of resolving any such discrepancies
or proposed adjustments, which resolution, if achieved, shall be binding
upon the parties and not subject to dispute or review. If the parties
cannot resolve such discrepancies or proposed adjustments to their mutual
satisfaction within an additional thirty (30) days after delivery of such
written statement or statements, then as their exclusive method of
resolving such discrepancy or proposed adjustments, Chaswil and Citizens
hereby jointly designate Coopers & Lybrand or such other accounting firm of
national reputation as may be agreed to by the parties (the "ARBITRATOR")
to resolve such discrepancy or proposed adjustment, and shall promptly
submit the matter to the Arbitrator. The Arbitrator, as expeditiously as
possible but in any event not later than thirty (30) days after submission
to it of such discrepancies or proposed adjustments, shall report its
conclusions in writing
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to Chaswil and Citizens, and such conclusion shall be binding upon all parties
to this Agreement and not subject to dispute or review. The fees and expenses
of the Arbitrator shall be paid by the party (i.e. Chaswil, on the one hand, or
Citizens, on the other hand) whose last proposed offer for the settlement of
the dispute with respect to all alleged discrepancies or proposed adjustments,
taken as a whole, with respect to the Closing Statement is farther away from
the Balance Sheet Adjustment as finally determined pursuant to this paragraph.
If on the basis of the Closing Statement it is finally determined pursuant to
this paragraph that an amount is due to Citizens from Chaswil, then Chaswil
shall direct the Escrow Bank to pay to Citizens promptly in cash such
amount. If on the basis of the Closing Statement, it is finally determined
pursuant to this paragraph that an amount is due to Chaswil from Citizens,
then Citizens shall pay to Chaswil promptly in cash such amount.
2.4 EARN-OUT ADJUSTMENT. Not later than April 1, 2001, Citizens will
deliver to Chaswil written notice setting forth Citizens's calculation of
[i] eight percent (8%) of Citizens' aggregate statutory premium income on a
consolidated basis from Pre-Need Burial Life Insurance Policies during the
years ended December 31, 1998, 1999 and 2000 in excess of $9,000,000
(limited, however, to $400,000), less [ii] the amount, if any, by which the
Chaswil Post-Closing Payable, if any, exceeded the amount of the Escrow
Deposit provided in SECTION 2.5(B), and less [iii] the amount of any
Damages that Citizens or Designated Subsidiary or United is entitled to
recover as provided in ARTICLE 10, if any, exceeded the Indemnification
Fund (the net amount of items [i], [ii] and [iii] constituting the "EARN-
OUT ADJUSTMENT"), together with true and complete copies of all Workpapers
related thereto. Within fifteen (15) Business Days after the receipt by
Chaswil of such calculation, Chaswil shall deliver to Citizens written
notice stating whether Chaswil agrees or disagrees with such calculation.
If Chaswil accepts such calculation and so notifies Citizens, or does not
notify Citizens that it does not accept such calculation within such
fifteen (15) Business Days, such calculation shall be deemed to be the
Earn-Out Adjustment for the purposes hereof. If Chaswil notifies Citizens
within such fifteen (15) Business Days that it does not accept such
calculation, Chaswil and Citizens shall, for a second period of fifteen
(15) Business Days, in good faith, attempt to negotiate the Earn-Out
Adjustment. If Chaswil and Citizens fail to negotiate the Earn-Out
Adjustment within such fifteen (15) Business Days, the Earn-Out Adjustment
be determined by Citizens Auditor. Citizens shall cause such calculation
by Citizens Auditor and a statement of fees and expenses incurred by
Citizens Auditor in making such calculation, together with true and
complete copies of all Workpapers related thereto, to be delivered to
Chaswil as soon as practicable after Chaswil's notice of disagreement. The
parties hereto agree and acknowledge that the calculation of the Earn-Out
Adjustment by Citizens Auditor in accordance with this SECTION 2.4 shall be
final and binding on all parties. If the services of Citizens Auditor are
used as provided herein, all fees and expenses of Citizens Auditor shall be
paid one-half by Chaswil and one-half by Citizens; provided, however, (i)
if the Earn-Out Adjustment as determined by Citizens Auditor is more than
$25,000 below the amount originally calculated by Citizens, all fees and
expenses of Citizens Auditor shall be the responsibility of and paid by
Chaswil, and (ii) if the Earn-Out Adjustment as determined by Citizens
Auditor is more
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than $25,000 over the amount originally calculated by Citizens, all fees and
expenses of Citizens Auditor shall be the responsibility of and paid by
Citizens. Amounts payable by Chaswil pursuant to this SECTION 2.4 shall be
deducted from the Earn-Out Adjustment. Citizens and Chaswil shall be provided
with access to all books and records and Workpapers used by Citizens Auditor
in making its calculation hereunder.
2.5 PAYMENT OF THE PURCHASE PRICE. Citizens and/or Designated
Subsidiary shall pay the Purchase Price as follows.
(a) The Baseline Amount plus or minus, as applicable, the aggregate
of adjustments to the Baseline Amount set forth in SECTION 2.3(B) and
minus the amounts payable as provided in paragraphs (b) and (c) next
following shall be paid by wire transfer on the Closing Date of
immediately available funds to Chaswil.
(b) $250,000 (the "ESCROW DEPOSIT") shall be paid on the Closing Date
by Citizens or its Designated Subsidiary to a bank under the terms of an
escrow agreement approved by Chaswil and Citizens, whose approvals shall
not be unreasonably withheld or delayed (the "ESCROW BANK" and the "ESCROW
AGREEMENT," respectively) that provides [i] for payment to Chaswil of the
Escrow Deposit less any Chaswil Post-Closing Payable and [ii] for payment
to Citizens and/or Designated Subsidiary of any Chaswil Post-Closing
Payable on before seven (7) days after the determination of the aggregate
of the further adjustments to the Baseline Amount set forth in SECTION
2.3(C) following completion of any procedures initiated pursuant to
SECTION 2.3(D).
(c) $250,000 shall be paid by execution and delivery to the Escrow
Bank on the Closing Date of a promissory note issued by Citizens or issued
by Designated Subsidiary and guaranteed by Citizens payable to the Escrow
Bank on or before the first anniversary of the Closing Date. The
promissory note shall bear interest on the amount ultimately payable
thereunder at the Prime Rate, shall be payable in its face principal
amount less the amount of all Damages to which Citizens and/or Designated
Subsidiary is entitled pursuant to ARTICLE 10 of this Agreement, and shall
be secured by an irrevocable standby letter of credit of National City Bank
of Kentucky issued to the Escrow Bank for the account of Citizens and/or
Designated Subsidiary permitting drawings up to the face principal amount
of the promissory note, less any prepayment pursuant to the following
sentence. The promissory note shall provide for prepayment of fifty
percent (50%) of its face principal amount six months after the Closing
Date if Citizens and Designated Subsidiary shall not have asserted any
claims for Damages pursuant to ARTICLE 10 of this Agreement. The amount
received in respect of such promissory note shall be paid by the Escrow
Bank to Chaswil; provided, however, that the Escrow Bank shall withhold
from such distribution such amount as may be required by the Escrow
Agreement pending resolution of Claim Notices asserted before, but
unresolved as of, the first anniversary of the Closing Date.
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(d) The Earn-Out Adjustment shall be paid by execution and delivery
by Citizens and/or Designated Subsidiary to Chaswil following
determination of the Earn-Out Adjustment of a promissory note issued by
Citizens or issued by its Designated Subsidiary and guaranteed by Citizens
payable to the order of Chaswil on or before December 31, 2002. The
promissory note shall bear interest at eight percent (8%) per annum from
January 1, 2001 payable on the first day of each calendar quarter and at
maturity.
2.6 CLOSING. Subject to the provisions of this Agreement,, the
Closing of the transactions contemplated by this Agreement, including,
without limitation, the consummation of the sale and purchase of the
Shares, as provided in SECTION 2.1 hereof and the execution and delivery of
the documents and instruments specified in this SECTION 2.6, will take
place at the offices of Citizens' counsel in Louisville, Kentucky at 10:00
a.m., local time, on the Closing Date. At the Closing, Chaswil will assign
and transfer to Citizens and/or its Designated Subsidiary, good and valid
title, and all other rights and interests of Chaswil, in and to the Shares,
free and clear of all liens. To effect such assignment and transfer,
Chaswil will deliver certificates representing all of the Shares, in
genuine and unaltered form, accompanied by duly executed blank stock powers
or (at the request of Citizens) endorsed in blank for transfer. Chaswil
will execute and deliver to Citizens and/or its Designated Subsidiary such
documents and instruments as are required of Chaswil under the terms and
provisions of this Agreement. All such certificates, stock powers,
documents and instruments will be in form and substance reasonably
satisfactory to Citizens. Citizens will pay the Purchase Price as provided
in SECTION 2.5 and deliver such documents and instruments as are required
of Citizens under the terms and conditions of this Agreement. All such
documents and instruments will be in form and substance reasonably
satisfactory to Chaswil.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CHASWIL
Chaswil hereby represents and warrants to Citizens and its Designated
Subsidiary as follows:
3.1 ORGANIZATION OF CHASWIL. Chaswil is a corporation duly
organized, validly existing, and in good standing under the Laws of the
State of Ohio and has the requisite corporate power and authority to enter
into this Agreement and to perform its obligations under this Agreement.
Chaswil is duly licensed, qualified, or admitted to do business and is in
good standing in all jurisdictions in which the failure to be so licensed,
qualified, or admitted and in good standing, individually or in the
aggregate with all other such failures, has or would reasonably be expected
to have a material adverse effect on the validity or enforceability of this
Agreement or on its ability to perform its obligations under this
Agreement.
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3.2 AUTHORITY OF CHASWIL. The Board of Directors and shareholders of
Chaswil have duly and validly approved this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by
Chaswil and the performance by Chaswil of its obligations under this
Agreement have been duly and validly authorized by all necessary corporate
action on the part of Chaswil. This Agreement constitutes a valid and
binding obligation of Chaswil and is enforceable against Chaswil in
accordance with its terms, except to the extent that [i] enforcement may be
limited by or subject to any bankruptcy, insolvency, reorganization,
moratorium, or similar Laws now or hereafter in effect relating to or
limiting creditors' rights generally and [ii] the remedy of specific
performance and injunctive and other forms of equitable relief are subject
to certain equitable defenses and to the discretion of the court or other
similar Person before which any proceeding therefor may be brought;
provided, however, that to the Knowledge of Chaswil no party has any
equitable defenses that would affect the enforcement of this Agreement
against Chaswil.
3.3 ORGANIZATION OF UNITED. United is a life insurance corporation
duly organized, validly existing, and in good standing under the Laws of
the State of Ohio. United is duly licensed, qualified, or admitted to do
business and is in good standing in all jurisdictions listed in SECTION
3.3(A) OF THE DISCLOSURE SCHEDULE, which are the only jurisdictions in
which the failure to be so licensed, qualified, or admitted and in good
standing, individually or in the aggregate with all other such failures,
has or would reasonably be expected to have a material adverse effect on
the Business or Condition of United. SECTION 3.3(B) OF THE DISCLOSURE
SCHEDULE sets forth true and complete copies of the articles of
incorporation (as certified by the appropriate governmental or regulatory
authorities) and the code of regulations of United, in each case including
all amendments thereto.
3.4 CAPITAL STOCK. The only capital stock that United is authorized
to issue is 5,000,000 shares of United Common Stock, of which only the
Shares are issued and outstanding. All of the Shares are duly authorized,
validly issued, fully paid, and nonassessable and are owned beneficially
and of record by Chaswil, free and clear of all Liens except Liens
disclosed in SECTION 3.4 OF THE DISCLOSURE SCHEDULE. Except for the
Shares, no securities of United are owned beneficially or of record by
Chaswil or its Affiliates. There are no outstanding securities,
obligations, rights, subscriptions, warrants, options, phantom stock
rights, or (except for this Agreement) other Contracts of any kind that
give any Person the right to [i] purchase or otherwise receive or be issued
from United or Chaswil any shares of United Common Stock (or any interest
therein) or any security or Liability of United of any kind convertible
into or exchangeable for any shares of United Common Stock (or any interest
therein) or [ii] receive any benefits or rights similar to any rights
enjoyed by or accruing to a holder of shares of United Common Stock or any
rights to participate in the equity, income, or election of directors or
officers of United. Upon consummation of the transactions contemplated
hereby, Citizens will own the entire equity interest in United.
3.5 NO SUBSIDIARIES. Except as disclosed in SECTION 3.5 OF THE
DISCLOSURE SCHEDULE, United does not have any Subsidiary and does not
control (either directly or indirectly) any
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corporation, partnership, business organization, or other similar Person.
For purposes of this SECTION 3.5, "CONTROL" shall mean the power to elect
a majority of the board of directors or other governing body of any such
entity or Person or otherwise manage, direct or govern the business
operations or policies of such entity or Person.
3.6 NO CONFLICTS OR VIOLATIONS. The execution and delivery of this
Agreement by Chaswil does not, and the performance by Chaswil of its
obligations under this Agreement will not, subject to obtaining the
approvals contemplated by SECTIONS 5.1 AND 5.2 and SECTIONS 6.1 AND 6.2
hereof:
(a) violate any term or provision of any Law or any writ, judgment,
decree, injunction, or similar order applicable to Chaswil or United
except for such violations that individually or in the aggregate would not
reasonably be expected to have a material adverse effect on the validity
or enforceability of this Agreement, on the ability of Chaswil to perform
its obligations under this Agreement, or on the Business or Condition of
United;
(b) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default
under, any of the terms, conditions or provisions of the articles of
incorporation or code of regulations of Chaswil or United;
(c) result in the creation or imposition of any Lien upon Chaswil, or
United or any of United's Assets and Properties that individually or in
the aggregate with any other Liens has or would reasonably be expected to
have a material adverse effect on the validity or enforceability of this
Agreement, on the ability of Chaswil to perform its obligations under this
Agreement, or on the Business or Condition of United;
(d) except as disclosed in SECTION 3.6(D) OF THE DISCLOSURE SCHEDULE,
conflict with or result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default under, or give to any
Person any right of termination, cancellation, acceleration, or
modification in or with respect to, any Contract to which Chaswil or
United is a party and by which any of their respective Assets or
Properties may be bound and as to which any such conflicts, violations,
breaches, defaults, or rights individually or in the aggregate have or
would reasonably be expected to have a material adverse effect on the
validity or enforceability of this Agreement, on the ability of Chaswil to
perform its obligations under this Agreement, or on the Business or
Condition of United; or
(e) require Chaswil or United to obtain any consent, approval, or
action of, or make any filing with or give any notice to, any Person other
than those which the failure to obtain, make, or give individually or in
the aggregate with any other such failures has not or would not reasonably
be expected to have a material
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adverse effect on the validity or enforceability of this Agreement, on the
ability of Chaswil to perform its obligations under this Agreement, or on
the Business or Condition of United.
3.7 BOOKS AND RECORDS. To the best of the Knowledge of the current
officers and directors of Chaswil, the minute books and other similar
records of United contain a true and complete record, in all material
respects, of all actions taken at all meetings and by all written consents
in lieu of meetings of United's shareholders, Board of Directors, and each
committee thereof. The Books and Records of United accurately reflect in
all material respects the Business or Condition of United and have been
maintained in all material respects in accordance with good business and
bookkeeping practices.
3.8 SAP STATEMENTS. Chaswil has previously delivered to the Citizens
true and complete copies of the following SAP Statements:
(a) Annual Statements for United for each of the years ended December
31, 1995 and 1996 (and the notes relating thereto); and
(b) Quarterly Statements for United for each of the first three
quarters of each of 1995 and 1996 and the first three quarters of 1997
(and the notes relating thereto).
Except as disclosed in SECTION 3.8 OF THE DISCLOSURE SCHEDULE, each
such SAP Statement complied in all material respects with all applicable
Laws when so filed, and all material deficiencies with respect to any such
SAP Statement have been cured or corrected. Each such SAP Statement (and
the notes relating thereto), including without limitation each balance
sheet and each of the statements of operations, capital and surplus
account, and cash flow contained in the respective SAP Statement, was
prepared in accordance with SAP, is true and complete in all material
respects, and presents fairly, in all material respects, the admitted
assets, Liabilities, and capital and surplus of United as of the respective
dates thereof and its respective results of operations and cash flows for
and during the respective periods covered thereby, all in accordance with
SAP.
3.9 RESERVES.
(a) Except as disclosed in SECTION 3.9(A) OF THE DISCLOSURE SCHEDULE,
all reserves and other Liabilities with respect to insurance and for
claims and benefits incurred but not reported (collectively, the "RESERVE
LIABILITIES"), as established or reflected in the respective SAP Statements
of United (including without limitation the reserves and policy and
Contract Liabilities to be reflected respectively on LINES 1 THROUGH 11,
15, 24.2, 24.3 AND 24.6 OF PAGE 3 OF THE DECEMBER 31, 1996 ANNUAL
STATEMENT), were determined in accordance with generally accepted actuarial
standards consistently applied, are fairly stated in accordance with sound
actuarial principles, are based on actuarial assumptions that are in
accordance with those
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called for by the provisions of the related insurance Contracts and in the
related reinsurance, coinsurance and other similar Contracts of United,
and meet in all material respects the requirements of the insurance Laws of
its state of domicile. Adequate provision for all such Reserve Liabilities
have been made (under generally accepted actuarial principles consistently
applied) to cover the total amount of all reasonably anticipated matured
and unmatured benefits, dividends, claims and other Liabilities of United
under all insurance Contracts under which United has any Liability
(including without limitation any Liability arising under or as a result of
any reinsurance, coinsurance or other similar Contract) in United's
December 31, 1996 Annual Statement based on then current information
regarding interest earnings, mortality and morbidity experience,
persistency and expenses. No warranty is made as to the ultimate adequacy
of the Reserve Liabilities to satisfy the liabilities and obligations
reserved against. United owns assets that qualify as legal reserve assets
under applicable insurance Laws in an amount at least equal to all such
Reserve Liabilities; and
(b) Except as described in SECTION 3.9(B) OF THE DISCLOSURE SCHEDULE,
all reserves and accrued Liabilities for contingencies such as, but not
limited to, estimated losses, settlements, costs and expenses from pending
suits, actions and proceedings included in the December 31, 1996 Annual
Statement were determined in accordance with SAP.
