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WASHINGTON, D.C. 20549
FORM 10-SB
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Unified Holdings, Inc.
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(Name of Small Business Issuer in its charter)
Delaware 35-1797759
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
429 North Pennsylvania Street, Indianapolis, Indiana 46204-1873
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (317) 634-3301
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Not Applicable
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
Preferred Stock, $.01 par value
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(Title of class)
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<TABLE>
UNIFIED HOLDINGS, INC.
FORM 10 S-B
TABLE OF CONTENTS
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Page
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PART I 1
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Item 1. Description of Business 1
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Item 2. Management's Discussion and Analysis or Plan of Operation 27
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Item 3. Description of Property 31
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Item 4. Security Ownership of Certain Beneficial Owners and Management 33
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Item 5. Directors, Executive Officers, Promoters and Control Persons 34
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Item 6. Executive Compensation 36
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Item 7. Certain Relationships and Related Transactions 37
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Item 8. Description of Securities 38
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PART II 41
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Item 1. Market Price of and Dividends on the Registrant's
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Common Equity and Other Stockholder Matters 41
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Item 2. Legal Proceedings 41
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Item 3. Changes In and Disagreements with Accountants 41
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Item 4. Recent Sales of Unregistered Securities 42
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Item 5. Indemnification of Officers and Directors 42
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PART F/S 43
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PART III 94
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Item 1. Index to Exhibits 94
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Item 2. Description of Exhibits 94
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Registration Statement are or may
constitute forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995). These forward-looking statements
involve certain risks and uncertainties. For example, a down turn in economic
conditions generally and in particular those affecting bond and securities
markets could lead to an exit of investors from mutual funds. Similarly, an
increase in federal and state regulations of the mutual fund industry or the
imposition of regulatory penalties could have an effect on operating results
of the Company. These uncertainties, as well as others, are present in the
financial services industry and stockholders are cautioned that management's
view of the future on which it prices its products and estimates costs of
operations and regulations may prove to be other than as anticipated.
GENERAL
Unified Holdings, Inc., a Delaware corporation ("Unified" or the
"Company"), was organized December 7, 1989. At September 30, 1997, Unified
owned all of the capital stock of Unified Management Corporation ("UMC"),
Indianapolis, Indiana, a licensed National Association of Securities Dealers,
Inc. ("NASD") broker-dealer, Unified Advisers, Inc. ("UAI"), Indianapolis,
Indiana, a registered investment adviser and transfer agent, Health Financial,
Inc. ("Health Financial"), Lexington, Kentucky, a registered investment
adviser, HFI Acquisition Corporation, a Kentucky corporation ("HFI"), FLTC
Acquisition Corporation, a Kentucky corporation ("FLTC"), and VAI Acquisition
Corporation, a Delaware corporation ("VAC"). Each of HFI, FLTC and VAC
currently do not conduct any operations. Reference in this filing to the
"Company" or "Unified" include Unified and its wholly owned subsidiaries.
The Company's principal business is providing and enhancing a platform
for vertical integration in the financial services industry by means of
stock-for-stock, pooling-of-interests transactions and an aggressive merger
and acquisition program and providing management services and equipment for
its wholly owned subsidiaries which, in turn, concentrate their services over
seven major lines of business in the financial services industry: mutual fund
services and distribution; brokerage and securities services; investment
advisory and asset management services for various asset management
categories; consolidations, tax-free reorganizations and start-ups of mutual
funds; certain non-bank custodial services; retirement services involving the
use of mutual funds; and internal and external proprietary product and systems
development for the mutual fund industry. Through its subsidiaries, these
services are provided primarily to third party financial services
institutions, predominantly mutual funds. As a result of Unified's one-third
stock ownership in and affiliation with Vintage Advisers, Inc. ("VAI"), a
Delaware corporation, the Company's subsidiaries provide services for the
affiliated Vintage Funds, a family of four no-load mutual funds, sponsored by
VAI (hereinafter referred to as the "Vintage Funds"). The Company has enjoyed
14 consecutive quarters of operating profits.
Currently, the Company serves as transfer agent, administrative services
agent, distributor, fund accountant and/or shareholder services agent for ten
mutual fund families consisting of approximately 36 different portfolios,
including the four Vintage Funds portfolios, and performs other clerical
functions for the Vintage Funds in addition to typical mutual fund services.
The Company receives revenues for the management of the Vintage Funds along
with certain commissions attributable to distribution of fund shares as well
as mutual fund and clerical services fees. Since October 1995, the Vintage
Funds have grown to over $57,160,000 in combined assets as of September 30,
1997, of which, as of such date, approximately 70% of such assets were from
UMC's brokerage sweep accounts. Of the approximately $117,500,000 of
Unified's clients' assets invested in mutual funds, nearly half of those
assets are invested
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in the affiliated Vintage Funds. As of September 30, 1997, the Vintage Funds
portfolios included the following: The Vintage Starwood Strategic
Fund--$1,120,000; The Vintage Laidlaw Fund--$2,540,000; The Vintage First
Lexington Balanced Fund--$3,050,000; and The Vintage Taxable Money Market
Fund--$50,450,000.
UMC, the Company's broker-dealer subsidiary, functions as the
distributor of the Vintage Funds and also provides specialty services for
certain customers of the Vintage Funds in addition to its discount brokerage
activities. The brokerage subsidiary clears, on a fully-disclosed basis,
through Pershing, a division of Donaldson, Lufkin & Jenrette Securities
Corporation ("Pershing").
As of the date hereof, Unified had outstanding (i) 947,768 shares of its
common stock, $.01 par value (the "Common Stock"), and (ii) 17,069 shares of
its preferred stock, $.01 par value (the "Preferred Stock"), of which 8,486 of
such shares are designated as "Series A 8% Cumulative Preferred Stock" and
8,583 of such shares are designed as "Series B 8% Cumulative Preferred Stock."
As of September 30, 1997, the Company reported, on a consolidated basis, total
assets of $3,755,242 and stockholders' equity of $1,981,330.
As of July 15, 1997, the Company declared and paid a stock dividend with
respect to the Common Stock such that each issued share of Common Stock on
such date was divided into a greater number of shares of Common Stock that was
equal to a fraction, the numerator of which was 50,000 and the denominator of
which was the number of issued and outstanding shares of Common Stock
immediately prior to such division of shares. Upon payment of such stock
dividend, the Company had 50,000 shares of Common Stock issued and
outstanding.
Effective as of July 25, 1997, the Company terminated the Unified
Holdings, Inc. Management and Employee Retention Plan (the "M.E.R.P.") and the
Unified Holdings, Inc. Restricted Stock Option Plan (the "Stock Option Plan").
Prior to the termination of the M.E.R.P., the Company and each participant who
held an option granted pursuant to the M.E.R.P. executed an amendment to their
respective agreement to provide for immediate vesting, waive certain
antidilution protection and clarify certain other terms. All such options
were exercised as of July 25, 1997 and, in connection therewith, the Company
issued 572,768 shares of Common Stock. Also effective as of July 25, 1997,
the Company and each participant who held an award issued pursuant to the
Stock Option Plan executed a Release and Surrender Agreement whereby such
participants surrendered their awards to the Company.
In connection with the exercise of the outstanding M.E.R.P. options,
each optionee executed a demand promissory note payable to the Company in an
amount equal to such optionee's aggregate exercise price for the shares
subject to the option. The aggregate amount of the promissory notes was
approximately $75,300 and such notes did not bear interest. On July 25, 1997,
the Company paid to each optionee a bonus in an amount sufficient to
extinguish the debt represented by their promissory note. Such bonuses also
were adjusted upward to reflect the income tax effect of the bonus payment to
the participant. The exercise of the options had no material financial impact
on the Company; however, the payment of the bonuses had a cost to the Company
of approximately $125,000.
As of September 30, 1997, 50,000 shares of Common Stock were owned by
the Unified Regional Prototype 401(k) Profit Sharing Plan ("401(k) Plan").
Mr. Lynn E. Wood, the Company's Chief Operating Officer and a Director, votes
the shares held by the 401(k) Plan. As of November 30, 1997, the directors and
executive officers of the Company owned beneficially an aggregate of 947,768
shares of Common Stock, or 100.0% of the issued and outstanding shares.
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As of the date hereof, the total number of shares of Preferred Stock
that were authorized was 1,000,000, of which 22,100 shares have been
designated as follows:
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SHARES
SHARES ISSUED AND STATED PAR
DESIGNATED OUTSTANDING VALUE VALUE
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Series A 8% Cumulative Preferred Stock 10,000 8,486 $100 $.01
Series B 8% Cumulative Preferred Stock 10,000 8,583 100 .01
Series C 6.75% Cumulative Convertible Preferred Stock 2,100 -- 100 .01
</TABLE>
Dividend payments on the Series A and Series B Preferred Stock are
cumulative at 8% per annum of the stated value. Without the consent of the
holders of not less than a majority of the then outstanding shares of
Preferred Stock, the Company may not create any additional class or series of
stock ranking or having a parity as to payment of dividends or as to
liquidation preference over or with the Series A or Series B Preferred Stock.
In the event of non-payment of the cumulative preferred dividends, the
holders of Preferred Stock are entitled to vote on all matters presented to
the stockholders of the Company, as provided in the Amended and Restated
Certificate of Incorporation of the Company (the "Certificate of
Incorporation").
Unified's principal executive offices are located at 429 North
Pennsylvania Street, Indianapolis, Indiana 46204, and its telephone number is
(317) 634-3301.
RECENT DEVELOPMENTS
On April 25, 1997, the Company entered into an agreement to acquire
First Lexington Trust Company ("First Lexington"), located in Lexington,
Kentucky. First Lexington is a non-bank affiliated trust company that is
regulated by the Department of Financial Institutions, Commonwealth of
Kentucky. The Department of Financial Institutions approved the acquisition
of First Lexington by the Company on July 25, 1997. The transaction also is
subject to the prior approval of the shareholders of First Lexington. The
acquisition will be accounted for under the pooling-of-interests method of
accounting and, in connection therewith, the Company will issue 80,008 shares
of Common Stock in exchange for all of the outstanding capital stock of First
Lexington. It currently is anticipated that this acquisition will be
consummated by the end of January 1998. As of September 30, 1997, First
Lexington reported total assets of $1,125,358 and shareholders' equity of
$1,059,526.
On May 8, 1997, the Company entered into an agreement to acquire VAI,
located in Indianapolis, Indiana. VAI is a registered investment adviser
under the Investment Advisers Act of 1940, as amended, and is the adviser to
the Vintage Funds. Fees received by VAI for services are based upon net
assets under management for each portfolio in the Vintage Funds. Management
of VAI believes that as the assets under management of the Vintage Funds
increase and the expenses of the Vintage Funds become less than the
regulatory and prospectus imposed expense limitations, VAI will have to
reimburse less of the expenses of the Vintage Funds because the expenses
will be less than the regulatory and prospectus imposed expense
limitations. Management of the Company believes that VAI would become
profitable with a $20 million increase in assets under management for the
Vintage Funds.
The definitive agreement between the Company and VAI was terminated
effective as of December 1, 1997. By separate agreement dated December 1,
1997, the stockholders of VAI, other than the Company, have agreed to surrender
to VAI their shares of capital stock of VAI. The stock surrender may not be
consummated until the shareholders of the Vintage Funds have approved the
proposed change in control of such funds. Upon consummation of such stock
surrender, which is anticipated to be consummated during December 1997 or
January 1998, the Company will own all of the outstanding capital stock of VAI.
As of September 30, 1997, VAI reported total assets of $549,237 and
stockholders' equity of $(290,599).
On June 1, 1997, the Company completed the acquisition of Health
Financial, located in Lexington, Kentucky. This acquisition was accounted for
under the pooling-of-interests method of accounting and, in connection
therewith, on November 19, 1997 the Company issued 325,000 shares of Common
Stock. Health Financial is an investment adviser providing services to
trusts, retirement plans,
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businesses and individuals located in Kentucky. As of June 1, 1997, Health
Financial reported total assets of $710,196 and shareholders' equity of
$380,986.
Mr. Timothy L. Ashburn, the President, Chief Executive Officer and
Chairman of the Board of Directors of the Company (the "Board"), Mr. Jack R.
Orben, a director of the Company, and the Company each currently own one-third
of the outstanding capital stock of VAI. The terms of the original agreement
between the Company and VAI were negotiated by Mr. Ashburn, on behalf of VAI,
and by Mr. Lynn E. Wood, Chief Operating Officer of the Company, on behalf of
the Company. Mr. Wood is a stockholder of the Company.
Dr. Gregory W. Kasten, served as President and was the sole shareholder
of Health Financial prior to its acquisition by the Company. Dr. Kasten and
his family own approximately 37% of the outstanding capital stock of First
Lexington. In connection with the acquisition by the Company of Health
Financial, Dr. Kasten has entered into an agreement with Health Financial
whereby Dr. Kasten will serve as the President and Chief Executive Officer of
Health Financial for a period of at least two years at an annual salary of
approximately $500,000.
