UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of Earliest Event Reported): December 30, 1997
CONSUMERS FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
PENNSYLVANIA
(State or Other Jurisdiction of Incorporation)
0-2616 23-1666392
(Commission File No.) (I.R.S. Employer
Identification No.)
1200 Camp Hill By-Pass, Camp Hill, Pennsylvania 17011-3774
(Address of Principal Executive Offices) (Zip Code)
717-761-4230
(Registrant s Telephone Number, Including Area Code)
FORM 8-K CURRENT REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 30, 1997 Consumers Financial Corporation (the
Company ), a Pennsylvania corporation, and two of its wholly-owned
insurance subsidiaries entered into an Asset Purchase Agreement
(the Agreement ) with Life of the South Corporation ( LOTS ), a
Georgia corporation, pursuant to which the Company would sell to
LOTS (i) its inforce block of credit life and credit disability
insurance business (the Sale of Assets ), (ii) its credit
insurance and fee income accounts and (iii) all of the outstanding
common stock of Consumers Reinsurance Company, one of the Company s
wholly-owned subsidiaries. LOTS is an unrelated third party which
has administrative offices in Jacksonville, Florida.
The Sale of Assets, which is subject to the approval of
insurance department regulators and the Company s shareholders,
will be accomplished through various reinsurance agreements which
will be entered into between the Company s insurance subsidiaries
and American Republic Insurance Company ( American Republic ), an
Iowa corporation, which has agreed to act as LOTS financial
partner in acquiring the inforce credit insurance business. In
connection with the Sale of Assets, American Republic will assume
from the Company approximately $52.2 million in policyholder
liabilities and other related liabilities, and the Company will
transfer assets to American Republic of approximately $38.6
million, resulting in a pre-tax gain to the Company of $13.6
million. However, the Company will write off $16.8 million in
deferred policy acquisition costs and an additional $800,000 in
intangible assets related to the block of inforce business,
resulting in a total pre-tax loss from the Sale of Assets of
approximately $4 million. The assets to be transferred by the
Company will be primarily cash but will also include certain
invested assets and receivables. In order to provide the liquidity
necessary to consummate the transaction and to reduce the market
risk in its bond investments, the Company has already sold a
substantial portion of its bond portfolio (the proceeds of which
have exceeded the book value of such securities).
The terms of the Asset Purchase Agreement also provide that
on or about September 30, 2002, the Company may receive all or a
portion of the amounts which are deposited by the Company and LOTS
into a contingency fund (the Contingency Fund ). This fund will
consist of $755,000 (60% of the total fund) which will be paid by
the Company to LOTS at the time the Sale of Assets is consummated
and $503,000 (representing the remaining 40% of the fund) which
will be deposited by LOTS from amounts which it withholds from the
payments which are otherwise due to the Company from the sale of
the Company s credit insurance and fee income accounts (see below).
Depending on the level of claims incurred by LOTS on the inforce
block of credit insurance business acquired from the Company during
the five-year period ending September 30, 2002, the Contingency
Fund and the investment income thereon will be either (i) retained
in full by LOTS, (ii) shared between the Company and LOTS according
to a pre-determined formula, or (iii) transferred in full to the
Company.
The Company is also entitled to receive 50% of any excess
underwriting profits earned by LOTS on the inforce credit insurance
business if the level of incurred claims referred to above is lower
than the level which allows the Company to receive the entire
Contingency Fund.
In connection with the sale of the Company s credit
insurance and fee income accounts, the Company will receive the
selling price for those accounts over a five-year period. For the
credit insurance accounts, LOTS will pay the Company 2.25% of the
net written premium produced by those accounts during each of the
first three years following the effective date of the Agreement and
1.5% of the net written premium produced in each of the next two
years. For fee income accounts, which are principally the same
accounts as those writing credit insurance, LOTS will pay the
Company 50% of the net profits, as defined in the Agreement, from
such accounts.
In connection with the sale to LOTS of the Company s
Arizona-domiciled subsidiary, the Company will receive cash of
approximately $2.9 million, which approximates the carrying value
of the subsidiary. The proceeds received will be used to reduce
the cash otherwise due by the Company to American Republic in
connection with the Sale of Assets.
ITEM 5. OTHER MATTERS
The Company s Board of Directors has approved a Plan of
Liquidation and Dissolution (the Plan of Liquidation ) in
conjunction with the Sale of Assets. If the Plan of Liquidation is
approved by shareholders, the liquidation process is expected to
commence as soon as practicable after such approval and is expected
to be concluded in approximately five years, with a final
liquidating distribution to the Company s shareholders. The
Company is currently unable to predict the precise amount and
timing of any distributions pursuant to the Plan of Liquidation.
The actual amount, timing of, and record date for all distributions
will be determined by the Board of Directors, in its sole
discretion, and will depend in part upon (i) the Company s ability
to sell its remaining assets, (ii) the amount of fee revenues to be
received from LOTS, over a five-year period, from the sale of the
credit insurance and fee income accounts, (iii) the amount, if any,
to be received from the Contingency Fund in 2002 and (iv) expenses
incurred during the period of liquidation.
Pursuant to the Plan of Liquidation, the Board of Directors
may, at its discretion, transfer to a trust all of the Company s
assets and its liabilities after receipt of all requisite approvals
of the Plan of Liquidation (the Liquidating Trust ). In the event
of a transfer of net assets to the Liquidating Trust, the Company
would distribute, on a pro rata basis to its shareholders, with the
holders of Preferred Stock, having priority over the holders of
Common Stock, beneficial interests in the Liquidating Trust. The
Plan of Liquidation authorizes the Board of Directors to appoint
one or more individuals or entities to act as trustee or trustees
of the Liquidating Trust and to cause the Company to enter into a
liquidating trust agreement with such trustee or trustees on such
terms and conditions as may be approved by the Board of Directors
(the Liquidating Trust Agreement ). Approval of the Plan of
Liquidation by the Company s shareholders will also constitute the
a p p roval by the shareholders of such appointment and the
Liquidating Trust Agreement.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Business Acquired
Not Applicable
(b) Pro Forma Financial Information
The following unaudited pro forma consolidated financial
statements are filed with this report:
Pro Forma Consolidated Balance Sheet
at September 30, 1997 Pages F-1 & F-2
Pro Forma Consolidated Statements of Operations:
Year Ended December 31, 1996 Pages F-3 & F-4
Nine Months Ended September 30, 1997 Pages F-5 & F-6
The pro forma consolidated balance sheet included herein
presents the pro forma adjustments which would have been made to
the Company s historical consolidated balance sheet as of September
30, 1997 if the proposed Sale of Assets and the sale of the
Company s Arizona-domiciled insurance subsidiary had been effective
on that date. It reflects the assumption by American Republic,
LOTS financial partner, of all of the Company s policyholder
liabilities and related liabilities and the transfer to American
Republic of assets sufficient to cover such liabilities less the
Company s selling price for the credit insurance business. It also
reflects the write-off of certain deferred costs and intangible
assets and the accrual of severance costs to terminated employees.
The pro forma consolidated statements of operations included
herein present the pro forma adjustments which would have been made
to the Company s historical consolidated statements of operations
for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively, if the proposed Sale of Assets
and the sale of the Arizona-domiciled insurance subsidiary had been
effective on January 1, 1996. The pro forma statements reflect the
elimination of the operating results of the Automotive Resource
Division as a result of the Sale of Assets. They also reflect the
fee revenues which would have been received in those periods from
LOTS for the sale of the credit insurance and fee income accounts,
as well as certain overhead expenses allocated to the business
being sold but which would not have been eliminated as a result of
the sale.
The pro forma consolidated financial statements have been
prepared by the Company based upon assumptions which it considered
to be appropriate. The pro forma statements presented herein are
shown for illustrative purposes only and are not necessarily
indicative of either the future financial position and future
results of operations of the Company or of the financial position
and results of operations of the Company which would have actually
occurred had the Sale of Assets taken place as of the date or for
the periods presented.
The pro forma consolidated financial statements should be
read in conjunction with the Company s historical financial
statements and related notes.
(c) Exhibits
2.1 Asset Purchase Agreement, dated December 30, 1997,
e n tered into by and among Consumers Financial
C o r poration, Consumers Life Insurance Company,
Investors Fidelity Life Assurance Corp. and Life of
the South Corporation.
2.2 Plan of Liquidation and Dissolution
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CONSUMERS FINANCIAL CORPORATION
Registrant
Date January 13, 1998 By /S/ James C. Robertson
James C. Robertson,
President and
Chief Executive Officer
Date January 13, 1998 By /S/ R. Fredric Zullinger
Senior Vice President,
Chief Financial Officer
and Treasurer
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
PRO FORMA ADJUSTMENTS
Automotive
Resource
(IN THOUSANDS) Historical Division Other Pro Forma
<S> <C> <C> <C <C> <C <C>
Assets (a)
Investments:
Fixed maturities $32,459 ($30,661) $1,798
Mortgage loans on real estate 2,112 (867) 1,245
Other invested assets 1,841 (13) 1,828
Short-term investments 4,747 (4,220) 527
Total investments 41,159 (35,761) 5,398
Cash 503 503
Accrued investment income 596 (524) 72
Receivables 3,087 (2,311) 776
Reinsurance recoverable 13,761 9,553 (a) 23,314
Prepaid reinsurance premiums 10,926 39,876 (a) 50,802
Deferred policy acquisition costs 16,877 ($16,849) (b) 28
Property and equipment 2,074 2,074
Other real estate 1,012 1,012
Other assets 1,495 (20) (804) (b) 671
$91,490 $10,813 ($17,653) $84,650
Liabilities, Redeemable Preferred
Stock and Shareholders Equity
Liabilities:
Future policy benefits $21,074 (a) $21,074
Unearned premiums 51,836 (a) 51,836
Other policy claims and
benefits payable 2,482 (a) 2,482
Other liabilities 4,111 ($2,794) $401 (c) 1,718
Income taxes:
Current 21 (136) (c) 239
354 (d)
Deferred 49 (110) (d) 7
68 (e)
79,573 (2,794) 577 77,356
Redeemable preferred stock:
Series A, 8 1/2% cumulative
convertible, net of
treasury stock 4,679 4,679
Shareholders equity:
Common stock 30 30
Capital in excess of stated value 7,989 7,989
Net unrealized appreciation
of debt and equity securities 230 (217) 13
Retained earnings 460 13,824 (18,230) (3,946)
Treasury stock (1,471) (1,471)
7,238 13,607 (18,230) 2,615
$91,490 $10,813 ($17,653) $84,650
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997
(UNAUDITED)
(a) To reflect the assets and liabilities transferred pursuant
to the sale, through reinsurance, of the Company s inforce
credit insurance business and the sale of the Company s
Arizona-domiciled reinsurance subsidiary. In accordance
with the provisions of Financial Accounting Standards Board
Statement No. 113, the reinsured liabilities for future
policy benefits, unearned premiums and unpaid claims are
classified in the Pro Forma Consolidated Balance Sheet with
Reinsurance Recoverable and Prepaid Reinsurance Premiums
rather than as offsets to the respective liabilities.
(b) To reflect the write-off of deferred policy acquisition
costs and certain intangible assets related to the credit
insurance business sold to LOTS.
(c) To reflect the after-tax cost of severance pay obligations
owed to terminated employees.
(d) To reflect the additional current income tax liability
resulting from the sale transaction and the elimination of
deferred tax liabilities associated with the reversal of
temporary differences between financial statement and tax
bases of assets and liabilities transferred.
(e) To reflect the elimination of certain deferred tax assets.
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION> Pro Forma Adjustments
Automotive
Resource
(in thousands, except per share Historical Division Other Pro Forma
data)
<S> <C> <C> <C> <C> <C>
Revenues: (a)
Premiums written $30,350 ($29,997) $353
Decrease in unearned premiums 1,765 (1,701) 64
Gross premium income 32,115 (31,698) 417
Less reinsurance ceded (11,689) 11,689 0
Net premium income 20,426 (20,009) 417
Net investment income 2,087 (2,028) $9 (b) 68
Net realized investment losses (160) (160)
Fees and other income 1,325 (1,290) 452 (b) 487
23,678 (23,327) 461 812
Benefits and expenses:
Death and other benefits 11,698 (11,118) 580
Amortization of deferred policy
acquisition costs 10,134 (10,122) 12
Operating expenses 5,380 (4,492) 1,139 (c) 2,428
401 (d)
27,212 (25,732) 1,540 3,020
Income (loss) before income taxes (3,534) 2,405 (1,079) (2,208)
Income tax expense (benefit) (828) 564 154 (b) (471)
(267) (c)
(94) (d)
Income (loss) from
continuing operations (2,706) 1,841 (872) (1,737)
Discontinued operations:
Income from operations of
discontinued business
(net of income taxes) 587 587
Gain (loss) on disposal of
discontinud business
(net of income taxes) 885 ($4,358) (d) (3,473)
1,472 0 (4,358) (2,886)
Net income (loss) ($1,234) $1,841 ($5,230) ($4,623)
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION> Pro Forma Adjustments
Automotive
Resource
(IN THOUSANDS, EXCEPT PER SHARE DATA) Historical Division Other Pro Forma
<S> <C> <C> <C> <C>
Income (loss) per common and common
equivalent share:
Loss from continuing operations ($1.20) ($0.83)
Discontinued operations 0.56 (1.11)
Net loss ($0.64) ($1.94)
Weighted average number of shares
outstanding 2,614 2,614
Loss per common share -
assuming full dilution * *
* Anti-dilutive
Cash dividends declared per common share None None
</TABLE>
(a) To eliminate the after-tax operating income of the Automotive
Resource Division for the year.
(b) To reflect the after-tax effect of fee revenues to be received
from LOTS for the sale of the credit insurance and fee income
accounts.
(c) To reflect costs that would not have been eliminated as a
result of the Sale of Assets.
(d) To reflect the after-tax cost of severance payments to
terminated employees.
(e) To reflect the after tax loss from the Sale of Assets as of
January 1, 1996.
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION> Pro Forma Adjustments
Automotive
Resource
(IN THOUSANDS, EXCEPT PER SHARE Historical Division Other Pro Forma
DATA)
<S> <C> <C> <C> <C> <C>
Revenues: (a)
Premiums written $20,535 ($20,562) ($27)
Decrease in unearned premiums 2,858 (2,562) 296
Gross premium income 23,393 (23,124) 269
Less reinsurance ceded (7,771) 7,771 0
Net premium income 15,622 (15,353) 269
Net investment income 1,589 (1,443) $20 (b) 166
Net realized investment gains 224 224
Fees and other income 903 (729) 307 (b) 481
18,338 (17,525) 327 1,140
Benefits and expenses:
Death and other benefits 9,456 (9,082) 374
Amortization of deferred policy 0
acquisition costs 7,080 (7,072) 8
Operating expenses 3,711 (3,465) 745 (c) 991
20,247 (19,619) 745 1,373
Income (loss) before income taxes (1,909) 2,094 (418) (233)
Income tax expense (benefit) (828) 908 104 (b) (139)
(323) (c)
Income (loss) from
continuing operations (1,081) 1,186 (199) (94)<PAGE>
Discontinued operations:
Income from operations
of discontinued businesses
(net of income taxes)
Loss on disposal of discontinued
businesses
(net of income taxes) (125) (125)
(125) (125)
Net income (loss) ($1,206) $1,186 ($199) ($219)
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION> Pro Forma Adjustments
Automotive
Resource
(IN THOUSANDS, EXCEPT PER SHARE Historical Division Other Pro Forma
DATA)
<S> <C> <C> <C> <C>
Per share data:
Loss from continuing operations ($0.55) ($0.17)
Discontinued operations (0.05) (0.05)
Net loss ($0.60) ($0.22)
Weighted average number of
shares outstanding 2,602 2,602
Loss per common share -
assuming full dilution * *
* Anti-dilutive
Cash dividends declared
per common share None None
</TABLE>
(a) To eliminate the after-tax operating income of the Automotive
Resource Division for the nine month period.