3.10 ABSENCE OF CHANGES. Since December 31, 1996, except as disclosed
in SECTION 3.10 OF THE DISCLOSURE SCHEDULE or in the December 31, 1996
Annual Statement (and the notes relating thereto), or except for changes or
developments relating to the conduct of the business of United after the
date of this Agreement in conformity with this Agreement or the request of
Citizens, or resulting from events, conditions, or effects of changes or
developments that are industry-wide and national in scope, [i] there has
not been, occurred, or arisen any change in, or any event (including
without limitation any damage, destruction, or loss whether or not covered
by insurance), condition, or state of facts of any character that
individually or in the aggregate has or would reasonably be expected to
have a material adverse effect on the Business or Condition of United, [ii]
United has operated only in the ordinary course of business and consistent
with past practice, and [iii] (without limiting the generality of the
foregoing) there has not been, occurred or arisen:
(a) any declaration, setting aside, or payment of any dividend or
other distribution in respect of the capital stock of United or any direct
or indirect redemption, purchase or other acquisition by United of any such
stock or of any interest in or right to acquire any such stock;
(b) any employment, deferred compensation, or other salary, wage or
compensation Contract entered into between United and any Person, except
for normal and customary Contracts with agents and consultants in the
ordinary course of business and consistent with past practice;
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(c) any issuance, sale or disposition by United of any debenture,
note, stock or other security issued by United, or any modification or
amendment of any right of the holder of any outstanding debenture, note,
stock or other security issued by United;
(d) any Lien created on or in any of the Assets and Properties of
United or assumed by United with respect to any of such Assets and
Properties, which Lien relates to Liabilities individually or in the
aggregate exceeding $30,000;
(e) any prepayment of any Liabilities (other than pursuant to any
insurance or annuity Contract) individually or in the aggregate exceeding
$30,000;
(f) any Liability involving the borrowing of money by United except
in the ordinary course of business and consistent with past practice;
(g) any damage, destruction or loss (whether or not covered by
insurance) affecting any of the Assets and Properties of United, which
damage, destruction or loss individually involves a loss exceeding
$30,000;
(h) any work stoppage, strike, labor difficulty or (to the Knowledge
of United) union organizational campaign (in process or threatened) at the
offices of, or materially affecting, United;
(i) any material change in any underwriting, actuarial, investment,
financial reporting, marketing or accounting practice or policy followed by
United, or in any assumption underlying such a practice or policy, or in
any method of calculating any bad debt, contingency, or other reserve for
financial reporting or any other accounting purposes;
(j) any payment, discharge, or satisfaction by United of any Lien or
Liability other than Liens or Liabilities that [i] were paid, discharged,
or satisfied since December 31, 1996 in the ordinary course of business
and consistent with past practice, or [ii] were paid, discharged, or
satisfied as required under this Agreement;
(k) except for fair value received, in the ordinary course of business
and consistent with past practice, any cancellation of any Liability owed
to United by any other Person;
(l) any sale, transfer, or conveyance of any investments, or any other
Assets and Properties, of United with an individual book value, or with an
aggregate book value, in excess of $30,000 or except in the ordinary course
of business and consistent with past practice;
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(m) any amendment, termination, waiver, disposal or lapse of, or other
failure to preserve, any license, permit or other form of authorization of
United, the result of which individually or in the aggregate has or would
reasonably be expected to have a material adverse effect on the Business or
Condition of United;
(n) any transaction or arrangement under which United paid, lent or
advanced any amount to or in respect of, or sold, transferred, or leased
any of its Assets and Properties or any services to, [i] Chaswil, [ii] any
officer or director of Chaswil, United or of any Affiliate of Chaswil, [ii]
any Affiliate of Chaswil or United or of any such officer or director, or
[iii] any business or other Person in which Chaswil, United, any such
officer or director, or any such Affiliate has any material interest,
except for advances made to, or reimbursements of, officers or directors of
United for travel and other business expenses in reasonable amounts in the
ordinary course of business and consistent with past practice;
(o) except for actions taken with respect to insurance Contracts in
force, in the ordinary course of business and consistent with past
practice, any material amendment of, or any failure to perform all of its
obligations under, or any default under, or any waiver of any right under,
or any termination (other than on the stated expiration date) of, any
Contract that involves or reasonably would involve the annual expenditure
or receipt by United of more than $30,000;
(p) any material change in the amount or nature of the life insurance
in force of United or in the amount or nature of the Reserve Liabilities of
United with respect to insurance Contracts (including without limitation
Reserve Liabilities of a type required to be reflected respectively on
LINES 1 THROUGH 11, 15, 24.2 AND 24.6 ON PAGE 3 OF AN ANNUAL STATEMENT OF
UNITED);
(q) any amendment to the articles of incorporation or code of
regulations of United;
(r) any termination, amendment or entering into by United as ceding or
assuming insurer of any reinsurance, coinsurance or other similar Contract
or any trust agreement or security agreement related thereto;
(s) any expenditure or commitment for additions to property, plant,
equipment or other tangible or intangible capital assets of United in
excess of the budgeted amounts set forth in SECTION 3.10(S) OF THE
DISCLOSURE SCHEDULE, which expenditures or commitments do not exceed
$25,000 in the aggregate;
(t) any amendment or introduction by United of any insurance Contract
other than in the ordinary course of business consistent with past
practices;
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(u) any sale of any investments of United that resulted in the
realization of capital gains exceeding $250,000 in the aggregate;
(v) any Contract to take any of the actions described in this SECTION
3.10 other than actions expressly permitted under this SECTION 3.10; or
(w) any materially adverse change in the Business or Condition of
United.
3.11 NO UNDISCLOSED LIABILITIES. Except to the extent reflected in
the balance sheet included in the December 31, 1996 Annual Statement (and
the notes relating thereto), or except as disclosed in SECTION 3.10 OR 3.11
OF THE DISCLOSURE SCHEDULE, there were no Liabilities (other than
policyholder benefits payable in the ordinary course of business and
consistent with past practice for which appropriate reserves have been
provided) against, relating to, or affecting United as of December 31, 1996
exceeding $30,000 in the aggregate. Except to the extent specifically
reflected in the balance sheets included in the December 31, 1996 Annual
Statement (and the notes relating thereto) or except as disclosed in
SECTION 3.11 OF THE DISCLOSURE SCHEDULE, since December 31, 1996, United
has not incurred any Liabilities exceeding $30,000 in the aggregate (other
than policyholder benefits and other obligations payable in the ordinary
course of business and consistent with past practice for which appropriate
reserves have been provided).
3.12 TAXES. Except as disclosed in SECTION 3.12 OF THE DISCLOSURE
SCHEDULE (with paragraph references corresponding to those set forth
below):
(a) All federal and state Tax Returns required to be filed with
respect to United have been duly and timely filed, and all such Tax Returns
are true and complete in all material respects. United [i] has duly and
timely paid all Taxes that are shown as due, or claimed or asserted by any
taxing authority to be due, from United for the periods covered by such
Tax Returns and has made all required estimated payments of Taxes
sufficient to avoid any penalties for underpayment, or [ii] has duly
provided for all such Taxes in the SAP Statements. There are no Liens with
respect to Taxes (except for Liens with respect to real property Taxes not
yet due) upon any of the Assets and Properties of United.
(b) With respect to any period for which Tax Returns have not yet
been filed, or for which Taxes are not yet due or owing, United has made
due and sufficient current accruals for such Taxes in accordance with SAP,
and such current accruals are duly and fully provided for in the SAP
Statements of United.
(c) The status of the statutes of limitations for all open years of
United is specified in SECTION 3.12(C) OF THE DISCLOSURE SCHEDULE. The
state, local and foreign income Tax Returns of United have not been
audited or examined, and all statutes of limitation for all applicable
state, local and foreign taxable periods through the respective years
specified in SECTION 3.12(C) OF THE DISCLOSURE STATEMENT
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have expired. There are no outstanding agreements, waivers or
arrangements extending the statutory period of limitation applicable to
any claim for, or the period for the collection or assessment of, Taxes
due from United for any taxable period. Chaswil has previously delivered
to the Citizens true and complete copies of each of [i] the most recent
taxing authorities' audit reports relating to the United States federal,
state, local and foreign income Taxes due from United and [ii] the United
States federal, state, local and foreign income Tax Returns, for each of
the last three taxable years, filed by United.
(d) No audit or other proceeding by any court, governmental or
regulatory authority, or similar Person is pending or, to the Knowledge of
United, threatened with respect to any Taxes due from United or any Tax
Return filed by or relating to United. To the Knowledge of Chaswil, no
assessment of Tax is proposed or, based on existing facts and
circumstances, is threatened against United or any of its respective
Assets and Properties.
(e) No election under any of Section 108, 168, 338, 441, 472, 1017,
1033, or 4977 of the Code (or any predecessor provisions) has been made or
filed by or with respect to United or any of its Assets and Properties.
No consent to the application of Section 341(f)(2) of the Code (or any
predecessor provision) has been made or filed by or with respect to United
or any of its Assets and Properties. None of the Assets and Properties of
United is an asset or property that Citizens or any of its Affiliates is
or will be required to treat as being [i] owned by any other Person
pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately before the enactment of
the Tax Reform Act of 1986 or [ii] tax-exempt use property within the
meaning of Section 168(h)(1) of the Code. No closing agreement pursuant to
Section 7121 of the Code (or any predecessor provision) or any similar
provision of any state, local or foreign Law has been entered into by or
with respect to United or any of its Assets and Properties.
(f) United has not agreed to and, to the Knowledge of Chaswil, is not
required to make any material adjustment pursuant to Section 481(a) of the
Code (or any predecessor provision) by reason of any change in any
accounting method of United and neither Chaswil nor United has any
application pending with any taxing authority requesting permission for
any changes in any accounting method. To the Knowledge of Chaswil, the
IRS has not proposed any such adjustment or change in accounting method.
(g) United has not been and is not in material violation (or with
notice or lapse of time or both, would be in violation) of any applicable
Law relating to the payment or withholding of Taxes.
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(h) United is not a party to, is not bound by, and has no obligation
under, any tax sharing contract or similar Contract. Chaswil is not a
foreign person within the meaning of Section 1445 (b)(2) of the Code.
(i) United has not made any direct, indirect or deemed distributions
that have been or, to the Knowledge of Chaswil, could be taxed under
Section 815 of the Code.
(j) All or substantially all of ceding commission expenses paid or
accrued by United in connection with any reinsurance arrangement or
Contract or transaction has been capitalized and amortized over the life
or lives of such reinsurance arrangement or Contract in accordance with
the decision of the United States Supreme Court in COLONIAL AMERICAN LIFE
INSURANCE COMPANY V. COMMISSIONER OF INTERNAL REVENUE, 109 S.Ct. 240
(1989) or Section 848 of the Code.
(k) To the Knowledge of Chaswil, no material Liabilities have been
proposed in connection with any audit or other proceeding by any court,
governmental or regulatory authority, or similar person with respect to
any Taxes due from United or any Tax Return filed by or relating to
United.
(l) Each reserve item with respect to United set forth in the 1996
Federal income tax return was determined in all material respects in
accordance with Section 807 of the Code or other applicable Code
Sections, and has been consistently applied with respect to the filing of
the Federal income tax returns for the years ended December 31, 1993
through December 31, 1996.
(m) As of December 31, 1996, United did not have and during the
period from December 31, 1996 through the Closing Date will not have any
tax liability to Chaswil or any Affiliate of Chaswil that resulted or will
result from a transaction with an Affiliate prior to the Closing Date that
would require payment after December 31, 1996.
(n) Since January 1, 1993, neither Chaswil nor United has changed
United's method of tax accounting for any item without receiving approval
for such change from the IRS.
3.13 LITIGATION. Except as disclosed in SECTION 3.13 OF THE
DISCLOSURE SCHEDULE (with paragraph references corresponding to those set
forth below):
(a) There are no actions, suits, investigations or proceedings
pending, or, to the Knowledge of Chaswil, threatened, against Chaswil or
its Assets and Properties, at law or in equity, in, before, or by any
Person that individually or in the aggregate have or would reasonably be
expected to have a material adverse effect on the validity or
enforceability of this Agreement, on the ability of Chaswil
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to perform its obligations under this Agreement, or on the Business or
Condition of United.
(b) There are no actions, suits, investigations or proceedings
pending or, to the Knowledge of Chaswil, threatened, and no event, fact or
circumstance has arisen or occurred (other than claims for benefits under
insurance Contracts and annuities in force) that may reasonably be
expected to result in the commencement of any action, suit, proceeding or
investigation, against United or any of its Assets and Properties, at law
or in equity, in, before, or by any Person that individually involves a
claim or claims for any injunction or similar relief or for Damages
exceeding $30,000 or an unspecified amount of Damages, or that
individually or in the aggregate have or would reasonably be expected to
have a material adverse effect on the Business or Condition of United.
(c) There are no writs, judgments, decrees or similar orders of any
Person outstanding against United that individually exceed $30,000 or that
individually or in the aggregate have or would reasonably be expected to
have a material adverse effect on the Business or Condition of United and
there are no injunctions or similar orders of any Person outstanding
against United.
3.14 COMPLIANCE WITH LAWS. Except as disclosed in SECTION 3.14 OF THE
DISCLOSURE SCHEDULE, United has not been and is not in violation (or with
or without notice or lapse of time or both, would be in violation) of any
term or provision of any Law or any writ, judgment, decree, injunction or
similar order applicable to United or any of its Assets and Properties,
except for violations that have been cured, that have been resolved or
settled through agreements with applicable governmental authorities or
claims for which are barred by an applicable statute of limitations, or
that have not and are not reasonably expected to have a material adverse
effect on the Business or Condition of United. Without limiting the
generality of the foregoing, except as disclosed in SECTION 3.14 OF THE
DISCLOSURE SCHEDULE:
(a) Since January 1, 1995, United has duly and validly filed or
caused to be so filed all material reports, statements, documents,
registrations, filings or submissions that were required by Law to be
filed with any Person and as to which the failure to so file, individually
or in the aggregate with other such failures, has or may reasonably be
expected to have a material adverse effect on the validity or
enforceability of this Agreement, on the ability of Chaswil to perform its
obligations under this Agreement, or on the Business or Condition of
United; all such filings complied with applicable Laws in all material
respects when filed, and to the Knowledge of Chaswil, no material
deficiencies have been asserted by any Person with respect to any such
filings.
(b) Chaswil has previously delivered to Citizens the reports
reflecting the results of the most recent market conduct and financial
examinations of United
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issued by any insurance regulatory authority. To the Knowledge of
Chaswil, all material deficiencies or violations identified in such
reports have been resolved to the satisfaction of all applicable insurance
regulatory authorities.
(c) All outstanding insurance Contracts issued, reinsured or
underwritten by United are, to the Knowledge of Chaswil, to the extent
required under applicable Laws, on forms approved by the insurance
regulatory authority of the jurisdiction where issued or have been filed
with and not objected to by such authority within the period provided for
objection.
(d)(1) SECTION 3.14 OF THE DISCLOSURE SCHEDULE contains a list, true
and complete, of [i] each master or prototype (as well as any
individually designed) pension, profit sharing, defined benefit, Code
Section 401(k), and other retirement or employee benefit plan or
Contract (including, but not limited to, simplified employee pension
plans, Code Section 403(a), (b) and (c) annuities, Keogh plans, and
individual retirement accounts and annuities) offered or sold by
United to, or maintained or sponsored for the benefit of any employees
of, any other Person, and [ii] each determination letter (or opinion
or notification letter from the IRS with respect to those plans or
Contracts for which such letters, rather than determination letters,
are issued by the IRS) issued to United relating to the creation or
amendment of any such plan or Contract; provided, however,with respect
to clause [ii] above, the Disclosure Schedule does not include any
determination letters (or opinion or notification letters) that any
Person that adopts or maintains any such plan or Contract has obtained.
Each such plan or Contract in all material respects conforms with, and
has been offered, sold, maintained and sponsored in accordance with,
all applicable Laws. Notwithstanding the foregoing, United makes no
representation regarding any action of any Person that adopts or
maintains any such plan or Contract for the benefit of its employees.
To the Knowledge of Chaswil, United is not a fiduciary with respect to
any plan or Contract referenced in this SECTION 3.14(D).
(2) United does not provide administrative or other contractual
services for any plan or Contract referenced in SECTION 3.14(D)(1),
including, but not limited to, any third party administrative services
for an Employee Welfare Benefit Plan.
(3) To the extent that United maintains any collective or
commingled funds or accounts that restrict the Persons who may invest
therein to tax-exempt entities or qualified plans, each such fund or
account (of which a true and complete list and description is
disclosed in SECTION 3.14 OF THE DISCLOSURE SCHEDULE) has been
established, maintained and operated in accordance with all
applicable Laws, has maintained its tax-exempt status
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and has no non-qualified plans or trusts or other taxable entities
investing within it.
(4) In addition to the representations and warranties contained in
SECTION 3.13 hereof, there are no claims pending, or (to the Knowledge
of Chaswil) threatened against United or any of its Assets or
Properties, under any fiduciary liability insurance policy issued by
or to any of them that individually or in the aggregate has or would
reasonably be expected to have a material adverse effect on the
Business or Condition of United.
3.15 BENEFITS PLANS, ERISA. Except as disclosed in SECTION 3.15 OF
THE DISCLOSURE SCHEDULE, United does not maintain and is not the sponsor of
any Benefit Plans, and it has not maintained or sponsored such a plan
during the last five years. Neither United nor any ERISA Affiliate has
completely or partially withdrawn from a multiemployer plan. United has
not sponsored any defined benefit pension plan within the last five years.
3.16 PROPERTIES. Except as disclosed in SECTION 3.16 OF THE
DISCLOSURE SCHEDULE (with paragraph references corresponding to those set
forth below):
(a) United has good and valid title to all debentures, notes, stocks,
securities, and other assets that are of a type required to be disclosed
in SCHEDULES B THROUGH DB OF ITS ANNUAL STATEMENT and that are purported
to be owned by it, free and clear of all Liens.
(b) [i] None of the mortgage loans or other long term invested assets
held by United of the type required to be disclosed in SCHEDULE B OR BA OF
ITS ANNUAL STATEMENT is or has been at any time since December 31, 1996,
in default for more than 60 days as to any payment of interest or
principal due thereon and, to the Knowledge of Chaswil, the financial
condition of any other party to such loan or asset is not so impaired as
to cause a default thereunder, [ii] to the Knowledge of Chaswil, there is
no existing circumstance or condition with respect to such loan or asset
or any property mortgaged or pledged as collateral for the repayment
thereof that would cause such loan to be subject to imminent default or to
be ineligible in whole or in part as an admitted asset under SAP; and
[iii] to the Knowledge of Chaswil, there is no valid right of offset,
defense or counterclaim to such loan or asset.