In connection with the acquisition of Health Financial, the Company
restated its consolidated financial statements as of and for the years ended
December 31, 1996 and 1995 and as of and for the three months ended March 31,
1997 and 1996.
Reference is made to the unaudited pro forma combined consolidated
financial statements, including the notes thereto, included in this
Registration Statement. See "Pro Forma Combined Consolidated Financial
Statements (Unaudited)."
THE COMPANY'S SUBSIDIARIES AND OPERATIONS
The Company has three wholly owned subsidiaries through which it
conducts its operations: UAI, a registered investment adviser and transfer
agent organized on February 1, 1990; UMC, a NASD and SIPC member broker-dealer
organized on November 20, 1952 as Unified Underwriters, Inc. and which
commenced operations as UMC effective February 25, 1976; and Health Financial,
a registered investment adviser organized on October 3, 1986 and acquired by
the Company on June 1, 1997.
UNIFIED ADVISERS, INC. UAI is a mutual fund financial services
company specializing in the development, support, maintenance, shareholder
servicing and management of and in providing investment advise to mutual
funds.
UAI was formed in 1990 as a sister company to UMC in a move to separate
and segregate the brokerage services employees (and brokerage account
activities) from the mutual fund services employees (and mutual fund account
activities).
UAI is a highly automated, registered stock transfer agent, that
presently provides transfer agency, fund accounting, administrative and/or
compliance services for ten mutual fund families consisting of nearly $647
million in mutual fund assets, 36 portfolios and approximately 29,000
accounts. Additionally, as a registered investment adviser, UAI has
approximately $117.5 million of assets under management, all of which are
invested in mutual funds, with approximately $50 million of the $117.5 million
invested in the Vintage Funds.
UAI's primary services include: mutual fund transfer agency and
shareholder recordkeeping; shareholder services plan support; mutual fund
start-up services; administration; fund
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accounting; compliance; asset allocation services; statement processing;
retirement plan services, including support and constructs; fulfillment; and
investment advisory services.
Through its systems group and its link to a brokerage affiliate, UAI has
the capability of converting assets on a tax-free basis from existing funds
into Unified's affiliated mutual fund family, the Vintage Funds.
Additionally, UAI has the capability and flexibility to create or modify funds
that are individualized to the client and the transaction.
As a mutual fund service provider for third party mutual funds, UAI
generally is responsible for all of a fund's business activities, including
distribution (through UMC) and investment management. The Company believes
that these services are an extension of distribution, that high quality
servicing is critical to retaining shareholder accounts and that quality of
service directly impacts the growth of mutual fund assets. Therefore, UAI
strives to create an error-free operating environment based on stringent
standards established by the Company.
UAI's service responsibilities may be divided into five major services:
* shareholder recordkeeping - encompasses all mutual fund
shareholders' transactions, including taking purchase and redemption
orders, entering orders into the transfer agency system and forwarding
information regarding trade activity to the portfolio managers and fund
accountants;
* fund accounting - provides daily recordkeeping for each
fund, including calculations of net asset value per share, dividend
rates per share and the maintenance of all books, records and financial
reports required by the Securities and Exchange Commission (the "SEC")
and other regulatory agencies. This service also includes preparation
of quarterly financial statements, shareholder reports and board reports
for each portfolio, participation in the periodic updating of
prospectuses, preparation of federal, state and local tax returns,
payment of all costs and expenses of the fund and the maintenance of the
official books and records of each fund;
* cash management - ensures timely receipts and disbursements
on shareholders activity for effective asset management, including cash
availability for investment, reconciliation of accounts, cash movement
and activity, processing of fees and tax withholding and reporting;
* fund administration and legal compliance; and
* investment advisory services.
UAI, as the primary servicing agent for various mutual funds, including
the Vintage Funds, receives fees from the funds for providing such services.
As such, UAI is economically dependent on these funds and their respective
contracts (and renewals) for a substantial portion of its revenue.
UNIFIED MANAGEMENT CORPORATION. UMC was formed in 1952 as Unified
Underwriters, Inc. and is a regional discount brokerage firm with a link to
mutual fund assets via its brokerage account services. A licensed NASD
broker-dealer since 1976, UMC specializes in mutual fund distribution and
shareholder servicing liaison providing such services as: mutual fund
distribution, distribution services and support; mutual fund conversion
support for broker-dealer requirements; mutual fund trades; individual
retirement account ("IRA") custodial services; 12b-1 maintenance, accounting
and marketing support;
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securities (stock and bond) brokerage; brokerage clearing and execution
services; consolidated brokerage statement processing; mutual fund and brokerage
software development; asset allocation and performance measurement services and
statement processing; and retirement account record keeping.
UMC, as a fund distributor and broker-dealer of record, has created a
beneficial synergy by linking brokerage accounts with funds and providing a
proprietary brokerage sweep relationship through the Vintage Funds. UMC's
arrangement with its brokerage clearing firm allows UMC to sweep monies from
the brokerage clearing firm to the Vintage Funds as part of the transaction
instead of leaving the money at the brokerage clearing firm. UMC also
utilizes its brokerage services as an important component in the tax-free
conversion (re-organization) of mutual fund assets from small third-party
mutual funds into the Vintage Funds. UMC clears through Pershing and provides
a full range of brokerage products.
HEALTH FINANCIAL, INC. HFI is a registered investment adviser that
was formed in 1986 and has been registered with the SEC since 1987. As of
September 30, 1997, HFI managed over $340 million in assets for both
individuals and institutions. The predominant management style of HFI is a
balanced portfolio of no-load index funds in multi-asset classes consisting of
the Standard & Poor's 500 large capitalization United States stocks, small
capitalization United States stocks, United States bonds, real estate, cash
and international stocks.
THE COMPANY'S AFFILIATED MUTUAL FUNDS
The Company currently owns a one-third interest in VAI, a registered
investment adviser that manages and sponsors the Vintage Funds, a no-load
family of mutual funds consisting of four portfolios. As of September 30,
1997, the Vintage Funds maintained approximately $57,160,000 in total net
assets, predominantly in its one money market portfolio, and features its
proprietary property, V.O.I.C.E. (Vision for Ongoing Investment in Charity and
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Education).sm
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The Vintage Funds' mission, largely due to its relationship with VAI and
Unified, is to capture existing small fund assets via: tax-free
reorganizations; acquisitions; asset mergers; construction of Vintage
portfolios for certain registered investment advisers; and the marketing of
its V.O.I.C.E.sm concept.
The Vintage Funds were established by VAI as a platform for five primary
visions:
(i) As a proving ground for the V.O.I.C.E.sm program, and
establishing V.O.I.C.E.sm as a niche in the industry, highlighting its
philanthropic nature and its contributions to not-for-profit
organizations, especially in the area of education;
(ii) To provide a home for small, third party mutual funds
thereby growing the Vintage Funds' assets by tax-free reorganizations
due to its affiliation with Unified, the attraction of the V.O.I.C.E.sm
program and stock-for-stock acquisitions;
(iii) To create an efficient, no-load investment environment, with
industry mid-point expense ratios and free exchange privileges;
(iv) To provide the opportunities and diversity attributable to
selected fund-of-funds; and
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(v) To create a complete mutual fund service environment with a
special focus on the gathering and maintenance of retirement plans.
One of the three Vintage Fund's equity portfolios is a fund-of-funds.
THE PHILANTHROPIC V.O.I.C.E.sm (VISION FOR ONGOING INVESTMENT IN
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CHARITY AND EDUCATION)sm PROGRAM.
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The Company oversees and manages the V.O.I.C.E.sm program for VAI,
exclusively for the Vintage Funds. V.O.I.C.E.sm is a unique and innovative
philanthropic program through which individuals and institutions can cause
contributions to be made to educational, charitable and philanthropic
"not-for-profit" organizations at no expense to the Vintage Fund or to the
shareholder. VAI makes the contributions from its own revenue to certain
accredited college or university endowments or general scholarship funds
designated by qualifying shareholders.
The Vintage Funds, since their formation in December 1994, have licensed
the V.O.I.C.E.sm program from VAI and, pursuant to the licensing agreement,
VAI is required to make a contribution each quarter on behalf of each
qualifying Vintage Fund shareholder participating in the V.O.I.C.E.sm program.
All shareholders in all Vintage Funds maintaining an average annualized
aggregate net asset value of $25,000 or more over the period of an entire
calendar quarter will be qualified to designate an eligible institution to
receive a donation under the program for that quarterly period. VAI will
contribute, on a quarterly basis, an amount equal to that quarter's portion of
0.25% of the average annualized aggregate net asset value, as long as the
average annualized aggregate net assets remain above $25,000 for the quarterly
period. Although the contributions will be made in the shareholder's name and
behalf, there are no tax deductions or tax advantages to the shareholders,
since VAI is making the contributions on behalf of the shareholders and
neither the shareholders' nor the Funds' assets are reduced. The
contributions made by VAI during fiscal year 1996 and the ten months ended
September 30, 1997 were $8,612 and $13,056, respectively.
Philanthropic institutions outside the area of education may be
accepted, at the discretion of VAI. The V.O.I.C.E.sm program is the
proprietary property of VAI.
REGULATION OF THE COMPANY'S BUSINESS
Under the Investment Company Act of 1940 (the "1940's Act"), the
advisory, sub-advisory and distribution agreements between the Vintage Funds
and the Company's subsidiaries are reviewed annually and renewed accordingly
by the Board of Trustees of the Vintage Funds (the "Boards of Trustees").
There are no assurances that the Company's subsidiaries will be able to
continue the contracts with the Vintage Funds. The non-renewal of those
agreements by the Company or its subsidiaries could have a material adverse
effect on the Company's business. The service agreements with mutual funds
and the actions of the Company and its subsidiaries supporting those
agreements require regulation by the NASD, SEC, independent auditors and
counsel, and often require the approval of the Boards of Trustees and, in
certain cases, the shareholders of a particular Vintage Fund. The Company
believes that such approval will be granted and that the mutual fund services
agreements with the Vintage Funds will be renewed.
The securities industry, including broker-dealer, investment advisory
and transfer agency firms in the United States, are subject to extensive
regulation under federal and state laws. Much of the regulation of
broker-dealers has been delegated to self-regulatory organizations,
principally the NASD. The regulations to which broker-dealers are subjected
cover all aspects of the securities business, including
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sales methods, trade practices, capital structure of securities firms,
recordkeeping and the conduct of directors, officers and employees. Additional
state and federal legislation, changes in rules promulgated by the SEC and by
self-regulatory organizations, or changes in the interpretation or enforcement
of existing laws and rules often directly affect the methods of operation and
profitability of money managers, broker-dealers and transfer agents. Subject
to certain preemptive federal law, investment-related firms also are subject
to regulation and licensing by state securities commissions in the states in
which they transact business. The SEC, state securities administrators and
the self-regulatory organizations may conduct administrative proceedings that
can result in censure, fine, suspension or expulsion of a broker-dealer, its
officers or employees. The principal purpose of regulation and discipline of
broker-dealers, investment advisers and stock transfer agents is the
protection of customers and the securities markets rather than protection of
creditors and shareholders of such firms.
INDUSTRY REGULATIONS
The Company is subject to extensive regulation as to its duties,
affiliations, conduct and limitations on fees. Section 22(b) of the 1940's
Act provides that a securities association registered under Section 15A of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), may adopt rules
prohibiting its members from receiving a commission, discount, spread or fees
except in accordance with a method or methods, and within such limitations as
to the relation thereof to said public offering price, as such rules may
prescribe in order that the price at which such security is offered or sold to
the public shall not include an excessive sales load but shall allow for
reasonable compensation for sales personnel, broker-dealers and underwriters,
and for reasonable sales loads to investors. Section 22(c) of the 1940's Act
further states that the SEC may make rules and regulations applicable to
registered investment companies and to principal underwriters of, and dealers
in, the redeemable securities of any registered investment company, whether or
not members of any securities association. Any rules and regulations so made
by the SEC, to the extent that they may be inconsistent with the rules of any
securities association, shall, so long as they remain in force, supersede the
rules of the association and be binding upon its members as well as all other
underwriters and dealers to whom they may be applicable.
The Company's wholly owned, broker-dealer subsidiary, UMC, is a NASD
member. The NASD, a securities association registered pursuant to Section 15A
of the 1934 Act, has prescribed rules with respect to maximum commissions,
charges and fees related to investment in any open-end investment company
registered under the 1940's Act.
VAI, of which the Company owns one-third of the outstanding capital
stock, is a registered investment adviser that serves as the adviser to the
Vintage Funds. It is unlawful for any investment adviser to: (1) employ any
device, scheme or artifice to defraud any client or prospective client; (2)
engage in any transaction, practice or course of business that operates as a
fraud or deceit upon any client or prospective client; or (3) engage in any
act, practice or course of business that is fraudulent, deceptive or
manipulative.