(b) To reflect the after-tax effect of fee revenues to be received
from LOTS for the sale of the credit insurance and fee income
accounts.<PAGE>
(c) To reflect costs that would not have been eliminated as a
result of the Sale of Assets.
EXHIBIT 2.1 TO FORM 8-K FILING
ASSET PURCHASE AGREEMENT
AMONG
CONSUMERS FINANCIAL CORPORATION
CAMP HILL, PA
CONSUMERS LIFE INSURANCE COMPANY
CAMP HILL, PA
INVESTORS FIDELITY LIFE ASSURANCE CORP.
CAMP HILL, PA
AND
LIFE OF THE SOUTH CORPORATION
NASHVILLE, GA
EFFECTIVE DATE: OCTOBER 1, 1997
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE I SALE OF INFORCE BUSINESS . . . . . . . . . . . . . . . . . . 2
Section 1.1 Inforce Business Reinsured (2)
Section 1.2 Reinsurance Commission (2)
Section 1.3 Basic Asset Transfer Amount (2)
Section 1.4 Contingency Fund (3)
Section 1.5 Inforce Business Transactions between the
Effective Date and December 31, 1997 (3)
Section 1.6 Excluded Liabilities (3)
ARTICLE II NEW CREDIT BUSINESS FRANCHISE . . . . . . . . . . . . 4
Section 2.1 Sale of New Credit Business (4)
Section 2.2 Compensation for New Credit Business
Franchise (4)
Section 2.3 Method of Payment (5)
Section 2.4 New Credit Business Transactions Between the
Effective Date and December 31, 1997 (5)
Section 2.5 Reinsurance Arrangement for New
Credit Business (6)
Section 2.6 Amounts Due to or From Agents (7)
ARTICLE III FEE INCOME BUSINESS . . . . . . . . . . . . . . . . 7
Section 3.1 Sale of Fee Income Business (7)
Section 3.2 Compensation for Fee Income Business (7)
Section 3.3 Change in Corporate Name (7)
ARTICLE IV ADMINISTRATIVE SERVICES; PERSONNEL . . . . . . . . . 8
Section 4.1 Administrative Services (8)
Section 4.2 Personnel (8)
Section 4.3 Books, Accounts and Records (8)
ARTICLE V CLOSING; EFFECTIVE DATE AND TERMINATION . . . . . . . 9
Section 5.1 Closing (9)
Section 5.2 Effective Date (9)
Section 5.3 Termination (9)
Section 5.4 Effect of Termination (10)
Section 5.5 Amendment (10)
Section 5.6 Waiver (10)
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF CONSUMERS . . . . 10
Section 6.1 Organization and Good Standing of CFC (10)
Section 6.2 Organization and Good Standing of CLIC (11)
Section 6.3 Organization and Good Standing of IFLAC (11)
Section 6.4 Proper Corporate Action (11)
Section 6.5 Absence of Conflicting Laws or Agreements (11)
Section 6.6 Financial Statements (12)
Section 6.7 Litigation (13)
Section 6.8 Absence of Undisclosed Liabilities (13)
Section 6.9 Rates, Compliance with Laws (13)
Section 6.10 Taxes (13)
Section 6.11 Employment Matters (14)
Section 6.12 Full Disclosure (14)
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF LOTS . . . . . . 14
Section 7.1 Organization and Good Standing (14)
Section 7.2 Proper Corporate Action (14)
Section 7.3 Absence of Conflicting Laws or Agreements (14)
Section 7.4 Financial Statements (15)
Section 7.5 Litigation (15)
Section 7.6 Absence of Undisclosed Liabilities (15)
Section 7.7 Full Disclosure (16)
ARTICLE VIII ADDITIONAL COVENANTS AND AGREEMENTS . . . . . . 16
Section 8.1 Shareholder Approval (16)
Section 8.2 Conduct of Consumers Business (17)
Section 8.3 Expenses; Break-up Fee (18)
Section 8.4 Other Agreements (18)
Section 8.5 Public Announcements (18)
Section 8.6 Exclusive Dealing (18)
Section 8.7 Noncompete Covenant of Consumers (19)
Section 8.8 Access and Information (20)
ARTICLE IX CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . 20
Section 9.1 Conditions Precedent to LOTS' Obligation
to Close (20)
Section 9.2 Conditions Precedent to Consumers'
Obligation to Close (22)
ARTICLE X SURVIVAL AND INDEMNIFICATION . . . . . . . . . . . . 23
Section 10.1 Survival of Representations, Warranties
and Covenants (23)
Section 10.2 Indemnity by LOTS (24)
Section 10.3 Indemnity by Consumers (24)
Section 10.4 Notice to Indemnify (24)
Section 10.5 Retention of Rights (25)
ARTICLE XI ARBITRATION . . . . . . . . . . . . . . . . . . . . 25
Section 11.1 Arbitration (25)
Section 11.2 Procedure (26)
ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . 26
Section 12.1 Exhibits (26)
Section 12.2 Expenses (26)
Section 12.3 Contents of Agreement; Parties in Interest (27)
Section 12.4 Further Documents (27)
Section 12.5 Execution (27)
Section 12.6 Effect of Table of Contents; Use of
Descriptive Headings; Etc (27)
Section 12.7 Notices (27)
Section 13.8 Governing Law (28)
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") made this
day of December, 1997, by and between CONSUMERS FINANCIAL
CORPORATION, a Pennsylvania corporation having its principal place
of business located at Camp Hill, Pennsylvania, (hereinafter
referred to as "CFC"), CONSUMERS LIFE INSURANCE COMPANY, a Delaware
corporation having its principal place of business located at Camp
Hill, Pennsylvania (hereinafter referred to as "CLIC"), INVESTORS
FIDELITY LIFE ASSURANCE CORP., an Ohio corporation having its
principal place of business at Camp Hill, Pennsylvania (hereinafter
referred to as IFLAC and, collectively with CLIC and CFC or its
other affiliates as "Consumers"), and LIFE OF THE SOUTH
CORPORATION, a Georgia corporation having its principal place of
business located at Nashville, Georgia (hereinafter referred to as
LOTS ). CFC, CLIC, IFLAC and LOTS are sometimes hereinafter
together referred to as "Parties", or individually, as "Party".
WITNESSETH:
WHEREAS, CLIC and IFLAC are members of the CFC Insurance
Holding Company System with CFC owning all of the outstanding
capital stock of CLIC, and CLIC owning all of the outstanding
capital stock of IFLAC; and
WHEREAS, CFC desires to sell to LOTS and LOTS desires to
purchase from CFC the inforce credit life and credit accident and
health insurance premiums of CLIC, IFLAC and Consumers Life
Insurance Company of North Carolina ( CNC ), a former wholly-owned
subsidiary of CLIC, as identified in the Reinsurance Agreements
attached hereto as Exhibits A, B and C (hereinafter referred to as
"Inforce Business"); and
WHEREAS, CFC desires to sell and LOTS desires to purchase from
CFC the franchise for future sales of credit life and credit
accident and health insurance premiums produced by the customer
accounts of CLIC and IFLAC in exchange for payments to be paid by
LOTS over a five (5) year period on such accounts as identified on
Exhibit D to this Agreement (hereinafter referred to as "New Credit
Business"); and
WHEREAS, CLIC and LOTS desire to enter into a reinsurance
arrangement in order to provide for an orderly transfer of existing
CLIC and IFLAC accounts to LOTS or its designee; and
WHEREAS, LOTS has contracted for reinsurance for the Inforce
Business and New Credit Business with American Republic Insurance
Company (hereinafter referred to as American Republic ); and
WHEREAS, LOTS agrees to market and sell automobile extended
service contracts and other fee income business through an agency
arrangement and enter into a profit sharing arrangement with CFC
(hereinafter referred to as "Fee Income Business ); an
WHEREAS, LOTS further agrees to hire certain employees of CLIC
and IFLAC and continue using certain administrative services to be
provided by CLIC for a limited period of time; and
WHEREAS, LOTS further agrees to purchase CLIC s interest in
all of the outstanding common stock of Consumers Reinsurance
Company ( CRC ) pursuant to a Stock Purchase Agreement attached
hereto as Exhibit E.
NOW THEREFORE, in consideration of the premises and mutual
covenants, representations, warranties, conditions and agreements
set forth herein, and intending to be legally bound hereby, the
Parties hereto agree as follows:
ARTICLE I
SALE OF INFORCE BUSINESS
SECTION 1.1 INFORCE BUSINESS REINSURED
Consumers agrees to sell and LOTS agrees to acquire the
Inforce Business, through reinsurance, subject to and in accordance
with the provisions of this Agreement. On or before Closing (as
hereinafter defined), LOTS shall contract with American Republic to
allow for CLIC and IFLAC to cede to American Republic one hundred
percent (100%) of the liabilities on the Inforce Business as of the
Effective Date (as hereinafter defined) in accordance with the
terms of (i) the Indemnity Reinsurance Agreement between CLIC and
American Republic effective October 1, 1997, in substantially the
form as attached hereto as Exhibit A, and (ii) the Assumption and
Novation Reinsurance Agreement between IFLAC and American Republic
effective October 1, 1997, in substantially the form as attached
hereto as Exhibit B. On or before Closing, Consumers and LOTS shall
enter into an assignment agreement substantially in the form as
attached hereto as Exhibit C whereby Consumers shall assign to
LOTS all of its right, title and interest in the Retrocession
Agreement with Alabama Reassurance Company relating to the Inforce
Business of CNC. Exhibits A, B and C are collectively hereinafter
referred to as the Reinsurance Agreements .
SECTION 1.2 REINSURANCE COMMISSION
At Closing, LOTS shall pay or cause to be paid to CLIC and
IFLAC, as the purchase price for the Inforce Business of CLIC, CNC
and IFLAC, a reinsurance commission (the Reinsurance Commission )
. The payment of the Reinsurance Commission shall be accomplished
by deducting such Reinsurance Commission in the calculation of the
Basic Asset Transfer Amount described in Section 1.3.
SECTION 1.3 BASIC ASSET TRANSFER AMOUNT
At Closing, CLIC and IFLAC shall transfer to American Republic
cash or other assets acceptable to both American Republic and LOTS
which have a market value on the Closing Date (as hereinafter
defined) equal to the amount computed in Exhibit F attached hereto
(the Basic Asset Transfer Amount ). The Basic Asset Transfer
Amount shall be reduced by $980,714, which amount has previously
been transferred to American Republic for the Inforce Business of
CNC.
SECTION 1.4 CONTINGENCY FUND
At Closing, CLIC and IFLAC shall transfer to LOTS or its
designee cash or other assets acceptable to LOTS which have a
market value on the Closing Date (as hereinafter defined) equal to
60% of the contingency fund (the Contingency Fund ) as computed in
Exhibit F attached hereto. LOTS or its designee shall deposit such
amount into a trust account (the Trust Account ) pursuant to a
trust agreement with terms mutually acceptable to the Parties. The
remaining 40% of the Contingency Fund shall be deposited by LOTS or
its designee into the Trust Account over a three-year period which
shall begin on the Effective Date. LOTS shall deposit into the
Contingency Fund all amounts which are withheld from the New
Business Fee payments otherwise due to Consumers, and as described
in Section 2.3.
CFC, its successor or assigns, may be entitled to receive all
or a portion of the Contingency Fund, with interest thereon, as
well as additional cash payments from LOTS or its designee based
on the calculation of the claims ratio on the direct risk portion
of the Inforce Business for the five-year period beginning October
1, 1997 and ending September 30, 2002, as further described in
Exhibit F.
SECTION 1. 5 INFORCE BUSINESS TRANSACTIONS BETWEEN THE EFFECTIVE
DATE AND DECEMBER 31, 1997
With regard to transactions relating to the Inforce Business
which occur between the Effective Date and December 31, 1997 (the
Interim Period ) and in accordance with the Reinsurance
Agreements, LOTS shall pay or cause to be paid to CLIC and IFLAC
an amount equal to (i) claims paid; plus (ii) premium refunds paid
net of related commissions and premium and privilege taxes; plus
(iii) reinsurance settlement payments made by CLIC and IFLAC to any
producer-owned reinsurance companies. The amount due pursuant to
this Section shall be settled on a combined basis with the amount
computed in Section 2.4.
SECTION 1. 6 EXCLUDED LIABILITIES
Except for the obligation to pay claims and refunds arising
after the Closing, and to perform any administrative services with
respect thereto, for the Inforce Business acquired by LOTS
hereunder, LOTS shall not assume and Consumers shall remain solely
liable and responsible for all liabilities of Consumers, including
but not limited to, liabilities for bad faith, fraud, special,
consequential or punitive damages resulting from actions, inactions
or omissions of Consumers with respect to the Inforce Business; any
damages arising out of litigation which is not specifically assumed
herein by LOTS; any losses arising out of any line of business or
division of CLIC and IFLAC ; other than the Inforce Business, for
which Consumers shall only remain contingently liable in accordance
with the Reinsurance Agreements, or premium taxes allocable to
periods prior to the Effective Date, whether voluntary or
involuntary, or any assessment allocable to periods prior to the
Effective Date by any guaranty fund or association established or
governed by state or federal law (hereinafter collectively referred
to as "Excluded Liabilities").
ARTICLE II
NEW CREDIT BUSINESS FRANCHISE
SECTION 2.1 SALE OF NEW CREDIT BUSINESS
Consumers agrees to sell and LOTS agrees to acquire and use
its best efforts to convert and retain all of the New Credit
Business. Consumers agrees to use its best efforts to assist LOTS
in the timely transfer of the New Credit Business. LOTS further
agrees that it will retain, manage and develop the accounts within
the New Credit Business in a sound and responsible business manner,
and shall not apply standards of profitability or contractual
continuation more stringent than applied to its current inforce
business. LOTS reserves the right to cancel or non-renew any
account within the New Credit Business for sound business reasons,
which include, but are not limited to, profitability, breach in
financial fidelity and the location within unfavorable legal and
regulatory environments. LOTS agrees to provide Consumers with
prior written notice of its intent to cancel or non-renew any
account within the New Credit Business, along with any supporting
documentation if requested by Consumers, and Consumers will be
afforded an opportunity to object. If Consumers objects in writing
to any such cancellation or non-renewal within 10 business days
after its receipt of notice thereof from LOTS, , then authorized
representatives of LOTS and Consumers shall work together in good
faith to resolve such dispute, and if no such resolution can be
reached, then the matter shall be submitted to arbitration in
accordance with Section 11.
SECTION 2.2 COMPENSATION FOR NEW CREDIT BUSINESS FRANCHISE
LOTS agrees to purchase Consumers' franchise for New Credit
Business and shall pay to Consumers a New Business Fee based upon
Net Written Premium (as hereinafter defined) from the New Credit
Business, as follows:
First full year after Effective Date-2.25% of Net Written Premium
Second full year after Effective Date-2.25% of Net Written Premium
Third full year after Effective Date-2.25% of Net Written Premium
Fourth full year after Effective Date-1.50% of Net Written Premium
Fifth full year after Effective Date-1.50% of Net Written Premium
For the purposes of computing the New Business Fee, Net
Written Premium shall be the gross premiums processed after the
Effective Date less premium refunds on such gross premiums and
shall be limited to premiums produced by CLIC s and IFLAC s
existing accounts as of the Effective Date, which accounts are
listed on Exhibit D attached hereto and made a part hereof, and any
such additional accounts as may be added through such accounts.
SECTION 2.3 METHOD OF PAYMENT
The New Business Fee payments to Consumers shall be payable
quarterly on the 25th day of the month following each calendar
quarter, commencing with the first calendar quarter ending after
the Effective Date, unless the Closing has not occurred as of the
date the first payment is otherwise due, in which case the first
payment shall be paid at the Closing. The New Business Fee payments
otherwise due to Consumers during the three-year period following
the Effective Date shall be reduced by amounts, as specified below,
which are required to be deposited into the Contingency Fund
referred to in Section 1.4 and described in Exhibit F. The amounts
to be withheld from the New Business Fee payments and deposited
into the Contingency Fund shall be computed as follows: (i) 40% of
the remaining portion of the Contingency Fund shall be withheld
from New Business Fee payments due in the first year following the
Effective Date, (ii) 30% of such remaining portion shall be
withheld from payments due in the second year following the
Effective Date and (iii) 30% of such remaining portion shall be
withheld from payments due in the third year following the
Effective Date. The amount to be withheld for each year shall be
withheld equally from each quarterly New Business Fee payment.