(c) United does not own or otherwise have a leasehold interest in any
Real Estate used in the conduct of its business, operations, or affairs of
a type required to be disclosed in SCHEDULE A OF AN ANNUAL STATEMENT. No
improvement on any such Real Estate owned, leased, or held by United
encroaches upon any real property of any other Person. United leases, or
has a valid right under Contract or otherwise to use adequate means of
ingress and egress to, from, and over all such real property.
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(d) United owns good and indefeasible title to, or has a valid
leasehold interest in or has a valid right under Contract to use, all
tangible personal property that is used in the conduct of its business,
operations, or affairs, free and clear of all Liens. All such tangible
personal property is, except for reasonable wear and tear, in good
operating condition and repair and is suitable for its current uses.
(e) SECTION 3.16(E) OF THE DISCLOSURE SCHEDULE contains a list, true
and complete in all material respects, of:
(i) all marks, names, trademarks, service marks, patents, patent
rights, assumed names, logos, trade secrets, copyrights, tradenames,
and service marks that are used in the conduct of United's business,
operations or affairs (collectively, the "INTELLECTUAL PROPERTY");
(ii) all material computer software, programs and similar systems
that are owned by or licensed to United and used in the conduct of its
business, operations, or affairs (collectively, the "OWNED COMPUTER
RIGHTS"); and
(iii) all material computer software, programs, and similar
systems used in the conduct of United's business, operations, or
affairs and owned by or licensed to an Affiliate of United
(collectively, the "AFFILIATE COMPUTER RIGHTS").
Except as otherwise disclosed in SECTION 3.16(E) OF THE DISCLOSURE
SCHEDULE, United has a nonexclusive right to use, free and clear of any
royalty or other payment obligations, claims or infringement or alleged
infringement, or other Liens, all Intellectual Property and Owned Computer
Rights.
Neither Chaswil, United nor any of their Affiliates has received any
notice of any conflict with or a violation or infringement of or any
claimed conflict with, nor, to the Knowledge of Chaswil, is in conflict
with or violation or infringement of, any asserted rights of any other
Person with respect to any Intellectual Property or any Owned Computer
Rights or Affiliate Computer Rights material to the Business or Operations
of United.
3.17 CONTRACTS. SECTION 3.17 OF THE DISCLOSURE SCHEDULE (with
paragraph references corresponding to those set forth below) contains a
list, true and complete in all material respects, of each of the following
contracts or other documents or arrangements (true and complete copies, or,
if none, written descriptions, of which will be made available to Citizens,
together with all amendments thereto), to which United is a party, by which
any of the Assets and Properties of United is bound:
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(a) all employment, agency, consultation, contracts for services or
other Contracts of any type (except insurance Contracts or Benefit Plans
including, without limitation, loans or advances) with any present United
Employee (or former United Employee, if there exists any present or future
liability with respect to such Contract, whether now existing or
contingent) other than [i] Contracts terminable without penalty or other
Liability upon 30 days or less notice, [ii] Contracts with consultants and
similar representatives who do not receive compensation of $30,000 or more
per year, [iii] employment or agency Contracts not containing terms that
are unduly burdensome to United with agents who do not receive
compensation of $10,000 or more per year, and [iv] agency Contracts not on
the standard form attached hereto to SECTION 3.17 OF THE DISCLOSURE
SCHEDULE, and the name, position, and rate of compensation of each such
Person and the expiration date of each such Contract, as well as all sick
leave, vacation, holiday, and other similar practices, procedures, and
policies of United with respect to such United Employees that are
established or administered other than as Benefit Plans;
(b) to the best of the Knowledge of the current officers and
directors of Chaswil, all Contracts with any Person containing any
provision or covenant limiting the ability of United to engage in any
line of business or to compete with or to obtain products or services from
any Person or, except as provided in SECTION 5.21 hereof, limiting the
ability of any Person to compete with or to provide products or services
to United;
(c) all material partnership, joint venture, profit-sharing, or
similar Contracts with any Person except for any such arrangement
disclosed in the December 31, 1996 Annual Statement (and the notes
relating thereto) and Benefit Plans;
(d) all Contracts relating to the borrowing of money by United or to
the direct or indirect guarantee by United of any obligation for borrowed
money in excess of $30,000 in the aggregate or any other Liability in
respect of indebtedness of any other Person, including without limitation
any Contract relating to (i] the maintenance of compensating balances that
are not terminable by United without penalty or other Liability upon not
more than 60 calendar days' notice, [ii] any line of credit or similar
facility, [iii] the payment for property, products, or services of any
other Person, even if such property, products, or services have not been
conveyed, delivered, or rendered, or [iv] the obligation to take-or-pay,
keep-well, make-whole, or maintain surplus or earnings levels or perform
other financial ratios or requirements; and SECTION 3.17(D) OF THE
DISCLOSURE SCHEDULE contains a true and complete list of any requirements
for consents or approvals of creditors needed for United to consummate the
transactions contemplated hereby;
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(e) all leases or subleases of Real Estate used in the business,
operations, or affairs of United, and all other material leases,
subleases, or rental or use Contracts for which United is liable;
(f) all Contracts relating to the future disposition or acquisition
of any material Assets or Properties of any Person or of any interest in
any business enterprise (other than the disposition or acquisition of
material Assets or Properties, for fair market value in the ordinary
course of business and consistent with past practice);
(g) all Contracts or arrangements between United and Chaswil or any
other Affiliate of United relating to allocations of expenses, personnel,
services, or facilities;
(h) all reinsurance, coinsurance, or other similar Contracts, and all
trust agreements or other security agreements related thereto, indicating,
with respect to each group of such Contracts (by reinsurer or coinsurer)
or security agreement, the information required to be disclosed in
SCHEDULE S OF AN ANNUAL STATEMENT;
(i) all outstanding proxies, powers of attorney, or similar
delegations of authority, except for powers of attorney for the service of
process pursuant to applicable insurance or corporate Laws;
(j) all Contracts for the provision of administrative services by or
to United;
(k) all material Contracts for any product, service, equipment,
facility, or similar item (other than insurance and annuity Contracts and
other than reinsurance, coinsurance, and other similar Contracts) that by
their respective terms do not expire or terminate or are not terminable by
United, without penalty or other Liability, within ninety (90) days after
December 31, 1996; and
(l) all other Contracts (other than insurance Contracts) that involve
the payment or potential payment, pursuant to the terms of such Contracts,
by or to United of more than $30,000 individually or in the aggregate or
that are otherwise material to the Business or Condition of United.
Each Contract disclosed or required to be disclosed in the Disclosure
Schedule pursuant to this SECTION 3.17 is in full force and effect and
constitutes a valid, and binding obligation of United and, to the Knowledge
of Chaswil, of each other Person that is a party thereto in accordance with
its terms, except to the extent that [i] enforcement may be limited by or
is subject to any bankruptcy, insolvency, reorganization, moratorium, or
similar Laws now or hereafter in effect relating to or limiting creditors'
rights generally, and [ii] the remedy of a specific performance and
injunctive and other forms of equitable relief are
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subject to certain equitable defenses and to the discretion of the court or
other similar Person before which any proceeding therefore may be brought;
provided, however, that, to the Knowledge of Chaswil, no party has any
equitable defenses that would affect the enforcement of this Agreement against
Chaswil, and neither United nor (to the Knowledge of Chaswil) any other
party to such Contract has materially violated, breached or defaulted under
any such Contract (or without notice or lapse of time or both, would be in
material violation or breach of or default under any such Contract).
Except as disclosed in SECTION 3.17 OF THE DISCLOSURE SCHEDULE, United is
not a party to or bound by any Contract that was not entered into in the
ordinary course of business and consistent with past practice and the
performance of which by United or the failure to perform by the other party
has or would reasonably be expected to have, individually or in the
aggregate with the performance of or failure to perform pursuant to any
other such Contracts, a material adverse effect on the Business or
Condition of United. United is not a party to or bound by any collective
bargaining or similar labor Contract.
3.18 INSURANCE ISSUED BY UNITED. Except as disclosed in SECTION 3.18
OF THE DISCLOSURE SCHEDULE (with paragraph references corresponding to
those set forth below):
(a) All insurance Contract benefits payable by United and (to the
Knowledge of Chaswil) by any other Person that is a party to or bound by
any reinsurance, coinsurance, or other similar Contract with United have
in all material respects been paid in accordance with the terms of the
insurance, annuity, and other Contracts under which they arose, except for
such benefits for which there is, in the opinion of Chaswil, a reasonable
basis to contest payment.
(b) United has no outstanding annuity Contracts. No outstanding
insurance Contract issued, reinsured, or underwritten by United entitles
the holder thereof or any other Person to receive dividends, distributions,
or other benefits based on the revenues or earnings of United or any other
Person.
(c) The underwriting standards utilized and ratings applied by United
and (to the Knowledge of Chaswil) by any other Person that is a party to or
bound by any reinsurance, coinsurance, or other similar Contract with
United conform in all material respects to industry accepted practices and
to the standards and ratings required pursuant to the terms of the
respective reinsurance, coinsurance, or other similar Contracts.
(d) Neither Chaswil nor United has received any information that
would cause it to believe that the financial condition of any other party
to any reinsurance, coinsurance, or other similar Contracts with United is
so impaired as to result in a default thereunder.
(e) [i] To the Knowledge of Chaswil, each insurance agent, at the
time such agent wrote, sold, or produced business for United at any time
since January
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1, 1994, was duly licensed as an insurance agent (for the type of
business written, sold, or produced by such insurance agent) in the
particular jurisdiction in which such agent wrote, sold, or produced such
business and [ii] neither Chaswil nor United has been notified that any
such insurance agent violated (or with or without notice or lapse of time
or both, would have violated) any term or provision of any Law or any writ,
judgment, decree, injunction, or similar order applicable to the writing,
sale, or production of business for United, except for violations that have
been cured, that have been resolved or settled through agreements with
applicable governmental authorities or claims with respect to which are
barred by an applicable statute of limitations.
(f) To the Knowledge of Chaswil, the tax treatment under the Code of
all insurance annuity or investment policies, plans, or contracts; all
financial products, employee benefit plans, individual retirement accounts
or annuities; or any similar or related policy, contract, plan, or
product, whether individual, group, or otherwise, issued or sold by United
is and at all times has been in all material respects the same or more
favorable to the purchaser, policyholder or intended beneficiaries thereof
as the tax treatment under the Code for which such contracts qualified or
purported to qualify at the time of its issuance or purchase, except for
changes resulting from changes to the Code effective after the date of
such issuance or purchase. For purposes of this SECTION 3.18(F), the
provisions of the Code relating to the tax treatment of such contracts
shall include, but not be limited to, Sections 72, 79, 89, 101, 104, 105,
106, 125, 130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 457, 501,
505, 817, 818, 7702, and 7702A of the Code.
3.19 THREATS OF CANCELLATION. Except as disclosed in SECTION 3.19 OF
THE DISCLOSURE SCHEDULE, since December 31, 1996, no policyholder, group of
policyholder Affiliates, or Persons writing, selling, or producing, either
directly or through reinsurance assumed, insurance business that
individually or in the aggregate accounted for 5% or more of the premium or
annuity income of United for the year ended December 31, 1996 has
terminated or (to the Knowledge of Chaswil) threatened to terminate its
relationship with United.
3.20 LICENSES AND PERMITS. Except as disclosed in SECTION 3.20 OF THE
DISCLOSURE SCHEDULE (with paragraph references corresponding to those set
forth below):
(a) United owns or validly holds all licenses, franchises, permits,
approvals, authorizations, exemptions, classifications, certificates,
registrations, and similar documents or instruments that are required for
its business, operation, and affairs and that the failure to so own or
hold has had, or would, individually or in the aggregate, reasonably be
expected to have, a material adverse effect on the Business or Condition
of United; and
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(b) all such licenses, franchises, permits, approvals,
authorizations, exemptions, classifications, certificates, registrations,
and similar documents or instruments are valid, binding, and in full force
and effect.
3.21 OPERATIONS INSURANCE. SECTION 3.21 OF THE DISCLOSURE SCHEDULE
contains a true and complete list and description of all liability,
property, workers compensation, directors and officers liability, and other
similar insurance Contracts that insure the business, operations, or
affairs of United or affect or relate to the ownership, use, or operations
of any of its Assets and Properties and [i] that have been issued to United
(including without limitation the names and addresses of the insurers, the
expiration dates thereof, and the annual premiums and payment terms
thereof) or [ii] that are held by Chaswil or by any affiliate of Chaswil
(other than United) for the benefit of United. All such insurance is in
full force and effect and (to the Knowledge of Chaswil) is with financially
sound and reputable insurers and, in light of the respective business,
operations and affairs of United, is in amounts and provides coverage that
are reasonable and customary for Persons in similar businesses.
3.22 INTERCOMPANY CONTRACTS AND LIABILITIES. Except as reflected in
the December 31, 1996 Annual Statement, or except as disclosed in SECTION
3.22 OF THE DISCLOSURE SCHEDULE, [i]) there are no Contracts or Liabilities
between United and Chaswil or any other Affiliate of United and [ii]
neither Chaswil nor any other Affiliate of United provides or causes to be
provided to United any products, services, equipment, facilities, or
similar items. Except as disclosed in SECTION 3.22 OF THE DISCLOSURE
SCHEDULE, since December 31, 1996, no such intercompany liabilities in
excess of an aggregate of $10,000 have been paid, and no settlements of
such intercompany Liabilities have been made.
3.23 BANK ACCOUNTS. SECTION 3.23 OF THE DISCLOSURE SCHEDULE contains
[i] a true and complete list of the names and locations of all banks, trust
companies, securities brokers, and other financial institutions at which
United has an account or safe deposit box or maintains a banking,
custodial, trading, or other similar relationship and [ii] a true and
complete list and description of each such account, box, and relationship,
indicating in each case the account number and the names of the respective
officers, employees, agents, or other similar representatives of United
transacting business with respect thereto.
3.24 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Chaswil directly
with Citizens, without the intervention of any Person on behalf of Chaswil
in such manner as to give rise to any valid claim by any Person against
Citizens, Designated Subsidiary, or United for a finder's fee, brokerage
commission, or similar payment.
3.25 EMPLOYEES. United has no employees except those set forth in
SECTION 3.25 OF THE DISCLOSURE SCHEDULE. All management, data processing
and administrative services required to operate United's business are
provided by employees of United, except those
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set forth in SECTION 3.25 OF THE DISCLOSURE SCHEDULE. Citizens or Designated
Subsidiary shall have the right, but not the obligation, to offer employment
to any United Employee.
3.26 DISCLOSURE. The representations and warranties and statements of
fact made by Chaswil in this Agreement and in certificates and other
written statements or agreements delivered or to be delivered pursuant to
this Agreement are accurate, correct and complete on the date of this
Agreement and will, except as contemplated hereby, be accurate, correct and
complete at the Closing and do not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements and information contained herein or therein
not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CITIZENS
Citizens hereby represents and warrants to Chaswil as follows:
4.1 ORGANIZATION OF CITIZENS AND DESIGNATED SUBSIDIARY. Citizens is
a corporation duly organized and validly existing under the Laws of
Kentucky and has the requisite power and authority to enter into this
Agreement and to perform its obligations under this Agreement. Citizens is
duly licensed, qualified, or admitted to do business in all jurisdictions
in which the failure to be so licensed, qualified, or admitted,
individually or in the aggregate with other such failures, has or would
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement, on the ability of Citizens to perform its
obligations under this Agreement, or on the Business or Condition of
Citizens. On the Closing Date, Designated Subsidiary will be a corporation
duly organized and validly existing under the Laws of its jurisdiction of
incorporation and will have full corporate power and authority to perform
its obligations under this Agreement.
4.2 AUTHORITY OF CITIZENS AND DESIGNATED SUBSIDIARY. The Board of
Directors of Citizens has duly and validly approved this Agreement and the
transactions contemplated hereby. The execution and delivery of this
Agreement by Citizens and the performance by Citizens of its obligations
under this Agreement have been duly and validly authorized by all necessary
action on the part of Citizens. This Agreement constitutes a valid and
binding obligation of Citizens and is enforceable against Citizens in
accordance with its terms, except to the extent that [i] enforcement may be
limited by or subject to any bankruptcy, insolvency, reorganization,
moratorium, or similar Laws now or hereafter in effect relating to or
limiting creditors' rights generally and [ii] the remedy of specific
performance and injunctive and other forms of equitable relief are subject
to certain equitable defenses and to the discretion of the court or other
similar Person before which any proceeding therefor may be brought;
provided, however, that to the Knowledge of Citizens no party has any
equitable defenses that would effect the enforcement of this Agreement
against Citizens. On the Closing Date, the transactions contemplated
hereby on its part to be performed by
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Designated Subsidiary will be duly and validly authorized by all necessary
corporate action on the part of such Designated Subsidiary.
4.3 NO CONFLICTS OR VIOLATIONS. The execution and delivery of this
Agreement by Citizens do not, and the performance by Citizens and
Designated Subsidiary of their respective obligations under this Agreement
will not, subject to obtaining the approvals contemplated by SECTIONS 6.1
AND 6.2 hereof:
(a) violate any term or provision of any Law or any writ, judgment,
decree, injunction, or similar order applicable to Citizens or Designated
Subsidiary;
(b) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default
under, any of the terms, conditions, or provisions of the Articles of
Incorporation or by-laws of Citizens or the Articles of Incorporation or
by-laws of Designated Subsidiary;
(c) result in the creation or imposition of any Lien upon Citizens or
Designated Subsidiary or any of their respective Assets and Properties
that individually or in the aggregate with any other Liens has or would
reasonably be expected to have a material adverse effect on the validity
or enforceability of this Agreement or on the ability of Citizens or
Designated Subsidiary to perform their respective obligations under this
Agreement;
(d) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default
under, or give to any Person any right of termination, cancellation,
acceleration, or modification in or with respect to, any Contract to which
Citizens or Designated Subsidiary is a party or by which any of their
respective Assets and Properties may be bound and as to which any such
conflicts, violations, breaches, defaults, or rights individually or in
the aggregate have or would reasonably be expected to have a material
adverse effect on the validity or enforceability of this Agreement or on
the ability of Citizens or Designated Subsidiary to perform their
respective obligations under this Agreement; or
(e) require Citizens or Designated Subsidiary to obtain any consent,
approval, or action of, or make any filing with or give any notice to, any
Person except [i] as contemplated in SECTIONS 6.1 OR 6.2 hereof, or [ii]
those that the failure to obtain, make, or give individually or in the
aggregate with other such failures has not or would not reasonably be
expected to have a material adverse effect on the validity or
enforceability of this Agreement or on the ability of Citizens or
Designated Subsidiary to perform their respective obligations under this
Agreement.