The Boards of Trustees are presently seventy-five percent (75%)
"disinterested" as defined under the 1940's Act, which allows the Vintage
Funds to effect tax-free reorganizations of third party mutual funds, a
business that the Vintage Funds, due to its affiliation with Unified,
aggressively pursues. The 75% disinterested trustee arrangement is an
important component in the Company's business plan as such plan relates to
tax-free reorganizations of third party funds and to the Company's desire to
acquire the registered investment advisers to other mutual fund families. An
investment adviser can transfer control of an investment company only if at
least 75% percent of the directors of the investment company are independent
of the new and old investment adviser, and provided no unfair burden is
imposed on the investment company as a result of the sale. The effect of such
transfer results in the termination of the
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old investment adviser agreement and, if acquired by VAI, would require the new
agreement to be approved by the Boards of Trustees and the Vintage Funds'
shareholders.
Directors and the investment adviser also are defined as fiduciaries;
accordingly, the SEC is authorized to initiate an action to enjoin a breach of
fiduciary duties involving personal misconduct by officers, directors,
investment advisers and principal underwriters. Shareholders or the SEC also
may bring an action against the officers, directors and investment adviser for
breach of fiduciary duty in establishing the compensation paid the investment
adviser. An investment adviser to a fund, its principals and its employees,
also may be subject to proceedings initiated by the SEC to impose remedial
sanctions for violation of any provision of the federal securities laws and
the regulations adopted thereunder, and the SEC may preclude an investment
adviser to an investment company from continuing to act in such capacity.
Investment companies such as the Vintage Funds are subject to considerable
substantive regulation. Such companies must comply with periodic reporting
requirements. Proxy solicitations are subject to the general proxy rules as
well as to special proxy rules applicable only to investment companies.
Shares of investment companies can only be offered at a uniform public
offering price based upon the current share net asset value plus the sales
load. No more than 60% of the directors can be interested persons, defined to
include, among others, persons affiliated with the management company or
underwriter, and a majority of the directors must not be affiliated with the
underwriter (distributor). The management agreement initially must have been
approved by a majority of the outstanding shares and, after two years, must be
annually approved, either by the board or by the outstanding voting shares.
The management agreement must automatically terminate in the event of
assignment and must be subject to termination upon 60-days notice by the board
or by a vote of the majority of the outstanding voting shares. The
underwriting or distribution agreement also must be annually approved by the
board or by a vote of a majority of the outstanding voting shares, and must
provide for automatic termination in event of assignment. Transactions
between the investment company and an affiliate can be entered into only if
approved by the SEC, after notice and opportunity for hearing.
NET CAPITAL REQUIREMENTS
As a broker-dealer and as a member of the NASD, UMC is subject to the
SEC's minimum net capital rule (Rule 15c3-1), which provides that a
broker-dealer doing business with the public must maintain certain minimum net
capital and shall not permit its aggregate indebtedness to exceed certain
specified limitations. The rule is designed to maintain a firm's financial
integrity and liquidity. A broker-dealer may be required to reduce its
business and restrict withdrawal of subordinated capital if its net capital
drops below specified levels, and also may be prohibited from expanding its
business or declaring cash dividends. In addition, failure to maintain the
required net capital may subject a broker-dealer to disciplinary actions by
the SEC, the NASD and state securities administrators, including fines,
censure, suspension or expulsion. Rule 15c3-1 may limit UMC's uses of its
capital.
UMC is required to maintain minimum net capital, as defined, of 6 2/3%
of aggregate indebtedness or $250,000, whichever is greater, and a ratio of
aggregate indebtedness to net capital of not more than 15 to 1. At September
30, 1997, UMC had net capital of $404,168, which was $154,168 in excess of its
required net capital of $250,000, and a ratio of aggregate indebtedness to net
capital of 0.4 to 1. Factors that affect UMC's net capital include the
general investment climate as well as the ability of the Company to obtain any
liquid assets necessary to contribute equity capital to its subsidiaries.
Although UMC currently has sufficient net capital, should the Company's
liquidity be impaired and additional net capital becomes necessary, the
continued operation of UMC and the Company could be restricted or suspended.
- 9 -
<PAGE> 12
Rule 15c3-1 requires the ratio of aggregate indebtedness, as defined, to
net capital not exceed 15 to 1, and imposes certain restrictions on
operations. In computing net capital, various adjustments to net worth are
made with a view to excluding assets that are not readily convertible into
cash and with a view to a conservative statement of other assets, such as a
firm's position in securities. UMC may not allow withdrawal of subordinated
capital if minimum net capital would thereafter be less than 5% of aggregate
debit items as defined under Rule 15c3-1. Further, UMC may not permit equity
capital to be withdrawn, whether by payment of dividends, repurchase of stock
or other means, if its net capital would thereafter be less than 5% of
aggregate debit items. Compliance with Rule 15c3-1 may limit those operations
of a firm (such as UMC) that may require the use of its capital.
REGULATORY PENALTIES FOR FAILURE TO MAINTAIN MINIMUM NET CAPITAL
REQUIREMENTS
Rule 15c3-1 imposes minimum financial requirements for broker-dealers.
A decrease below minimum net capital could force UMC to suspend activities,
pending recovery of net capital. Factors that affect UMC's net capital
include the general investment climate as well as the ability of the Company
to obtain any assets necessary to contribute equity capital to UMC.
RISKS OF BUSINESS
The Company's asset management, mutual fund services, mutual fund
management and broker-dealer businesses are subject to various risks and
contingencies, many of which are beyond the ability of the Company to control.
These risks include: economic conditions generally and in particular those
affecting bond and securities markets, interest rates and discretionary income
available for investment; customer inability to meet payment or delivery
commitments; customer fraud; and employee misconduct and error.
COMPLIANCE REQUIREMENTS AND REGULATORY PENALTIES FOR NONCOMPLIANCE
Various aspects of the Company's business are subject to federal and
state regulation as well as "self regulatory" authorities that, depending on
the nature of any non-compliance, may result in the suspension or revocation
of licenses or registration, including broker-dealer, investment adviser and
transfer agent licenses and registrations, as well as the imposition of civil
fines and criminal penalties. Failure by the Company or any of its employees
to comply with such regulations or with any of the laws, rules or regulations
of federal, state or industry authorities (principally the NASD and SEC) could
result in censure, imposition of fines or other sanctions, including
revocation of the Company's right to do business or in suspension or expulsion
from the NASD. Any of the foregoing could have a material adverse effect upon
the Company. Such regulations are designed primarily for the protection of
the investing customers of securities firms rather than the Company's
stockholders. Finally, there is no assurance that the Company, along with
other fund sellers, administrators and managers will not be subjected to
additional stringent regulation and publicity that may adversely affect their
business.
COMPETITION
Since its inception, the Company has directly competed with a number of
larger, more established mutual fund service organizations and securities
firms. Competition is influenced by various factors, including breadth,
quality of service and price. All aspects of the Company's business are
competitive, including competition for mutual fund assets to manage. Large
national firms have much greater marketing capabilities, offer a broader range
of financial services and compete not only with the Company and among
themselves but also with commercial banks, insurance companies and others for
retail and institutional clients. The Company's affiliated mutual funds are
subject to competition from nationally and regionally distributed funds
offering equivalent financial products with returns equal to or greater than
those offered by the Vintage Funds. The Company is focused on the niche area
of tax-free
- 10 -
<PAGE> 13
reorganizations and consolidations of small mutual funds into the Vintage Funds
family and its proprietary products, such as V.O.I.C.E.sm Competition for assets
under management is intense from both national and regional based firms. Access
to local investment and the population of the region by modern communication
systems is so efficient that the Company's geographical position cannot be
deemed an advantage. The Company's investment management operations compete
with a large number of other investment management firms, commercial banks,
insurance companies, broker-dealers and other financial service firms. Most of
these firms are larger and have access to greater resources than the Company.
The investment advisory industry is characterized by relatively low cost of
entry and the formation of new investment advisory entities that may compete
directly with the Company is a frequent occurrence. The Company directly
competes with as many as several hundred firms that are of similar or larger
size. The Company's ability to increase and retain clients' assets could be
materially adversely affected if client accounts under-perform the market. The
ability of the Company's investment management subsidiary to compete with other
investment management firms also is dependent, in part, on the relative
attractiveness of their investment philosophies and methods under prevailing
market conditions. A large number of mutual funds are sold to the public by
investment management firms, broker-dealers, insurance companies and banks in
competition with the Vintage Funds. Many of the Company's competitors apply
substantial resources to advertising and marketing their mutual funds, which may
adversely affect the ability of the Vintage Funds to attract new assets. The
Company expects that there will be increasing pressures among mutual fund
sponsors to obtain and hold market share. Although the Company may expand the
financial services it can provide to its customers, it does not now offer as
broad a range of financial services as national stock exchange member firms,
commercial banks, insurance companies and others.
DEPENDENCE ON KEY CLIENTS
The Company presently provides mutual fund services, transfer agency,
fund accounting, administration and distribution services to ten mutual fund
families consisting of 36 portfolios. Four of those portfolios, the Vintage
Funds, originally were organized and are sponsored by VAI. The Vintage Funds
and those of the remaining parties, have entered into contracts with the
Company that typically expire within one to three years. No assurance can be
given that any of these third party funds or the Vintage Funds will remain
clients of the Company upon expiration or termination of the various
administration and distribution agreements. The loss by the Company of such
mutual fund clients could have a material adverse effect on the Company.
Additionally, UMC has entered into clearing agreements with its
introduced broker-dealer clients that represent a substantial portion of the
assets in the Vintage Funds through the use of the Vintage Taxable Money
Market Funds as their brokerage sweep facility. The introduced broker-dealer
relationships also represent a significant portion of UMC's revenues from
trading commissions. The loss of clearing clients could have a material
adverse effect on the Vintage Funds and the Company.
VAI receives management fees from the Vintage Funds. As the Vintage
Funds' manager and adviser, VAI, and, therefore, the Company, are economically
dependent on the Vintage Funds for a substantial portion of their revenue.
Contacts for portfolio management performed by VAI in the case of the
Vintage Funds are awarded annually by review and approval of the independent
Boards of Trustee of the various Vintage Funds. The Boards of Trustee consist
of four trustees, three of whom are independent, and Timothy L. Ashburn who is
affiliated with the Company. These Boards also are responsible for awarding
the Company's subsidiaries the various service agreements for the Vintage
Funds.
- 11 -
<PAGE> 14
DEPENDENCE ON KEY PERSONNEL
The Company is dependent in a large part on Timothy L. Ashburn, the
President, Chief Executive Officer and Chairman of the Board, as well as a
group of senior management personnel. The loss or unavailability of any of
these persons could have a material adverse effect on the Company. The
Company's success also will depend on its ability to attract and retain highly
skilled personnel in all areas of its business. There can be no assurance
that the Company will be able to attract and retain personnel on acceptable
terms in the future. Loss of any of these individual's services would likely
have a material adverse effect on the Company's business. The Company is in
the process of purchasing a key man insurance policy on each of Mr. Ashburn and
Dr. Gregory W. Kasten in the amount of $1,000,000 each naming the Company as
the beneficiary.
EMPLOYEES
As of September 30, 1997, the Company and its subsidiaries had 34
employees, of which 32 were full-time employees.
BUSINESS DEVELOPMENT
The Company believes that the consummation of the pending transactions
and the integration of Health Financial, First Lexington and VAI will provide
a greater asset and business base and increase the value of the Company as a
whole. In addition, such transactions should provide the Company with a
larger client base. The acquisitions of Health Financial, a registered
investment adviser, and First Lexington, a trust company, and ownership of
100% of the capital stock of VAI will vertically integrate the Company's
mutual fund service provider business and its financial services and lay the
groundwork for future growth. Consummation of the pending transactions also
should provide the basis for further development by the Company of services
such as: mutual fund consolidations; tax-free reorganizations and start-ups;
certain non-bank trust and custodial services; retirement services; and
internal and external proprietary product and systems development. The
Company anticipates continuing and expanding its mutual fund services and
brokerage services contracts and relationships and increasing its assets under
management through tax-free reorganizations of small mutual funds and
stock-for-stock, pooling-of-interests acquisitions of registered investment
advisers and compatible companies in the financial services industry.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma combined consolidated balance sheet
gives effect to the proposed acquisitions of First Lexington and VAI as if
each of the transactions were consummated on September 30, 1997.
The following pro forma combined consolidated income statements for the
nine months ended September 30, 1997 and 1996 and for the years ended December
31, 1996 and 1995 set forth the results of operations of the Company combined
with the results of operations of First Lexington and VAI as if the proposed
transactions had occurred as of the first day of each of the periods
presented.
The unaudited pro forma combined consolidated financial statements
should be read in conjunction with the accompanying Notes to the Pro Forma
Combined Consolidated Financial Statements and with the historical financial
statements of the Company, First Lexington and VAI. The historical interim
financial information for the nine months ended September 30, 1997, used as a
basis for the pro forma combined consolidated financial statements, include
all necessary adjustments, which, in management's opinion, are necessary to
present the financial position and operations fairly. These pro forma
combined consolidated financial statements may not be indicative of the
results of operations that actually would have occurred
- 12 -
<PAGE> 15
if the proposed transactions had been consummated on the dates assumed above or
of the results of operations that may be achieved in the future.