If the New Business Fee calculation for any quarter is less
than the amount which is required to be withheld for that quarter,
then no New Business Fee payment shall be made to Consumers and
LOTS shall be entitled to carry over any deficiency as a deduction
against the New Business Fee payment due for the next quarter. If,
at the end of the three-year period, the New Business Fees are
insufficient or if for any other reason the entire amount required
to be withheld and deposited into the Contingency Fund has not been
withheld, then LOTS shall withhold all subsequent New Business Fee
payments otherwise due to Consumers until the required amount has
been withheld, following which time Consumers shall be entitled to
the entire New Business Fee as computed.
In the event Shareholder Approval is not received pursuant to
Section 8.1 and Consumers does not make the required fee payments
(the Administrative Fees ) under the Administrative Services
Agreement effective January 1, 1998, LOTS shall have the right,
until such Administrative Fees are paid on a current basis by
Consumers to (i) withhold such Administrative Fees from the New
Business Fee payments otherwise due Consumers, as set forth in this
Section 2.3 and (ii) reduce the payment frequency of the New
Business Fee payments from quarterly to annually.
SECTION 2.4 NEW CREDIT BUSINESS TRANSACTIONS BETWEEN THE
EFFECTIVE DATE AND DECEMBER 31, 1997
With regard to transactions relating to the New Credit
Business which occur during the Interim Period and in accordance
with the terms of the Reinsurance Agreements, CLIC and IFLAC shall
pay to LOTS or its designee an amount equal to (i) the net written
credit insurance premiums; less (ii) claims paid; less (iii)
commissions paid; less (iv) premium and privilege taxes incurred on
the net written credit insurance premiums; less (v) reinsurance
settlement payments made by CLIC and IFLAC to any producer-owned
reinsurance companies. The amount due pursuant to this Section
shall be settled on a combined basis with the amount computed in
Section 1.5.
SECTION 2.5 REINSURANCE ARRANGEMENT FOR NEW CREDIT BUSINESS
CLIC shall continue to write credit insurance on its policy or
certificate forms in the New Credit Business accounts designated by
LOTS in accordance with the terms as set forth in Section 2.1 for a
period of up to two (2) years from the Effective Date with LOTS
having the right to terminate the arrangement by giving CLIC at
least 30 days written notice of termination. Except during the
Interim Period, all premiums on the New Credit Business shall be
collected by LOTS and all commissions and claims shall be paid
directly by LOTS. Premium and privilege taxes shall continue to be
paid by CLIC and reimbursed by LOTS or its designee. All New Credit
Business produced under this arrangement shall be reinsured on a
monthly basis (except during the Interim Period when the reinsured
amounts shall be reinsured and settled at the Closing) to American
Republic under the terms of the Indemnity Reinsurance Agreement.
Except during the Interim Period, LOTS agrees to provide the
administrative and marketing services during this period in
accordance with the provisions as set forth in Article IV hereof.
CLIC shall not be entitled to receive any ceding fees or other
compensation for any credit insurance business reinsured under this
arrangement.
IFLAC shall continue to write credit insurance on its policy
or certificate forms in the New Credit Business accounts designated
by LOTS in accordance with the terms as set forth in Section 2.1
until January 16, 1998. Except during the Interim Period, all
premiums on the New Credit Business shall be collected by LOTS and
all commissions and claims shall be paid directly by LOTS. Premium
and privilege taxes shall continue to be paid by CLIC and
reimbursed by LOTS or its designee. All New Credit Business
produced under this arrangement shall be reinsured on a monthly
basis (except during the Interim Period when the reinsured amounts
shall be reinsured and settled at the Closing) to American Republic
under the terms of the Assumption and Novation Reinsurance
Agreement. Except during the Interim Period, LOTS agrees to provide
the administrative and marketing services during this period in
accordance with the provisions as set forth in Article IV hereof.
IFLAC shall not be entitled to receive any ceding fees or other
compensation for any credit insurance business reinsured under this
arrangement. Effective January 17, 1998, all New Credit Business
previously written on IFLAC s policy or certificate forms, except
for New Credit Business written in West Virginia, shall be
written on the policy or certificate forms of Classic Life
Assurance Company ( Classic ), an Ohio corporation owned by LOTS.
New Credit Business written in West Virginia shall be written on
CLIC s policy or certificate forms.
CLIC and IFLAC authorize representatives of LOTS to use their
names and stationery, forms and other related documents only for
the purposes of the marketing and sale of the New Credit Business
under this Agreement. Any other use of the CLIC and IFLAC names and
documents relating thereto, is expressly prohibited without the
prior written consent of CLIC and IFLAC.
SECTION 2.6 AMOUNTS DUE TO OR FROM AGENTS
LOTS shall be responsible for, and shall transfer to CLIC and
IFLAC on the Closing Date, the net agents balances which arise
from credit insurance business issued and processed during the
Interim Period. With respect to cash payments made by agents which
are received by CLIC and IFLAC after the Interim Period, CLIC and
IFLAC shall promptly remit such amounts to LOTS unless CLIC and
IFLAC determine that those collections relate to business issued
and processed on or before the Effective Date.
ARTICLE III
FEE INCOME BUSINESS
SECTION 3.1 SALE OF FEE INCOME BUSINESS
Consumers agrees to sell and LOTS agrees to acquire and use
its best efforts to convert and retain all of the Fee Income
Business and will manage such business on a state by state basis.
Consumers agrees to assist and use its best efforts to facilitate
the timely transfer of the Fee Income Business to LOTS.
SECTION 3.2 COMPENSATION FOR FEE INCOME BUSINESS
In exchange for Consumers assistance in facilitating the
transfer of the Fee Income Business, LOTS agrees to pay to
Consumers 50% of the Net Fee Income (as hereinafter defined)
collected on the Fee Income Business generated by all of the
accounts of Consumers as of the Effective Date (which accounts are
listed on Exhibit D attached hereto and hereby made a part hereof)
for a 60 month term beginning on the Effective Date (the Marketing
Fee ). For purposes of computing the Marketing Fee, extended
service contract business underwritten and administered by
Acceleration National Insurance Company under the product name
CostGuard shall be excluded. Payment will be made by LOTS by the
25th day following the end of each month commencing with the first
month ending after the Effective Date and continuing for a period
of 60 months. "Net Fee Income shall be defined as the fee and
commission income derived from the marketing of Fee Income
Business, less (i) sales bonuses and commissions incurred, less
(ii) the cost of products sold, and less (iii) direct
administrative expenses, as identified in the Marketing and Sales
Agreement, attached hereto as Exhibit G .
With respect to Fee Income Business produced by Consumers
during the Interim Period, Consumers shall transfer to LOTS at the
Closing the Net Fee Income less the Marketing Fee.
SECTION 3.3 CHANGE IN CORPORATE NAME
In conjunction with the sale of the Fee Income Business, at
Closing, Consumers shall cause to be transferred to LOTS the
service mark Consumers Car Care and any logos, slogans and any
other intangible property relating to such service mark and arrange
to have the necessary documents for such change of ownership filed
with the United States Patent and Trademark Office and any other
regulatory authority.
ARTICLE IV
ADMINISTRATIVE SERVICES; PERSONNEL
SECTION 4.1 ADMINISTRATIVE SERVICES
LOTS agrees to use and Consumers agrees to provide certain
administrative and support services (hereinafter referred to as
Administrative Services ) to administer the Inforce Business, the
New Credit Business and the Fee Income Business during the Interim
Period, in accordance with the terms of the Administrative Services
Agreement between the Parties attached hereto as Exhibit H,
provided that LOTS has the right to extend until January 31, 1998
the term of the Administrative Services Agreement by giving
Consumers at least 30 days prior written notice. Upon the
expiration of the Administrative Services Agreement, LOTS shall be
responsible for and provide administrative services pursuant to
an Administrative Services Agreement between the parties effective
January 1, 1998, the terms of which shall be consistent with the
Agreement to Perform Administration, a copy of which is attached
hereto as Exhibit I.
SECTION 4.2 PERSONNEL
LOTS agrees to use and Consumers agrees to provide CLIC s and
IFLAC s marketing and sales and support personnel during the
Interim Period in accordance with the terms of the Marketing and
Sales Agreement between the Parties attached hereto as Exhibit G.
As of January 1, 1998, LOTS agrees to retain the sales
management team of CLIC and IFLAC [Ralph R. Byrnes, Charles R.
McCloud and Stephen Twersky] and LOTS further agrees to retain the
remainder of the sales force of CLIC and IFLAC subject to the
recommendations of Mr. Byrnes. LOTS will bridge benefits to those
employees retained by LOTS and waive all waiting periods for LOTS
corporate benefits, including but not limited to, health insurance,
profit sharing, 401(k) plan participation, group insurance, and
other benefit programs typically offered to LOTS employees. LOTS
further agrees to credit the retained employees with their years
of service with CLIC and IFLAC as if they were employed for the
same period by LOTS.
4.3 BOOKS, ACCOUNTS AND RECORDS
All books, accounts, records, policies, forms and/or other
documents relating to the business of this Agreement shall be
subject at reasonable times to inspection by a duly authorized
representative either of Consumers or LOTS and copies thereof may
be requested and provided by one Party to the other. All of such
information shall be confidential and, except as may be required
under this Agreement or by law, shall not be disclosed to any third
party.
In addition, with respect to the credit insurance business
under this Agreement, LOTS shall provide Consumers with a periodic
accounting of all transactions consisting of data in the form
mutually agreed to by the Parties for proper entry into its books
for financial statement purposes. LOTS, with respect to the Fee
Income Business shall provide Consumers with a periodic accounting
of all transactions consisting of data in the form reasonably
required by Consumers from time to time for proper entry into its
books for financial statement purposes.
ARTICLE V
CLOSING; EFFECTIVE DATE AND TERMINATION
SECTION 5.1 CLOSING
The closing (the "Closing") shall take place at the offices of
Consumers on a mutually agreed day and time within ten (10) days
after (i) all required approvals of the transactions contemplated
hereby are received from the Arizona, Delaware and Ohio Departments
of Insurance and any other regulatory department or governmental
entity having jurisdiction over these transactions (the "Regulatory
Approvals"), and (ii) this Agreement and those transactions
contemplated herein are approved by the shareholders of CFC (the
"Shareholder Approval"). The actual date of the Closing shall be
the "Closing Date".
SECTION 5.2 EFFECTIVE DATE
Subject to receipt of the Regulatory and Shareholder
Approvals, the parties have agreed that the effective date of this
Agreement shall be October 1, 1997 (the "Effective Date").
SECTION 5.3 TERMINATION
This Agreement may be terminated at any time prior to the
Closing Date, whether before or after the approval of the
shareholders of CFC: (i) upon the mutual written consent of the
Parties, (ii) by LOTS, if there has been a material
misrepresentation or breach of a warranty, covenant or other
agreement by Consumers contained herein or if any of the conditions
precedent to LOTS' obligations hereunder shall not have been
satisfied on or before the Closing Date, (iii) by Consumers, if
there has been a material misrepresentation or breach of a
warranty, covenant or other agreement by LOTS contained herein or
if any of the conditions precedent to Consumers' obligations
hereunder shall not have been satisfied on or before the Closing
Date, or (iv) if the transactions contemplated herein are not
consummated on or before January 31, 1998, provided, however, that
this Agreement shall not terminate if the Closing has not occurred
due to a delay in receiving either the Regulatory Approvals or
Shareholder Approval which delay is beyond the control of the
Parties, in which case any of the Parties may request an extension
reasonably necessary to obtain regulatory or shareholder approval,
and which consent may not be unreasonably withheld prior to May 31,
1998 after which such consent may be withheld in the sole
discretion of any Party.
SECTION 5.4 EFFECT OF TERMINATION
Except as provided in Section 8.1(c) with respect to
Shareholder Approval and Section 8.3 with respect to expenses and
fees, in the event of the termination of this Agreement, this
Agreement shall thereafter become void and have no effect, and no
Party hereto shall have any liability to any other Party hereto or
its shareholders or directors or officers in respect thereof, and
each Party shall be responsible for its own expenses, except that
nothing herein shall relieve any Party from liability for any
willful breach of this Agreement.<PAGE>
SECTION 5.5 AMENDMENT
This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the Parties hereto; provided,
however, that after Shareholder Approval of the Sale of Assets, no
amendment may be made which decreases the consideration to which
Consumers is entitled to receive pursuant to this Agreement or
otherwise materially adversely affects the shareholders of CFC
without the further approval of the shareholders of CFC.
SECTION 5.6 WAIVER
Any time prior to the Closing Date, whether before or after
Shareholder Approval is received, any Party hereto may (a) in the
case of Consumers, extend the time for the performance of any of
the obligations or other acts of LOTS or, subject to the provisions
contained in Section 5.5, waive compliance with any of the
agreements of LOTS or with any conditions to the respective
obligations of Consumers, or (b) in the case of LOTS, extend the
time for the performance of any of the obligations or other acts of
Consumers, subject to the provisions contained in Section 5.5, or
waive compliance with any conditions to its own obligations. Any
agreement on the part of a Party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such Party by a duly authorized officer.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CONSUMERS
Consumers represents and warrants to LOTS as follows:
SECTION 6.1 ORGANIZATION AND GOOD STANDING OF CFC
CFC is a corporation duly organized and presently subsisting
under the laws of the Commonwealth of Pennsylvania. It has, or at
the Closing will have, the corporate legal capacity, power and
authority to enter into and consummate the transactions
contemplated in this Agreement and subject to receiving the
Regulatory Approvals and Shareholder Approval, such transactions
will be binding and valid obligations of CFC and will not violate
the terms of its Articles of Incorporation or By-laws. In
addition, at Closing there will be no legal impediments to CFC
proceeding with the transactions contemplated hereby. The closing
of such transactions will not cause a default or event of
termination under any material contract to which CFC is a party and
all necessary approvals have been or will be obtained prior to
Closing.
SECTION 6.2 ORGANIZATION AND GOOD STANDING OF CLIC
CLIC is a corporation duly incorporated, validly existing in
good standing under the laws of the State of Delaware, with full
corporate powers to own and operate its business and properties and
to carry on its business substantially as presently conducted by
it. Except as otherwise disclosed in this Agreement, CLIC is or
will be at Closing duly qualified, licensed and in good standing as
a domestic life insurance company in the State of Delaware and duly
qualified, licensed and in good standing as a foreign life
insurance company in the states and territories where such
qualification is required, and neither the character of the
properties owned or held nor the nature of the businesses conducted
at the date hereof requires qualification in any other state or
jurisdiction. A copy of the Articles of Incorporation and By-laws
of CLIC, as amended to date, have been provided to LOTS, and are
true, correct and in full force and effect.
SECTION 6.3 ORGANIZATION AND GOOD STANDING OF IFLAC
IFLAC is a corporation duly incorporated, validly existing in
good standing under the laws of the State of Ohio, with full
corporate powers to own and operate its business and properties and
to carry on its business substantially as presently conducted by
it. Except as otherwise disclosed in this Agreement, IFLAC is or
will be at Closing duly qualified, licensed and in good standing as
a domestic life insurance company in the State of Ohio and duly
qualified, licensed and in good standing as a foreign life
insurance company in the states and territories where such
qualification is required, and neither the character of the
properties owned or held nor the nature of the businesses conducted
at the date hereof requires qualification in any other state or
jurisdiction. A copy of the Articles of Incorporation and Code of
Regulations of IFLAC, as amended to date, have been provided to
LOTS, and are true, correct and in full force and effect.