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4.4 LITIGATION. There are no actions, suits, investigations, or
proceedings pending or to the Knowledge of Citizens threatened against
Citizens, or Designated Subsidiary, and to the Knowledge of Citizens no
event, fact or circumstance has arisen or occurred that may reasonably be
expected to result in any action, suit, investigation or proceeding against
Citizens or Designated Subsidiary at law or in equity, in, before, or by
any Person, that individually or in the aggregate have or would reasonably
be expected to have a material adverse effect on the validity or
enforceability of this Agreement or on the ability of Citizens or
Designated Subsidiary to perform their respective obligations under this
Agreement.
4.5 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Citizens directly
with Chaswil, without the intervention of any Person on behalf of Citizens
in such manner as to give rise to any valid claim by any Person against
Chaswil for a finder's fee, brokerage commission, or similar payment.
4.6 DISCLOSURE. The representations and warranties and statements of
fact made by Citizens in this Agreement and in certificates and other
written statements or agreements delivered or to be delivered pursuant to
this Agreement are accurate, correct and complete on the date of this
Agreement and will, except as contemplated hereby, be accurate, correct and
complete at the Closing and do not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements and information contained herein or therein
not misleading.
ARTICLE 5
COVENANTS OF CHASWIL
Chaswil covenants and agrees with Citizens that, at all times before
the Closing, Chaswil will comply with all covenants and provisions of this
Article 5, except to the extent Citizens may otherwise consent in writing,
which consent shall not be unreasonably withheld or delayed, or to the
extent otherwise required or permitted by this Agreement.
5.1 REGULATORY APPROVALS.
(a) Except as shown in SECTION 5.1 OF THE DISCLOSURE SCHEDULE,
Chaswil does not require the approval, consent, authorization, exemption
or clearance of any Person, other than the shareholders of United and
governmental agencies, to the consummation of the transactions
contemplated in this Agreement. Chaswil will, and will cause United to,
[i] take all commercially reasonable steps necessary or desirable, and
proceed diligently and in good faith and use all commercially reasonable
efforts, to obtain, as promptly as practicable, all approvals required by
any applicable Contract of Chaswil or United to consummate the
transactions
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contemplated hereby, [ii] take all commercially reasonable steps necessary
or desirable, and proceed diligently and in good faith and use all
commercially reasonable efforts to obtain, as promptly as practicable, all
approvals, authorizations, and clearances of governmental and regulatory
authorities required to permit Chaswil or United to permit Chaswil to
consummate the transactions contemplated hereby, [iii] provide such other
information and communications to such governmental and regulatory
authorities as Citizens or such authorities may reasonably request in
conjunction with obtaining such approvals, [iv] cooperate with and provide
to Citizens such financial information as it may reasonably request with
which to prepare such pro forma financial statements as may reasonably be
required to be filed with regulatory authorities, and [v] take all
commercially reasonable steps to cooperate with Citizens and Designated
Subsidiary in obtaining, as promptly as practicable, all approvals,
authorizations, and clearances of governmental or regulatory authorities
and others required of Citizens or Designated Subsidiary to consummate the
transactions contemplated hereby, including without limitation any
required approvals of the insurance regulatory authorities in Ohio and
Kentucky.
5.2 HSR FILINGS. Chaswil will, with respect to the transactions
contemplated hereby, [i] take promptly all actions necessary to make the
filings required of Chaswil or its Affiliates under the HSR Act, [ii]
comply at the earliest practicable date with any request for additional
information received by Chaswil or its Affiliates from the Federal Trade
Commission or Antitrust Division of the Department of Justice pursuant to
the HSR Act, [iii] cooperate with Citizens in connection with Citizens's
filings under the HSR Act, and [iv] request early termination of the
applicable waiting period under the HSR Act.
5.3 INVESTIGATION BY CITIZENS. Chaswil will provide, and will cause
United to provide, Citizens, its lenders, and their respective counsel,
accountants, actuaries, and other representatives [i] with access, upon
reasonable notice and during normal business hours, to all facilities,
officers, employees, agents (except insurance agents), accountants,
actuaries, Assets and Properties, and Books and Records of United and will
furnish Citizens and such other Persons during such period with all such
information and data (including without limitation copies of Contracts,
Benefit Plans, and other Books and Records) concerning the business,
operations, and affairs of United as Citizens or any of such other Persons
reasonably may request, [ii] with notice of and full access to all meetings
(and all actions by written consent in lieu thereof) of the board of
directors and shareholders of United involving matters that are not in the
ordinary course of business and consistent with past practice of United,
except such meetings as involve only matters related to the consummation of
the transactions contemplated herein, and [iii] to the extent possible
through the use of its best efforts, with access to its actuaries,
appraisers, accountants, attorneys, creditors, debtors, vendors, and others
having professional or commercial relationships with Chaswil and United in
order to secure information and services at Citizens' expense, including in
particular such services as updated actuarial studies and appraisals .
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5.4 COOPERATION WITH CITIZENS. Chaswil will cooperate with and will
cause United to cooperate with Citizens and its representatives with
respect to their preparation and planning for the implementation of any
changes in or conversions of any system or procedures that Citizens
reasonably deems to be necessary or appropriate to the operation of United
following the Closing Date. Without limiting the generality of the
foregoing, Chaswil will cooperate with and will cause United to cooperate
with Citizens and Designated Subsidiary to obtain assignments of such
computer software and programs as Citizens or Designated Subsidiary
reasonably deems necessary to the administration of United's business
following the Closing; provided that Chaswil does not represent that any of
such assignments may be approved or obtained.
5.5 NO NEGOTIATIONS, ETC. Chaswil will not take, and will not permit
United or any other Affiliate of Chaswil (or permit any other Person acting
under appropriate and legitimate authority for or on behalf of any of them)
to take, directly or indirectly, any action, except as permitted or
required by this Agreement, [i] to seek or encourage any offer or proposal
from any Person to acquire any shares of capital stock or any other
securities of United or any interests therein or Assets and Properties
thereof or interests therein, [ii] to permit any Person to merge,
consolidate or combine, with United, [iii] to liquidate, dissolve, or
reorganize United, [iv] to transfer any Assets and Properties of United or
any interests therein, except as contemplated by the terms of this
Agreement, [v] to reach any agreement or understanding (whether or not such
agreement or understanding is absolute, revocable, contingent, or
conditional) for, or otherwise to attempt to consummate, any such
acquisition, transfer, merger, consolidation, combination, or
reorganization, or [vi] to furnish or cause to be furnished any information
with respect to United to any Person (other than Citizens or Designated
Subsidiary or as provided in SECTION 5.3) that Chaswil or United, or any
other Affiliate of Chaswil (or any Person acting for or on behalf of any of
them), knows or has reason to believe is in the process of attempting or
considering any such acquisition, transfer, merger, consolidation,
combination, liquidation, dissolution, or reorganization. If Chaswil,
United or any Affiliate of Chaswil receives from any Person (other than
Citizens or Designated Subsidiary) any offer, proposal, or informational
request that is subject to this SECTION 5.5, Chaswil will promptly advise
such Person, by written notice, of the terms of this SECTION 5.5 and will
promptly deliver a copy of such notice to Citizens.
5.6 CONDUCT OF BUSINESS. Chaswil will cause United to conduct its
business only in the ordinary course and consistent with past practice,
except as otherwise provided in this Agreement or except as may be
consented to by Citizens, which consent shall not be unreasonably withheld
or delayed. Without limiting the generality of the foregoing:
(a) Chaswil will use all commercially reasonable efforts to [i]
preserve intact United's present business organization, reputation, and
policyholder or customer relations, [ii] keep available the services of
United's present key officers, directors, employees, agents, consultants,
and other similar representatives, [iii] maintain all licenses,
qualifications, and authorizations to do business in each
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jurisdiction in which United is so licensed, qualified, or authorized,
[iv] except as otherwise permitted by this Agreement, maintain in full
force and effect all Contracts, documents, and arrangements set forth in
SECTION 3.17 OF THE DISCLOSURE SCHEDULE hereof, [v] maintain all of
United's Assets and Properties in good working order and condition,
ordinary wear and tear excepted, and [vi] continue all current marketing
and selling activities relating to its business, operations, or affairs
in accordance with its current marketing plan.
(b) Chaswil will cause the Books and Records of United to be
maintained in the usual manner and consistent with past practice and will
not permit a material change in any applicable underwriting, investment,
actuarial, financial reporting, or accounting practice or policy of United
or in any assumption underlying such a practice or policy, or in any
method of calculating any bad debt, contingency, or other reserve for
financial reporting purposes or for other accounting purposes (including
without limitation any practice, policy, assumption, or method relating to
or affecting the determination of insurance or annuities in force, premium
or investment income, Reserve Liabilities, or operating ratios with
respect to expenses, losses, or lapses).
(c) Chaswil will cause United to [i] prepare properly and file duly
and validly all reports and all Tax Returns required to be filed with any
governmental or regulatory authorities with respect to its business,
operations, or affairs, and [ii] pay in full and when due all Taxes
indicated by such Tax Returns or otherwise levied or assessed upon it or
any of its Assets and Properties, and withhold or collect and pay to the
proper taxing authorities or hold in separate bank accounts for such
payment all Taxes that it is required to so withhold or collect and pay,
based upon information provided to Chaswil, unless such Taxes are being
contested in good faith and, if appropriate, reasonable reserves therefor
have been established and reflected in its Books and Records.
(d) Except as disclosed in SECTION 3.9 OF THE DISCLOSURE SCHEDULE,
Chaswil will cause [i] all Reserve Liabilities with respect to insurance
and annuity Contracts established or reflected in the Books and Records of
United to be (A) established and reflected on a basis consistent with
those Reserve Liabilities and reserving methods followed by United in the
preparation of the December 31, 1996 Annual Statement and (B) adequate
(under generally accepted actuarial principles consistently applied) to
cover the total amount of all reasonably anticipated matured and unmatured
benefits, dividends, losses, claims, expenses, and other liabilities of
United under all insurance Contracts pursuant to which United has or will
have any liability (including without limitation any liability arising
under or as a result of any reinsurance, coinsurance, or other similar
Contract); and [ii] its legal reserve assets under all applicable
insurance Laws to be in an amount at least equal to their required Reserve
Liabilities. No warranty is made as to the ultimate adequacy of the
Reserve Liabilities to satisfy the Liabilities and obligations reserved
against.
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(e) Chaswil will use, and will cause United to use, all commercially
reasonable efforts to maintain in full force and effect until the Closing
substantially the same levels of coverage as the insurance afforded under
the Contracts listed in SECTION 3.21 OF THE DISCLOSURE SCHEDULE. Any and
all benefits under such Contracts paid or payable prior to the Closing
with respect to the business, operations, affairs, or Assets and
Properties of United shall be paid or payable to it.
(f) Chaswil will cause United to continue to comply, in all material
respects, with all Laws applicable to United's business, operations, or
affairs.
(g) From the date hereof through the Closing, Chaswil will cause
United not to realize net capital gains or losses from the sale of bonds
or other fixed maturity investments in an aggregate amount exceeding
$250,000.
5.7 FINANCIAL STATEMENTS AND REPORTS.
(a) As promptly as practicable after each calendar month ending
between the date hereof and the Closing Date, Chaswil will deliver to
Citizens true and complete copies of the following:
(i) the monthly financial statement prepared by management of
United for internal purposes;
(ii) the Quarterly Statement filed by United for each quarter
calendar then ended and presentations for United reflecting, as of the
end of each such month, information of the type required by the line
items set forth on PAGES 2, 3, 4, 5, 6, 8, 9 AND 12 AND ON SCHEDULES A
THROUGH DB OF THE DECEMBER 31, 1996 ANNUAL STATEMENT, which
presentations shall be prepared in accordance with SAP and will
present fairly, in all material respects, the admitted assets,
liabilities, and capital and surplus of United as of the date thereof
and the results of its operations and cash flows for and during the
respective periods covered thereby; and
(b) As promptly as practicable, Chaswil will deliver to Citizens true
and complete copies of such other material financial statements, reports,
or analyses as may be prepared or received by Chaswil, United, or any
other Affiliate of Chaswil and as relate to any of the business,
operations, or affairs of United including without limitation normal
internal reports that United prepares (such as those reflecting monthly
premiums, claims, and cash flow) and special reports (such as those of
financial consultants).
5.8 INVESTMENTS. Chaswil will cause United to invest its future cash
flow, any cash from matured and maturing investments, any cash proceeds
from the sale of its Assets and Properties, and any cash funds currently
held by it exclusively in cash equivalent assets or
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in short-term investments (consisting of United States government issued or
guaranteed securities, commercial paper rated A-1 or P-1, or certificates of
deposit issued by one or more of the banks or financial institutions listed in
SECTION 5.8 OF THE DISCLOSURE SCHEDULE), except [i] as otherwise required
by Law, [ii] as required to provide cash (in the ordinary course of
business and consistent with past practice) to meet its reasonably
anticipated current obligations, [iii] in accordance with the investment
policy set forth in SECTION 5.8 OF THE DISCLOSURE SCHEDULE, or [iv] as
consented to by Citizens. Chaswil will not, and will cause United not to,
take any actions other than as otherwise permitted by this Agreement or in
the ordinary course of business and consistent with past practice
(including, without limitation, normal amortization and depreciation of any
depreciable asset) designed to cause the assets of United that are
classified as nonadmitted under SAP or by the applicable insurance
regulatory authorities, to be less than their respective dollar amounts as
of December 31, 1996.
5.9 EMPLOYEE MATTERS. Except as may be required by Law or by this
Agreement or as disclosed in SECTION 5.9 OF THE DISCLOSURE SCHEDULE, or
except for such Contract representations, promises, changes, alterations,
or amendments that do not and will not result in any Liability to any of
United, Citizens, or Designated Subsidiary, or except for the actions
required by SECTION 5.10 hereof, Chaswil will refrain, and will cause
United to refrain, from, directly or indirectly, without the consent of
Citizens, which consent shall not be unreasonably withheld or delayed:
(a) making any representation or promise, oral or written, to any
United Employee that is inconsistent with the terms of any Benefit Plan in
which such Employee is eligible to participate;
(b) making any change to, or amending in any way, the Contracts,
salaries, wages, or other compensation of any United Employee whose annual
compensation exceeds $25,000 other than routine changes or amendments that
[i] are made in the ordinary course of business and consistent with past
practice, [ii] do not and will not result in increases of more than 5% in
the salary, wages, or other compensation of any such Person, and [iii] do
not and will not exceed, in the aggregate, 5% of the total salaries,
wages, and other compensation of all United Employees;
(c) adopting, entering into, amending, altering, or terminating
partially or completely, any employment, agency, consultation, or
representation Contract that is, or had it been in existence on the
effective date of this Agreement would have been, required to be disclosed
in SECTION 3.17(A) OF THE DISCLOSURE SCHEDULE;
(d) approving any general or company-wide pay increases for United
Employees; or
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(e) entering into any Contract with any United Employee that is not
terminable at will by United.
5.10 EMPLOYEES. United will cause United to refrain from hiring any
employees except in the ordinary course of business to replace existing
employees.
5.11 NO CHARTER AMENDMENTS. Chaswil will cause United to refrain from
amending its articles of incorporation or code of regulations and from
taking any action with respect to any such amendment.
5.12 NO ISSUANCE OF SECURITIES. Chaswil will cause United to refrain
from authorizing or issuing any shares of its capital stock or other equity
securities or entering into any Contract or granting any option, warrant,
or right calling for the authorization or issuance of any such shares or
other equity securities, or creating or issuing any securities directly or
indirectly convertible into or exchangeable for any such shares or other
equity securities, or issuing any options, warrants, or rights to purchase
any such convertible securities.
5.13 NO DIVIDENDS. Chaswil will cause United to refrain from
declaring, setting aside, or paying any dividend or other distribution in
respect of its capital stock and from directly or indirectly redeeming,
purchasing, or otherwise acquiring any of its capital stock or any interest
in or right to acquire any such stock.
5.14 NO DISPOSAL OF PROPERTY. Except as set forth in SECTION 5.14 OF
THE DISCLOSURE SCHEDULE and as otherwise expressly provided in this
Agreement, Chaswil will cause United to refrain from [i] disposing of any
of its Assets and Properties and from permitting any of its Assets and
Properties to be subjected to any Liens, except to the extent any such
disposition or any such Lien is made or incurred in the ordinary course of
the business and consistent with past practice, [ii] selling any material
part of its insurance products, operations, or business to any third party
(other than sales of insurance products in the ordinary course of business
consistent with past practice), [iii] entering into any contracts
obligating it to administer the insurance operations of any other Person
and [iv] entering into any Contracts permitting any other Person to
administer its insurance operations.
5.15 NO BREACH OR DEFAULT. Chaswil will cause United to refrain from
violating, breaching, or defaulting, and from taking or failing to take any
action that (with or without notice or lapse of time or both) would
constitute a material violation, breach, or default, in any way under any
term or provision of any Contract to which it is a party or by which any of
its Assets and Properties is or may be bound.
5.16 NO INDEBTEDNESS. Except in the ordinary course of business and
consistent with past practice and except for existing contractual
obligations, Chaswil will cause United to refrain from creating, incurring,
assuming, guaranteeing, or otherwise becoming liable for, and from
cancelling, paying, agreeing to cancel or pay, or otherwise providing for a
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complete or partial discharge in advance of a scheduled payment date with
respect to, any Liability, and from waiving any right to receive any direct
or indirect payment or other benefit under any Liability owing to it.
5.17 NO ACQUISITIONS. Chaswil will cause United to refrain from [i]
merging, consolidating, or otherwise combining or agreeing to merge,
consolidate, or otherwise combine with any other Person, [ii] acquiring or
agreeing to acquire blocks of business of all or substantially all the
Assets and Properties or capital stock or other equity securities of any
other Person, or [iii] otherwise acquiring or agreeing to acquire control
of any other Person.
5.18 INTERCOMPANY LIABILITIES. At least five (5) Business Days before
the Closing, Chaswil will deliver to Citizens a true and complete list and
description of all Liabilities between United and Chaswil or any other
Affiliate of United to be outstanding on the Closing Date. At or prior to
the Closing, all such liabilities shall be paid, except as otherwise
specifically provided herein. Chaswil will cause United to refrain from
entering into any Contract or engage in any transaction with Chaswil or any
other Affiliate of United. Except as otherwise specifically provided
herein or as otherwise agreed to by Citizens and Chaswil prior to the
Closing Date, on or before the Closing Date, Chaswil will terminate and
will cause its Affiliates to terminate each Contract between United and
Chaswil or any other Affiliate of United; except that Chaswil shall make
available to Citizens or Designated Subsidiary on a month-to-month and
cost-reimbursement basis the use of Chaswil's AS 400 computer and current
software used in the administration of United's business.