VAI has a November 30 fiscal year end. For purposes of the following
pro forma combined consolidated financial statements, VAI information at or
for the year ended November 30 and the nine months ended August 31 is reported
as December 31 and September 30 data, respectively.
- 13 -
<PAGE> 16
<TABLE>
UNIFIED HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
<CAPTION>
ADJUSTMENTS AND ELIMINATIONS
UNIFIED FIRST ----------------------------
CONSOLIDATED VAI LEXINGTON COMBINED DEBIT CREDIT CONSOLIDATED
------------ --- --------- -------- ----- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
CASH AND CASH EQUIVALENTS $ 603,689 $ 19,367 $ 60,708 $ 683,764 $ $ $ 683,764
SECURITIES OWNED, AT MARKET VALUE
Debt securities -- -- 957,771 957,771 957,771
Mutual funds (affiliated) 643,232 63,389 -- 706,621 706,621
Mutual funds 188,234 -- -- 188,234 188,234
NOTE RECEIVABLE - AFFILIATED
COMPANY 50,000 -- -- 50,000 50,000<F3> --
NOTE RECEIVABLE - NON-AFFILIATED
COMPANY 5,361 -- -- 5,361 5,361
ACCOUNTS RECEIVABLE
Receivables 1,227,296 45,484 89,474 1,362,254 255,174<F3> 1,107,080
Allowance for bad debts (2,041) -- -- (2,041) (2,041)
OTHER ASSETS
Prepaid and sundry assets 124,605 2,746 6,900 134,251 134,251
---------- -------- ---------- ---------- -------- -------- ----------
Total current assets $2,840,376 $130,986 $1,114,853 $4,086,215 $ -- $305,174 $3,781,041
========== ======== ========== ========== ======== ======== ==========
INVESTMENTS
Investment in affiliated company 377,756 -- -- 377,756 377,756<F5> --
NOTE RECEIVABLES, net of
current maturity 8,090 -- -- 8,090 8,090
ORGANIZATION COST, NET -- 146,270 2,550 148,820 148,820
DEFERRED DEVELOPMENT COST -- 294,844 -- 294,844 294,844
FIXED ASSETS
Property, furniture and
equipment, net 258,223 -- 7,955 266,178 266,178
Capitalized lease, net 148,538 -- -- 148,538 148,538
---------- -------- ---------- ---------- -------- -------- ----------
TOTAL ASSETS $3,632,983 $572,100 $1,125,358 $5,330,441 $ -- $682,930 $4,647,511
========== ======== ========== ========== ======== ======== ==========
<CAPTION>
See notes to pro forma combined consolidated financial statements.
- 14 -
<PAGE> 17
ADJUSTMENTS AND ELIMINATIONS
UNIFIED FIRST ----------------------------
CONSOLIDATED VAI LEXINGTON COMBINED DEBIT CREDIT CONSOLIDATED
------------ --- --------- -------- ----- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
CURRENT LIABILITIES
Current portion of capitalized
lease obligations $ 86,320 $ -- $ -- $ 86,320 $ $ $ 86,320
Note payable - affiliated company -- 50,000 -- 50,000 50,000<F3> --
Payable to affiliated company -- 255,174 -- 255,174 255,174<F3> --
Accounts payable and accrued
expenses 607,624 330,754 22,177 960,555 16,000<F6> 944,555
Accrued compensation 238,690 45,000 -- 283,690 283,690
Income taxes payable -- -- 21,405 21,405 21,000<F6> 405
Deferred income taxes -- -- 22,000 22,000 22,000
Other liabilities 724,435 -- -- 724,435 724,435
---------- --------- ---------- ---------- -------- -------- ----------
Total current liabilities 1,657,069 680,928 65,582 2,403,579 342,174 -- 2,061,405
---------- --------- ---------- ---------- -------- -------- ----------
LONG-TERM LIABILITIES
Long-term portion of capitalized
lease obligations 41,581 -- -- 41,581 41,581
Deferred income taxes -- -- 250 250 250
---------- --------- ---------- ---------- -------- -------- ----------
Total liabilities 1,698,650 680,928 65,832 2,445,410 342,174 -- 2,103,236
---------- --------- ---------- ---------- -------- -------- ----------
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock 10,728 300 8,295 19,323 7,295<F1><F2><F6> 3,250<F7> 14,778
Preferred A 8,486 -- -- 8,486 8,486
Preferred B 8,583 -- -- 8,583 8,583
Subscribed stock to be issued in
connection with acquisition of
Health Financial 3,250 -- -- 3,250 3,250<F7> --
Additional paid-in capital 1,148,588 599,700 821,705 2,569,993 598,000<F5> 7,795<F1><F2> 1,979,788
Retained earnings
(accumulated deficit) 635,101 (677,758) 229,526 186,869 257,244<F4><F5> 444,113
Unrealized gain/(loss)
on investments 119,597 (31,070) -- 88,527 88,527
---------- --------- ---------- ---------- -------- -------- ----------
Total shareholders' equity 1,934,333 (108,828) 1,059,526 2,885,031 609,045 268,289 2,544,275
---------- --------- ---------- ---------- -------- -------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,632,983 $ 572,100 $1,125,358 $5,330,441 $951,219 $268,289 $4,647,511
========== ========= ========== ========== ======== ======== ==========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 15 -
<PAGE> 18
<TABLE>
<CAPTION>
UNIFIED HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Revenue from broker/dealer
operations $1,136,368 $ -- $ -- $1,136,368 $ $ $1,136,368
Investment adviser fees 1,510,491 239,153 -- 1,749,644 1,749,644
Revenue from fund services
operations 1,015,451 -- -- 1,015,451 155,000<F4> 860,451
Trust and administration fees -- -- 235,179 235,179 235,179
Trail commission fees 720,107 -- -- 720,107 720,107
Custody and retirement fees 255,217 -- -- 255,217 255,217
Software and program fees 126,687 -- -- 126,687 126,687
Net investment and other income 107,097 1,251 33,849 142,197 50,499<F4> 91,698
---------- -------- -------- ---------- -------- ------- ----------
Gross revenue 4,871,418 240,404 269,028 5,380,850 205,499 -- 5,175,351
---------- -------- -------- ---------- -------- ------- ----------
COST OF SALES
Brokerage revenue charges 724,449 -- -- 724,449 724,449
Trail commission charges 502,909 -- -- 502,909 502,909
Investment adviser fees 46,741 303,943 16,558 367,242 367,242
Administration fees 4,455 -- 27,290 31,745 31,745
---------- -------- -------- ---------- -------- ------- ----------
Cost of sales 1,278,554 303,943 43,848 1,626,345 -- -- 1,626,345
---------- -------- -------- ---------- -------- ------- ----------
Gross Profits 3,592,864 (63,539) 225,180 3,754,505 205,499 -- 3,549,006
---------- -------- -------- ---------- -------- ------- ----------
EXPENSES
Employee compensation and benefits 2,182,180 (132,722) -- 2,049,458 2,049,458
Brokerage operating charges 221,534 -- -- 221,534 221,534
Fund services operating charges 189,403 -- -- 189,403 189,403
Mail and courier service 35,940 158 1,733 37,831 37,831
Telephone 77,528 50 3,954 81,532 81,532
Equipment rental and maintenance 61,610 -- 3,785 65,395 65,395
<CAPTION>
See notes to pro forma combined consolidated financial statements.
- 16 -
<PAGE> 19
ADJUSTMENTS AND ELIMINATIONS
UNIFIED FIRST ----------------------------
CONSOLIDATED VAI LEXINGTON COMBINED DEBIT CREDIT CONSOLIDATED
------------ --------- --------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fees 90,402 45,863 14,136 150,401 150,401
Occupancy 153,506 -- 2,500 156,006 156,006
Depreciation and amortization 123,581 59,548 6,827 189,956 189,956
Office supplies 42,691 -- -- 42,691 42,691
Travel and entertainment 68,115 (9,043) 126 59,198 59,198
Management fee -- 155,000 50,499 205,499 205,499<F4> --
Interest expense 6,232 8,009 -- 14,241 14,241
Other operating expenses 145,664 18,615 25,212 189,491 189,491
---------- --------- -------- ---------- -------- --------- ----------
Total expenses 3,398,386 145,478 108,772 3,652,636 -- 205,499 3,447,137
---------- --------- -------- ---------- -------- --------- ----------
Income from operations before
gain/(loss) on securities 194,478 (209,017) 116,408 101,869 205,499 205,499 101,869
Gain/(loss) on securities 24,996 (22,318) -- 2,678 2,678
Results of affiliate (67,537) -- -- (67,537) 67,537<F5> --
---------- --------- -------- ---------- -------- --------- ----------
Income before income taxes 151,937 (231,335) 116,408 37,010 205,499 273,036 104,547
Provision for income taxes 16,000 -- 37,000 53,000 37,000<F6> 16,000
---------- --------- -------- ---------- -------- --------- ----------
Net income 135,937 (231,335) 79,408 (15,990) 205,499 310,036 88,547
---------- --------- -------- ---------- -------- --------- ----------
Dividends on preferred stock 101,854 -- -- 101,854 -- -- 101,854
---------- --------- -------- ---------- -------- --------- ----------
Net results after preferred stock
dividend $ 34,083 $(231,335) $ 79,408 $ (117,844) $205,499 $ 310,036 $ (13,307)
========== ========= ======== ========== ======== ========= ==========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 17 -
<PAGE> 20
<TABLE>
UNIFIED HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<CAPTION>
ADJUSTMENTS AND ELIMINATIONS
UNIFIED FIRST ----------------------------
CONSOLIDATED VAI LEXINGTON COMBINED DEBIT CREDIT CONSOLIDATED
------------ -------- --------- -------- ----- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Revenue from broker/dealer
operations $1,463,228 $ -- $ -- $1,463,228 $ $ $1,463,228
Investment adviser fees 1,207,793 175,293 -- 1,383,086 1,383,086
Revenue from fund services
operations 1,509,636 -- -- 1,509,636 54,141<F4> 1,455,495
Trust and administration fees -- -- 123,561 123,561 123,561
Trail commission fees 759,034 -- -- 759,034 759,034
Custody and retirement fees 206,273 -- -- 206,273 206,273
Software and program fees 143,178 -- -- 143,178 143,178
Net investment and other income 23,095 48 44,799 67,942 46,500<F4> 21,442
---------- -------- -------- ---------- -------- -------- ----------
Gross revenue 5,312,237 175,341 168,360 5,655,938 100,641 5,555,297
---------- -------- -------- ---------- -------- -------- ----------
COST OF SALES
Brokerage revenue charges 916,776 -- -- 916,776 916,776
Trail commission charges 491,977 -- -- 491,977 491,977
Investment adviser fees 42,562 35,194 10,132 87,888 87,888
Administration fees 3,060 -- 10,431 13,491 -- 13,491
---------- -------- -------- ---------- -------- -------- ----------
Cost of sales 1,454,375 35,194 20,563 1,510,132 -- 1,510,132
---------- -------- -------- ---------- -------- -------- ----------
Gross Profits 3,857,862 140,147 147,797 4,145,806 100,641 4,045,165
---------- -------- -------- ---------- -------- -------- ----------
EXPENSES
Employee compensation and benefits 2,122,910 115,668 -- 2,238,578 2,238,578
Brokerage operating charges 264,885 -- -- 264,885 264,885
Fund services operating charges 185,803 -- -- 185,803 185,803
Mail and courier service 43,034 241 -- 43,275 43,275
Telephone 45,478 1,835 3,553 50,866 50,866
Equipment rental and maintenance 62,734 -- -- 62,734 62,734
<CAPTION>
See notes to pro forma combined consolidated financial statements.