SECTION 6.4 PROPER CORPORATE ACTION
The execution of this Agreement and the transactions
contemplated herein have been or will be before Closing duly
authorized by the Board of Directors of CFC, CLIC and IFLAC. These
transactions will be presented to the shareholders of CFC for
Shareholder Approval at a special meeting of shareholders held
prior to Closing, and CFC has delivered, or will deliver prior to
or at Closing, to LOTS true, correct and certified copies of the
resolutions of CFC's, CLIC's and IFLAC s Board of Directors and the
shareholders of CFC authorizing the transactions.
SECTION 6.5 ABSENCE OF CONFLICTING LAWS OR AGREEMENTS
Subject to receiving the Regulatory Approvals and Shareholder
Approval, the execution, delivery and performance of this Agreement
by Consumers does not, and the consummation of the transactions
contemplated in this Agreement will not, (i) contravene any
provision of the Certificate of Incorporation or Bylaws of CFC or
CLIC, or the Articles of Incorporation or Code of Regulations of
IFLAC; (ii) conflict with, result in a breach of, or constitute a
material default (or an event which would, with the passage of time
or the giving of notice or both, constitute a material default)
under, or give rise to a right to terminate, amend, modify, abandon
or accelerate, any material contract, agreement, lease, indenture,
instrument or license to which Consumers is a party or by which it
or its assets or properties may be bound or affected; (iii) to the
knowledge of Consumers, violate or conflict with any federal, state
or local law, statute, rule, regulation, order, judgment or decree;
or (iv) result in or require the creation or imposition of any
mortgage, pledge, lien, security interest, claim, charge or
encumbrance upon or with respect to the assets of Consumers.
SECTION 6.6 FINANCIAL STATEMENTS
Consumers has or will deliver to LOTS prior to Closing copies
of the following financial statements which have been prepared in
accordance with generally accepted accounting principles applied on
a basis consistent with that of the preceding years and which
present fairly the financial condition of CFC and its subsidiaries
as of said date and the results of their operations for said
period:
(i) Annual Report on Form 10-K for the year
ended December 31, 1996 filed with the
Securities and Exchange Commission (the
Commission ) which includes the Consolidated
Balance Sheet as of December 31, 1996 and
Consolidated Statement of Operations for the
year ended December 31, 1996, which have been
audited by Arthur Andersen LLP;
(ii) Quarterly Reports on Form 10-Q for the
periods ended March 31, June 30 and September
30, 1997 filed with the Commission which
include Unaudited Consolidated Balance Sheets
as of March 31, June 30 and September 30,
1997, respectively and Consolidated Statements
of Operations for the three, six and nine month
periods ended March 31, June 30 and September
30, 1997, respectively;
(iii) Any Reports on Form 8-K filed with
the Commission during the period beginning on
December 31, 1996 and ending on the Closing
Date.
Since September 30, 1997, there has been no material adverse
change in the assets being purchased hereunder from that set forth
in the September 30, 1997 financial statements described above.
SECTION 6.7 LITIGATION
There is no decree, judgment, order, action, suit,
investigation or claim or legal, administrative, arbitration or
other proceeding pending or to the knowledge of Consumers
threatened against it, at law or in equity, by or before any court
or governmental agency, department or instrumentality or
arbitration board (i) which might materially affect the financial
condition of Consumers on a consolidated basis or the conduct of
its business on a consolidated basis or (ii) which relate to the
transactions contemplated by this Agreement. Consumers is not in
default under any judgment, decree or order of any court,
arbitrator, or any governmental or administrative agency against or
affecting any of its assets or businesses.
SECTION 6.8 ABSENCE OF UNDISCLOSED LIABILITIES
Consumers does not know or has any reasonable grounds to know
of the assertion against it of any material liability of any nature
or in any amount existing as of the date of this Agreement, that
should properly have been reflected or reserved against in the
balance sheets prepared in accordance with generally accepted
accounting principles or statutory accounting principles, as may be
appropriate, which was not fully reflected or reserved against in
their balance sheets as of December 31, 1996 and September 30,
1997, including, without limitation, tax liabilities due or to
become due and whether incurred in respect of, or measured by, its
income for any period prior to such dates, or arising out of
transactions entered into, or any state of facts existing prior
thereto.
SECTION 6.9 RATES, COMPLIANCE WITH LAWS
The premium rates charged, the policy forms used, and the
commissions paid by CLIC and IFLAC on its credit insurance business
are those approved by the respective state insurance departments
under the applicable insurance laws and regulations (the "Laws and
Regulations"). The credit insurance business of CLIC and IFLAC has
been and is being conducted in compliance with all the Laws and
Regulations. Consumers has received no notice of violation of any
Law or Regulation with respect to its credit insurance business and
it is not subject to any judicial, regulatory or governmental
order, writ, judgment or decree.<PAGE>
SECTION 6.10 TAXES
Each of CLIC, IFLAC and CFC has duly and timely filed all
federal, state, municipal, local and foreign, if any, tax returns
and reports, including returns for estimated tax, with respect to
all taxes owed by each such company. All taxes imposed on Consumers
(including all deposits in connection therewith required by
applicable law, and all interest and penalties thereon) which have
become due and payable by Consumers for all periods through the
date hereof have been paid in full. There is not now any proposed
assessment against Consumers of additional taxes of any kind.
There is no dispute or action pending or threatened concerning any
tax liability of Consumers.
SECTION 6.11 EMPLOYMENT MATTERS
Consumers has provided to LOTS all contracts, agreements or
arrangements (written or oral) concerning Consumers employment of
any individual who will be employed by LOTS or its designee after
the Closing, including each such individual s title, compensation
and duties. Such information is true and correct in all material
respects. LOTS shall have no liability for, and Consumers shall
indemnify and hold LOTS harmless from and against any claim with
respect thereto, any severance, termination or other payment
required to be made to any Consumers employee as a result of this
Agreement or the consummation of the transactions contemplated
hereby.
SECTION 6.12 FULL DISCLOSURE
No representation or warranty by Consumers nor any statement
or certificate furnished or to be furnished to LOTS pursuant
hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF LOTS
LOTS represents and warrants to Consumers as follows:
SECTION 7.1 ORGANIZATION AND GOOD STANDING
LOTS is a corporation duly organized, validly existing and in
good standing under the laws of the state of Georgia with full
corporate powers to own and operate its business and properties and
to carry on its business substantially as presently conducted.
SECTION 7.2 PROPER CORPORATE ACTION
LOTS has full corporate power to enter into and perform this
Agreement. Its entry into this Agreement and the transactions
contemplated to occur pursuant thereto, have been or will be
before Closing duly authorized by resolution of its Board of
Directors and no further corporate action will be required.
SECTION 7.3 ABSENCE OF CONFLICTING LAWS OR AGREEMENTS
Subject to receiving the necessary Regulatory Approvals and
Shareholder Approval, the execution, delivery and performance of
this Agreement by LOTS, does not, and the consummation of the
transactions contemplated in this Agreement will not, (i)
contravene any provision of the articles of incorporation or bylaws
of LOTS; (ii) conflict with, result in a breach of, or constitute a
material default (or an event which would, with the passage of time
or the giving of notice or both, constitute a material default)
under, or give rise to a right to terminate, amend, modify, abandon
or accelerate, any material contract, agreement, lease, indenture,
instrument or license to which LOTS is a party or by which their
assets or properties may be bound or affected; (iii) to the
knowledge of LOTS, violate or conflict with any federal, state or
local law, statute, rule, regulation, order, judgment or decree; or
(iv) result in or require the creation or imposition of any
mortgage, pledge, lien, security interest, claim, charge or
encumbrance upon or with respect to any of the assets of LOTS.
SECTION 7.4 FINANCIAL STATEMENTS
LOTS has or will deliver to Consumers prior to Closing, copies
of its Consolidated Balance Sheets as of December 31, 1996 and
September 30, 1997 and its Consolidated Statements of Operations
for the respective twelve and nine month periods then ended. Such
statements have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with that of
the preceding years and present fairly the financial condition of
LOTS and its subsidiaries as of said dates and the results of
their operations for said periods.
Since September 30, 1997, there has been no material adverse
change in the assets or financial condition of LOTS and its
subsidiaries from that set forth in the Consolidated Balance Sheet
dated September 30, 1997.
SECTION 7.5 LITIGATION
There is no decree, judgment, order, action, suit,
investigation or claim or legal, administrative, arbitration or
other proceeding pending or, to the knowledge of LOTS, threatened
against it, at law or in equity, by or before any court or
governmental agency, department or instrumentality or arbitration
board (i) which might materially affect the financial condition of
LOTS on a consolidated basis or the conduct of its business on a
consolidated basis or (ii) which relate to the transactions
contemplated by this Agreement. LOTS is not in default under any
judgment, decree or order of any court, arbitrator, or any
governmental or administrative agency against or affecting any of
its assets or businesses.
SECTION 7.6 ABSENCE OF UNDISCLOSED LIABILITIES
LOTS does not know or have any reasonable grounds to know of
the assertion against it of any material liability of any nature
or in any amount existing as of the date of this Agreement, that
should properly have been reflected or reserved against in the
balance sheets prepared in accordance with generally accepted
accounting principles or statutory accounting principles, as may be
appropriate, which was not fully reflected or reserved against in
its balance sheets of December 31, 1996 and September 30, 1997,
including, without limitation, tax liabilities due or to become due
and whether incurred in respect of, or measured by, its income for
any period prior to such dates, or arising out of transactions
entered into, or any state of facts existing prior thereto.
SECTION 7.7 FULL DISCLOSURE
No representation or warranty by LOTS nor any statement or
certificate furnished or to be furnished to Consumers pursuant
hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE VIII
ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 8.1 SHAREHOLDER APPROVAL
(a) As soon as reasonably practicable following the date
hereof, CFC shall take all action necessary in accordance
with the Securities Exchange Act of 1934 (the Exchange
Act ), the laws of the Commonwealth of Pennsylvania and
its Articles of Incorporation and Bylaws to call and give
notice of a meeting (the "Meeting") of its shareholders
to consider and vote upon those items contemplated under
this Agreement which require Shareholder Approval (the
Sale of Assets ) and for such other purposes as may be
necessary or desirable. The Board of Directors of CFC has
unanimously determined that the Sale of Assets is
advisable and in the best interests of the shareholders
of CFC and, subject to their fiduciary duties as advised
by counsel, shall recommend without qualification of any
nature that CFC s shareholders vote to approve the Sale
of Assets and any other matters to be submitted to CFC s
shareholders in connection therewith. The Board of
Directors of CFC shall use commercially reasonable
efforts to solicit and secure from shareholders of CFC
such approval, subject to their fiduciary duties as
advised by counsel, which efforts shall include causing
CFC to solicit shareholder proxies therefor and advising
LOTS promptly upon its request from time to time as to
the status of the shareholder vote then tabulated.
(b) CFC shall prepare and file with the SEC under the
Exchange Act and the rules and regulations promulgated by
the SEC thereunder within 30 days following the date
hereof, a preliminary draft of the Proxy Statement. LOTS
shall cooperate with CFC in the preparation and filing of
the Proxy Statement and any amendments and supplements
thereto. CFC will use commercially reasonable efforts to
have any review of the Proxy Statement conducted by the
SEC promptly. As soon as reasonably practicable following
completion of any review by, or in the absence of such
review, the termination of any applicable waiting period
of, the SEC, CFC shall cause to be mailed a definitive
Proxy Statement to its shareholders entitled to vote on
the Sale of Assets.
(c) In the event Shareholder Approval is not received
for any reason, the Parties shall agree to the transfer
of (i) the New Credit Business in accordance with the
provisions set forth in Article II hereof, (ii) the Fee
Income Business in accordance with the provisions set
forth in Article III hereof, and (iii) the Administrative
Services and personnel in accordance with the provisions
set forth in Article IV hereof, which transfers are
expected to occur on January 1, 1998. The Inforce
Business shall be retained by Consumers and administered
by LOTS under the terms of the Administrative Services
Agreement between the Parties effective January 1, 1998
unless otherwise agreed to between the Parties.
SECTION 8.2 CONDUCT OF CONSUMERS BUSINESS
Except as otherwise provided in this Agreement, Consumers
covenants that until Closing, it will:
<PAGE>
(a) Carry on CLIC's and IFLAC s credit insurance
business in the normal and usual course and without
limitation maintain normal and usual business practices.
(b) Use its best efforts to adequately maintain the
operating efficiency of its offices and equipment.
(c) Maintain its policies of insurance against fire or
other casualty to its property in full force and effect
pending Closing.
(d) Use its best efforts to maintain and preserve CLIC's
and IFLAC s business organization, to maintain the
services of CLIC's and IFLAC s present officers,
employees and field representatives, and to preserve the
goodwill of its suppliers, customers and others with whom
it has business relationships.
(e) Remain in compliance with all applicable laws, rules
and regulations.
(f) Maintain all of CLIC's and IFLAC s policy filings
on a current basis.
(g) Use its best efforts to obtain the Regulatory
Approvals and Shareholder Approval of this transaction.
(h) Continue to conduct its business in the normal
course.
(i) Not terminate, extend, or modify any contract with
the officers, employees or field representatives to be
retained by LOTS except as presently provided by
contract, or make any material change with respect to the
compensation or terms of employment of such officers,
employees or field representatives.
(j) Not grant any general or uniform increase in the
rates of pay for the officers, employees and field
representatives to be retained by LOTS, or institute any
pension, profit sharing, insurance or similar employee
benefit or welfare program for such officers, employees
and field representatives.
(k) Not make any change to CLIC's and IFLAC s
reinsurance treaties.
SECTION 8.3 EXPENSES; BREAK-UP FEE
If, prior to the Closing Date, CFC is offered a transaction
by another party that CFC believes is a more favorable transaction
for its shareholders, and the Board of Directors of CFC, in the
exercise of its fiduciary duty, decides to proceed with the new
party, CFC shall promptly (and, in any event, within five days) pay
LOTS a $250,000 break-up fee, which shall be LOTS sole remedy
against CFC for such action. Except as provided in the immediately
preceding sentence, whether or not the Sale of Assets is
consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be
paid by the Party incurring such expenses.
SECTION 8.4 OTHER AGREEMENTS
Subject to the terms and conditions herein provided, each of
the parties hereto agrees to use its commercially reasonable
efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, including using
commercially reasonable efforts to obtain all necessary waivers,
consents and approvals and to effect all necessary registrations
and filings, including, but not limited to, filings required under
the Exchange Act; provided that the foregoing shall not require
LOTS or CFC to make, or agree to make, any divestiture of a
material asset in order to obtain any waiver, consent or approval.
SECTION 8.5 PUBLIC ANNOUNCEMENTS
Neither LOTS nor CFC will make, issue or release any oral or
written public announcement or statement concerning, or
acknowledgment of the existence of, or reveal the terms, conditions
or status of, the transactions contemplated by this Agreement and
the Sale of Assets, or make any other communication to its
shareholders or the investing public, directly or indirectly
(including press releases and statements to securities analysts),
without first making a good faith attempt to obtain the prior
approval of, or concurrence in, the contents of such announcement,
acknowledgment or statement by the other Party or Parties, which
approval or concurrence shall not be unreasonably withheld or
delayed.
SECTION 8.6 EXCLUSIVE DEALING
Consumers shall not solicit, or, except to the extent required
by applicable law relating to fiduciary obligations of directors
upon advice of counsel, negotiate or enter into any agreement with
any other person or entity concerning the Sale of Assets or furnish
to any person or entity interested in making any such acquisition
any information concerning the Sale of Assets. Consumers shall
notify LOTS immediately upon the approach of any such person or
entity. Notwithstanding the foregoing, nothing contained in this
Agreement shall be construed to prohibit CFC or its Board of
Directors from (i) making any recommendation with respect to the
Sale of Assets and related disclosure to shareholders, or (ii)
disclosing, under protection of an appropriate confidentiality
agreement, non-public information concerning CFC to a person who
has made a bonafide, binding and firm, fully-financed offer to
acquire all of the outstanding common stock of CFC, including the
Sale of Assets for a price in excess of the price to be paid under
the terms of this Agreement, which are higher and better to CFC s
shareholders, which, in the judgment of CFC and its Board of
Directors, on the advice in writing of counsel, shall be required
by law.