5.19 RESIGNATIONS OF DIRECTORS. Chaswil will cause such members of
the Board of Directors and officers of United as are designated by Citizens
in writing at least 5 days prior to the Closing Date to tender, effective
at the Closing, their resignations from such Board of Directors or from
such offices.
5.20 TAX MATTERS.
(a) Except as required by SECTION 5.24 hereof, Chaswil will refrain
and will cause United to refrain from making, filing, or entering into
(whether before or after the Closing) any election, consent, or agreement
described in SECTION 3.12(E) or SECTION 3.12(F) hereof with respect to
United or any of its Assets and Properties.
(b) Chaswil will cause United to establish a reserve in United's
balance sheet at the Closing Date, to the extent required by SAP, to
reflect the Tax effect of any adjustments (relating to income, losses or
premiums of United) by the IRS that have not been settled by the Closing
Date.
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(c) Each reserve item with respect to United set forth in the 1996
Federal income tax return will be consistently applied with respect to
United in the 1997 Federal income tax returns and short period 1998
Federal income tax returns when such returns are filed; a specific tax
reserve calculation will be made as of the Closing Date; the short period
1997 Federal income tax return will be prepared within 60 days after the
Closing Date, and such short period return will be subject to review by
the non-preparing party.
(d) United will not make an election to reattribute losses of United
as provided by Section 1.1502-20[g) of the Regulations to the Code.
5.21 BOOKS AND RECORDS. On the Closing Date, Chaswil will deliver to
Citizens or will make available to Citizens all Books and Records of United
at its offices, and, if (at any time after the Closing) Chaswil discovers
in its possession or under its control any other Books and Records of
United will forthwith deliver such Books and Records to Citizens.
5.22 NON-COMPETITION.
(a) Chaswil will refrain and will cause its present and future
Affiliates (other than United) to refrain from directly or indirectly
utilizing or attempting to utilize any information regarding the
policyholders or any of the officers, directors, employees, agents,
consultants, or other similar representatives of the Surviving Corporation
for the purposes of causing or attempting to cause [i] any policyholder to
replace or terminate any insurance Contract issued, reinsured, or
underwritten by the Surviving Corporation, in whole or in part, with
products of any other Person at any time, [ii] any reinsurer to terminate
any reinsurance, coinsurance, or other similar Contract, or sever a
relationship, with the Surviving Corporation at any time, or [iii] any
agent (including without limitation any insurance agent), consultant, or
other similar representative of the Surviving Corporation to resign or
sever a relationship with the Surviving Corporation at any time.
(b) Chaswil agrees with Citizens that for a period of two (2)
years following the Closing, neither Chaswil nor any of its present
Affiliates will, directly or indirectly, conduct or otherwise engage in
the business of offering, selling, issuing or servicing Pre-Need Burial
Life Insurance Policies in any state or other jurisdiction in which United
is licensed to underwrite Pre-Need Burial Life Insurance Policies as of
the Closing, or interfere or attempt to interfere with United (or any
Person into which United is merged or otherwise consolidated) relating,
directly or indirectly, to the conduct of the business of Pre-Need Burial
Life Insurance Policies or interfere or attempt to interfere with any
officers, employees, representatives or agents of United (or any Person
into which United is merged or otherwise consolidated) or induce or
attempt to induce them to leave the employ of United (or any Person into
which United is merged or otherwise consolidated) or violate the terms
of their Con-
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tracts or any of their employment arrangements with United (or any Person
into which United is merged or otherwise consolidated).
(c) Chaswil acknowledges that the covenants of Chaswil set forth
in this SECTION 5.22 are an essential element of this Agreement and that,
but for the agreement of Chaswil to comply with these covenants, Citizens
would not have entered into this Agreement. Chaswil acknowledges that
this SECTION 5.22 constitutes an independent covenant and shall not be
affected by performance or nonperformance of any other provision of this
Agreement by Citizens. Chaswil has independently consulted with its
counsel andafter such consultation agrees that the covenants set forth in
this SECTION 5.22 are reasonable and proper as to time, geographic scope
and business scope.
5.23 DISCLOSURE SCHEDULE. Any matter disclosed under one Section of
the Disclosure Schedule shall be considered to be disclosed under all other
applicable Sections of the Disclosure Schedule from which it is
inadvertently omitted.
5.24 NOTICE AND CURE. Chaswil will notify Citizens promptly in
writing of, and contemporaneously will provide Citizens with true and
complete copies of any and all information or documents relating to, and
will use all commercially reasonable efforts to cure before the Closing,
any event, transaction, or circumstance occurring after the date of this
Agreement that causes or will cause any covenant or agreement of Chaswil
under this Agreement to be breached, or that renders or will render untrue
any representation or warranty of Chaswil contained in this Agreement as if
the same were made on or as of the date of such event, transaction, or
circumstance. Chaswil also will use all commercially reasonable efforts to
cure, before the Closing, any violation or breach of any representation,
warranty, covenant, or agreement made by it in this Agreement, whether
occurring or arising before or after the date of this Agreement.
5.25 SUPPLEMENTS TO SCHEDULES. Chaswil shall at any time or from time
to time after the date hereof and prior to the Closing Date, supplement or
amend the Disclosure Schedule with respect to any matter arising after the
date hereof that, if existing or occurring at the date hereof, would have
been required to be set forth or described therein. No supplement or
amendment to the Disclosure Schedule shall have any effect for the purpose
of determining the satisfaction of the conditions set forth in ARTICLE 7;
PROVIDED, HOWEVER, that no matter arising after the date hereof and
disclosed in an amendment or supplement to the Disclosure Schedule pursuant
to this Section shall form the basis for a claim for indemnification by
Citizens under ARTICLE 10 hereof if the transactions contemplated hereby
are consummated and any Damages incurred or reasonably anticipated to
result from such matter are accrued as Liabilities in accordance with SAP
in calculating the Adjusted Capital and Surplus of United pursuant to
SECTION 2.3 hereof.
5.26 OTHER AGREEMENTS. At the Closing, Chaswil will enter into the
Escrow Agreement and will approve the terms of all letters of credit and
other documents
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and instruments and agreements contemplated hereby or necessary or convenient
for the consummation of the transactions contemplated, in good faith.
5.27 MAINTENANCE OF LICENSES. Chaswil will cause United to maintain
in good standing all licenses to do business in the jurisdictions listed in
SECTION 3.3 OF THE DISCLOSURE SCHEDULE.
5.28 GAAP FINANCIAL STATEMENTS. Chaswil will deliver to Citizens,
prior to the Closing audited financial statements for United prepared in
accordance with the GAAP purchase method of accounting that are required to
be filed by Citizens with the Securities and Exchange Commission.
ARTICLE 6
COVENANTS OF CITIZENS
Citizens covenants and agrees with Chaswil that, at all times before
the Closing, Citizens will comply with all covenants and provisions of this
ARTICLE 6, except to the extent Chaswil may otherwise consent in writing or
to the extent otherwise required or permitted by this Agreement.
6.1 REGULATORY APPROVALS. Citizens will, or will cause Designated
Subsidiary to, [i] take all commercially reasonable steps necessary or
desirable, and proceed diligently and in good faith and use all
commercially reasonable efforts to obtain, as promptly as practicable, all
approvals, authorizations, and clearances of governmental and regulatory
authorities required of Citizens or Designated Subsidiary to consummate the
transactions contemplated hereby, including without limitation any required
approvals of the insurance regulatory authorities in Kentucky and Ohio,
[ii] provide such other information and communications to such governmental
and regulatory authorities as Chaswil or such authorities may reasonably
request, and [iii] cooperate with Chaswil and United in obtaining, as
promptly as practicable, all approvals, authorizations, and clearances of
governmental or regulatory authorities required of Chaswil or United to
consummate the transactions contemplated hereby.
6.2 HSR FILINGS. Citizens will, with respect to the transactions
contemplated hereby, [i] take promptly all actions necessary to make the
filings required of Citizens or its Affiliates under the HSR Act, [ii]
comply at the earliest practicable date with any request for additional
information received by Citizens or its Affiliates from the Federal Trade
Commission or Antitrust Division of the Department of Justice pursuant to
the HSR Act, [iii] cooperate with Chaswil in connection with Chaswil's
filings under the HSR Act, and [iv] request early termination of the
applicable waiting period under the HSR Act.
6.3 NOTICE AND CURE. Citizens will notify Chaswil promptly in
writing of, and contemporaneously will provide Chaswil with true and
complete copies of any and all
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information or documents relating to, and will use all commercially reasonable
efforts to cure before the Closing, any event, transaction, or circumstance
occurring after the date of this Agreement that causes or will cause any
covenant or agreement of Citizens or Designated Subsidiary under this Agreement
to be breached, or that renders or will render untrue any representation or
warranty of Citizens or Designated Subsidiary contained in this Agreement as
if the same were made on or as of the date of such event, transaction, or
circumstance. Citizens also will use all commercially reasonable efforts to
cure, before the Closing, any violation or breach of any representation,
warranty, covenant, or agreement made by Citizens or Designated Subsidiary
in this Agreement, whether occurring or arising before or after the date of
this Agreement.
6.4 OTHER AGREEMENTS. At the Closing, Citizens and/or Designated
Subsidiary will enter into the Escrow Agreement and will approve the terms
of all letters of credit and other documents and instruments and agreements
contemplated hereby or necessary or convenient for the consummation of the
transactions contemplated, in good faith.
6.5 ASSIGNMENT OF AGREEMENT. Citizens shall not assign its rights
under this Agreement; provided, however, that Citizens may assign any or
all of its rights under this Agreement to Designated Subsidiary prior to
the Closing; and, if Citizens elects to do so, it will simultaneously cause
Designated Subsidiary to assume all of Citizens's liabilities and
obligations under this Agreement and execute and deliver to Chaswil an
agreement for that purpose in a form proposed by Citizens and approved by
Chaswil, whose approval shall not be unreasonably withheld or delayed.
Notwithstanding any such assignment and assumption by Citizens to
Designated Subsidiary, Citizens shall remain fully liable for all, and
shall not be relieved of any, of the duties, liabilities and obligations of
Citizens under this Agreement.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF CITIZENS
The obligations of Citizens hereunder are subject to the fulfillment,
at or before the Closing, of each of the following conditions (all or any
of which may be waived in whole or in part by Citizens).
7.1 REPRESENTATIONS AND WARRANTIES. On and as of the Closing Date,
there shall not exist any breaches of representations and warranties made
by Chaswil in this Agreement, assuming such representations and warranties
were made on and as of the Closing Date, which breaches individually or in
the aggregate have or would reasonably be expected to have a material
adverse effect on the Business and Condition of United.
7.2 PERFORMANCE. Chaswil shall have performed and complied in all
material respects with all agreements, covenants, obligations, and
conditions required by this
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Agreement to be so performed or complied with by Chaswil at or before the
Closing including, without limitation, those set forth in SECTIONS 5.1 AND 5.2.
7.3 CERTIFICATES, INSTRUMENTS AND DOCUMENTS. Chaswil shall have
delivered to Citizens:
(a) a certificate, dated the Closing Date in form reasonably
acceptable to Citizens and executed by the chief executive officer of
Chaswil, certifying with respect to Chaswil as to the fulfillment of
the conditions set forth in SECTIONS 7.1, 7.2, 7.4, 7.5, 7.6, 7.7, 7.8,
8.6, AND 8.7 hereof;
(b) a certificate, dated the Closing Date in form reasonably
acceptable to Citizens and executed by the secretary or any assistant
secretary of Chaswil, recertifying that Chaswil has duly and validly
taken all corporate action necessary to authorize its execution and
delivery of this Agreement and its performance of its obligations under
this Agreement, and that the resolutions (true and complete copies of
which shall be attached to the certificate) of the Board of Directors and
shareholders of Chaswil with respect to this Agreement and the
transactions contemplated hereby have been duly and validly adopted and
are in full force and effect;
(c) good standing or comparable certificates for Chaswil and United
from the Secretary of State of Ohio and from every jurisdiction where a
failure to be qualified or licensed would have a material adverse effect
on the Business or Condition of Chaswil or United;
(d) copies of all third party and governmental consents that Chaswil
or United is required to obtain in order for Chaswil to effect the
transactions contemplated by this Agreement;
(e) copies of the articles of incorporation of Chaswil and United
certified by the Secretary of State of Ohio;
(f) copies of the Escrow Agreement executed by the President of
Chaswil;
(g) copies of a general release on the part of Chaswil of any and all
claims, liabilities, and obligations of United to Chaswil executed by the
President of Chaswil; and
(h) such other documents as Citizens or Designated Subsidiary may
reasonably request in connection with the transactions contemplated
hereby.
7.4 HSR ACT APPROVAL. All waiting periods applicable to this
Agreement and the transactions contemplated hereby under the HSR Act shall
have expired or been waived.
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7.5 NO INJUNCTION. There shall not be in effect on the Closing Date
any writ, judgment, injunction, decree, or similar order of any court or
similar Person restraining, enjoining, or otherwise preventing consummation
of any of the transactions contemplated by this Agreement.
7.6 NO PROCEEDING OR LITIGATION. There shall not be instituted,
pending, or (to the Knowledge of Citizens or Knowledge of Chaswil)
threatened any action, suit, investigation, or other proceeding in, before,
or by any court, governmental or regulatory authority, or other Person to
restrain, enjoin, or otherwise prevent consummation of any of the
transactions contemplated by this Agreement or to recover any Damages or
obtain other relief as a result of this Agreement or any of the
transactions contemplated hereby or as a result of any Contract entered
into in connection with or as a condition precedent to the consummation
hereof, which action, suit, investigation, or other proceeding would, in
the reasonable opinion of Citizens, result in a decision, ruling, or
finding that individually or in the aggregate has or would reasonably be
expected to have a material adverse effect on the validity or
enforceability of this Agreement, on the ability of Chaswil or Citizens to
perform its obligations under this Agreement, or on the Business or
Condition of Citizens or United. There shall not be in effect on the
Closing Date any voluntary or involuntary bankruptcy, receivership,
conservatorship, or similar proceeding with respect to Chaswil or United.
7.7 CONSENTS, AUTHORIZATION, ETC.
(a) Citizens and/or Designated Subsidiary shall have received
and there shall continue to be in effect all orders, consents, permits,
authorizations, approvals, and waivers of every Person (including without
limitation any requisite action of the insurance regulatory authorities in
Kentucky and Ohio, in each case without the abrogation or diminishment of
the authority or license of United or Designated Subsidiary or the
imposition of significant restrictions upon United or Designated
Subsidiary or the transactions contemplated hereby) necessary to permit
Citizens to perform its obligations under this Agreement, for Citizens
and/or Designated Subsidiary to consummate the transactions contemplated
hereby, for United to be redomesticated in the State of Kentucky if
Citizens so elects, and for United to be merged with and into Designated
Subsidiary.
(b) Citizens and/or Designated Subsidiary shall have received
and there shall continue to be in effect assurances reasonably
satisfactory to Citizens that, in the event of a merger of United with
and into Designated Subsidiary, the obligation of the surviving entity to
pay dividends to the holders of United's [Five Star Policies] can be
limited to one percent (1%) per 1,000 of such policies of the operating
income of the surviving entity before dividends and federal income taxes
in excess of the average operating income of the surviving entity before
dividends and federal income taxes for the years 1996 and 1997 but in no
event in the
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aggregate more than $100,000 or less than $4.00 times the number of such
policies outstanding.
(c) Citizens and/or Designated Subsidiary shall have received
and there shall continue to be in effect assurances reasonably
satisfactory to Citizens that United is not subject to any material legal
or regulatory impediment to setting the rate of increase in the policy
amounts on the United's existing Pre-Need Burial Life Insurance Policies
(the "Pre-Need Blocks") in United's discretion as provided in the policy
forms for the Pre-Need Blocks.
7.8 NO ADVERSE CHANGE. Except [i] as disclosed in SECTION 3.10 OF
THE DISCLOSURE SCHEDULE or in the notes to the December 31, 1996 SAP
Statements, [ii] for changes or developments relating to the conduct of the
business of United after the date of this Agreement in conformity with the
requests of Citizens or as otherwise permitted by this Agreement, or [iii]
for changes affecting life insurance companies in general that do not have
a material adverse effect on the Business or Condition of United, since
December 31, 1996 there shall not have been, occurred, or arisen any
change, event (including without limitation any damage, destruction, or
loss whether or not covered by insurance), condition, or state of facts of
any character that individually or in the aggregate has or would reasonably
be expected to have a material adverse effect on the Business or Condition
of United.
7.9 OPINION OF COUNSEL. Chaswil shall have delivered to Citizens the
opinions, in form and substance reasonably acceptable to Citizens's
counsel, dated the Closing Date, of Messrs. Frost & Jacobs, LLP, as to
certain of the representations of Chaswil in this Agreement, substantially
similar to that in the attached hereto as EXHIBIT B.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF CHASWIL
The obligations of Chaswil hereunder are subject to the fulfillment,
at or before the Closing, of each of the following conditions (all or any
of which may be waived in whole or in part by Chaswil).
8.1 REPRESENTATIONS AND WARRANTIES. On and as of the Closing Date,
there shall not exist any breaches of representations and warranties made
by Citizens in this Agreement, assuming such representations and warranties
were made on and as of the Closing Date, which breaches individually or in
the aggregate have or would reasonably be expected to have a material
adverse effect on the Business and Condition of Citizens.
8.2 PERFORMANCE. Citizens shall have performed and complied in all
material respects with all agreements, covenants, obligations, and
conditions required by this Agreement to be so performed or complied with
by Citizens at or before the Closing.
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8.3 CERTIFICATES, INSTRUMENTS AND DOCUMENTS. Citizens shall have
delivered to Chaswil:
(a) a certificate, dated the Closing Date in form reasonably
acceptable to Chaswil and executed by the chief executive officer or the
executive vice president of Citizens certifying (with respect to Citizens
and Designated Subsidiary) as to the fulfillment of the conditions set
forth in SECTIONS 7.6, 7.7, 8.1, 8.2, 8.4, 8.5, 8.6 AND 8.7 hereof;
(b) a certificate, dated the Closing Date and executed by the
secretary or any assistant secretary of Citizens and Designated Subsidiary,
as applicable, certifying (as appropriate) that Citizens has duly and
validly taken all action necessary to authorize its execution and delivery
of this Agreement and its performance of its obligations under this
Agreement, that Designated Subsidiary has duly and validly taken all
corporate action necessary to authorize the performance of its obligations
under this Agreement, and that the resolutions (true and complete copies
of which shall be attached to the certificate) of the Board of Directors
of Citizens and the Board of Directors and shareholders of Designated
Subsidiary with respect to this Agreement and the transactions
contemplated hereby have been duly and validly adopted and are in full
force and effect.