- 18 -
<PAGE> 21
ADJUSTMENTS AND ELIMINATIONS
UNIFIED FIRST ----------------------------
CONSOLIDATED VAI LEXINGTON COMBINED DEBIT CREDIT CONSOLIDATED
------------ --------- --------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fees 37,015 31,802 13,824 82,641 82,641
Occupancy 149,156 -- 2,500 151,656 2,500<F4> 149,156
Depreciation and amortization 137,664 39,892 9,420 186,976 186,976
Office supplies 45,932 3,799 -- 49,731 49,731
Travel and entertainment 38,516 10,066 -- 48,582 48,582
Management fee -- 54,141 44,000 98,141 98,141<F4> --
Interest expense 3,364 10,669 -- 14,033 14,033
Other operating expenses 147,135 17,951 39,163 204,249 204,249
---------- --------- -------- ---------- -------- --------- ----------
Total expenses 3,283,626 286,064 112,460 3,682,150 -- 100,641 3,581,509
---------- --------- -------- ---------- -------- --------- ----------
Income from operations before
gain/(loss) on securities 574,236 (145,917) 35,337 463,656 100,641 100,641 463,656
Gain/(loss) on securities 39,929 -- 131 40,060 40,060
Results of affiliate (69,399) -- -- (69,399) 69,399<F5> --
---------- --------- -------- ---------- -------- --------- ----------
Income before income taxes 544,766 (145,917) 35,468 434,317 100,641 170,040 503,716
Provision for income taxes -- -- -- -- --
---------- --------- -------- ---------- -------- --------- ----------
Net income 544,766 (145,917) 35,468 434,317 100,641 170,040 503,716
---------- --------- -------- ---------- -------- --------- ----------
Dividends on preferred stock 102,309 -- -- 102,309 -- -- 102,309
---------- --------- -------- ---------- -------- --------- ----------
Results after preferred stock
dividend $ 442,457 $(145,917) $ 35,468 $ 332,008 $100,641 $ 170,040 $ 401,407
========== ========= ======== ========== ======== ========= ==========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 19 -
<PAGE> 22
<TABLE>
UNIFIED HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<CAPTION>
ADJUSTMENTS AND ELIMINATIONS
UNIFIED FIRST ----------------------------
CONSOLIDATED VAI LEXINGTON COMBINED DEBIT CREDIT CONSOLIDATED
------------ -------- --------- -------- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Revenue from broker/dealer
operations $1,846,201 $ -- $ -- $1,846,201 $ $ $1,846,201
Investment adviser fees 1,679,728 248,090 -- 1,927,818 1,927,818
Revenue from fund services
operations 1,968,384 -- -- 1,968,384 500,313<F4> -- 1,468,071
Trust fees -- -- 176,825 176,825 176,825
Administration fees 66,000 -- 12,341 78,341 66,000<F4> -- 12,341
Valuation system fees -- -- 2,000 2,000 2,000
Trail commission fees 995,318 -- -- 995,318 995,318
Custody and retirement fees 246,139 -- -- 246,139 246,139
Software and program fees 190,445 -- 4,181 194,626 194,626
Interest income 68,696 64 59,561 128,321 128,321
Other (25,189) 100 163 (24,926) (24,926)
---------- -------- -------- ---------- -------- -------- ----------
Gross revenue 7,035,722 248,254 255,071 7,539,047 566,313 -- 6,972,734
---------- -------- -------- ---------- -------- -------- ----------
COST OF SALES
Brokerage revenue charges 1,141,291 -- -- 1,141,291 1,141,291
Trail commission charges 653,595 -- -- 653,595 653,595
Investment adviser fees -- 65,560 -- 65,560 65,560
Administration fees 11,586 -- -- 11,586 11,586
---------- -------- -------- ---------- -------- -------- ----------
Cost of sales 1,806,472 65,560 -- 1,872,032 -- -- 1,872,032
---------- -------- -------- ---------- -------- -------- ----------
Gross Profits 5,229,250 182,694 255,071 5,667,015 566,313 -- 5,100,702
---------- -------- -------- ---------- -------- -------- ----------
EXPENSES
Employee compensation and benefits 2,742,595 181,835 -- 2,924,430 314,500<F4> 2,609,930
Investment advisory fees -- -- -- -- --
Administration fees 4,250 -- 12,341 16,591 16,591
Software maintenance fees -- -- 4,181 4,181 4,181
Related party employee, supplies
and operating expenses
reimbursed -- -- 66,000 66,000 66,000<F4> --
Brokerage operating charges 332,508 -- -- 332,508 332,508
Investment adviser expenses 49,972 6,066 56,038 56,038
Fund services operating charges 233,500 -- -- 233,500 233,500
Market quotes 41,721 -- -- 41,721 41,721
Mail and courier service 63,511 276 -- 63,787 63,787
Telephone 70,279 2,549 4,690 77,518 77,518
Equipment rental and maintenance 105,122 3,909 2,237 111,268 111,268
<CAPTION>
See notes to pro forma combined consolidated financial statements.
- 20 -
<PAGE> 23
ADJUSTMENTS AND ELIMINATIONS
UNIFIED FIRST ----------------------------
CONSOLIDATED VAI LEXINGTON COMBINED DEBIT CREDIT CONSOLIDATED
------------ --------- --------- -------- ----- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Insurance 36,147 5,501 13,652 55,300 55,300
Professional fees 59,029 92,263 15,273 166,565 166,565
Occupancy 198,651 -- 5,000 203,651 203,651
Depreciation and amortization 185,062 53,189 10,002 248,253 248,253
Office supplies 63,540 386 497 64,423 64,423
Travel and entertainment 51,513 20,536 -- 72,049 72,049
Taxes (other than payroll) 72,270 3,705 1,776 77,751 77,751
Temporary help 13,388 -- -- 13,388 13,388
Advertising and conventions 874 13,854 -- 14,728 14,728
Doubtful accounts -- -- -- -- --
Interest expense 4,993 14,119 -- 19,112 19,112
Other operating expenses 50,446 186,207 2,272 238,925 185,813<F4> 53,112
---------- --------- -------- ---------- -------- -------- ----------
Total expense 4,379,371 578,329 143,987 5,101,687 -- 566,313 4,535,374
---------- --------- -------- ---------- -------- -------- ----------
Income from operations before
gain/(loss) on securities 849,879 (395,635) 111,084 565,328 566,313 566,313 565,328
Gain/(loss) on securities 49,684 (3,353) -- 46,331 46,331
Results of affiliate (151,108) -- -- (151,108) 151,108<F5> --
---------- --------- -------- ---------- -------- -------- ----------
Income before income taxes 748,455 (398,988) 111,084 460,551 566,313 717,421 611,659
Provision for income taxes -- -- 30,000 30,000 30,000<F6> --
---------- --------- -------- ---------- -------- -------- ----------
Net income 748,455 (398,988) 81,084 430,551 566,313 747,421 611,659
---------- --------- -------- ---------- -------- -------- ----------
Dividends on preferred stock 136,634 -- -- 136,634 -- -- 136,634
---------- --------- -------- ---------- -------- -------- ----------
Results after preferred stock
dividend $ 611,821 $(398,988) $ 81,084 $ 293,917 $566,313 $747,421 $ 475,025
========== ========= ======== ========== ======== ======== ==========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 21 -
<PAGE> 24
<TABLE>
UNIFIED HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<CAPTION>
ADJUSTMENTS AND ELIMINATIONS
UNIFIED FIRST ----------------------------
CONSOLIDATED VAI LEXINGTON COMBINED DEBIT CREDIT CONSOLIDATED
------------ ------- --------- -------- ----- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Revenue from broker/dealer
operations $2,363,345 $ -- $ -- $2,363,345 $ $ $2,363,345
Investment adviser fees 1,317,965 27,207 -- 1,345,172 1,345,172
Revenue from fund services
operations 1,395,782 -- -- 1,395,782 199,275<F4> -- 1,196,507
Trust and administrative fees -- -- 108,429 108,429 108,429
Trail commission fees 540,950 -- -- 540,950 540,950
Custody and retirement fees 163,044 -- -- 163,044 163,044
Software and program fees 213,755 -- -- 213,755 213,755
Net investment and other income 38,092 811 55,946 94,849 94,849
---------- ------- -------- ---------- -------- -------- ----------
Gross revenue 6,032,933 28,018 164,375 6,225,326 199,275 -- 6,025,051
---------- ------- -------- ---------- -------- -------- ----------
COST OF SALES
Brokerage revenue charges 1,244,893 -- -- 1,244,893 1,244,893
Trail commission charges 130,281 -- -- 130,281 130,281
Investment adviser fees 45,561 24,922 55,701 126,184 126,184
Administration fees 12,316 -- -- 12,316 12,316
---------- ------- -------- ---------- -------- -------- ----------
Cost of sales 1,433,051 24,922 55,701 1,513,674 -- -- 1,513,674
---------- ------- -------- ---------- -------- -------- ----------
Gross Profits 4,599,882 3,096 108,674 4,711,652 199,275 -- 4,512,377
---------- ------- -------- ---------- -------- -------- ----------
EXPENSES
Employee compensation and benefits 2,392,953 -- -- 2,392,953 -- 198,000<F4> 2,194,953
Brokerage operating charges 577,373 -- -- 577,373 577,373
Fund services operating charges 170,395 -- -- 170,395 170,395
Mail and courier service 76,522 108 76,630 76,630
Telephone 154,887 199 913 155,999 155,999
Equipment rental and maintenance 151,787 -- -- 151,787 151,787
Professional fees 74,911 6,827 12,349 94,087 94,087
Occupancy 215,402 -- 5,000 220,402 220,402
Depreciation and amortization 148,789 26,594 532 175,915 175,915
Office supplies 60,647 -- 36 60,683 60,683
Travel and entertainment 55,768 7,122 -- 62,890 62,890
Interest expense 7,429 5,450 -- 12,879 12,879
Other operating expense 271,802 4,257 13,755 289,814 -- 1,275<F4> 288,539
---------- ------- -------- ---------- -------- -------- ----------
Total expense 4,358,665 50,557 32,585 4,441,807 -- 199,275 4,242,532
---------- ------- -------- ---------- -------- -------- ----------
<CAPTION>
See notes to pro forma combined consolidated financial statements.
- 22 -
<PAGE> 25
ADJUSTMENTS AND ELIMINATIONS
UNIFIED FIRST ----------------------------
CONSOLIDATED VAI LEXINGTON COMBINED DEBIT CREDIT CONSOLIDATED
------------ -------- --------- -------- ----- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from operations before
gain/(loss) on securities 241,217 (47,461) 76,089 269,845 199,275 199,275 269,845
Gain/(loss) on securities 35,356 26 -- 35,382 35,382
Results of affiliate (1,599) -- -- (1,599) -- 1,599<F5> --
-------- -------- ------- -------- -------- -------- --------
Income before income taxes 274,974 (47,435) 76,089 303,628 199,275 200,874 305,227
-------- -------- ------- -------- -------- -------- --------
Provision for income taxes -- -- 19,354 19,354 19,354<F6> --
-------- -------- ------- -------- -------- -------- --------
Net income 274,974 (47,435) 56,735 284,274 199,275 220,228 305,227
-------- -------- ------- -------- -------- -------- --------
Dividends on preferred stock 136,757 -- -- 136,757 -- -- 136,757
-------- -------- ------- -------- -------- -------- --------
Results after preferred stock dividend $128,217 $(47,435) $56,735 $147,517 $199,275 $220,228 $168,470
======== ======== ======= ======== ======== ======== ========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 23 -
<PAGE> 26
<TABLE>
UNIFIED HOLDINGS, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<CAPTION>
ADJUSTMENTS AND ELIMINATIONS
UNIFIED FIRST ----------------------------
CONSOLIDATED VAI LEXINGTON COMBINED DEBIT CREDIT CONSOLIDATED
------------ -------- --------- -------- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Revenue from broker/dealer
operations $2,905,597 $ $ -- $2,905,597 $ $ $2,905,597
Investment adviser fees 507,526 15,266 522,792 522,792
Revenue from fund services
operations 979,155 -- 979,155 979,155
Trail commission fees 605,774 -- 605,774 605,774
Custody and retirement fees 194,416 -- 194,416 194,416
Software and program fees 224,386 -- 224,386 224,386
Interest income -- 38,577 38,577 38,577
Other 167,273 167,273 167,273
---------- -------- ------- ---------- -------- -------- ----------
Gross revenue 5,584,127 -- 53,843 5,637,970 -- -- 5,637,970
---------- -------- ------- ---------- -------- -------- ----------
COST OF SALES
Brokerage revenue charges 1,664,496 1,664,496 -- 1,664,496
Trail commission charges 104,437 104,437 -- 104,437
Administration fees -- -- -- --
---------- -------- ------- ---------- -------- -------- ----------
Cost of sales 1,768,933 -- -- 1,768,933 -- -- 1,768,933
---------- -------- ------- ---------- -------- -------- ----------
Gross Profit 3,815,194 -- 53,843 3,869,037 -- -- 3,869,037
---------- -------- ------- ---------- -------- -------- ----------
EXPENSES
Employee compensation and benefits 1,864,450 -- 1,864,450 1,864,450
Brokerage operating charges 651,291 -- 651,291 651,291
Investment adviser expenses 17,940 -- 17,940 17,940
Administration fees 2,450 -- 2,450 2,450
Fund services operating charges 114,181 -- 114,181 114,181
Market quotes 72,444 -- 72,444 72,444
Mail and courier service 136,404 -- 136,404 136,404
Telephone 147,377 863 148,240 148,240
Equipment rental and maintenance 112,069 -- 112,069 112,069
Insurance 64,339 7,943 72,282 72,282
Professional fees 39,404 3,379 42,783 42,783
Occupancy 172,850 5,000 177,850 177,850
Depreciation and amortization 143,145 234 143,379 143,379
Office supplies 12,106 7,577 19,683 19,683
Travel and entertainment 59,692 -- 59,692 59,692
<CAPTION>
See notes to pro forma combined consolidated financial statements.