SECTION 8.7 NONCOMPETE COVENANT OF CONSUMERS
(a) For the period commencing on the Effective Date and
ending on the fifth anniversary of the Effective Date
(the "Period"), Consumers agrees that it will not
directly or indirectly solicit or service any New Credit
Business or Fee Income Business account transferred under
the terms of this Agreement without the prior written
consent of LOTS unless (i) LOTS is no longer involved in
the marketing, sale or administration of credit
insurance, or (ii) the subject account is terminated by
LOTS or terminates its relationship with LOTS.
(b) Consumers shall not at any time during the Period,
without the prior written consent of LOTS, (i) request or
advise any customer of, or other person or entity having
business dealings with, LOTS, to withdraw, curtail or
cancel such business, or (ii) induce or attempt to
influence any employee or independent contractor of LOTS
to terminate his or her employment or his, her or its
status as an independent contractor.
(c) If the scope of any restriction contained in this
Section 8.7 is too broad to permit enforcement of such
restriction to its full extent, then such restriction
shall be enforced to the maximum extent permitted by law,
and Consumers hereby consents that such scope may be
judicially modified accordingly in any proceeding brought
to enforce such restriction. Consumers hereby
acknowledges and confirms that after the sale of the
credit insurance business to LOTS, any activity of the
nature referred to in this section by Consumers would
cause irreparable injury to LOTS.
(d) Consumers acknowledges that LOTS' remedy at law for
any breach of any of Consumers' obligations under this
Section 8.7 would be inadequate, and Consumers agrees
that temporary and permanent injunctive relief may be
granted in any proceeding which may be brought to enforce
any provision of this Section 8.7 without the necessity
of proof of actual damages. Prior to initiating such
proceeding, LOTS shall give Consumers written notice of
such breach. If Consumers does not remedy such breach to
the satisfaction of LOTS within ten (10) days following
receipt of such written notice, LOTS may proceed to
enforce the provisions of this Section 8.7.
SECTION 8.8 ACCESS AND INFORMATION
From and after the date of this Agreement and until Closing,
Consumers shall give to LOTS and its representatives full access
during normal business hours to all of the properties, books,
contracts, documents, and records relating to the business of
Consumers covered by this Agreement and will furnish to LOTS all
information with respect to the affairs of Consumers as LOTS may
from time to time reasonably request, provided; however, that any
furnishing of such information to LOTS and any investigation by
LOTS shall not affect the right of LOTS to rely upon the
representations and warranties made by Consumers in or pursuant to
this Agreement. LOTS and its representatives shall treat all
information originally obtained from Consumers and not otherwise
known to LOTS or already in the public domain as confidential;
provided, however, that nothing herein shall be construed to
prohibit LOTS from disclosing to any of its advisors any such
information. If this Agreement is not consummated, LOTS shall
return all copies made by LOTS and its representatives, of
materials belonging to Consumers or relating to its business.
Consumers shall treat as confidential any and all information not
otherwise in the public domain concerning LOTS.
ARTICLE IX
CONDITIONS PRECEDENT TO CLOSING
SECTION 9.1 CONDITIONS PRECEDENT TO LOTS' OBLIGATION TO CLOSE
The obligation of LOTS under this Agreement on the Closing
Date is subject to the fulfillment at or prior to the Closing of
each of the following conditions:
(a) All representations and warranties by Consumers
which are contained in this Agreement shall be true in
all material respects at and as of Closing as though such
representations and warranties were made at and as of
such time; and Consumers shall have performed and
complied with all agreements and conditions required by
this Agreement prior to or at Closing, and shall have
delivered to LOTS an officer's certificate certifying
thereto.
(b) Receipt of all Regulatory Approvals and Shareholder
Approval approving this Agreement and the transactions
contemplated herein.
(c) There shall not be in force at Closing any order or
decree, or any complaint praying for an order or decree,
restraining or enjoining the consummation of this
Agreement and none of the Parties shall have received
notice from any governmental department, court, agency or
commission of its intention to restrain or enjoin the
consummation of this Agreement or to nullify or render
ineffective this Agreement if consummated, or any inquiry
from such governmental department, court, agency or
commission indicating an intent to review this Agreement
under any laws of the United States.
(d) Delivery of the certificate of the Secretary of CFC
and CLIC setting forth the resolutions of CFC's, CLIC's
and IFLAC s Board of Directors authorizing the execution,
delivery and performance of this Agreement.
(e) Delivery of the certificate of the Secretary of CFC
setting forth the resolution duly adopted by the
shareholders of CFC evidencing the approval of the Sale
of Assets.
(f) An opinion of counsel for Consumers to the effect
that execution of this Agreement and each act and
document to be performed and executed by Consumers are
the valid and duly authorized or ratified act of
Consumers, and to such other matters as LOTS may
reasonably request and counsel for Consumers agrees to
give.
(g) Termination of all of CLIC's and IFLAC s existing
surplus relief reinsurance agreements.
(h) Delivery of the Initial Asset Transfer Amount
(i) The execution and delivery of the following
agreements .
(1) The Indemnity Reinsurance Agreement between
CLIC and American Republic.
(2) The Assumption and Novation Reinsurance
Agreement between IFLAC and American Republic.
(3) The Assignment by CLIC of the Alabama Reassurance
Company Retrocession Agreement to LOTS.
(4) The Marketing and Sales Agreement.
(5) The Administrative Services Agreement effective
October 1, 1997.
(6) The Administrative Services Agreement effective
January 1, 1998.
(7) The Stock Purchase Agreement for the purchase
of CRC by LOTS.<PAGE>
(8) The Assumption and Novation Agreements for the
producer-owned companies referred to in Schedule A
of the Reinsurance Agreements
(j) Closing on the purchase of CRC by LOTS in accordance
with the terms of the Stock Purchase Agreement.
(k) LOTS, in its sole discretion, may waive any defect
in any representations, conditions precedent or covenants
set forth in this Agreement.
SECTION 9.2 CONDITIONS PRECEDENT TO CONSUMERS' OBLIGATION TO
CLOSE
The obligation of Consumers under this Agreement on the
Closing Date is subject to the fulfillment at or prior to the
Closing of each of the following conditions:
(a) All representations and warranties by LOTS which are
contained in this Agreement shall be true in all material
respects at and as of Closing as though such
representations and warranties were made at and as of
such time and LOTS shall have performed and complied with
all agreements and conditions required by this Agreement
and shall have delivered to Consumers an officer's
certificate certifying thereto.
(b) Receipt of all Regulatory Approvals and Shareholder
Approval approving this Agreement and the transactions
contemplated herein.
(c) There shall not be in force at Closing any order or
decree, or any complaint praying for an order or decree,
restraining or enjoining the consummation of this
Agreement and none of the Parties shall have received
notice from any governmental department, court, agency or
commission of its intention to restrain or enjoin the
consummation of this Agreement or to nullify or render
ineffective this Agreement if consummated, or any inquiry
from such governmental department, court, agency or
commission indicating an intent to review this Agreement
under any laws of the United States.
(d) Delivery of the certificate of the Secretary of LOTS
setting forth the resolutions of LOTS Board of
Directors authorizing or ratifying the execution,
delivery and performance of this Agreement.
(e) The execution and delivery of the following
agreements:
(1) The Indemnity Reinsurance Agreement between
CLIC and American Republic
(2) The Assumption and Novation Reinsurance
Agreement between IFLAC and American Republic
(3) The Assignment by CLIC of the Alabama
Reassurance Company Retrocession Agreement to LOTS.
(4) The Marketing and Sales Agreement.
(5) The Administrative Services Agreement
effective October 1, 1997.
(6) The Administrative Services Agreement effective
January 1, 1998.
(7) The Stock Purchase Agreement for the purchase
of CRC by LOTS.
(8) The Assumption and Novation Agreements for the
producer owned companies referred to in Schedule A
of the Reinsurance Agreements
(f) Closing on the purchase of Consumers Reinsurance
Company by LOTS in accordance with the terms of the Stock
Purchase Agreement.
(g) An opinion of counsel for LOTS to the effect that
execution of this Agreement and each act and document to
be performed and executed by LOTS is the valid and duly
authorized or ratified act of LOTS and to such other
matters as Consumers may reasonably request and counsel
for LOTS agrees to give.
(h) The termination of the employment contract between
Ralph R. Byrnes and CLIC and the voluntary resignation of
those officers and employees of CLIC and IFLAC retained
by LOTS as provided in Section 4.2 hereof, effective
December 31, 1997 .
(i) Consumers, in its sole discretion, may waive any
defect in any representations, conditions precedent or
covenants set forth in this Agreement.
ARTICLE X
SURVIVAL AND INDEMNIFICATION
SECTION 10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS
All representations, warranties and covenants of the Parties
made under or pursuant to this Agreement shall survive the Closing
Date until the fifth anniversary thereof except Consumers
warranties and representations with respect to claims made for
payment for retrospective commissions which shall survive the
Closing Date for a period not to exceed two (2) years.
SECTION 10.2 INDEMNITY BY LOTS
Subject to the provisions of Section 10.4 hereof, LOTS hereby
covenants and agrees to indemnify and hold harmless Consumers and
its successors and assigns from and against any and all loss,
liability, damage, including punitive or extra contractual damages,
or expense (including, but not limited to, reasonable attorney's
fees) arising out of, or resulting from (i) any misrepresentation
or breach of any warranty, representation, covenant or agreement
made by LOTS in this Agreement, including the exhibits hereto and
any and all written statements, certificates, instruments and
documents delivered to Consumers pursuant to this Agreement, and
(ii) any actions taken by LOTS, its officers, employees, agents or
representatives in the marketing, sales and administration of the
credit insurance policies of CLIC and IFLAC or in adjusting,
denying, resisting or defending any claim under the said policies
after January 1, 1998. To the extent the loss, liability, damage,
including punitive or extra contractual damages, or expense has
resulted from the reasonable reliance by LOTS on statements made or
information forwarded by Consumers, this paragraph on
indemnification will not be applicable.
SECTION 10.3 INDEMNITY BY CONSUMERS
Subject to the provisions of Section 10.4 hereof, Consumers,
jointly and severally, hereby covenants and agrees to indemnify and
hold harmless LOTS and its successors and assigns from and against
any and all loss, liability, damage, including punitive or extra
contractual damages, or expense (including, but not limited to,
reasonable attorney's fees) arising out of, or resulting from (i)
any misrepresentation or breach of any warranty, representation,
covenant or agreement made by Consumers in this Agreement,
including the exhibits hereto and any and all written statements,
certificates, instruments and documents delivered to LOTS pursuant
to this Agreement, (ii) any actions taken by Consumers, their
officers, employees, agents or representatives in the marketing,
sales and administration of the credit insurance policies of CLIC
and IFLAC or in adjusting, denying, resisting or defending any
claim under the said policies, (iii) except for those liabilities
expressly assumed by LOTS hereunder, any and all liabilities of
Consumers of any nature, whether accrued, absolute, contingent or
otherwise, (iv) any liability arising from the defined term
Excluded Liabilities; and (v) any liability which arises out of or
results from any claim asserted by any inactive dealer account for
retrospective commission payments, to the extent of any amount
which was due as of the Effective Date. To the extent the loss,
liability, damage, including punitive or extra contractual damages,
or expense has resulted from the reasonable reliance by Consumers
on statements made or information forwarded by LOTS, this paragraph
on indemnification will not be applicable.
SECTION 10.4 NOTICE TO INDEMNIFY
Within sixty (60) days after receipt by Consumers or LOTS, as
the case may be (the "Indemnified Party"), of notice of the
commencement of any claim, action or proceeding against it, the
Indemnified Party shall give notice to the other Party (the
"Indemnifying Party") of such claim, action or proceeding and the
Indemnifying Party shall at its expense assume the defense of any
claim, action or proceeding; provided, however, that the failure by
the Indemnified Party to give timely notice as provided herein
shall absolutely relieve the Indemnifying Party of its
indemnification obligations under this Agreement, unless the
failure to give actual notice to the Indemnifying Party results in
no damage to the Indemnifying Party. In the defense of any such
claim against the Indemnified Party (whether singly or with the
Indemnifying Party) or of any action or proceeding in which the
Indemnified Party is named as a party, the Indemnifying Party shall
not, except with the consent of the Indemnified Party, consent to
the entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the
claimant or plaintiff to the Indemnified Party of a release from
all liability with respect to such claim, action or proceeding. The
Indemnified Party and the Indemnifying Party shall cooperate in the
defense of any claim, action or proceeding and the records of each
relating to the subject matter of such defense shall be available
to the other with respect to such defense.
SECTION 10.5 RETENTION OF RIGHTS
Notwithstanding anything in this Agreement to the contrary,
the Indemnified Party shall have the right to employ separate
counsel in any such claim, action or proceeding which counsel may
participate actively and fully as co-counsel in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of the Indemnified Party unless (i) the Indemnifying Party
has agreed in writing to pay such fees and expenses, (ii) the
Indemnifying Party has failed to assume the defense and employ
counsel in a timely manner, or (iii) the named parties to any such
action, suit or proceeding (including any impleaded parties)
include both the Indemnified Party and the Indemnifying Party and
the Indemnified Party shall have been advised by its counsel that
representation of the Indemnified Party and the Indemnifying Party
by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such
representation by the same counsel has been proposed), due to
actual or potential differing interests between them (in which case
the Indemnifying Party shall not have the right to assume the
defense of such action on behalf of the Indemnified Party). The
Indemnifying Party shall not be liable for any settlement of any
such claim, action or proceeding effected without its written
consent (which consent shall not be unreasonably withheld) but if
settled with such written consent, or if there be a final judgment
for the plaintiff in any such claim, action or proceeding, the
Indemnifying Party agrees to indemnify and hold harmless the
Indemnified Party to the extent provided herein by reason of such
settlement or judgment.
ARTICLE XI
ARBITRATION
SECTION 11.1 ARBITRATION
The Parties agree that should any dispute arise between the
Parties with reference to interpretation of this Agreement or their
rights with respect to any transaction involving this Agreement,
whether such dispute arises before or after termination hereof,
such dispute shall be submitted to arbitration to be held in
Philadelphia, Pennsylvania in accordance with the rules of
Commercial Arbitration of the American Arbitration Association.
Notwithstanding the foregoing, the provisions of this section shall
not prohibit any Party from seeking, and each Party shall have the
right to seek and obtain, injunctive relief in a court of proper
jurisdiction in order to maintain the status quo prior to or during
the pendency of any arbitration proceeding commenced hereunder.
SECTION 11.2 PROCEDURE
One arbitrator shall be chosen by LOTS, one by Consumers, and
an umpire chosen by the two arbitrators. If either Party fails to
name an arbitrator within thirty (30) days after receiving a
written request by the other Party to do so, the requesting Party
may choose two arbitrators who shall in turn choose an umpire. The
arbitrators and the umpire shall be disinterested executive
officers or former executive officers of credit insurance or
credit reinsurance companies authorized to transact business in the
United States or any Fellow of the Society of Actuaries or any
partner or principal in a nationally recognized accounting firm
with credit insurance experience. The arbitrators shall be relieved
from all judicial formalities and may abstain from following the
strict rules of law. They shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation. A
majority decision by the arbitrators and umpire shall be final and
binding on both parties. Judgment may be entered upon the final
decision of the arbitrators in any court having jurisdiction. Each
Party shall bear the expense of its own arbitrator and shall
jointly and equally bear, with the other Party, the expense of the
umpire and the arbitration, unless otherwise determined by the
arbitrators and umpire.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 EXHIBITS
All Exhibits hereto are deemed a part hereof and
incorporated herein. All statements contained in any certificate or
other instrument delivered by or on behalf of the Parties hereto
pursuant to this Agreement or in connection with the transactions
contemplated hereby, or contained in any Exhibit hereof, shall be
true at Closing as though such representations and warranties were
made at and as of such time.