(c) good standing or comparable certificates for Citizens and
Designated Subsidiary from the Secretary of State of Kentucky;
(d) copies of all third party and governmental consents that Citizens
and Designated Subsidiary are required to obtain in order to effect the
transactions contemplated by this Agreement;
(e) copies of Citizens' and Designated Subsidiary's articles of
incorporation certified by the Secretary of State of Kentucky;
(f) copies of the Escrow Agreement and the promissory note (and
guaranty if applicable) described in SECTION 2.5(C) executed by the
President of Citizens and/or Designated Subsidiary and the letter of
credit described in SECTION 2.5(C); and
(g) such other documents as Chaswil may reasonably request in
connection with the transactions contemplated hereby.
8.4 HSR ACT APPROVAL. All waiting periods applicable to this
Agreement and the transactions contemplated hereby under the HSR Act shall
have expired or been waived.
8.5 NO INJUNCTION. There shall not be in effect on the Closing Date
any writ, judgment, injunction, decree, or similar order of any court or
similar Person restraining,
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enjoining, or otherwise preventing consummation of any of the transactions
contemplated by this Agreement.
8.6 NO PROCEEDING OR LITIGATION. There shall not be instituted,
pending, or (to the Knowledge of Citizens or Knowledge of Chaswil)
threatened any action, suit, investigation, or other proceeding in, before,
or by any court, governmental or regulatory authority, or other Person to
restrain, enjoin, or otherwise prevent consummation of any of the
transactions contemplated by this Agreement or to recover any Damages or
obtain other relief as a result of this Agreement, or any of the
transactions contemplated hereby or as a result of any Contract entered
into in connection with or as a condition precedent to the consummation
hereof, which action, suit, investigation, or other proceeding may, in the
reasonable opinion of Chaswil, result in a decision, ruling, or finding
that individually or in the aggregate has or would reasonably be expected
to have a material adverse effect on the validity or enforceability of this
Agreement, on the ability of Citizens or Designated Subsidiary to perform
its obligations under this Agreement, or on the Business or Condition of
Citizens. There shall not be in effect on the Closing Date any voluntary
or involuntary bankruptcy, receivership, conservatorship, or similar
proceeding with respect to Citizens or Designated Subsidiary.
8.7 CONSENTS, AUTHORIZATIONS, ETC. All orders, consents, permits,
authorizations, approvals, and waivers of every Person disclosed pursuant
to SECTION 5.1 and necessary to permit Chaswil to perform its obligations
under this Agreement and to consummate the transactions contemplated hereby
shall have been obtained and shall be in full force and effect.
8.8 OPINION OF COUNSEL. Citizens shall have delivered to Chaswil the
opinions, in form and substance reasonably acceptable to Chaswil's counsel,
dated the Closing Date, of Wyatt, Tarrant & Combs confirming and opining as
to the representations set forth in SECTIONS 4.1 THROUGH 4.3 hereof and the
satisfaction of the conditions set forth in SECTIONS 7.4 THROUGH 7.7
hereof.
ARTICLE 9
SURVIVAL OF PROVISIONS; REMEDIES
9.1 SURVIVAL.
(a) The representations and warranties respectively made by Chaswil,
Citizens, and Designated Subsidiary in this Agreement and in any
certificate delivered by Chaswil, Citizens or Designated Subsidiary
pursuant to SECTION 7.3 or SECTION 8.3 hereof, respectively, will survive
the Closing, and will remain in full force and effect, until the first
anniversary of the Closing.
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(b) The covenants and agreements respectively made by Chaswil,
Citizens, or Designated Subsidiary in this Agreement, to the extent that,
by their terms, they are to be performed or complied with at or before the
Closing shall not survive the Closing.
(c) The covenants and agreements respectively made by Chaswil,
Citizens, or Designated Subsidiary in this Agreement, to the extent that,
by their terms, they are to be performed or complied with after the
Closing, including without limitation the indemnification agreements set
forth in SECTIONS 10.1, 10.2 AND 10.3 hereof and the other provisions of
ARTICLE 10 related thereto, shall survive the Closing, and shall remain in
full force and effect, until the first anniversary of the Closing.
Notwithstanding anything in this SECTION 9.1 to the contrary, if a
Claim Notice or an Indemnity Notice is given in accordance with SECTION
10.4 hereof before the expiration of the applicable time period referenced
above, then (notwithstanding such time period) the representation,
warranty, covenant, or agreement applicable to such claim shall survive
until, but only for the purposes of, resolution of such claim by final,
nonappealable judgment or by settlement.
9.2 AVAILABLE REMEDIES. Each party expressly agrees that, consistent
with its intention and agreement to be bound by the terms of this Agreement
and to consummate the transactions contemplated hereby, subject only to the
performance or satisfaction of precedent conditions or of precedent
requirements imposed upon another party hereto, the remedy of specific
performance shall be available to a non-breaching and nondefaulting party
to enforce performance of this Agreement by a breaching or defaulting
party, including, without limitation, to require the consummation of the
Closing on or as soon as practicable after the Closing Date. The rights
and remedies provided for in this Agreement are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at
law or in equity; PROVIDED, HOWEVER, the sole and exclusive remedies of any
party hereto with respect to all claims for Damages arising out of any
claimed breach or this Agreement shall be as provided in ARTICLE 10 hereof.
The rights and remedies of any party based upon, arising out of or
otherwise in respect of any breach of any representation, warranty,
covenant or agreement contained in this Agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state of
facts upon which any claim of any such breach is based may also be the
subject matter of any other representation, warranty, covenant or agreement
contained in this Agreement (or in any other agreement between the parties)
as to which there is no breach.
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ARTICLE 10
INDEMNIFICATION
10.1 TAX INDEMNIFICATION.
(a) Subject to the provisions of ARTICLE 9 hereof and this SECTION
10.1, Chaswil agrees to pay, and to indemnify Citizens and the Surviving
Corporation in respect of, and hold each of them harmless against any and
all Damages for or in respect of:
(i) Taxes actually incurred by, imposed upon, or assessed
against United as a result of or relating to any Tax period ending on
or before the Closing Date;
(ii) Taxes for any period ending after, and including, the
Closing Date as to which the liability of United arises under Treasury
Regulation Section 1.1502-6 as a result of inclusion in a consolidated
federal income tax return for a period prior to the Closing Date; and
(iii) Taxes for any period ending after, and including, the
Closing Date with respect to the business, affairs, operations and
transactions of United prior to the close of business on the Closing
Date;
Notwithstanding any other provision in this Agreement, Chaswil shall
not be required to pay or indemnify Citizens or the Surviving Corporation
in respect of, nor to hold any of them harmless against, any damages for or
in respect of Taxes incurred by, imposed upon, or assessed against Citizens
or the Surviving Corporation as a result of or relating to:
(iv) any Taxes to the extent that such Taxes or any portion
thereof is reflected as a liability in determining the Closing Date
Adjusted Capital and Surplus pursuant to SECTION 2.4 hereof;
(v) the business, affairs, operations, transactions or actions
or inactions of United that occur after the close of business on the
Closing Date; or
(vi) any actions or inactions of Citizens or any Affiliate of
Citizens at any time.
(b) Citizens will notify Chaswil promptly of the commencement of any
claim, audit, examination, or other proposed change or adjustment by any
taxing authority concerning the Tax or other Damages covered by SECTION
10.1(A) hereof ("TAX CLAIM").
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(c) Citizens will furnish Chaswil promptly with copies of all
correspondence (including without limitation notices, requests,
explanations, determinations, schedules, charts, and lists) received from
any taxing authority in connection with any Tax Claim. Chaswil will have
the right to approve in advance any correspondence sent to any taxing
authority by or on behalf of United with respect to any Tax Claim to the
extent such correspondence would affect Chaswil's obligations under
SECTION 10.1(A) hereof; PROVIDED, HOWEVER, that Chaswil will be deemed to
have approved any such correspondence to the extent notice of its
disapproval thereof is not delivered or mailed to Citizens in accordance
with ARTICLE 12 hereof with reasonable promptness, but in all events at
least 14 calendar days before the date on which payment of the Tax is due
or, if earlier, at least 14 calendar days before the date on which the
ability of United or Citizens, to defend against the Tax Claim is
irrevocably prejudiced.
(d) At its option (following reasonable notice to and consultation
with Citizens), Chaswil may, at the expense of Chaswil, contest any Tax
Claim in any legally permissible manner until such time as any payment
for Taxes or other Damages with respect to such Tax Claim is due or, upon
United's payment of such Taxes and other Damages, may sue for a refund
thereof where permitted by applicable Law. Except as provided in the last
sentence of this subsection, Chaswil will control all proceedings taken in
connection with any such contest or refund suit, and may pursue or forego
any and all administrative appeals, proceedings, hearings, and conferences
with the taxing authority in respect of such Tax Claim. United or
Citizens will take such lawful action in connection with the contest or
refund suit as Chaswil may reasonably request in the prosecution of the
contest or refund suit to a final determination, provided that [i] Chaswil
requests such action with reasonable promptness, but in all events at
least 14 calendar days before the date on which payment of the Taxes or
other Damages are due or become final, or if earlier, at least 14 calendar
days before the date on which United's ability to defend against the Tax
Claim is irrevocably prejudiced, [ii] a reasonable basis exists for such
contest or refund suit, and [iii] Chaswil acknowledges (without
reservation of rights) Chaswil's obligations under this SECTION 10.1.
Notwithstanding the foregoing provisions of this SECTION 10.1(D), if such
contest or refund suit has or would reasonably be expected to have a
material effect on the Liability of United or Citizens for taxes with
respect to any period ending after the Closing Date, then Citizens may,
at its expense, participate in any such contest or refund suit and neither
party shall compromise or settle such contest or refund suit without the
consent of the other.
10.2 BENEFIT PLAN INDEMNIFICATION. Subject to the provisions of
ARTICLE 9 hereof, Chaswil agrees to indemnify Citizens or United in respect
of, and hold each of them harmless against, any and all Damages resulting
from or relating to [i] any failure occurring before the Closing and
involving any Benefit Plan by United or any ERISA Affiliate of United at
any time or any Benefit Plan fiduciary appointed by United or any
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ERISA Affiliate of United, to fund or perform its respective obligations under
any Benefit Plan or to comply with any provisions of ERISA, the Code, or
any other applicable Law in connection with the operation or administration
of any Benefit Plan, [ii] any prohibited transaction (as defined in Section
4975(c) (l) of the Code or Section 406 of ERISA), for which no exemption
applies, occurring before the Closing and involving any Benefit Plan, [iii]
any reportable event (as defined in Section 4043(b) of ERISA and
regulations promulgated by the PBGC thereunder) occurring before the
Closing and involving any Benefit Plan, or [iv] any complete or partial
termination of any Benefit Plan at or before the Closing.
10.3 OTHER INDEMNIFICATION.
(a) Subject to the provisions of ARTICLE 9 and SECTION 10.6 hereof,
Chaswil agrees to indemnify United, Citizens or Designated Subsidiary in
respect of, and hold it harmless against:
(i) any and all Damages (other than Damages that Chaswil has
paid or is unequivocally liable to pay to United, Citizens or
Designated Subsidiary pursuant to SECTION 10.1 OR 10.2 hereof)
resulting from or relating to any misrepresentation, breach of
warranty, or failure to perform any covenant or agreement on the
part of Chaswil made as a part of or contained in this Agreement,
or any certificate delivered by or for Chaswil pursuant to SECTION 7.3
hereof; and
(ii) any and all Damages resulting from or relating to any use
before the Closing of any Real Estate for the storage, treatment,
generation, transportation, manufacture, processing, handling,
production, distribution, deposit, burial, use, or disposal of any
Hazardous Substance; any Release before the Closing of any Hazardous
Substance on any Real Estate; any failure before the Closing of United
to comply with all Environmental Laws relating to any Real Estate or
the business, activities, or processing respectively conducted thereon;
any failure whether before or after the Closing to undertake and pursue
any investigative, containment, removal, clean up, and other remedial
actions ordered by a governmental entity or court of competent
jurisdiction in accordance with applicable Laws with respect to any
Release, before the Closing, of any Hazardous Substance on or from any
Real Estate; or any human exposure whether before or after the Closing
to any Hazardous Substance existing on any Real Estate at or before
the Closing.
(b) Subject to the provisions of ARTICLE 9 and SECTION 10.5 hereof,
Citizens agrees to indemnify Chaswil in respect of, and hold Chaswil
harmless against, any and all Damages resulting from or relating to any
misrepresentation, breach of warranty, or nonfulfillment of or failure to
perform any covenant or agreement on
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the part of Citizens or Designated Subsidiary made as a part of or
contained in this Agreement or any certificate delivered by or for
Citizens pursuant to SECTION 8.3 hereof.
(c) In the event Citizens or Designated Subsidiary asserts any claim
for Damages under SECTION 10.3(A)(II) hereof, then Citizens and Designated
Subsidiary shall use all commercially reasonable efforts to obtain, or
cooperate with Chaswil in obtaining, recovery of all alleged Damages under
any insurance policies under which such Damages may be recoverable
"AVAILABLE POLICIES"); PROVIDED, HOWEVER, that the provisions of this
SECTION 10.3(C) shall not limit or otherwise affect Chaswil's obligations
to indemnify Citizens or United pursuant to SECTION 10.3(A)(II), except as
provided in the immediately following sentence. If any amounts are
recovered under the Available Policies as contemplated in the preceding
sentence, then [i] to the extent the Damages recovered under the Available
Policies have been indemnified by Chaswil, the amounts recovered shall be
paid by the provider of the Available Policy (the "PROVIDER") directly to
the Escrow Bank or, if such recovery is required to be paid to Citizens,
United or another third party to whom the liability giving rise to such
Damages is owed, the Indemnified Party shall pay the Escrow Bank the
amount actually paid by the Provider under the Available Policies and
[ii to the extent the Damages received under the Available Policy have not
been indemnified by Chaswil, the amounts received shall be paid by the
Provider of the Available Policy directly to Citizens, Designated
Subsidiary or United or the third party to whom liability giving rise to
the Damages is owed, as appropriate, and the amount of Damages shall be
reduced by the amount so paid by the Provider. To the extent amounts that
are recovered (or recoverable) under Available Policies with respect to
Damages subject to a claim for indemnification under SECTION 10.3(A)(II)
hereof cannot be paid or distributed as provided above in this SECTION
10.3(C), then Citizens, Designated Subsidiary and Chaswil agree to use
their good faith best efforts to reach agreement as to the allocation of,
and take such commercially reasonable best efforts as necessary to effect,
payment in accordance with such allocation of amounts so recovered
(or recoverable).
10.4 METHOD OF ASSERTING CLAIMS. All claims for indemnification by
any Indemnified Party under SECTION 10.2 OR 10.3 hereof will be asserted
and resolved as follows:
(a) In the event any claim or demand for which an Indemnifying Party
would be liable for Damages to an Indemnified Party under SECTION 10.2 OR
10.3 hereof is asserted against or sought to be collected from such
Indemnified Party by a Person other than Chaswil, United, Citizens,
Designated Subsidiary, or any Affiliate of Chaswil or Citizens ("THIRD
PARTY CLAIM"), the Indemnified Party will deliver a Claim Notice with
reasonable promptness to the Indemnifying Party; PROVIDED, HOWEVER, that
except as set forth in SECTION 10.4(D) hereof, no Claim Notice will be
required with respect to any action, suit, investigation, or proceeding
that is in existence on the Closing Date. If the Indemnified Party fails
to provide
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the Indemnifying Party with the Claim Notice required by the preceding
sentence at least 14 calendar days before the date on which the
Indemnifying Party's ability to defend against the Third Party Claim is
irrevocably prejudiced by the Indemnified Party's failure to provide such
Claim Notice, the Indemnifying Party will not be obligated to indemnify
the Indemnified Party with respect to such portion of the Third Party
Claim as to which the Indemnifying Party's ability to defend has been
prejudiced by such failure of the Indemnified Party. The Indemnifying
Party will notify the Indemnified party with reasonable promptness after
the Indemnifying Party's receipt of a Claim Notice, but in all events
within seven (7) calendar days after receipt thereof ("NOTICE PERIOD"),
as to whether the Indemnifying Party disputes the liability of the
Indemnifying Party to the Indemnified Party hereunder with respect to such
Third Party Claim and whether the Indemnifying Party desires, at the sole
cost and expense of the Indemnifying Party, to defend the Indemnified
Party against such Third Party Claim.
(b) If the Indemnifying Party notifies the Indemnified Party within
the Notice Period or at any time thereafter that the Indemnifying Party
(without any reservation of rights) does not dispute its Liability to the
Indemnified Party and that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
ARTICLE 10, then the Indemnifying Party will have the right to defend, at
its sole cost and expense, such Third Party Claim by all appropriate
proceedings, which proceedings will be diligently prosecuted by the
Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (with the consent of the Indemnified
Party, which consent will not be unreasonably withheld or delayed). From
the date of such notice, the Indemnifying Party will have full control of
such defense and proceedings, including any compromise or settlement
thereof) PROVIDED, HOWEVER, that the Indemnified Party may, at any time
prior to its receipt of such notice from the Indemnifying Party, file any
motion, answer, or other pleadings that the Indemnified Party may deem
necessary or appropriate to protect its interests or those of the
Indemnifying Party and not irrevocably prejudicial to the Indemnifying
Party (it being understood and agreed that, except as provided in SECTION
10.4(C) hereof, if an Indemnified Party takes any such action that is
irrevocably prejudicial and conclusively causes a final adjudication that
is materially adverse to the Indemnifying Party, the Indemnifying Party
will be relieved of its obligations hereunder with respect to the portion
of such Third Party Claim prejudiced by the Indemnified Party's action);
and provided further, that if requested by the Indemnifying Party, the
Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party (except that the Indemnifying Party shall not be responsible for any
attorneys fees of the Indemnified Party unless the retention of such
attorneys is required by the Indemnifying Party), to cooperate with the
Indemnifying Party and its counsel in contesting any Third Party Claim
that the Indemnifying Party elects to contest, or, if appropriate and
related to the Third Party Claim in question, in making any counterclaim
against the Person asserting the Third Party Claim, or any cross-complaint
against any Person
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(other than the Indemnified Party or any of its Affiliates). The
Indemnified Party may participate in, but not control, any defense or
settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this SECTION 10.4(B), and except as provided in the preceding
sentence, the Indemnified Party will bear its own costs and expenses with
respect to such participation.