- 24 -
<PAGE> 27
ADJUSTMENTS AND ELIMINATIONS
UNIFIED FIRST ----------------------------
CONSOLIDATED VAI LEXINGTON COMBINED DEBIT CREDIT CONSOLIDATED
------------ -------- --------- -------- ----- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Taxes (other than payroll) 56,357 -- 56,357 56,357
Temporary help -- -- -- --
Advertising -- 265 265 265
Doubtful accounts 5,616 -- 5,616 5,616
Interest expense -- -- -- --
Other operating expenses 92,735 11,931 104,666 104,666
---------- -------- ------- ---------- -------- -------- ----------
Total expense 3,764,850 -- 37,192 3,802,042 -- -- 3,802,042
---------- -------- ------- ---------- -------- -------- ----------
Income from operations before
gain/(loss) on securities 50,344 -- 16,651 66,995 -- -- 66,995
Gain/(loss) on securities 81 -- 81 81
Results of affiliate -- -- -- --
---------- -------- ------- ---------- -------- -------- ----------
Income before income taxes 50,425 -- 16,651 67,076 -- -- 67,076
Provision for income taxes -- 3,452<F6> 3,452 -- 3,452<F6> --
---------- -------- ------- ---------- -------- -------- ----------
Net income 50,425 -- 13,199 63,624 -- 3,452 67,076
---------- -------- ------- ---------- -------- -------- ----------
Dividends on preferred stock 108,377 -- -- 108,377 -- -- 108,377
---------- -------- ------- ---------- -------- -------- ----------
Results after preferred
stock dividend $ (57,952) $ -- $13,199 $ (44,753) $ -- $ 3,452 $ (41,301)
========== ======== ======= ========== ======== ======== ==========
See notes to pro forma combined consolidated financial statements.
</TABLE>
- 25 -
<PAGE> 28
UNIFIED HOLDINGS, INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<F1> On April 25, 1997, the Company entered into an agreement to acquire
First Lexington located in Lexington, Kentucky. This acquisition will
be accounted for under the pooling-of-interests method of accounting.
In connection with the acquisition, the Company will issue 80,008 shares
of Common Stock, based upon an exchange ratio of 9.644 shares of Common
Stock for each outstanding share of First Lexington common stock. The
acquisition is anticipated to be completed by the end of January 1998
and is subject to, among other things, regulatory approval and the
approval of the stockholders of First Lexington.
<F2> The pro forma combined consolidated financial statements reflect a
surrender to VAI by all stockholders of VAI (other than the Company) of
their capital stock of VAI. The proposed stock surrender will occur
upon approval of the proposed surrender by the shareholders of the
Vintage Funds and upon receipt of required regulatory approval. It
currently is anticipated that the transaction will occur by the end of
January 1998. Upon consummation of the stock surrender the Company will
own 100% of the capital stock of VAI.
<F3> The pro forma combined consolidated financial statements include the
accounts of the Company, UAI, UMC, First Lexington and VAI. All
intercompany notes and accounts receivable, and notes and accounts
payable balances between the Company and its subsidiaries have been
eliminated.
<F4> The pro forma combined consolidated financial statements eliminate all
intercompany revenue and expense between the Company and First Lexington
and VAI in conformity with generally accepted accounting principles.
<F5> The pro forma combined consolidated financial statements eliminate all
equity in and advances between the Company and VAI. In conformity with
generally accepted accounting principles, the Company has eliminated its
equity share of the results of operations of VAI in the consolidated
balances.
<F6> The Company files consolidated federal and state income tax returns with
its subsidiaries. Subsequent to their acquisition, First Lexington and
VAI will be included in the consolidated tax returns of the Company,
which uses the accrual method of tax and accounting reporting. The
Company will utilize its net operating loss deduction to reduce the
taxable income from its subsidiaries. The income tax effect has been
eliminated in the pro forma combined consolidated statement of
operations.
<F7> Effective June 1, 1997, the Company acquired HFI in a transaction
accounted for under the pooling-of-interests method of accounting. In
connection with the acquisition, the Company issued 325,000 shares of
Common Stock on November 19, 1997.
- 26 -
<PAGE> 29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The following presents management's discussion and analysis of the
Company's consolidated financial condition and results of operations as of the
dates and for the periods indicated. This discussion should be read in
conjunction with the other information set forth in this registration
statement, including the Company's audited and unaudited consolidated
financial statements and the accompanying notes thereto.
OVERVIEW
The Company's principal business is providing and enhancing a
platform for vertical integration in the financial services industry by means
of stock-for-stock, pooling-of-interests transactions and an aggressive
merger and acquisition program and providing mutual fund management, mutual
fund administrative services and brokerage operations through its wholly owned
subsidiaries, UAI, UMC and Health Financial.
UAI is a mutual fund financial services company specializing in the
development, support, maintenance, shareholder servicing and management of and
in providing investment advice to mutual funds. UAI was formed in 1990 as a
sister company to UMC in a move to separate and segregate the brokerage
services employees (and brokerage account activities) from the mutual fund
services employees (and mutual fund account activities).
UAI is a highly automated, registered stock transfer agent that has
total back-office mutual fund service capabilities and presently provides
transfer agency, fund accounting, administrative and/or compliance services
for ten mutual fund families consisting of nearly $647 million in mutual fund
assets, 36 portfolios and approximately 29,000 accounts. Additionally, as a
registered investment adviser, UAI has $117.5 million of assets under
management, all of which are invested in mutual funds, with approximately $50
million of the $117.5 million invested in the Vintage Funds.
UMC is a regional discount brokerage firm with a link to mutual fund
assets via its brokerage account services. A licensed NASD broker-dealer
since 1976, UMC specializes in mutual fund distribution and shareholder
servicing liaison providing such services as: mutual fund distribution
services and support; mutual fund conversion support; mutual fund trades; IRA
custodial services; 12b-1 maintenance, accounting and marketing support;
securities (stock and bond) brokerage; brokerage clearing and execution
services; consolidated brokerage statement processing; mutual fund and
brokerage software development; asset allocation and performance measurement
services and statement processing; and retirement account record keeping.
HFI is a registered investment adviser that was formed in 1986 and has
been registered with the SEC since 1987. As of September 30, 1997, HFI
managed over $340 million in assets for both individuals and institutions.
The predominant management style of HFI is a balanced portfolio of no-load
index funds in multi-asset classes consisting of the Standard & Poor's 500 large
capitalization United States stocks, small capitalization United States
stocks, United States bonds, real estate, cash and international stocks.
The Company expects a continuation in reductions in annual gross
revenues from its brokerage clear-through clients because as the small
brokerage firms' volumes increase, the client will be able to obtain lower
clearing charges directly from the firm transacting the trades for UMC and
UMC's clients. The Company expects that any reductions in brokerage services
revenues will be offset by anticipated increases in investment management
fees, internet brokerage service fees, mutual fund services revenues, through
the acquisition of other mutual fund businesses, and fees that the Company
hopes to realize through providing certain non-bank trust, custodial and
retirement services. There can be no
- 27 -
<PAGE> 30
assurances that the Company will be able to accomplish such increases or that
the Company will not experience or be able to prevent unexpected reductions in
its revenues or unexpected increases in its expenses.
COMPARISON OF RESULTS FOR CALENDAR YEARS ENDED DECEMBER 31, 1996 AND 1995
The Company's gross revenues increased by $1,002,789 to $7,035,722 in
1996 from $6,032,933 in 1995. This improvement in gross revenues resulted
from a significant increase in mutual fund administrative services revenues.
This increase was somewhat offset by a $517,144 decrease in revenue from
broker-dealer operations from 1995 to 1996.
Gross profit increased by $575,146 over the prior year to $5,175,028 in
1996 from $4,599,882 in 1995 directly related to higher volumes in the mutual
fund administrative services business; however, overall percentage of gross
profit to total revenue decreased to 73.55% in 1996 from 76.25% in 1995 due to
a higher cost of sales, related primarily to trail commission charges.
Operating expenses in 1996 were $4,325,149 as compared to $4,358,665 in
1995. Administrative salaries, employee compensation and benefits increased
in 1996 compared to 1995 from $2,392,953 to $2,742,595. Brokerage operating
charges decreased in 1996 to $332,508 from $577,373 in 1995 on lower volume.
Total net income from operations was $849,879 in 1996, compared to
$241,217 for the prior year, principally due to the increase in mutual fund
administrative services revenues and the ability to control operating
expenses.
1996 consolidated net income increased $473,481 to $748,455 from
$274,974 for the prior year. Consolidated net income calculations include a
charge for losses incurred at an affiliate of $151,108 and $1,599 for 1996 and
1995, respectively.
The Company does not have any pending litigation of a material nature
and is not aware of any potential litigation or claims.
COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Year-to-date net income at September 30, 1997 of $135,937 compares to a
net profit of $544,766 for the same period last year. Net profit for the nine
months ended September 30, 1997 includes an after-tax loss of approximately
$387,000 related to the acquisition of Health, coupled with a special bonus to
the employees of the Company of approximately $125,000, higher legal,
accounting and counsel fees related to the filing by the Company of this
Registration Statement on Form 10-SB (the "Form 10-SB"), a charge for
losses incurred at an affiliate and a provision for income taxes related to
alternative minimum tax depreciation carryforwards, which could be modified
based upon future operations of the Company. Fund services operating charges
included a one-time conversion cost of approximately $25,000 related to a
change of the Company's fund system service provider.
Gross revenues of $4,871,418 in the nine-month period ended September
30, 1997 compare to $5,312,237 for the same period in 1996. For the current
year, assets under management increased significantly. This increase
accounted for the $302,698 increase in investment advisers revenues. Reduced
brokerage charges significantly reduced revenue from broker/dealer operations.
Mutual fund service and trailing commissions were partially offset by an
increase in custody and retirement fees and net investment and other income.
- 28 -
<PAGE> 31
The gross profit of $3,592,864 for the nine months ended September 30,
1997 compares to $3,857,562 for the same period in 1996. The percentage of
gross profit to total revenue increased to 73.8% during the nine-month period
ended September 30, 1997 from 72.6% from the same prior year period. This
improvement reflects better investment adviser margins.
Operating expenses increased by $114,760 over the same prior year period
from $3,283,626 to $3,398,386 primarily due to increased employee compensation
and benefits and professional fees. Employee compensation was higher due to a
one-time bonus paid to employees of the Company during July 1997 and higher
legal, accounting and counsel fees related on the filing of the Form 10-SB.
In addition, travel costs increased related to the completed and pending
transactions and a one-time charge related to a change of the Company's fund
system service provider.
COMPARISON OF RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND 1996
For the quarter ended September 30, 1997, net profit of $4,734
compared to a net profit of $408,063 for the same period last year. The third
quarter of 1997 includes a special bonus to employees of the Company
aggregating approximately $125,000, higher legal, accounting and counsel
fees related to the filing of the Form 10-SB with the SEC during 1997 and an
adjustment for the Company's investments in an affiliate resulted in a
$147,467 charge as compared to a 1996 third quarter loss of $52,801. The
current year quarter also includes a one-time expense of approximately $25,000
related to conversion of the Company's fund service system provider and
increased travel costs related to acquisition activities. The quarter ended
September 30, 1996 included a credit from the Company's communication service
provider. Increased assets under management accounted for the increase in
investment adviser revenues, which partially offset the decline in fund
services revenues. The quarter ended September 30, 1997 also includes a
provision for income taxes related to alternate minimum tax, which could be
modified based upon future operations of the Company.
For the three months ended September 30, 1997, gross revenues of
$1,678,446 compared to $1,928,349 during the same quarter last year.
Increased assets under management accounted for the increase in investment
adviser revenues, which partially offset the decline in fund services
revenues. Cost of sales increased $10,585 to $441,522 in the quarter ended
September 30, 1997 from $430,937 for the quarter ended September 30, 1996.
The lower brokerage cost of sales partially offset higher trail commission
charges and administration fees.
Quarterly operating expenses increased by $6,429 over last year of
$1,067,343 to $1,073,772, due to a one-time bonus to employees of the Company
aggregating approximately $125,000, a one-time expense for conversion of the
Company's fund service system provider, increased travel costs related to
completed and pending acquisitions and higher legal, accounting and counsel
fees related to the filing of the Form 10-SB. In addition, operating expenses
for the quarter ended September 30, 1996 included a credit from the Company's
communication service provider.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity historically have been and
continue to be cash flow from operating activities and available borrowing
capacity for capitalized leases. At September 30, 1997 and December 31, 1996,
the Company reported working capital of $1,183,307 and $965,512, respectively,
or a working capital ratio of 1.71 and 2.00, respectively, to 1.
- 29 -
<PAGE> 32
Significant portions of the Company's computer and communication
equipment and software are purchased through capitalized leases. The Company
expects to be able to repay its borrowings for such capitalized leases over
the respective lease periods.
Capital expenditures for 1997 include the purchase of telephone and
computer equipment and software to support the Company's mutual fund and
brokerage services businesses. Such expenditures are not expected to exceed
$400,000. The Company currently can provide its own sources of funds or
lending to sufficiently absorb such expenditures so as not to endanger the
liquidity or financial condition of the Company.