SECTION 12.2 EXPENSES
The Parties shall pay their own expenses, incident to the
preparation and execution of this Agreement and the consummation of
the transactions contemplated hereby, including but not limited to,
the payment of fees for professional services provided by their
attorneys, accountants, actuaries and experts. Neither Consumers
nor LOTS shall have any liability or responsibility to each other
for the payment of any finder's fee or broker's commission arising
from any transaction under this Agreement, and each of Consumers
and LOTS shall hold the other harmless from and against any such
fee or commission due or claimed to be due from it.
SECTION 12.3 CONTENTS OF AGREEMENT; PARTIES IN INTEREST
This Agreement sets forth the entire understanding of the
Parties. All terms and provisions of this Agreement shall be
binding upon and inure to the benefit of, and be enforceable by
their successors and assigns. No assignment of this Agreement shall
be made, however, without the written consent of the other Party,
which consent shall not be unreasonably withheld.
SECTION 12.4 FURTHER DOCUMENTS
Each Party shall cooperate and take such action as may
reasonably be requested by the other Party in order to carry out
the provisions and purpose of this Agreement
SECTION 12.5 EXECUTION
This Agreement, upon completion of all Exhibits hereto to the
mutual satisfaction of the Parties and the attachment of such
Exhibits to this Agreement, may be simultaneously executed in
several counterparts, each of which when executed shall be deemed
to be an original, and such counterparts shall together constitute
one and the same instrument.
SECTION 12.6 EFFECT OF TABLE OF CONTENTS; USE OF DESCRIPTIVE
HEADINGS; ETC.
The Table of Contents preceding this Agreement but under the
same cover, and the descriptive headings of the several paragraphs
and subparagraphs are for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
Whenever used in this Agreement, and the context so requires, the
singular shall include the plural and the plural the singular, and
the use of any gender shall be applicable to all genders.
SECTION 12.7 NOTICES
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been
given if delivered to the person to whom it was addressed after
being sent by facsimile, mailed by an overnight delivery service
requiring a receipt (such as Federal Express) or mailed, postage
prepaid, certified or registered air-mail, return receipt requested
addressed to:<PAGE>
(a) If to Consumers to:
Consumers Financial Corporation
1200 Camp Hill By-Pass
P. O. Box 26
Camp Hill, Pennsylvania 17001-0026
Attention: R. Fredric Zullinger, Senior Vice President
Facsimile: 717-761-9473
(b) If to LOTS to:
Life of the South Corporation
100 West Bay Street
P. O. Box 44130
Jacksonville, FL 32231-4130
Attention: Ned Hamil, CLU, President
Facsimile: 904-354-4525
Either Party may change its address for notice by providing
notice to the other Party in the manner set forth above.
SECTION 13.8 GOVERNING LAW
This Agreement shall be governed and interpreted in accordance
with the laws of the Commonwealth of Pennsylvania, including its
statute of limitations but without regard to its conflict of laws
rule.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, the Parties by their duly authorized
officers have executed this Agreement on the day and year first
above written.
ATTEST: CONSUMERS FINANCIAL CORPORATION
By
Secretary
Its President
ATTEST: CONSUMERS LIFE INSURANCE COMPANY
By
Secretary
Its Senior VP & CFO
ATTEST: INVESTORS FIDELITY LIFE
ASSURANCE CORP.
By
Secretary
Its Executive Vice President
ATTEST: LIFE OF THE SOUTH CORPORATION<PAGE>
By
Assistant Secretary
Its President
INDEX OF EXHIBITS
A INDEMNITY REINSURANCE AGREEMENT BETWEEN CLIC AND AMERICAN
REPUBLIC
B ASSUMPTION AND NOVATION REINSURANCE AGREEMENT BETWEEN IFLAC
AND AMERICAN REPUBLIC
C ASSUMPTION AND NOVATION AGREEMENT BETWEEN CLIC, LOTS AND
ALABAMA REASURANCE COMPANY (CNC INFORCE BUSINESS)
D CREDIT INSURANCE AND FEE INCOME ACCOUNTS
E STOCK PURCHASE AGREEMENT
F BASIC ASSET TRANSFER AND CONTINGENCY FUND CALCULATIONS
G MARKETING AND SALES AGREEMENT
H ADMINISTRATIVE SERVICES AGREEMENT (EFFECTIVE OCTOBER 1, 1997)
I AGREEMENT TO PERFORM ADMINISTRATION (EFFECTIVE JANUARY 1,
1998)
Exhibit 2.2 to Form 8-K
CONSUMERS FINANCIAL CORPORATION
PLAN OF LIQUIDATION AND DISSOLUTION
This Plan of Liquidation and Dissolution (the Plan ) is for
the purpose of effecting the liquidation and dissolution of
Consumers Financial Corporation, a Pennsylvania corporation (the
Company ), in accordance with and pursuant to the provisions of
the Pennsylvania Business Corporation Law of 1988, as amended
PBCL ) and Section 331 of the Internal Revenue Code of 1986, as
amended (the Code ), in substantially the following manner:
1. Effective Date. The Plan shall be effective on the date
(the Effective Date ) on which it is adopted by the affirmative
vote of the holders of a majority of the outstanding shares of the
Common Stock and Series A 8 1/2% Preferred Stock of the Company,
voting separately as a class and together, at a special meeting
(the Special Meeting ) of the Company s shareholders (the
Shareholders ) called for such purpose pursuant to a Notice and
Proxy Statement dated January ___, 1998 and filed with the
Securities and Exchange Commission.
2. Cessation of Business. After the Effective Date, the
Company shall not engage in any business activities except for the
purposes of (i) prosecuting or defending lawsuits by or against the
Company, (ii) enabling the Company to gradually settle and close
its business, dispose of and convey its property, discharge
liabilities and wind up its business affairs and (iii) making the
Liquidation Distribution (as hereinafter defined) and distributing
its remaining assets, if any, in accordance with the Plan. The
Board of Directors of the Company (the Board ) and, at their
pleasure, the officers, shall continue in office solely for these
purposes. After Articles of Dissolution are filed with the
Pennsylvania Department of State, the Company will not plan to hold
any further annual meetings of its Shareholders.
3. Dissolution. As promptly as practicable after the Effective
Date and upon the filing of Articles of Dissolution with the
Pennsylvania Department of State, the Company shall be dissolved
pursuant to the provisions of Subchapter F of Chapter 19 of the
PBCL ( Subchapter F ), unless prior to such filing of the Articles
of Dissolution the Board of Directors has determined to dissolve
the Company in accordance with Subchapter H of Chapter 19 of the
PBCL, at which time any reference to Subchapter F herein shall mean
Subchapter H.
4. Sale of Assets. As part of the overall Plan, the Company
has entered into the Asset Purchase Agreement dated as of December
30, 1997 by and among the Company, Consumers Life Insurance
Company, a wholly-owned subsidiary of the Company, Investors
Fidelity Life Assurance Corp., a wholly-owned subsidiary of
Consumers Life Insurance Company, and Life of the South
Corporation, providing for the sale of the inforce credit insurance
and certain related assets of the Company in exchange for cash (the
Sale of Assets ), and its credit insurance and fee income accounts
in exchange for cash to be received over a five-year period. After
the Effective Date, the Company shall have continuing authority to
sell, lease, exchange or otherwise convert all or any part of its
assets as contemplated by the terms and provisions of the Plan,
including, if the requisite approval of the Shareholders is
received, the Sale of Assets.
5. Payment of Debts. The Company shall pay or make proper
provision for the payment of all known or ascertainable liabilities
of the Company, including all amounts estimated by the Board to be
necessary, appropriate or desirable, in its absolute discretion,
for the payment of estimated expenses, taxes and contingent
liabilities (including expenses of dissolution, liquidation and
termination of existence), all as provided in Subchapter F.
6. Liquidating Distribution. The Company shall (i) redeem and
cancel all of the outstanding shares of Preferred Stock at par
value ($10.00 per share), and (ii) distribute pro rata to the
holders of Common Stock, that portion of cash remaining after
making provision for the payment of all debts (the Liquidating
Distribution ). The Liquidating Distribution may be made in a
series of distributions and is intended to be made in cash, in such
manner and at such time or times as the Board, in its absolute
discretion, may determine.
7. Cancellation of Common Stock and Preferred Stock. The
Liquidating Distribution shall be in complete redemption and
cancellation of all of the outstanding Common Stock and Preferred
Stock of the Company. The Board may direct that the Company s stock
transfer books be closed at the close of business on the record
date fixed by the Board for the first or any subsequent installment
of any Liquidating Distribution as the Board, in its absolute
discretion, may determine (the Final Record Date ) and thereafter
certificates representing Common Stock and Preferred Stock shall
not be assignable or transferable on the books of the Company
except by will, intestate succession or operation of law. The
Shareholders shall surrender stock certificates (or, if so required
by the Board in its absolute discretion, furnish indemnity bonds in
case of lost or destroyed certificates) as a condition to their
receipt of any Liquidating Distribution immediately following the
Final Record Date.
8. Missing Shareholders. If any Liquidating Distribution to a
Shareholder cannot be made, whether because the Shareholder cannot
be located, has not surrendered a certificate evidencing the Common
Stock and Preferred Stock as required hereunder, or for any other
reason, then the distribution to which such Shareholder is entitled
shall (unless transferred to the trust established pursuant to
Section 11 hereof) be transferred to and deposited with the state
official authorized by the laws of the Commonwealth of Pennsylvania
to receive the proceeds of such distribution. The proceeds of such
distribution shall thereafter be held solely for the benefit of and
for ultimate distribution to such Shareholder as the sole equitable
owner thereof and shall escheat to the Commonwealth of Pennsylvania
or be treated as abandoned property in accordance with the laws of
the Commonwealth of Pennsylvania. In no event shall the proceeds of
any such distribution revert to or become the property of the
Company.
9. Amendments. Notwithstanding the adoption of the Plan by the
Company s Shareholders, the Board may modify or amend the Plan
(including, without limitation, proceeding under the provisions of
Subchapter H of the PBCL in lieu of proceeding under Subchapter F
and, prior to the filing of Articles of Dissolution with the
Department of State of the Commonwealth of Pennsylvania, may
abandon the Plan, without further action by the Shareholders to the
extent permitted by Pennsylvania law.
10. Indemnification. The Company shall continue to indemnify
its officers, directors, employees and agents in accordance with
applicable law, its articles and bylaws and any contractual
arrangements for actions taken in connection with the Plan and the
winding up of the affairs of the Company and shall indemnify any
liquidating trustees and their agents on similar terms. The
Company s obligation to indemnify such persons may be satisfied out
of the assets of the Liquidating Trust (as defined below). The
Board and the trustees, in their absolute discretion, are
authorized to obtain and maintain insurance for the benefit of such
officers, directors, employees, agents and trustees to the extent
permitted by law.
11. Liquidating Trust. If necessary for any reason to complete
the liquidation and distribution of the Company s assets to the
Shareholders, the Board may at any time transfer to a liquidating
trust (the Liquidating Trust ) under a Liquidating Trust Agreement
substantially in the form attached hereto as Exhibit 1, any
remaining assets of the Company. The Liquidating Trust, if any,
will succeed to all of the then remaining assets of the Company,
including such reserve, and any liabilities of the Company. The
sole purpose of the Liquidating Trust will be to liquidate on terms
satisfactory to the liquidating trustee(s) and to distribute the
assets formerly owned by the Company, if any, after paying any
remaining liabilities of the Company to the Shareholders.
Notwithstanding the foregoing, to the extent that distribution of
any assets of the Company cannot be effectuated without the consent
of a governmental authority, no such distribution shall be effected
without such consent.
12. Power of Board of Directors. The Board and, if authorized
by the Board, the officers, shall have authority to do or authorize
any and all acts and things as provided for in the Plan and any and
all such further acts and things as they may consider desirable to
carry out the purposes of the Plan, including the execution and
filing of all such certificates, documents, information returns,
tax returns, and other documents which may be necessary or
appropriate to implement the Plan. The Board may authorize such
variations from or amendments to the provisions of the Plan as may
be necessary or appropriate to effectuate the complete liquidation
and dissolution of the Company and the distribution of its assets
to its Shareholders in accordance with the PBCL and the Code. The
death, resignation, or other disability of any director or officer
of the Company shall not impair the authority of the surviving or
remaining director(s) or officer(s) to exercise any of the powers
provided for in the Plan. Upon such death, resignation or other
disability, the surviving or remaining director(s), or, if there be
none, to the extent permitted by law the surviving or remaining
officer(s) shall have authority to fill the vacancy or vacancies so
created, but the failure to fill such vacancy or vacancies shall
not impair the authority of the surviving or remaining director(s)
or officer(s) to exercise any of the powers provided for in the
Plan. In connection with and for the purpose of implementing and
assuring completion of the Plan, the Company may, in the absolute
discretion of the Board, pay to the Company s officers, directors
and employees, or any of them, compensation or additional
compensation above their regular compensation, in money or
property, in recognition of the extraordinary efforts they, or any
of them, will be required to undertake or actually undertake, in
successful implementation of the Plan. Adoption of the Plan by the
Shareholders shall constitute the approval of the Shareholders of
the payment of any such compensation. The dissolution of the
Company shall not subject its directors or officers to standards of
conduct different from those prescribed by or pursuant to Chapter
17 of the PBCL.
EXHIBIT 1 to Plan of Liquidation and Dissolution
LIQUIDATING TRUST AGREEMENT
This AGREEMENT AND DECLARATION OF TRUST is made by and between
CONSUMERS FINANCIAL CORPORATION, a Pennsylvania corporation (the
"Company"), and and
(the "Trustees").
WHEREAS, the Company is in the process of a voluntary
liquidation and dissolution pursuant to a Plan of Liquidation and
Dissolution (the "Plan") adopted by the shareolders of the Company
at a Special Meeting of Shareholders held on January ___, 1998 (the
Special Meeting ); and
WHEREAS, pursuant to the Plan, the Company shall not engage
in any business activities except to the extent necessary for
preserving the values of its assets, winding up its business
affairs and distributing its assets in accordance with the Plan;
and
WHEREAS, pursuant to the terms of an Asset Purchase Agreement
(the "Agreement") dated as of December 30, 1997 by and among the
Company, Consumers Life Insurance Company, a wholly-owned
subsidiary of the Company, Investors Fidelity Life Assurance Corp.,
a wholly-owned subsidiary of Consumers Life Insurance Company, and
Life of the South Corporation ("LOTS"), the Company has transferred
to LOTS effective October 1, 1997, its inforce credit insurance
business and certain related assets in exchange for cash (the Sale
of Assets ), and its credit insurance and fee income accounts, in
exchange for cash to be received over a five-year period; and
WHEREAS, the shareholders of the Company have approved the
Sale of Assets this Liquidating Trust Agreement at the Special
Meeting and have authorized the Company to make distributions, on
behalf of the shareholders, to the Trustees, subject to the
limitations of this Trust;
NOW, THEREFORE, in consideration of the foregoing and other
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company hereby grants, releases, assigns,
transfers, conveys and delivers to the Trustees all of the
Company's right, title and interest in and to all assets it
currently owns, holds or in which it otherwise possesses any
interest, subject to the assumption by the Trustees of all of the
Company's liabilities and obligations, whether ascertained,
unascertained or contingent, in trust for the uses and purposes
stated herein and subject to the terms and provisions set forth
below, and the Trustees hereby accept such assets and such Trust
and hereby assume such liabilities and obligations of the Company
subject to the terms and provisions set forth below.
ARTICLE 1
NAMES AND DEFINITIONS
1.1 Name. This Trust shall be known as the CFC Liquidating
Trust (the "Trust")
1.2 Definitions.
(a) Agreement or Agreement of Trust shall mean this
instrument as originally executed or as it may from time
to time hereafter be amended pursuant to the terms
hereof.