(c) If the Indemnifying Party fails to notify the Indemnified Party
that the Indemnifying Party (without any reservation of rights) does not
dispute its Liability to the Indemnified Party and that the Indemnifying
Party desires to defend the Indemnified Party with respect to the Third
Party Claim pursuant to this ARTICLE 10, or if the Indemnifying Party
gives such notice but fails diligently and promptly to prosecute or settle
the Third Party Claim, then the Indemnified Party will have the right to
defend, at the sole cost and expense of the Indemnifying Party, the Third
Party Claim by all appropriate proceedings, which Proceedings will be
promptly and vigorously prosecuted by the Indemnified Party to a final
conclusion or will be settled at the discretion of the Indemnified Party
(with the consent of the Indemnifying Party, which consent will not be
unreasonably withheld or delayed). The Indemnified Party will have full
control of such defense and proceedings, including any compromise or
settlement thereof; PROVIDED, HOWEVER, that if requested by the
Indemnified Party, the Indemnifying Party agrees, at the sole cost and
expense of the Indemnifying Party, to cooperate with the Indemnified party
and its counsel in contesting any Third Party Claim that the Indemnified
Party is contesting, or, if appropriate and related to the Third Party
Claim in question, in making any counterclaim against the Person asserting
the Third Party Claim, or any cross-complaint against any Person (other
than the Indemnifying Party or any of its Affiliates). Notwithstanding
the foregoing provisions of this SECTION 10.4(C), if the Indemnifying
Party has timely notified the Indemnified Party that the Indemnifying
Party disputes its Liability to the Indemnified Party and if such dispute
is resolved in favor of the Indemnifying Party by final, nonappealable
order of a court of competent jurisdiction, the Indemnifying Party will
not be required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this SECTION 10.4(C) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the
Indemnified Party will reimburse the Indemnifying Party in full for all
costs and expenses incurred by the Indemnifying Party in connection with
such litigating. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified Party
pursuant to this SECTION 10.4(C), and the Indemnifying Party will bear its
own costs and expenses with respect to such participation.
(d) In the event any Indemnified Party has a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim
being asserted against or sought to be collected from the Indemnified
Party, the Indemnified Party will notify the Indemnifying Party with
reasonable promptness of such claim by the Indemnified Party, specifying
the nature of and specific basis for such claim and the
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amount or the estimated amount of such claim (the "INDEMNITY NOTICE").
If the Indemnifying Party disputes such claim, the Indemnifying Party and
the Indemnified Party agree to proceed in good faith to attempt to
negotiate a resolution of such dispute, and if not resolved through
negotiations, either party may pursue whatever remedies it may have under
applicable law.
10.5 AFTER-TAX DAMAGES; REFUNDS. With respect to the indemnification
agreements set forth in this ARTICLE 10, Chaswil and Citizens agree that:
(a) all Damages will be adjusted downward by the tax benefit obtained
by the party to be indemnified;
(b) the amount of any refund, as adjusted by (a) above if appropriate,
will be promptly paid to the Escrow Bank, United, Citizens, or Designated
Subsidiary, as applicable, or offset against indemnification payments then
owed to the other party to this Agreement; and
(c) all Damages indemnifiable under SECTION 10.1 will be payable by
either party 30 days after the "final determination" within the meaning of
Section 1313 of the Code or the execution of Form 870 or Form 870AD.
10.6 CLAIMS LIMITATION. Notwithstanding the foregoing provisions of
this ARTICLE 10, Chaswil shall not have any liability for any Damages under
SECTION 10.3 hereof, except for Damages under SECTION 10.3(A)(II) and
Damages resulting from or relating to any misrepresentation or breach of
warranty contained in SECTION 3.4 OR 3.14 or any nonfulfillment of or
failure to perform any covenant or agreement on the part of Chaswil
contained in ARTICLE 5 of this Agreement or any certificate delivered by or
for Chaswil pursuant to SECTION 7.3 hereof, until and unless the cumulative
total of such Damages exceeds in the aggregate $50,000, it being understood
that after such Damages exceed in the aggregate $50,000, Chaswil shall be
liable to Citizens for all Damages without regard to any minimum amount,
PROVIDED, HOWEVER, that the limitations of this SECTION 10.6 shall not
apply to any Damages resulting from Chaswil's intentional, willful or
reckless misrepresentations or, breaches of covenants or agreements made as
a part of or contained in this Agreement. Notwithstanding any other
provision herein, the aggregate amount which Chaswil may be required to pay
to Citizens, Designated Subsidiary and/or United pursuant to this ARTICLE
10 shall not be payable other than by reduction to the amount payable under
the promissory note described in SECTION 2.5(C) of this Agreement and to
the amount of the Earn-Out Adjustment pursuant to SECTION 2.4 OF THIS
AGREEMENT.
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ARTICLE 11
TERMINATION
11.1 TERMINATION. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, upon notice by the
terminating party to the other party:
(a) at any time before the Closing, by mutual written agreement of
Chaswil and Citizens; or
(b) at any time by Chaswil if any of the covenants set forth in
ARTICLE 6 shall have been breached or any of the conditions set forth in
ARTICLE 8 hereof shall not have been satisfied, performed, or complied
with, in any material respect, at or before the Closing Date and such
breach, non-satisfaction, nonperformance, or non-compliance has not been
cured or eliminated within 30 calendar days after notice thereof has been
given to Citizens, provided that at the time of such termination Chaswil
has neither breached any of the covenants set forth in ARTICLE 5 nor
failed to satisfy, perform, or comply with any of the conditions set forth
in ARTICLE 7 hereof, in any material respect;
(c) at any time by Citizens if any of the covenants set forth in
ARTICLE 5 shall have been breached or any of the conditions set forth in
ARTICLE 7 hereof shall not have been satisfied, performed, or complied
with, in any material respect, before the Closing Date and such breach,
non-satisfaction, non-performance, or non-compliance has not been cured or
eliminated within 30 calendar days after notice thereof has been given to
Chaswil, provided that at the time of such termination Citizens has neither
breached any of the covenants set forth in ARTICLE 6 nor failed to satisfy,
perform, or comply with any of the conditions set forth in ARTICLE 8
hereof, in any material respect;
(d) by Citizens if the Disclosure Schedule discloses any event, trend,
condition, Contract, Liability, action, suit, proceeding, claim,
circumstance or fact or other matter of any character that is not
acceptable to Citizens, in its sole discretion, and Citizens gives notice
thereof to Chaswil within 15 Business Days after receipt by Citizens of
the Disclosure Schedule, and such non-acceptable, event, trend, condition
contract, Liability, action, suit, proceeding, claim, circumstance or fact
or matter has not been cured or eliminated to Citizens's satisfaction in
its sole discretion within 15 Business Days after notice thereof has been
given to Chaswil;
(e) at any time after December 31, 1997, by Chaswil or Citizens, if
the transactions contemplated by this Agreement have not been consummated
on or before such date and such failure to consummate is not caused by a
breach of this Agreement (or any representation, warranty, covenant, or
agreement included herein) by the party electing to terminate pursuant to
this clause (e); provided,
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however, that either party may by notice to the other extend such date
to May 31, 1998, if the only conditions to Closing not satisfied as of
December 31, 1997 are those set forth in SECTION 7.4, 7.7, 8.4 OR 8.7
hereof;
(f) by Citizens, at any time not later than sixty (60) days after the
date of this Agreement, if it determines that the Purchase Price is
excessive in relation to its evaluation of the value of United, based upon
Citizens' investigation pursuant to the provisions of this Agreement; or
(g) by either Chaswil or Citizens, at any time prior to the Closing,
if [i] the Pre-Closing Statement would result in a Pre-Closing Balance
Sheet Adjustment, [ii] either Chaswil or Citizens objects to the amount
thereof, and [iii] Chaswil and Citizens are unable to agree either to
dispense with a Pre-Closing Balance Sheet Adjustment or to accept another
amount thereof.
11.2 EFFECT OF TERMINATION. If this Agreement is validly terminated
pursuant to SECTION 11.1 hereof, this Agreement will forthwith become null
and void, and there will be no Liability on the part of Chaswil or Citizens
(or any of their respective officers, directors, employees, agents,
consultants, or other representatives), except that [i] the provisions
relating to confidentiality in SECTION 13.5 hereof will continue to apply
following any such termination and [ii] any such termination shall be
without prejudice to any claim that either party may have against the other
for breach of this Agreement (or any representation, warranty, covenant, or
agreement included herein). All reasonable out-of-pocket expenses incurred
in connection with this Agreement and the transactions contemplated hereby
by a nonbreaching party who terminates this Agreement pursuant to SECTION
11.1(B), (C), (D), OR (E) hereof will be reimbursed promptly by the
breaching party.
ARTICLE 12
NOTICES
12.1 NOTICES. All notices and other communications under this
Agreement must be in writing and will be deemed to have been duly given if
delivered, telecopied, delivered by Federal Express or other nationally-
recognized overnight delivery service or mailed, by certified mail, return
receipt requested, first class postage prepaid, to the parties at the
following addresses:
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If to Chaswil, to:
Chaswil United Corp.
c/o United Liberty Life Insurance Company
Suite 400
120 West Fifth Street
Cincinnati, Ohio 45202
Attn: President
Telephone: (513)333-0600
Telecopy: (513) 333-0653
with a copy to:
Lawrence H. Kyte, Jr., Esq.
Frost & Jacobs
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45201-5715
Telephone: (513) 651-6800
Telecopy: (513) 651-6981
If to Citizens, to:
Citizens Financial Corporation
The Marketplace, Suite 300
12910 Shelbyville Road
Louisville, Kentucky 40243
Attn: Mr. Lane A. Hersman
Executive Vice President
Telephone: (502) 244-2420
Telecopy: (502) 244-2439
with a copy to:
H. Alexander Campbell, Esq.
Wyatt, Tarrant & Combs
Citizens Plaza
500 West Jefferson Street
Louisville, Kentucky 40202
Telephone: (502) 562-7207
Telecopy: (502) 589-0309
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All notices and other communications required or permitted under this
Agreement that are addressed as provided in this ARTICLE 12 will, if
delivered personally, be deemed given upon delivery, will, if delivered by
telecopy, be deemed delivered when confirmed, will, if delivered by Federal
Express or other nationally-recognized overnight delivery service, be
deemed given on the next Business Day after shipment, and will, if
delivered by mail in the manner described above, be deemed given on the
third Business Day after the day it is deposited in a regular depository of
the United States mail. Any party from time to time may change its address
for the purpose of notices to that party by giving a similar notice
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.
ARTICLE 13
MISCELLANEOUS
13.1 ENTIRE AGREEMENT. Except for documents executed by Chaswil and
Citizens pursuant hereto, this Agreement supersedes all prior discussions
and agreements between the parties with respect to the subject matter of
this Agreement, and this Agreement (including the exhibits hereto, the
Disclosure Schedule, and other Contracts and documents delivered in
connection herewith) contains the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
13.2 EFFECT OF DUE DILIGENCE. No investigation by Citizens or Chaswil
into the business, operations and condition of the other shall diminish in
any way the effect of any representations or warranties made by either
party in this Agreement or shall relieve such party of any of its
obligations under this Agreement.
13.3 EXPENSES. Except as otherwise expressly provided in this
Agreement (including without limitation as provided in ARTICLE 10 and
SECTION 11.2 hereof), each of Chaswil and Citizens will pay its own costs
and expenses in connection with this Agreement and the transactions
contemplated hereby.
13.4 PUBLIC ANNOUNCEMENTS. At all times at or before the Closing,
Chaswil and Citizens will each 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 agree on the text of a joint public report, statement, or
release or will use good faith efforts to obtain the other party's approval
of the text of any public report, statement, or release to be made solely
on behalf of a party. If Chaswil and Citizens are unable to agree on or
approve any such public report, statement, or release and such report,
statement, or release is, in the opinion of legal counsel to a party,
required by Law or may be appropriate in order to discharge such party's
disclosure obligations, then such party may make or issue the legally
required report, statement, or release. Any such report, statement, or
release approved or permitted
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to be made pursuant to this SECTION 13.4 may be disclosed or otherwise
provided by Chaswil or Citizens to any Person, including without limitation
to any employee or customer of either party hereto and to any governmental
or regulatory authority.
13.5 CONFIDENTIALITY. Chaswil and Citizens will hold, and will cause
their respective Affiliates and their respective officers, directors,
employees, agents, consultants, and other representatives to hold, in
strict confidence, unless compelled to disclose by judicial or
administrative process (including without limitation in connection with
obtaining the necessary approval of insurance regulatory authorities) or by
other requirements of Law, all confidential documents and confidential or
proprietary information concerning the other party furnished to it by the
other party or such other party's officers, directors, employees, agents,
consultants, or representatives in connection with this Agreement or the
transactions contemplated hereby, except to the extent that such documents
or information can be shown to have been [i] previously lawfully known by
the party receiving such documents or information, [ii] in the public
domain through no fault of such receiving party, or [iii] later acquired by
the receiving party from other sources not themselves bound by, and in
breach of, a confidentiality agreement. Except as provided in SECTIONS
5.1, 5.2, 6.1 AND 6.2 hereof, no party hereto will disclose or otherwise
provide any such confidential or proprietary documents or information to
any other Person, except to Citizens's lenders and investors and to either
party's respective auditors, actuaries, attorneys, financial advisors, and
other consultants and advisors who need such documents or information in
connection with this Agreement, and the parties hereto agree to cause each
of the foregoing to be subject to and bound by the confidentiality
provisions hereof.
13.6 WAIVER. Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof; such waiver
must be in writing and must be executed by the Chairman of the Board,
president or executive vice president of such party. 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.
13.7 AMENDMENT. This Agreement may be modified or amended only by a
writing duly executed by or on behalf of all parties hereto.
13.8 COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which will be deemed an original, but
all of which will constitute one and the same instrument.
13.9 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of the parties hereto, and
their respective successors or assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person.
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13.10 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the Laws of the State of Kentucky applicable to a
Contract executed and performable in such state; provided, however, that
any legal proceedings brought by Chaswil against Citizens or Designated
Subsidiary or their assignees pursuant to or in connection with this
Agreement shall be brought only in Jefferson County, Kentucky.
13.11 BINDING EFFECT. This Agreement is binding upon and will inure to
the benefit of the parties and their respective successors and assignees.
13.12 ASSIGNMENT LIMITED. Except as otherwise provided herein
(including without limitation as provided in SECTION 6.5 hereof), this
Agreement or any right hereunder or part hereof may not be assigned by any
party hereto without the prior written consent of the other party hereto.
13.13 HEADINGS, GENDER, ETC. The headings used in this Agreement have
been inserted for convenience and do not constitute matter to be construed
or interpreted in connection with this Agreement. Unless the context of
this Agreement otherwise requires, [i] words of any gender are deemed to
include each other gender; [ii] words using the singular or plural number
also include the plural or singular number, respectively; [iii] the terms
"hereof," "herein," "hereby," hereto," and derivative or similar words
refer to this entire Agreement; [iv] the terms "Article" or "Section" refer
to the specified Article or Section of this Agreement; and (e] all
references to "dollars" or "$" refer to currency of the United States of
America.
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13.14 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 Chaswil or Citizens under this
Agreement will not be materially and adversely affected thereby, [i] such
provision will be fully severable; [ii] this Agreement will be construed
and enforced as if such illegal, invalid, or unenforceable provision had
never comprised a part hereof; [iii] 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 [iv] 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.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of Chaswil and Citizens,
effective as of the date first written above.
CHASWIL UNITED CORP.
By_________________________________
Name: ___________________________
President
CITIZENS FINANCIAL CORPORATION
By_________________________________
Darrell R. Wells
Chairman and Chief Executive
Officer
Exhibits:
A - -Definitions
Disclosure Schedule
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EXHIBIT A
DEFINITIONS OF TERMS
"Adjusted Capital and Surplus of United" shall mean [i]United's
statutory capital and surplus as of the close of business on last day of
any measurement period computed in a manner consistent with the computation
of such amount for inclusion in PAGE 3, LINE 38, OF ITS JUNE 30, 1997
QUARTERLY REPORT, plus [ii]its AVR and statement value IMR as of the
Closing Date, computed in a manner consistent with the computation of such
amounts for inclusion on PAGE 3, LINES 11.4 AND 24.1 OF ITS JUNE 30, 1997
QUARTERLY REPORT.
"Affiliate" shall mean any Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with the Person specified but in any event includes any director or
executive officer of the specified Person.
"Affiliate Computer Rights" shall have the meaning ascribed to it in
SECTION 3.16(E) hereof.
"Agreement" shall mean this Acquisition Agreement, together with the
exhibits attached hereto, the Disclosure Schedule, and other documents to
be executed and delivered respectively by Chaswil and/or Citizens pursuant
hereto.
"Annual Statement" shall mean any annual statement of United filed
with or submitted to the insurance regulatory authority in the state in
which it is domiciled on forms prescribed or permitted by such authority.
"Arbitrator" shall have the meaning ascribed to it in SECTION 2.3(D)
hereof.
"Assets and Properties" shall mean all assets or properties of every
kind, nature, character, and description (whether real, personal, or mixed,
whether tangible or intangible, whether absolute, accrued, contingent,
fixed, or otherwise, and wherever situated) as now operated, owned, or
leased by a specified Person, including without limitation cash, cash
equivalents, securities, accounts and notes receivable, real estate,
equipment, furniture, fixtures, insurance or annuities in force, goodwill,
and going-concern value.
"Available Policies" shall have the meaning ascribed to it in SECTION
10.3(C) hereof.
"AVR" shall mean as to any Person at a particular date, the asset
valuation reserve, computed in accordance with SAP.
"Baseline Amount" shall have the meaning ascribed to it in SECTION
2.2(A) hereof.
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"Benefit Plans" shall mean all Employee Pension Benefit Plans, all
Employee Welfare Benefit Plans, all stock bonus, stock ownership, stock
option, stock purchase, stock appreciation rights, phantom stock, and other
stock plans (whether qualified or non-qualified), and all other pension,
welfare, severance, retirement, bonus, deferred compensation, incentive
compensation, insurance (whether life, accident and health or other and
whether key man, group, workers compensation, or other), profit sharing,
disability, thrift, fringe benefits (as defined in Code Section 6039D),
leave of absence, layoff, and supplemental or excess benefit plans, and all
other benefit Contracts, arrangements, or procedures having the effect of a
plan, in each case existing on or before the Closing Date under which
United is or may hereafter become obligated in any manner (including
without limitation obligations to make contributions or other payments) and
that cover some or all of United Employees; PROVIDED, HOWEVER, that such
term shall include severance benefit programs but shall not include
[i] routine employment policies and procedures developed and applied in
the ordinary course of business and consistent with past practice,
including without limitation sick leave or vacation, or [ii] directors' and
officers' liability insurance policies.