The Company has entered into a revolving credit agreement with Bank One,
Indiana, N.A. (the "Bank One Facility"), which is comprised of a revolving
line of credit extended to the Company of $500,000. The obligations of the
Company under the credit facility are secured by substantially all of the
personal property of the Company. The Bank One Facility has customary
financial covenants regarding tangible net worth and fixed charge ratio. The
Bank One Facility also contains covenants and provisions that restrict, among
other things, the Company's ability to: (i) engage in certain sales of
assets; (ii) incur certain liens on its properties; (iii) merge or consolidate
with or acquire another entity or engage in other fundamental changes; and
(iv) sell or otherwise transfer any ownership interest in the Company. The
Bank One Facility provides for certain customary events of default. As of
September 30, 1997, the principal amount outstanding under the Bank One
Facility was $109,839, and the interest rate on such borrowing was 9.0%.
The Company does not expect to need to raise additional capital to
satisfy its cash requirements but, as described below, will attempt to raise
working capital to expand its business and products, for equipment and
software purchases and to retire the outstanding shares of Series A and Series
B Preferred Stock.
The Company anticipates that, during December 1998, it will issue
approximately 2,100 shares of Series C 6.75% Cumulative Preferred Stock to
certain directors, executive officers and agents of the Company.
Subscriptions for such shares have been accepted by the Company. Each share
of Series C Preferred Stock will be convertible, at any time at the option of
the holder thereof and without the payment of any additional consideration
with respect thereto, into 135 shares of Common Stock.
The Company also currently anticipates that, either during the fourth
quarter of 1997 or the first quarter of 1998, it will attempt to raise
additional capital through a private placement of up to 600,000 shares of its
Common Stock. Upon completion of the proposed private placement,
approximately $1.7 million of the proceeds would be used to retire the
outstanding Series A and Series B Preferred Stock, while the remaining
proceeds would be used for general corporate purposes, including, without
limitation, investments in and advances to subsidiaries and possible future
acquisitions of small investment advisory firms and registered investment
advisers. Pending such application, the net proceeds would be invested in
short-term investment grade obligations.
Neither the Class C Preferred Stock nor the shares of Common Stock to be
issued pursuant to the private placement will be registered under the
Securities Act of 1933, as amended, and may not be offered or sold in the
United States absent registration or an applicable exemption from registration
requirements.
- 30 -
<PAGE> 33
SENSITIVITY TO CHANGES IN MARKET CONDITIONS
The Company's revenues, like those of other firms in the asset
management, fund management, fund services and mutual fund brokerage
industries, are directly related to fluctuations in assets and price levels of
funds under management. A significant portion of the Company's earnings are
generated from fees based on the average daily market value of the assets the
Company administers for its clients. A rapid change in interest rates or a
sudden decline in the bond markets, among other factors, could influence an
investor's decision whether to invest or maintain an investment in a bond
based mutual fund. As a result, fluctuations may occur in assets that the
Company has under management due to changes in interest rates and other
investment considerations. A significant investor trend seeking alternatives
to mutual fund investments and/or to assets under management could have a
negative impact on the Company's revenues by reducing the assets it manages.
Additionally, from time to time, the Company has waived, and, in the future
for competitive reasons, may waive certain fees normally charged to mutual
funds to which it provides services.
ECONOMIC BUSINESS RISKS OUTSIDE THE COMPANY'S CONTROL
The Company's asset management, mutual fund services, mutual fund
management and broker-dealer businesses are subject to various risks and
contingencies, many of which are beyond the ability of the Company to control.
These risks include economic conditions generally and in particular those
affecting bond and securities markets, interest rates, discretionary income
available for investment, customer inability to meet payment or delivery
commitments, customer fraud and employee misconduct and error.
ITEM 3. DESCRIPTION OF PROPERTY
-----------------------
The Company, through its subsidiary, UMC, leases its corporate
headquarters and administrative office facilities located at 429 North
Pennsylvania Street, Indianapolis, Indiana. This facility is comprised of
approximately 11,086 square feet and is subject to a lease expiring in 2007.
Health Financial's administrative offices are located at 2353 Alexandria
Avenue, Lexington, Kentucky. The operating lease for such offices expires in
2002 and such offices have approximately 2,554 square feet. The Company also
will lease a portion of such property for corporate offices. The Company's
current administrative offices are considered adequate to serve the Company's
foreseeable needs. Other than the administrative offices lease and the
equipment and capital leases listed herein, the Company has no other
significant property holdings.
- 31 -
<PAGE> 34
Lease obligations are allocated between the Company and its subsidiaries
based upon estimated usage. The leases include clauses for adjustment of
operating costs and real estate taxes that are not reflected as part of the
minimum obligations. The aggregate minimum rental commitments required under
operating leases and noncancelable subleases for office space and equipment at
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 LEASE COMMITMENTS
---------------------- -----------------
<C> <C>
1997, three months $ 120,168
1998 256,215
1999 244,254
2000 224,508
2001 152,068
Thereafter 1,044,000
----------
$2,041,213
==========
</TABLE>
The Company's capitalized lease obligations are payable over a 36-month
period. The following is a summary of future minimum lease payments under
capitalized lease obligations as of September 30, 1997:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- ------
<C> <C>
1997 $ 9,478
1998 53,187
1999 43,605
2000 20,200
2001 14,783
--------
Total 141,253
Less amount
representing interest 13,353
--------
Net present value $127,900
========
</TABLE>
The Company, as of September 30, 1997, had equipment and furniture, net,
of $258,223, and capitalized leased equipment, net, of $148,538, totaling
$406,761 in equipment and furniture. The $406,761 was comprised of: major
computer equipment, $288,388; minor computer equipment, $36,463; major
operation equipment $6,630; major telecommunications equipment, $31,736;
furniture and fixtures, $28,702; and leasehold improvements, $14,842.
For purposes of depreciation, the federal tax basis, rate, method and
life claimed with respect to such properties is set forth as follows:
Book Depreciation: With the exception of the 1989 computer
equipment, which originally was depreciated on a straight-line basis and
is now being depreciated on the accelerated method, the properties are
depreciated on a 3-10 year straight-line method, with a 5-year life for
minor equipment and a 10-year life for major equipment.
Tax Depreciation: All assets of the Company, UMC and UAI have
been depreciated on a straight-line method with 3-10 year lives after
consideration of the recommended tax and alternative minimum tax lives.
HFI filed as an S-corporation prior to its acquisition by the Company.
Prior to such acquisition, HFI utilized accelerated methods and lives as
allowed by the Internal Revenue Service.
- 32 -
<PAGE> 35
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information with respect to the
beneficial ownership of the outstanding Common Stock and Class B Preferred
Stock: (i) by each person who is known by the Company to own beneficially
more than five percent of the Common Stock and/or Class B Preferred Stock;
(ii) by each of the Company's directors and executive officers; and (iii) by
all current directors and executive officers as a group. No director or
executive officer owns any shares of Class A Preferred Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
NAME OF OF COMMON STOCK PERCENT OF PREFERRED STOCK PERCENT
BENEFICIAL OWNER<F1> BENEFICIALLY OWNED<F2><F3> OF CLASS BENEFICIALLY OWNED OF CLASS
- -------------------- -------------------------- -------- ------------------ --------
<S> <C> <C> <C> <C>
Timothy L. Ashburn 572,768 60.43% 5,204<F4> 60.6%
David A. Bogaert -- -- -- --
Jack R. Orben -- -- 188 2.2
Weaver H. Gaines -- -- 50 <F5>
Thomas G. Napurano -- -- 943 11.0
Lynn E. Wood 50,000 5.28 377 4.4
Gregory W. Kasten 325,000 34.29 -- --
All directors and executive
officers (7 persons) 947,768 100.00 6,762 78.8
<FN>
- ----------------
<F1> The address for each person is 429 North Pennsylvania Street,
Indianapolis, Indiana 46204.
<F2> Except for Mr. Timothy L. Ashburn, such share numbers do not include the
572,768 shares of Common Stock held pursuant to the terms of that
certain Voting Trust Agreement (the "Voting Trust") dated as of
October 10, 1997 by and between Mr. Ashburn, as the voting trustee, and
each of the holders of Common Stock (other than shares held pursuant to
the 401(k) Plan and shares owned by Dr. Kasten). The Voting Trust
terminates on October 31, 1998. No person has voting power over such
shares except Mr. Ashburn, the voting trustee pursuant to the Voting
Trust. Each participant has sole investment power with respect to the
shares they contributed to the Voting Trust. Of the 572,768 shares of
Common Stock held subject to the Voting Trust, 63,656, 35,070, 18,000,
18,000, 62,949, 64,213 and 261,888 shares are owned by Messrs. Ashburn,
Bogaert, Orben, Gaines, Napurano and Wood and all directors and
executive officers as a group, respectively. Mr. Ashburn disclaims
beneficial ownership of all shares subject to the Voting Trust except
63,656 shares.
<F3> Except for Mr. Lynn E. Wood, such share numbers do not include the
50,000 shares of Common Stock held by the 401(k) Plan. No person has
voting power over such shares except Mr. Wood, the trustee for the
401(k) Plan, who votes the shares held by the 401(k) Plan. Each
participant has sole investment power over the shares held for their
benefit in the 401(k) Plan. Of the 50,000 shares of Common Stock issued
in the name of the 401(k) Plan, 4,370.180, 2,977.796, 5,161.789,
4,353.348 and 16,863.113 shares are held for the benefit of Messrs.
Ashburn, Bogaert, Napurano and Wood and all directors and executive
officers as a group, respectively. Mr. Wood disclaims beneficial
ownership of all shares held subject to the 401(k) Plan except 4,353.348
shares.
<F4> Includes 300 shares owned by Mr. Ashburn's IRA.
<F5> Less than one percent.
</TABLE>
- 33 -
<PAGE> 36
THE UNIFIED REGIONAL PROTOTYPE 401(K) AND PROFIT SHARING PLAN
The Company sponsors a profit-sharing and Section 401(k) defined
contribution retirement plan that covers substantially all employees of the
Company and its subsidiaries. Contributions to the 401(k) Plan are determined
by the Board. During 1996 and 1995, a consolidated expense of $14,356 and
$16,392, respectively, was provided in anticipation of contributions to be
paid in 1996 and 1995, respectively. In 1996, the Company amended the 401(k)
Plan to include matching for funds (a) invested in the Vintage Funds or (b) to
purchase Series B Preferred Stock in the 401(k) Plan. The Company will match
the employee's contribution up to fifty percent of the first six percent of
the employee's before-tax contribution.
The 401(k) Plan presently holds 50,000 shares of Common Stock,
representing approximately 5.28% of the outstanding shares.
The Board has appointed Lynn E. Wood to be the 401(k) Plan's Trustee and
Mr. Wood votes the shares on behalf of the 401(k) Plan participants.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth information with respect to the Company's
executive officers and members of the Board, including the names and ages of
all executive officers and directors of the Company, all positions and offices
with the Company held by each such person and each person's term of office as
a director.
TIMOTHY L. ASHBURN: (Age 47) Chairman since 1989; Chief Executive
Officer 1989-1992 and 1994-present; President since November 1997; 401(k) Plan
Committee since 1994; executive committee member since 1989; operating
committee member since 1989. Mr. Ashburn was employed by the Vine Street Trust
Company, Lexington, Kentucky, a wholly owned subsidiary of Cardinal
Bancshares, a Kentucky bank holding company for the two-year period from April
1992 through March 1994, and was responsible for the operations of the bank's
trust department and for investment management. Mr. Ashburn has been Chairman
of the Board and Chief Executive Officer of VAI since December of 1994 and is
Chairman of the Board of Trustees, President and Chief Executive Officer of
the Vintage Funds.
JACK R. ORBEN: (Age 58) Director since 1989; Plan Committee Member
for 401(k) Plan since inception of such Plan. Mr. Orben has been the Chairman
and an executive officer of Fiduciary Counsel, an investment adviser firm,
located at 40 Wall Street, New York, New York since 1979. Fiduciary Counsel
is a sub-adviser for several portfolios of the Company's affiliated mutual
funds, the Vintage Funds. Mr. Orben is also Chairman and an executive officer
of AFS Group, a 53% owner of Fiduciary Counsel, which owns 100% of Starwood
Company, an investment adviser firm. Starwood is a sub-adviser for the
Starwood Strategic portfolio of the Company's affiliated mutual funds, the
Vintage Funds. Mr. Orben is a director of VAI and chairs its investment
committee and is on the Board of Trustees and is a member of the executive
committee for the Vintage Funds.
WEAVER H. GAINES: (Age 54) Director 1990-1992, 1993-present; Plan
Committee Member for 401(k) Plan since inception of such Plan. Since 1993,
Mr. Gaines has been Chairman and Chief Executive Officer for Ixion
Biotechnology, Inc., founding and managing the development-stage biotechnology
company. In 1992, Mr. Gaines was a senior advisor to Bush/Quayle 92. From
1985 until
- 34 -
<PAGE> 37
1992, Mr. Gaines held various executive positions at the Mutual Life Insurance
Company of New York (MONY), including Executive Vice President and General
Counsel, and was a member of its executive and compensation committees and
management of MONY's investment services subsidiaries. In 1988 and 1989, Mr.