(b) Beneficiaries shall mean the shareholders of the
Company as they appear in the records of the Company at
the close of business on the record date fixed by the
Board of Directors for the liquidation of the Company
(the Final Record Date ).
(c) Trust Corpus shall mean the property held from time
to time in the Trust by the Trustees, subject to all of
the liabilities and obligations assumed by the Trustees,
under this Agreement.
ARTICLE 2
NATURE OF TRANSFER
2.1 Nature and Purpose of Trust, The Trust exists solely for
the purposes of holding, liquidating and disposing of any assets
received by it and paying or settling the ascertained,
unascertained and contingent liabilities and obligations of the
Company and thereafter distributing the remaining Trust Corpus to
the Beneficiaries. In connection with such purposes, it is intended
that the Trust serve as a vehicle for the preservation and
maintenance of the Trust Corpus, with a view to its liquidation and
not the conduct of a continuing business. This Agreement is
intended to create a trust, and to be governed and construed in all
respects as a trust. The Trust is not intended to be, shall not be
deemed to be and shall not be treated as a general partnership,
limited partnership, joint venture, corporation, joint stock
company or association, nor shall the Trustees or the
Beneficiaries, or any of them, for any purposes be, or be deemed to
be or treated in any way whatsoever to be, liable or responsible
hereunder as partners or joint venturers. The relationship of the
Beneficiaries to the Trustees shall be solely that of beneficiaries
of a trust, and their rights shall be limited to those conferred
upon them by this Agreement. In no event shall any part of the
Trust Corpus revert or be distributed to the Company.
Notwithstanding any other provision hereof, the Trustees are
authorized and empowered to take only such action as is necessary
or advisable to preserve the Trust Corpus pending its distribution
to the Beneficiaries, and the Trustees shall have no power or
authority to enter into or engage in the conduct of any trade or
business in respect of the Trust Corpus.
2.2 Instruments of Further Assurance. The Company and such
persons as shall have the right and power after the dissolution of
the Company will, upon request of the Trustees, execute,
acknowledge, and deliver such further instruments and do such
further acts as may be necessary or proper to effectively carry out
the purposes of this Agreement, to confirm the transfer to the
Trustees of any property covered or intended to be covered hereby
and the assumption of all liabilities pertaining thereto, and to
vest in the Trustees, their successors and assigns, the estate,
powers, instruments or funds in trust hereunder.
2.3 Unknown Property and Liabilities. The Trustee shall be
responsible for only the property delivered to them or registered
in their names and shall have no duty to make, nor incur any
liability for failing to make, any search for unknown property. The
Trustees shall be responsible for only those liabilities and
obligations of which they are informed and shall have no duty to
make, nor any liability for failing to make, any search for unknown
liabilities.
2.4 Transferee Liability. In the event that any liability is
asserted against the Trustees as recipients of the property
transferred to the Trustees hereunder, on account of any claimed
liability of or through the Company, the Trustees may use such part
of the Trust Corpus as may be reasonable for contesting any such
liability and in payment thereof, including reasonable attorneys'
fees incurred in connection therewith.
2.5 Limitation of Liability. No personal liability shall
attach to the Trustees or the Beneficiaries with respect to any
liabilities or obligations arising under this Agreement, and all
persons dealing with the Trust must look solely to the Trust Corpus
for the enforcement of any claims against the Trust.
2.6 Assignment for Benefit of Beneficiaries. The Trustees
hereby assign to the Beneficiaries the beneficial interest in all
the Trust Corpus, and retain only such incidents of ownership
therein as are necessary to undertake the actions and transactions
authorized herein.
ARTICLE 3
BENEFICIARIES
3.1 Beneficial Interests. The beneficial interests of the
Beneficiaries shall be recorded by the Trustees or their agent on
the books of the Trust. The beneficial interests of the
Beneficiaries will be evidenced only by the Trust's records and
there will be no certificates or other tangible evidence of such
interests. The beneficial interests of the Beneficiaries will not
be transferable expect pursuant to the laws of descent and
distribution or by operation of law.
If any conflicting claims or demands are made or asserted with
respect to beneficial interests herein, or if there should be any
disagreement among the transferees, assignees, heirs,
representatives or legatees succeeding to all or a part of the
interest on any Beneficiary resulting in adverse claims or demands
being made in connection with such interest, then, in any of such
events, the Trustee shall be entitled, at their sole election, to
refuse to comply with any such conflicting claims or demands. In so
refusing, the Trustees may elect to make no payment or distribution
in respect of the beneficial interest involved, and in so doing
the Trustees shall not be or become liable to any of the parties
for their failure or refusal to comply with any of such or demands,
nor shall the Trustees be liable for interest on any funds which
they may so withhold. The Trustees shall be entitled to refrain and
refuse to act until (i) the rights of the adverse claimants have
been adjudicated by a final judgment of a court of competent
jurisdiction from which there is no appeal pending and the
applicable appeal period shall have expired, (ii) all differences
have been adjusted by valid written agreement between all of such
parties, and the Trustees shall have been furnished with an
executed counterpart of such agreement, or (iii) there is furnished
to the Trustees a surety bond or other security satisfactory to the
Trustees, as they shall deem appropriate, to fully indemnify them
as between all conflicting claims or demands.
3.2 Rights of Beneficiaries. The Beneficiaries shall take and
hold their beneficial interests subject to all the terms and
provisions of this Agreement of Trust. The interest of the
Beneficiaries is hereby declared to, and shall be in all respects,
personal property. The Beneficiaries shall have no title to,
possession of, management of, or control of, the Trust Corpus
except as herein expressly provided. The whole title to all the
Trust Corpus shall be vested in the Trustees and the sole interest
of the Beneficiaries shall be the rights and benefits given to them
under this Agreement of Trust.
3.3 Applicable Law. As to matters affecting the title,
ownership, transferability, or attachment of the interest of the
Beneficiaries in the Trust, the laws from time to time in force in
the Commonwealth of Pennsylvania shall govern except as otherwise
herein specifically provided.
ARTICLE 4
DURATION AND TERMINATION OF TRUST
4.1 Duration. The existence of this Trust shall extend for
such period as is reasonably necessary to collect and distribute
all of the assets of the Trust Corpus; provided that the Trustees
will make continuing efforts to dispose of the Trust Corpus, make
timely distributions, and not unduly prolong the duration of the
Trust.
4.2 Continuance of Trust for Winding Up. After the termination
of the Trust and for the purpose of liquidating and winding up the
affairs of the Trust, the Trustees shall continue to act as such
until their duties have been fully performed. Upon distribution of
all the Trust Corpus, the Trustees shall retain the books,
records, shareholder lists, Beneficiary lists, and certificates and
other documents and files which shall have been delivered to or
created by the Trustees. At the Trustees' discretion, all of such
records and documents may, but need not, be destroyed at any time
after three years from the completion and winding up of the affairs
of the Trust. Except as otherwise specifically
provided herein, upon the discharge of all liabilities of the Trust
and final distribution of all of the Trust Corpus, the Trustees
shall have no further duties or obligations hereunder except to
account as provided in Section 5.3 hereof.
ARTICLE 5
ADMINISTRATION OF TRUST ESTATE
5.1 Payment of Claims, Expenses and Liabilities. The Trustees
shall pay from the Trust Corpus all claims, expenses, charges,
liabilities, and obligations of the Trust and all liabilities and
obligations which the Trustees specifically assume and agree to pay
pursuant to this Agreement and such transferee liabilities as the
Trustees may be obligated to pay as transferees of the assets
comprising the Trust Corpus, and the costs, charges, and expenses
connected with or growing out of the execution or administration of
the Trust and such other payments and disbursements as are provided
in this Agreement or as may be determined to be a proper charge
against the Trust Corpus by the Trustees.
5.2 Interim Distributions. The Trust shall distribute at
least annually to the Beneficiaries its net income plus all net
proceeds from the sale of assets, except that the Trust may retain
an amount of net income or net proceeds reasonably necessary to
maintain the value of the Trust Corpus or to meet claims and
contingent liabilities, including but not limited to tax
liabilities.
5.3 Final Distribution. If the Trustees determine that all
claims, debts, liabilities, and obligations of the Trust have been
paid or discharged and that the remaining assets of the Trust may
be conveniently sold and the proceeds distributed, or if the
existence of the Trust shall terminate pursuant to Section 4.1
hereof, the Trustees shall, as expeditiously as is consistent with
the conservation and protection of the Trust Corpus, sell the Trust
Corpus and distribute the proceeds to the Beneficiaries of record
on the Final Record Date.
5.4 Reports to Beneficiaries. As soon as practicable after the
end of each fiscal year of the Trust and after termination of the
Trust, the Trustees shall submit a written report to the
Beneficiaries (which report shall constitute the accounting of the
Trust for such period) showing (i) the assets and liabilities of
the Trust at the end of such fiscal year or upon termination and
the receipts and disbursements of the Trustees for such fiscal year
or period, (ii) any changes in the Trust Corpus which have not been
previously reported, and (iii) any action taken by the Trustees in
the performance of their duties under this Agreement of Trust which
they have not previously reported and which, in their opinion,
materially affects the Trust Corpus. The fiscal year of the Trust
shall end on December 31 of each year unless the Trustees deem it
advisable to establish some other date as the date on which the
fiscal year of the Trust shall end.
5.5 Federal Income Tax Information. As soon as practicable
after the close of each fiscal year, the Trustees shall mail to the
Beneficiaries a statement showing the dates and amounts of all
distributions made by the Trustees, if any, and such other
information as is reasonably available to the Trustees which may be
helpful in determining the amount and character of items of income,
deductions and credits of the Trust that the Beneficiaries should
include in their federal income tax returns for the preceding year.
ARTICLE 6
POWERS OF AND LIMITATIONS UPON THE TRUSTEES
6.1 General Powers of and Limitations upon Trustees. The
Trustees, subject only to the specific limitations contained in
this Agreement, shall have, without further or other authorization,
and free from any power or control on the part of the
Beneficiaries, full, absolute and exclusive power, control and
authority over the Trust Corpus and over the affairs of the Trust
to the same extent as if the Trustees were the sole owners thereof
in their own right, provided, however, that such power, control and
authority shall only be exercised to do such acts and things as in
their sole judgment and discretion are necessary or incidental to,
or desirable for, the carrying out of any of the purposes of the
Trust. Any determination made in good faith by the Trustees of the
prrposes of the Trust or the existence of any power or authority
hereunder shall be conclusive and binding upon the Beneficiaries.
In construing the provisions of this Agreement, presumption shall
be in favor of the grant of powers and authority to the Trustees,
except insofar as the existence or exercise of any such power or
authority would jeopardize the status of the Trust as a grantor
trust for federal income tax purposes. The enumeration of any
specific power or authority herein shall not be construed as
limiting the general powers or authority or any other specified
power or authority conferred herein upon the Trustees. As set forth
in Section 2.1 hereof, the Trustees shall not at any time, on
behalf of the Trust or the Beneficiaries, enter into or engage in
any trade or business, and no part of the Trust Corpus shall be
used or disposed of by the Trustees in furtherance of any trade or
business. This liquidation shall apply irrespective of whether the
conduct of any such business activities is deemed by the Trustees
to be necessary or proper for the conservation and protection of
the Trust Corpus.
The Trustees shall invest the funds of the Trust Corpus in
demand and time deposits in banks or savings institutions, or
temporary investments such as short-term certificates of deposit or
Treasury bills. The sole purpose of the Trust shall be to collect
all outstanding assets of the Company and to liquidate the Trust
Corpus and discharge the liabilities transferred to it with no
objective to continue or engage in the conduct of any trade or
business. In no event shall the Trustees receive any property, make
any distribution, satisfy or discharge any obligation, claim,
liability, or expense or otherwise take any action which is
inconsistent with a complete liquidation of the Company as that
term is used and interpreted by Section 331 of the Code, the
Treasury Regulations promulgated thereunder, and rulings, decisions
and determinations of the Internal Revenue Service or any court of
competent jurisdiction, or take any action that would jeopardize
the status of the Trust as a liquidating trust for federal income
tax purposes within the meaning of Treasury Regulation Section
301.7701-4(d). The Trust does not, and will not, receive or retain
cash in excess of a reasonable amount to meet contingent
liabilities. In addition, the Trust does not, and will not, receive
transfers of any unlisted stock of a single issuer that represents
80 percent or more of the stock of such issuer, and the Trust does
not, and will not, receive transfers of any general partnership
interests.
6.2 Specific Powers of Trustees. Subject to the provisions of
Section 6.1 hereof, the Trustees shall have the following specific
powers in addition to any powers conferred upon them by any other
Section or provision of this Agreement of Trust or by virtue of any
present or future statute or rule of law, in all instances without
any action or consent required by the Beneficiaries; provided,
however, that the enumeration of the following powers shall not be
considered in any way to limit or control the power of the Trustees
to act as specifically authorized by any other Section or provision
of this Agreement and to act in such a manner as the Trustees may
deem necessary or appropriate, in their sole discretion, to
conserve, protect, and administer the Trust Corpus or otherwise to
confer upon the Beneficiaries the benefits intended to be conferred
upon them by this Agreement:
(a) To retain and set aside such funds out of the Trust
Corpus as the Trustees shall deem necessary or expedient
to pay, or provide for the payment of, (i) unpaid claims,
liabilities, debts or obligations of the Trust, (ii)
contingencies, and (iii) the expenses of administering
the Trust Corpus;
(b) To do and perform any acts or things necessary or
appropriate for the conservation and protection of the
Trust Corpus, and in connection therewith to employ any
agents or representatives as the Trustees deem expedient
and to pay reasonable compensation therefor;
(c) To sell, transfer, assign, borrow against, pledge,
hypothecate or deal in any other manner with any of the
Trust Corpus, in such manner as the Trustees may deem
advisable for any Trust purpose;
(d) To engage in, intervene in, prosecute, join, defend,
compound, settle, compromise, abandon or adjust by
arbitration or otherwise, any actions, suits,
proceedings, disputes, claims, controversies, demands or
other litigation to enforce any instruments, contracts,
agreements, claims or causes of action relating to the
Trust, the Trust Corpus or the Trust's affairs, to enter
into agreements relating to the foregoing, whether or not
any suit is commenced or claim has accrued or been
asserted and, in advance of any controversy, to enter
into agreements regarding arbitration, adjudication or
settlement thereof, all in the name of the Trust or of
the Company if otherwise required;
(e) To file any and all documents and take any and all
such other action as the Trustees, in their sole
judgment, may deem necessary in order that the Trust may
lawfully carry out its purposes in any jurisdiction:
(f) To change the name of the Trust; and
(g) To prepare and file, or assist in the preparation and
filing of federal and state tax returns and reports
required to be filed on behalf of the Trust or the
Trustees.
ARTICLE 7
LIABILITY OF TRUSTEES AND BENEFICIARIES AND OTHER MATTERS
7.1 Generally. No Trustee shall be liable to the Trust or to
any Trustee or Beneficiary for any act or omission of any other
Trustee, Beneficiary, or agent of the Trust, or be held to any
personal liability whatsoever in tort, contract, or otherwise in
connection with the affairs of the Trust, except only that arising
from his or her own bad faith, wilful misfeasance, gross
negligence, or reckless disregard of duty. No Trustee shall be
liable except for the performance of such duties and obligations as
are specifically set forth in this agreement, and no implied
covenants or obligations shall be read into this agreement against
the Trustee. No Trustee shall be liable with respect to any action
taken or omitted to be taken by him or her in good faith, in
accordance with the direction of Beneficiaries having an aggregate
beneficial interest of more than 50% of the total beneficial
interests in the Trust. In addition to, and not in limitation of,
the foregoing, no successor Trustee shall be in any way liable for
the acts or omissions of any Trustee or agent of the Trust
occurring prior to the date on which he or she became Trustee.