"Books and Records" shall mean all accounting, financial reporting,
Tax, business, marketing, corporate, and other files, documents,
instruments, papers, books, and records of a specified Person, including
without limitation financial statements, budgets, projections, ledgers,
journals, deeds, titles, policies, manuals, minute books, stock
certificates and books, shareholder lists, stock transfer ledgers,
Contracts, franchises, permits, agency lists, policyholder lists, supplier
lists, reports, computer files, retrieval programs, operating data or
plans, and environmental studies or plans.
"Business Day" shall mean a day other than Saturday, Sunday, or any
day on which the principal commercial banks located in Kentucky are
authorized or obligated to close under the Laws of Kentucky.
"Business or Condition" shall mean the organization, existence,
authority, capitalization, business, licenses, condition (financial or
otherwise), cash flow, management, sales force, solvency, prospects, SAP or
GAAP results of operations, insurance or annuities in force, SAP or GAAP
capital and surplus, AVR, IMR, Liabilities, or Assets and Properties of a
specified Person.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act.
"Chaswil" shall have the meaning ascribed to it in the preamble of
this Agreement.
"Chaswil Auditors" shall have the meaning ascribed to it in SECTION
2.3(A).
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"Citizens" shall have the meaning ascribed to it in the preamble of
this Agreement.
"Citizens Auditors" shall have the meaning ascribed to it in SECTION
2.3(A).
"Claim Notice" shall mean written notification of a Third Party Claim
by an Indemnified Party to an Indemnifying Party pursuant to SECTION 10.4
hereof, enclosing a copy of all papers served, if any.
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as provided in SECTION 2.6 hereof.
"Closing Adjustments" shall mean the amounts to be added to or
deducted from, as the case may be, any increase in Adjusted Capital and
Surplus at the Second Reference Date or any decrease in Adjusted Capital
and Surplus at the Second Reference Date equal to the amounts, if any, by
which the Permitted Carrying Values of assets reflected in the Closing
Statement or subsequently acquired exceed or are less than, as the case may
be, their stated values in the Pre-Closing Statement or in the case of
subsequently acquired assets their cost.
"Closing Balance Sheet Adjustment" shall mean (x) any increase or any
decrease in the Adjusted Capital and Surplus of United from (and including)
the day after the First Reference Date to (and including) the close of
business on the last day of the month preceding the Closing (the "SECOND
REFERENCE DATE," the parties hereby acknowledging that under certain
circumstances the First Reference Date and the Second Reference Date could
be the same calendar date) (y) plus or minus, as applicable, any Closing
Adjustments. Citizens represents and warrants that the balance sheet of
United as of the Second Reference Date shall be prepared, and all
determinations required for measuring changes in the Adjusted Capital and
Surplus of United as contemplated hereby and for the purposes hereof have
been and shall be, in accordance with SAP consistently applied.
"Closing Date" shall mean [i]the later of [A] the fifteenth (15th)
day if it is a Business Day or the next Business Day following the
fifteenth (15th) day if it is not, or [B] the last Business Day of the
month that includes, the date upon which the last of the orders or
approvals described in SECTIONS 5.1, 5.2, 6.1, AND 6.2 hereof has been
obtained, including without limitation the approvals under all applicable
insurance holding company Laws, or [ii] such other date as Citizens and
Chaswil may mutually agree upon in writing.
"Closing Statement" shall have the meaning ascribed to it in SECTION
2.3(A).
"Code" shall mean the Internal Revenue Code of 1986, as amended
(including without limitation any successor code), and the rules and
regulations promulgated thereunder.
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"Contract" shall mean any agreement, instrument, lease, sublease,
license, sublicense, promissory note, evidence of indebtedness, insurance
policy, annuity, or other contract or commitment (whether written or oral).
"Damages" shall mean any and all monetary damages, Liabilities, fines,
fees, penalties, interest obligations, deficiencies, losses, and expenses
(including without limitation punitive, treble, or other exemplary or extra
contractual damages, amounts paid in settlement, interest, court costs,
costs of investigation, fees and expenses of attorneys, accountants,
actuaries, and other experts, and other expenses of litigation or of any
claim, default, or assessment).
"Designated Subsidiary" shall mean any direct or indirect Subsidiary
owned and designated as such by Citizens, in a writing delivered to Chaswil
at or before the Closing.
"Disclosure Schedule" shall mean the bound record dated as of the date
of this Agreement, as amended, supplemented and revised in accordance with
this Agreement, furnished by Chaswil to Citizens, and containing all lists,
descriptions, exceptions, and other information and materials as are
required to be included therein pursuant to this Agreement.
"Earn-Out Adjustment" shall have the meaning ascribed to it in SECTION
2.4.
"Employee Pension Benefit Plan" shall mean each employee pension
benefit plan (whether or not insured), as defined in Section 3(2) of ERISA,
which is or was in existence on or before the Closing Date and to which
United is or would hereafter become obligated in any manner.
"Employee Welfare Benefit Plan" shall mean each employee welfare
benefit plan (whether or not insured), as defined in Section 3(1) of ERISA,
which is or was in existence on or before the Closing Date and to which
United is or would hereafter become obligated in any manner.
"Environmental Laws" shall mean any Federal, state or local law,
statute, ordinance or regulation regulating, prohibiting, or otherwise
restricting the placement, discharge, release, threatened release,
generation, treatment, or disposal upon or into any environmental medium of
any substance, pollutant, or waste that is now or as of the Closing
classified or considered to be hazardous or toxic to human health or the
environment, including, without limitation, CERCLA and the Toxic Substance
Control Act, and the rules and regulations thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended (including without limitation any successor act), and the
rules and regulations promulgated thereunder.
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"ERISA Affiliate" shall mean any Person under common control (as
defined in Section 414 of the Code) with United.
"Escrow Agreement" shall have the meaning ascribed to it in SECTION
2.5(B) hereof.
"Escrow Bank" shall have the meaning ascribed to it in SECTION 2.5(B)
hereof.
"Escrow Deposit" shall have the meaning ascribed to it in SECTION
2.5(B) hereof.
"GAAP" shall mean generally accepted accounting principles,
consistently applied throughout the specified period and in the immediately
prior comparable period.
"Hazardous Substance" shall mean [i] any and all hazardous, toxic or
dangerous waste, substance, pollutant, contaminant, radiation or material
defined as such in (or deemed as such for purposes of) CERCLA, at the
Closing Date, or any other Environmental Law and [ii] any petroleum or
petroleum-based products.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"IMR" shall mean as to any Person at a particular date, the interest
maintenance reserve, computed in accordance with SAP.
"Indemnification Fund" shall have the meaning ascribed to it in
SECTION 2.5(C) hereof.
"Indemnified Party" shall mean a Person claiming indemnification under
SECTION 10.2 OR 10.3 hereof.
"Indemnifying Party" shall mean a Person against whom claims of
indemnification are being asserted under SECTION 10.2 OR 10.3 hereof.
"Indemnity Notice" shall have the meaning ascribed to it in SECTION
10.4(D) hereof.
"Intellectual Property" shall have the meaning ascribed to it in
SECTION 3.16(E) hereof.
"IRS" shall mean the United States Internal Revenue Service or any
successor agency.
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"Knowledge of Chaswil" means the actual knowledge of or knowledge that
would have been obtained in a reasonable investigation by any officer of
Chaswil.
"Knowledge of Citizens" means the actual knowledge of or knowledge
that would have been obtained in a reasonable investigation by any officer
of Citizens.
"Laws" shall mean all laws, statutes, ordinances, regulations, and
other pronouncements having the effect of law of the United States of
America, any foreign country, or any domestic or foreign state, province,
commonwealth, city, country, municipality, territory, protectorate,
possession, court, tribunal, agency, government, department, commission,
arbitrator, board, bureau, or instrumentality thereof.
"Liabilities" shall mean all debts, obligations, and other liabilities
of a Person (whether absolute, accrued, contingent, fixed, or otherwise, or
whether due or to become due) that are recognized as liabilities in
accordance with SAP.
"Lien" shall mean any mortgage, pledge, assessment, security interest,
lease, sublease, lien, adverse claim levy, charge, or other encumbrance of
any kind, or any conditional sale Contract, title retention Contract, or
other Contract to give or to refrain from giving any of the foregoing other
than Permitted Encumbrances.
"Notice Period" shall have the meaning ascribed to it in SECTION
10.4(A) hereof.
"Owned Computer Rights" shall have the meaning ascribed to it in
SECTION 3.16(E) hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under ERISA.
"Permitted Carrying Value" shall mean, with respect to any asset, the
lesser of (i) the fair market value of such asset or (ii) the maximum
amount at which such asset is eligible to be reported in SAP Statements of
United in the asset category specifically applicable to such asset (that
is, without regard to any "leeway" or "basket" category)under the laws and
regulations governing the valuation of insurance company assets under the
laws of Ohio or Kentucky, whichever may be more liberal as to such asset
category. Each of Chaswil and Citizens shall be entitled to obtain, prior
to the Closing, current independent appraisals of any or all assets of
United for purposes of ascertaining their Permitted Carrying Value and
shall provide copies of all such appraisals to the other party. In the
event the parties disagree as to the Permitted Carrying Value of any asset,
the other party may obtain a second appraisal for this purpose and shall
provide a copy of such appraisal to the other party. If the respective
appraisals of the parties differ by 10% or more of the higher of such
appraisals, the parties shall secure a third, independent appraisal. The
fair market value of an asset for purpose of determining its Permitted
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Carrying Value shall be (i) the amount shown in the appraisal if only one
appraisal is obtained, (ii) the average of the two appraisals if each party
obtains an appraisal and they differ by less than 10% of the higher
appraisal, or (iii) or the third appraisal if a third appraisal is obtained
as described above. Nothing herein shall be deemed to prevent Chaswil and
Citizens on agreeing upon a fair market value or Permitted Carrying Value
of any asset or assets.
"Permitted Encumbrances" shall mean the following encumbrances:
[i] Liens for Taxes or assessments or other governmental charges or levies,
either not yet due and payable or to the extent that nonpayment thereof is
permitted by the terms of this Agreement, except for Liens arising as the
result of Taxes being contested in good faith and for which an appropriate
reserve has been accrued on the balance sheet; [ii] pledges or deposits
securing obligations under worker's compensation, unemployment insurance,
social security or public liability laws or similar legislation;
[iii] pledges or deposits securing bids, tenders, contracts (other than
contracts for the payment of money) or leases to which United or any of its
Affiliates is a party as lessee made in the ordinary course of business;
[iv] deposits securing public or statutory obligations of United or any of
its Affiliates; [v] workers', mechanics', suppliers', carriers',
warehousemen's or other similar liens arising in the ordinary course of
business and securing indebtedness aggregating not in excess of $30,000 at
any time outstanding, not yet due and payable; [vi] deposits securing or in
lieu of surety, appeal or customs bonds in proceedings to which United or
any of its Affiliates is a party; [vii] pledges or deposits effected by
United or any of its Affiliates as a condition to obtaining or maintaining
any License of such Person; [viii] any attachment or judgment lien, unless
the judgment it secures shall not, within 60 days after the entry thereof,
have been discharged or execution thereof stayed pending appeal, or shall
not have been discharged within 60 days after the expiration of any such
stay; [ix] zoning restrictions, easements, licenses, or other restrictions
on the use of real property or other minor irregularities in title
(including leasehold title) thereof, so long as the same do not materially
impair the use, value, or marketability of such real property, leases or
leasehold estates; [x] Liens under the provisions of insurance policies and
annuities in force and reinsurance and coinsurance contracts in force;
[xi] Liens on Assets in United's investment portfolio that arise or have
been incurred in the ordinary course of United's investing activities; and
[xii] other imperfections of title or other Liens that do not have a
material adverse effect on the Business or Condition of United.
"Person" shall mean any natural person, corporation, general
partnership, limited partnership, proprietorship, trust, union,
association, court, tribunal, agency, government, department, commission,
self-regulatory organization, arbitrator, board, bureau, instrumentality,
or other entity, enterprise, authority, or business organization.
"Post-Closing Payable" shall have the meaning ascribed to it in
SECTION 2.3(C).
"Post-Closing Receivable" shall have the meaning ascribed to it in
SECTION 2.3(C).
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"Pre-Closing Adjustments" shall mean the amounts to be added to or
deducted from, as the case may be, any increase in Adjusted Capital and
Surplus at the First Reference Date or any decrease in Adjusted Capital and
Surplus at the First Reference Date equal to the amounts, if any, by which
the Permitted Carrying Values of assets reflected in June 30, 1997 SAP
Statements of United or subsequently acquired exceed or are less than, as
the case may be, their stated values in such June 30, 1997 SAP Statements
of United or in the case of subsequently acquired assets their cost. Pre-
Closing Adjustments shall include, as applicable, deductions for [i] any
amounts by which the carrying value of real estate assets exceed their
current appraised values, [ii] any amounts by which the carrying value of
mortgage loans secured by fee and leasehold interests, respectively, exceed
80% and 75%, respectively, of the current appraised values of the security,
[iii] all severance, compensated absence and other post-employment benefits
as described in SFAS 43 and 112 that would be payable to United's employees
assuming their termination in conjunction with the closing of the
transactions contemplated hereby, [iv] any recovery after June 30, 1997
through the Closing Date on those securities listed in SCHEDULE X -
UNLISTED ASSETS IN ITS DECEMBER 31, 1996 ANNUAL STATEMENT, and (v) the
carrying value on the Closing Date of the mortgage loan listed in SCHEDULE
B -PART 2 -SECTION 3 IN ITS DECEMBER 31, 1996 ANNUAL STATEMENT provided
that Citizens shall have agreed to cause United to assign the mortgage loan
to Chaswil without recourse within fifteen (15) days after the Closing.
"Pre-Closing Balance Sheet Adjustment" shall mean (x) any increase or
any decrease in the Adjusted Capital and Surplus of United from (and
including) July 1, 1997 to (and including) the last day of the month
immediately preceding the date of the Closing or, if it is not practicable
to determine the Adjusted Capital and Surplus as of such day, then to (and
including) the last day of the next preceding month (in either case, the
"FIRST REFERENCE DATE"), plus or minus, as applicable, (y) any Pre-Closing
Adjustments, in each case subject to the review procedures contemplated by
SECTION 2.3(D) hereof. Chaswil represents and warrants that the SAP
Statements of United as of June 30, 1996 have been prepared, and the
balance sheet of United as of the Reference Date shall be prepared, and all
determinations required for measuring changes in the Adjusted Capital and
Surplus of United as contemplated hereby and for the purposes hereof have
been, and shall be, in accordance with SAP consistently applied and with
the procedures and practices used in the preparation of the SAP Statements
of United for the year ended December 31, 1996.
"Pre-Closing Statement" shall have the meaning ascribed to it in
SECTION 2.3(A).
"Pre-Need Burial Life Insurance Policies" shall mean policies sold
primarily through funeral directors and shall exclude graded benefit and
simplified issue policies already sold by Citizens.
"Prime Rate" shall mean the prime or base rate of interest publicly
announced by National City Bank of Kentucky, adjusted the date of any
change, calculated on the basis
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of the number of days elapsed from the beginning date of the relevant
period to the date of payment as numerator and a 365 as denominator.
"Provider" shall have the meaning ascribed to it in SECTION 10.3(C)
hereof.
"Purchase Price" shall have the meaning ascribed to it in SECTION 2.2
hereof.
"Quarterly Statement" shall mean any quarterly statement of United
filed with or submitted to the insurance regulatory authority in the state
in which it is domiciled on forms prescribed or permitted by such
authority.
"Real Estate" means all real property and interests therein, including
without limitation leasehold interest, owned or held at any time since
December 31, 1982 by United or nominee thereof.
"Release" shall meany any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, migrating,
dumping or other disposal in any amount into or onto the air, ground or
surface water, land, or other parts of the environment, however causes, not
permitted by or in compliance with Environmental Laws.
"Reserve Liabilities" shall have the meaning ascribed to it in SECTION
3.9 hereof.
"SAP" shall mean the accounting practices required or permitted by the
National Association of Insurance Commissioners and the insurance
regulatory authority in the state in which United is domiciled,
consistently applied throughout the specified period and in the immediately
prior comparable period.
"SAP Statements" shall mean the Annual Statements, Quarterly
Statements, and other financial statements and presentations of United
prepared in accordance with SAP and delivered to Citizens pursuant to
either or both of SECTIONS 3.7 AND 5.6 hereof.
"Shares" shall have the meaning ascribed to it in the Preamble hereto.
"Subsidiary" shall mean each of those Persons, regardless of
jurisdiction of organization, of which another Person, directly or
indirectly through one or more subsidiaries, owns beneficially securities
having more than 50% of the voting power in the election of directors (or
persons fulfilling similar functions or duties) of the owned Person
(without giving effect to any contingent voting rights).
"Tax Claim" shall have the meaning ascribed to it in SECTION 10.1(B)
hereof.
"Taxes" shall mean all taxes, charges, fees, levies, or other similar
assessments or Liabilities, including without limitation income, gross
receipts, ad valorem, premium,
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excise, real property, personal property, windfall profit, sales, use,
transfer, licensing, withholding, employment, payroll, Phase III, and
franchise taxes imposed by the United States of America or any state,
local, or foreign government, or any subdivision, agency, or other
similar Person of the United States or any such government; and
such term shall include any interest, fines, penalties, assessments, or
additions to tax resulting from, attributable to, or incurred in
connection with any such tax or any contest or dispute thereof.
"Tax Claim" shall have the meaning ascribed to it in SECTION 10.1(B)
hereof.
"Tax Returns" shall mean any report, return, or other information
required to be supplied by Chaswil and of each consolidated or affiliated
group of which United has been a part to a taxing authority in connection
with Taxes.
"Third Party Claim" shall have the meaning ascribed to it in SECTION
10.4(A) hereof.
"United" shall have the meaning ascribed to it in the Recitals to this
Agreement.
"United Common Stock" shall have the meaning ascribed to it in the
Recitals to this Agreement.
"United Employee" shall mean any employee of United.
"Workpapers" shall mean all summaries, calculations, compilations and
similar written documentation derived from the accounts of United and used
or prepared by accountants in the process of computing Adjusted Capital and
Surplus.
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