7.2 Reliance by Trustees. The Trustees may consult with
counsel, auditors or other experts, and the advice or opinion of
such counsel, auditors, or other experts shall be full and complete
personal protection to the Trustees in respect of any action taken
or suffered by them in good faith and in reliance or in accordance
with such advice or opinion. In discharging their duties, Trustees
may rely upon financial statements of the Trust represented to the
Trustees to be correct by the person or persons having charge of
the Trust s of account. The Trustees shall and be personally
protected in acting, upon any instrument or document of any sort
whatsoever reasonably believed by them to be genuine.
7.3 Limitation of Liability of Trustees and Beneficiaries. The
Trustees, in incurring any debts, liabilities, or obligations, or
in taking or omitting any other actions for or in connection with
the Trust, are, and shall be deemed to be, acting as Trustees of
the Trust and not in their own individual capacities. Except to the
extent provided in Section 7.1 hereof, no Trustee shall, nor shall
any Beneficiary, be liable for any debt, claim, demand, judgment,
decree, liability, or obligation of any kind of, against, or with
respect to the Trust, arising out of any action taken or omitted
for or on behalf of the Trust, and the Trust shall be solely liable
therefor, and resort shall be had solely to the Trust Corpus for
the payment or performance thereof. A Beneficiary shall be entitled
to pro rata indemnity from the Trust Corpus, if, contrary to the
provisions hereof, the Beneficiary shall be held to any such
personal liability.
7.4 Express Exculpatory Clauses in Instruments. As far as
practicable, the Trustees shall cause any written instrument
creating an obligation of the Trust to include a reference to this
Agreement and to provide that neither the Beneficiaries nor the
Trustees shall be liable thereunder and that the other parties to
such instrument shall look solely to the Trust Corpus for the
payment of any claim thereunder or the performance thereof;
provided, however, that the omission of such provision from any
such instrument shall not render the Beneficiaries or any Trustee
liable nor shall the Trustees be liable to anyone for such
omission.
7.5 Indemnification of Trustees.
(a) Each Trustee shall be indemnified from the Trust
Corpus against any loss, liability, expense (including
attorney's fees and costs), or damage which such Trustee may
incur or sustain by reason of being or having been a Trustee
of the Trust or for performing any functions incidental to
such service; provided, however, that the foregoing shall not
relieve such person of liability for bad faith, willful
misfeasance, gross negligence, or reckless disregard of duty.
(b) Indemnification under paragraph (a) of this Section
7.5 shall be made by the Trust as authorized in the specific
case unless a determination has been mde that indemnification
of the Trustee is improper in the circumstances because he or
she has not met the applicable standards of conduct. Such
determination shall be made by independent legal counsel (who
may be counsel to the Trust) in a written opinion.
(c) Expenses incurred in connection with a civil,
criminal, administrative, or investigative action, suit, or
proceeding, or threat thereof, may be paid by the Trust in
advance of the final disposition of such action, suit, or
proceeding upon receipt of an undertaking by or on behalf of
the Trustee to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by
the Trust as authorized herein.
(d) The indemnification provided in this Section 7.5
shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any other agreement or
otherwise, both as to action as Trustee and as to action in
another capacity while holding such office, and shall continue
as to a person who has ceased to be a Trustee and shall inure
to the benefit of the heirs, executors, and administrators of
such person.
(e) The Trust shall have the power to purchase and
maintain at the expense of the Trust insurance on behalf and
for the benefit of any person who is or was a Trustee of the
Trust against such person as Trustee, whether or not the Trust
should have the power to indemnify such person against such
liability under the provisions of this Section 7.5.
ARTICLE 8
PROTECTION OF PERSONS DEALING WITH THE TRUSTEES
8.1 Reliance upon Acts of Trustees. Any act of a Trustee
purporting to be done in his or her capacity as such shall, as to
any persons dealing with such Trustee, be conclusively deemed to be
within the purpose of this Trust and within the powers of the
Trustee. As to any matter requiring or involving action by the
Beneficiaries, any person dealing with a Trustee shall be fully
protected in relying upon the Trustee's certificate setting forth
the facts concerning the calling of any meeting of the
Beneficiaries, the giving of notice thereof, and the action taken
at such meeting, including the aggregate beneficial interests of
the Beneficiaries taking Buch action.
ARTICLE 9
COMPENSATION OF TRUSTEES
9.1 Amount of Compensation. In lieu of commissions or other
compensation fixed by law for trustees, the Trustees shall be
entitled to receive reasonable fees as compensation for their
services as Trustees.
9.2 Dates of Payment. The compensation payable to the Trustees
pursuant to the provisions of Section 9.1 hereof shall be paid
monthly or at such other times as the Trustees may determine.
9.3 Expenses. The Trustees shall be reimbursed from the Trust
Corpus for all expenses reasonably incurred in accordance with this
Agreement.
ARTICLE 10
CONCERNING THE TRUSTEES
10.1 Number and Qualification. Subject to the provisions of
Section 10.3 hereof relating to the period pending the appointment
of a successor Trustee, there shall be at least one Trustee of the
Trust.
10.2 Resignation and Removal. Any Trustee may resign and be
discharged from the Trust hereby created by giving written notice
thereof to the Beneficiaries. Such resignation shall become
effective on the day specified in such notice or the appointment of
such Trustee's successor and such successor's acceptance of such
appointment, whichever is earlier, without need for prior
accounting. Any Trustee may be removed at any time, with or without
cause, by vote of Beneficiaries holding more than 50% of the total
beneficial interests in the Trust.
10.3 Appointment of Successor. Should at any time a Trustee
resign or be removed, or die or become incapable of action, or be
adjudged bankrupt or insolvent, a vacancy shall be deemed to exist
and a successor shall be appointed by any remaining Trustee. If any
vacancy is not filled by any remaining Trustee within 90 days, or
if there is no remaining Trustee, the Beneficiaries may, pursuant
to Article 12 hereof, appoint a successor Trustee or Trustees. If
the Beneficiaries have not filled all vacancies to be filled by
them within 60 days after they have the authority to do so pursuant
to this Section 10.3, a Beneficiary may apply to a court of
competent jurisdiction in accordance with Pennsylvania law to fill
such vacancies.
10.4 Acceptance of Appointments by Successor Trustee. Any
successor Trustee appointed hereunder shall execute an instrument
accepting such appointment hereunder and shall deliver one
counterpart thereof to each other Trustee and, in the case of a
resignation, to the retiring Trustee. Thereupon such successor
Trustee shall, without any further act, become vested with all the
estates, properties, rights, powers, trusts, and duties of his or
her predecessor in the Trust hereunder with like effect as if
originally named herein.
10.5 Bonds. Unless a bond is required by law, no bond shall be
required of the original Trustees hereunder. Unless required by a
Trustee prior to a successor Trustee's acceptance of an appointment
as such pursuant to Section 10.4 hereof, or unless a bond is
required by law, no bond shall be required of any successor Trustee
hereunder. If a bond is required by law, no surety or security with
respect to such bond shall be required unless required by law or
unless required by a Trustee in the case of a successor Trustee.
ARTICLE 11
CONCERNING THE BENEFICIARIES
11.1 Evidence of Action by Beneficiaries. Whenever in this
Agreement it is provided that a Beneficiary may take any action
(including the making of any demand or request, the giving of any
notice, consent, or waiver, the removal of a Trustee, the
appointment of a successor Trustee, or the taking of any other
action), the fact that at the time of taking any such action such
Beneficiary having joined therein may be evidenced (i) by any
instrument or any number of instruments of similar tenor executed
by a Beneficiary in person or by agent or attorney appointed in
writing, or (ii) by the record of the Beneficiary voting in favor
thereof at any meeting of Beneficiaries duly called and held in
accordance with the provisions of Article 12 hereof.
11.2 Limitation upon Suits by Beneficiaries. No Beneficiary
shall have any right by virtue of any provision of this Agreement
to institute any action or proceeding at law or in equity against
any party other than the Trustees upon or with respect to the Trust
Corpus or the assets relating to or forming part of the Trust
Corpus and the Beneficiaries do hereby waive any such right, unless
Beneficiaries having an aggregate beneficial interest of more than
50% of the total beneficial interests in the Trust shall have made
written request upon the Trustees to institute such action or
proceeding in their own names as Trustees hereunder and shall have
offered to the Trustees reasonable indemnity against the costs and
expenses to be incurred therein or thereby, and the Trustees for 30
days after their receipt of such notice, request, and offer of
indemnity shall have failed to institute any such action or
proceeding.
11.3 Requirement of Undertaking. The Trustees may request any
court to require, and any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this
Agreement, or in any suit against the Trustees for any action taken
or omitted by them as Trustees, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and such
court may in its discretion assess reasonable costs, including
reasonable attorney's fees, against any party litigant in such
suit, having due regard to the merits and good faith of the claims
or defenses made by such party litigant; provided, that the
provisions of this Section 11.3 shall not apply to any suit by the
Trustees and such undertaking shall not be requested by the
Trustees or otherwise required in any suit by any Beneficiary or
group of Beneficiaries having an aggregate beneficial interest of
more than 25% of the total beneficial interests of the Trust.
ARTICLE 12
MEETING OF BENEFICIARIES
12.1 Purpose of Meetings. A meeting of the Beneficiaries may
be called at any time and from time to time pursuant to the
provisions of this Article 12 for taking any action which the terms
of this Agreement permit having a specified aggregate beneficial
interest to take either alone or with the Trustees or with any
other Beneficiary or Beneficiaries.
12.2 Meeting Called by Trustees. The Trustees may at any time
call a meeting of the Beneficiaries to be held at such time and at
such place within the Commonwealth of Pennsylvania (or elsewhere if
so determined by the Trustees) as the Trustees shall determine.
Written notice of every meeting of the Beneficiaries shall be given
by the Trustees (except as provided in Section 12.3 hereof), which
written notice shall set forth the time and place of such meeting
and in general terms the action proposed to be taken at such
meeting, and shall be mailed not more than 60 days nor less than
ten days before such meeting is to be held to all of the
Beneficiaries of record not more than 60 days before the date of
such meeting, such record date to be fixed by the Trustees. The
notice shall be directed to the Beneficiaries at their respective
addresses as they appear in the records of the Trust.
12.3 Meeting Called Upon Request of Beneficiary. Except as
hereinafter provided in this section 12.3, within 30 days after
written request to the Trustees by Beneficiaries having an
aggregate beneficial interest of more than 50% of the total
beneficial interests in the Trust to call a meeting of all the
Beneficiaries, which written request shall specify in reasonable
detail the action proposed to be taken, the Trustees shall proceed
under the provisions of Section 12.2 hereof to call a meeting of
the Beneficiaries, and if the Trustees fail to call such a meeting
within such 30 day period then such meeting may be called by
Beneficiaries having an aggregate beneficial interest of more than
50% of the total beneficial interests in the Trust or by their
designated representative or representatives. If the purpose of the
meeting is to fill one or more vacancies in accordance with Section
10.3 hereof, any Beneficiary may make written request to the
Trustees to call such meeting and the Trustees shall do so
forthwith; if there are no Trustees, any Beneficiary may call such
a meeting. If the purpose of the meeting is other than to fill one
or more vacancies and if there are no Trustees, Beneficiaries
having an aggregate beneficial interest of more than 50% of the
total beneficial interests in the Trust, or their designated
representative or representatives, may call such meeting without
first applying to the Trustees or waiting the 30-day period
provided for in the first sentence of this Section 12.3. Any
meeting called by one or more Beneficiaries shall be subject to the
same notice requirements as are set forth in Section 12.2 hereof,
and the Beneficiary or Beneficiaries calling the meeting shall fix
the record date therefor.
12.4 Persons Entitled to Vote at Meeting of Beneficiaries.
Each Beneficiary on the record date shall be entitled to vote at a
meeting of the Beneficiaries either in person or by proxy duly
authorized in writing and shall have one vote for each share of
Common Stock of the Company previously registered on the books of
the Trust in the name of such Beneficiary. The signature of the
Beneficiary on such written authorization need not be witnessed or
notarized.
12.5 Quorum. At any meeting of Beneficiaries, the presence of
Beneficiaries having an aggregate beneficial interest sufficient to
take action on any matter for which such meeting was called shall
be necessary to constitute a quorum.
12.6 Conduct of Meetings. The Trustees shall appoint the
Chairman and the Secretary of the meeting. The vote upon any
resolution submitted to any meeting of Beneficiaries shall be by
written ballot.
12.7 Record of Meeting. A record of the proceedings of each
meeting of Beneficiaries shall be prepared by the Secretary of the
meeting. The record will be signed and verified by the Secretary of
the meeting and shall be delivered to the Trustees to be preserved
by them. Any record so signed and verified shall be conclusive
evidence of all the matters therein stated.
ARTICLE 13
AMENDMENTS
13.1 With Consent of Beneficiaries. At the direction or with
the consent (evidenced in the manner provided in Section 11.1
hereof) of Beneficiaries having an aggregate beneficial interest of
more than 50% of the total beneficial interests in the Trust, the
Trustees shall promptly make and execute a declaration amending
this Agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this
Agreement or amendments hereto: provided, however, that no such
amendment shall permit the Trustees hereunder to engage in any
activity prohibited by Section 2.1 or 6.1 hereof, or adversely
affect the Beneficiaries' right to receive their pro rata shares of
the Trust Corpus at the time of distribution.
13.2 Without Consent of Beneficiaries. The Trustees may from
time to time and at any time make or execute a declaration amending
this Agreement without the consent of the Beneficiaries pursuant to
Section 13.1 hereof for the purpose of (a) curing any ambiguity or
correcting or supplementing any provision contained herein or in
any amendment to this Agreement which may be defective or
inconsistent with any other provision contained herein or in any
amendment to this Agreement, (b) making such other provisions or
modifications in regard to matters or questions relating to this
Agreement or any amendment hereto, provided the same shall not
adversely affect the interests of the Beneficiaries, or (c) having
the Trust continue to qualify as a "liquidating trust" for federal
income tax purposes.
13.3 Notice and Effect of Amendment. Promptly after the
execution by the Trustees of any such declaration of amendment, the
Trustees shall send a summary or copy of the amendment to each
Beneficiary. Upon the execution of any such declaration of
amendment by the Trustees, this Agreement shall be deemed to be
modified and amended in accordance therewith.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 Filing Documents. This Agreement shall be filed in such
governmental office or offices, if any, and in such other office or
offices as the Trustees way determine to be necessary or desirable.
A copy of this Agreement and all amendments thereof shall be filed
in the office of the Trustees and shall be available during regular
business hours upon reasonable notice for inspection by any
beneficiary or his or her duly authorized representative. The
Trustees shall file each amendment to this Agreement in the same
place where the Original Agreement is filed or recorded. The
Trustees shall file or record any instrumeent which relates to any
change in the office of Trustee in the same places where the
original Agreement is filed or recorded.
14.2 Laws as to Construction. This Agreement shall be
governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania.
14.3 Separability. In the event any provision of this
Agreement or the application thereof to any person or circumstances
shall be finally determined a court of competent jurisdiction to be
invalid or unenforceable to any extent, the remainder of this
Agreement, or the application of such provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each provision of
this Agreement shall be valid and enforced to the fullest extent
permitted by law.
14.4 Notices. Any notice or other communication by the
Trustees to any Beneficiary shall be deemed to have been
sufficiently given, for all purposes, if given by being deposited,
postage prepaid, in a post office or letter box and being addressed
to such Beneficiary at its address as shown in the records of the
Trust.
14.5 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same
instrument.
14.6 Headings for Reference Only. The Article and Section
headings contained herein have been inserted for convenience and
reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
14.7 No Court Supervision. The Trust shall not be
administered under the direction or jurisdiction of any court
except as provided in Section 10.3 hereof, nor shall there be any
duty of the Trustees to account to any court with respect to their
administration of the Trust or the Trust Corpus.
14.8 Irrevocable Trust. This Trust is irrevocable except to
the extent contemplated by Article 13 hereof.
IN WITNESS WHEREOF, Consumers Financial Corporation has caused
this Agreement to be signed by its duly authorized officer and the
Trustees have signed this Agreement, effective this day of
, 1998.
CONSUMERS FINANCIAL CORPORATION
By
Its
Trustee
Trustee