Gaines was president of UMC, then a wholly owned subsidiary of MONY. Mr. Gaines
is a director of Voyeta Technologies, Inc., from 1996, First ING Life Insurance
Company of New York, from 1994, and AquaGene, Inc., from 1997 Chairman of Bio +
Florida, Florida's biotechnology trade association since 1997.
THOMAS G. NAPURANO: (Age 56) Director since 1989; Chief Financial
Officer since 1989; Executive Vice President since 1989; executive committee
member since 1989; and operating committee member since 1989. Mr. Napurano is
also a director and the chief financial officer for VAI and is the treasurer
for the Vintage Funds.
LYNN E. WOOD: (Age 51) Director since 1992; Chief Operating Officer
since 1993; President from 1993 through November 1997; Trustee for 401(k) Plan;
executive committee member since 1992; and operating committee member since
1992. Mr. Wood also is a director and the president and chief operating
officer for VAI and is the assistant secretary to the Vintage Funds.
DAVID A. BOGAERT: (Age 33) Executive Vice President and Executive
Committee member since 1995; operating committee member since 1992; national
sales and marketing director since 1995; and telephone service representative,
brokerage services supervisor, institutional sales representative and
Assistant Vice President 1986-1992.
All directors were re-elected in December 1996 for one year terms. Each
director serves until the next annual meeting of the stockholders or until his
successor is duly elected and qualified. Officers serve at the discretion of
the Board.
The Company has an executive compensation committee that is composed of
Messrs. Ashburn, Orben and Gaines and an acquisition committee that is
composed of Messrs. Ashburn, Napurano and Gaines. The Company has no audit or
nominating committee of the Board or any committees that perform similar
functions. The Company does have a Plan Committee that oversees and governs
the 401(k) Plan.
- 35 -
<PAGE> 38
ITEM 6. EXECUTIVE COMPENSATION
----------------------
EXECUTIVE COMPENSATION
The following table summarizes compensation earned or awarded to the
Company's Chief Executive Officer, who was the only executive officer whose
aggregate annual salary and bonus exceeded $100,000 during 1996:
<TABLE>
Summary Compensation Table
<CAPTION>
SECURITIES
UNDERLYING
FISCAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS /SARS COMPENSATION
- --------------------------- ---- ------ ----- ----- ------------
<S> <C> <C> <C> <C> <C>
Timothy L. Ashburn, Chairman 1996 $100,000 $0 23,000<F1> $0
and Chief Executive Officer 1995 100,000 0 0 0
1994 100,000 0 0 0
<FN>
- ----------------
<F1> Gives effect to the February 6, 1997 two-for-one stock split.
</TABLE>
The following table summarizes options granted during 1996, and the
values of options outstanding on December 31, 1996, for the executive officer
named above:
<TABLE>
Option/SAR Grants in Last Fiscal Year
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
OPTIONS/SARS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE
---- ----------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Timothy L. Ashburn 23,000<F1> 22.9% $0.1314 July 25, 2006
<FN>
- ---------------
<F1> Gives effect to the February 6, 1997 two-for-one stock split.
</TABLE>
The following table sets forth information concerning the aggregate
dollar value realized upon exercise of options during 1996, the number of
securities underlying options outstanding at year-end 1996 and the value of
options outstanding at year-end 1996 having an exercise price lower than the
market price of the Common Stock ("in-the-money" options), held by the
individual named in the Summary Compensation Table. As of December 31, 1996,
no SARs were outstanding.
- 36 -
<PAGE> 39
<TABLE>
Aggregate Option Exercises in Last Fiscal Year
and FY-End Options
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED VALUE YEAR-END YEAR-END
ON EXERCISE REALIZED (#) EXERCISABLE/ ($) EXERCISABLE/
(#) ($) UNEXERCISABLE UNEXERCISABLE<F1>
----------- -------- ----------------- ------------------
<S> <C> <C> <C> <C>
Timothy L. Ashburn 0 $0 0/23,000 $0/$2,364
<FN>
- ------------------
<F1> Based on a price per share of $0.1028 (as adjusted for 1997 stock split),
based upon an estimate of market value of tangible and intangible assets
and liabilities of the Company per share of Common Stock as of December
31, 1996.
</TABLE>
COMPENSATION OF DIRECTORS
Directors currently are not compensated for attending meetings of the
Board, except for reimbursements for reasonable expenses related to attendance
at such meetings. Regularly scheduled board meetings are conducted quarterly
on the third Wednesday in January, April, July and October of each year,
unless otherwise changed, and the annual meeting of the Company's stockholders
will be conducted in May of each year beginning in 1998.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company provides various services to VAI including, among other
things: the use of supplies and equipment; funds registration; compliance
services; solicitation of new business; development of new mutual funds;
development of procedures; and policies and practices to develop new mutual
fund relationships and increase assets under management via the conversion of
other mutual funds into the Vintage Funds. The Company also provides mutual
fund administrative services such as distribution, transfer agency, fund
accounting, administration and compliance to the Vintage Funds. For the years
ended December 31, 1995 and 1996 and for the nine months ended September 30,
1997, VAI paid to the Company approximately $198,000, $400,000 and $-0-,
respectively, for these services. In exchange for the $198,000 and $400,000
payments, the Company received a total of one-third of the outstanding capital
stock of VAI. The Company currently owns one-third of the outstanding capital
stock of VAI.
During 1995, the Company loaned VAI approximately $66,000. For the year
ended December 31, 1996, VAI paid the Company $15,888 and $5,086 in principal
and interest, respectively, with respect to such loan. For the nine months
ended September 30, 1997, VAI paid to the Company $2,573 for interest with
respect to such loan. As of September 30, 1997, approximately $50,000 was
outstanding with respect to such loan.
Other than described above, during the years ended December 31, 1996 and
1995, no transactions occurred between the Company and its affiliates that
require disclosure pursuant to Item 404 of Regulation S-B.
- 37 -
<PAGE> 40
ITEM 8. DESCRIPTION OF SECURITIES
-------------------------
GENERAL
The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock and 1,000,000 shares of Preferred Stock. The Company
is authorized to issue its Preferred Stock in one or more series, with the
number of shares, dividends and other rights, preferences, limitations and
terms of each series to be determined and fixed by the Board without any
further action by the stockholders of the Company. The Company has designated
and issued certain shares of its Preferred Stock. As of the date hereof, (i)
8,486 shares of Series A 8% Cumulative Preferred Stock were issued and
outstanding, (ii) 8,583 shares of Series B 8% Cumulative Preferred Stock were
issued and outstanding, (iii) 947,768 shares of Common Stock were issued and
outstanding and (iv) 2,100 shares of Series C 6.75% Cumulative Convertible
Preferred Stock were designated, but no shares were issued or outstanding.
PREFERRED STOCK
DIVIDENDS. Required dividend payments on the Series A and Series B
Preferred Stock are cumulative at 8% per annum of the stated value. In the
event of non-payment of the cumulative preferred dividends, the preferred
stockholders are entitled to vote on all matters presented to the
stockholders of the Company, as provided for in the Certificate of
Incorporation.
To the extent that funds of the Company are legally available, the Board
shall declare and the Company shall then pay to the holders of Series A and
Series B Preferred Stock, out of the assets of the Company available for the
payment of dividends under the Delaware General Corporation Law (the "DGCL") ,
the preferential Preferred Stock dividend at the time and in the amount due
and no more. The dividend is calculated cumulatively (but does not compound)
on a daily basis on each share at the rate of 8% per annum (based on
365/366-day year) of the stated value ($100). Dividends are paid quarterly as
soon as practicable after the declaration of the dividend at the quarterly
meeting of the Board. Since the issuance of the Preferred Stock on December
30, 1993, the Company has declared and paid a dividend with respect to the
Series A and Series B Preferred Stock in each of thirteen consecutive quarters
and the Company is current with all dividend payments to date.
LIQUIDATION. In the event of any liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, the holders of the Series
A and Series B Preferred Stock are entitled, before any distribution or
payment is made upon any junior securities ("Junior Securities") of the
Company, to be paid out of the assets of the Company available for
distribution to its stockholders, whether from capital, surplus or earnings,
an amount in cash equal to the aggregate liquidation value ("Liquidation
Value") of all shares of Series A and Series B Preferred Stock and the holders
of the Preferred Stock are not entitled to any further payment. If the assets
of the Company are insufficient to permit payment to the holders of the Series
A Preferred Stock, then the entire remaining assets of the Company shall be
distributed to the holders of the Series A Preferred Stock ratably based upon
a ratio the denominator of which is the aggregate Liquidation Value and the
numerator of which is the funds available for payment. If any assets remain
after the holders of the Series A Preferred Stock have been paid in full the
amounts to which they shall be entitled, the remaining assets of the Company
shall be distributed to the holders of the Series B Preferred Stock and, if
this obligation is satisfied in its entirety, the remaining assets shall be
paid to the holders of the Junior Securities. Series A takes priority over
Series B in all respects, and Series B takes priority over the Junior
Securities. Neither the consolidation or merger of the Company into or with
any other corporation or corporations, nor the sale, exchange or transfer by
the Company of less than substantially all of its assets, nor any reduction of
the capital of the Company, shall of itself be deemed to be a liquidation,
dissolution or winding up of the Company. The
- 38 -
<PAGE> 41
Company may, in its sole discretion, redeem on any quarterly dividend date
("Dividend Reference Date") any whole number of shares of Series A or Series B
Preferred Stock, provided that (i) the Series A is redeemed ahead of the Series
B, (ii) all dividends are current and (iii) the Company has funds legally
available to effect the redemption. The shares of Preferred Stock shall be
redeemed from the holder on a pro rata basis, based upon the number of shares of
Preferred Stock owned by each such holder as a proportion of the total number of
shares of Preferred Stock then outstanding. The Series A Preferred Stock shall
be redeemed in its entirety before the redemption of any Series B Preferred
Stock. To the extent not previously redeemed, the Company shall redeem all of
the issued and outstanding shares of Preferred Stock on January 25, 2014 at
Liquidation Value.
INSUFFICIENT FUNDS. If on January 25, 2014, the funds of the Company
legally available for a redemption shall be insufficient to redeem all shares
of Series A and Series B Preferred Stock required to be redeemed, funds to the
maximum extent legally available for such purpose shall be utilized by the
Company to redeem the maximum number of shares of Series A on a pro rata basis
and, if all such shares can be redeemed, then to redeem the Series B Preferred
Stock, on a full or, if necessary, on a pro rata basis. If, because
sufficient funds are not legally available, the Company shall fail to redeem
all of the issued and outstanding shares of Series A and/or Series B Preferred
Stock at such time, the Company will redeem such shares as promptly as
practicable after funds are legally available.
RESTRICTIONS. For as long as any of the Preferred Stock shall be
outstanding, the Company shall not, without the written consent of a majority
of the then outstanding holders: (a) create any class or series of stock
ranking as to payment of dividends or as to liquidation preference having
priority over or on a parity with the Preferred Stock; (b) amend, alter or
repeal the Certificate of Incorporation or by-laws in a manner adversely
affecting any of the Preferred Stock holders' powers, preferences and rights;
or (c) declare or pay any distribution, including dividends or redemptions, to
any Junior Securities unless all Preferred Stock Dividends are current.
VOTING RIGHTS. No vote or consent of the holders of the Series A or
Series B Preferred Stock is required for the authorization, including an
increase in the authorized number of shares of any Junior Securities, or
issuance of any Junior Securities of the Company, so long as the Company does
not issue any Junior Securities that have class voting rights beyond those
required by law.
The holders of the Preferred Stock are not entitled to vote on matters
coming before the stockholders of the Company unless the Company defaults
("Payment Default") and fails to cure such default. Upon the occurrence of a
Payment Default and the Company's failure to cure such default, a formula for
calculating the voting rights of the holders of the Preferred Stock is set
forth in the Certificate of Designation of each of the Series A and Series B
Preferred Stock, such that the holders of Preferred Stock are entitled to
vote, under the formula, on any matters brought before the Company's
stockholders until such time as the dividend is made current.
COMMON STOCK
DIVIDENDS. The holders of Common Stock are entitled to share ratably
in dividends thereon when, as and if declared by the Board from funds legally
available therefor, after full cumulative dividends have been paid or declared
and funds sufficient for the payment thereof set apart, on all series of
Preferred Stock.
- 39 -
<PAGE> 42
VOTING RIGHTS. Each holder of Common Stock has one vote for each
share held on matters presented for consideration by the holders. The holders
of Common Stock do not have cumulative voting rights in the election of
directors.
PREEMPTIVE RIGHTS. The holders of Common Stock have no preemptive
right to acquire any additional unissued shares or treasury shares of the
Company.
LIQUIDATION RIGHTS. In the event of liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of
Common Stock will be entitled to share ratably in any of its assets or funds
that are available for distribution to its common stockholders after the
satisfaction of its liabilities (or after adequate provision is made therefor)
and after preferences on any outstanding Preferred Stock.
ASSESSMENT AND REDEMPTION. Shares of Common Stock currently
outstanding are fully paid and non-assessable. Such shares do not have any
redemption or sinking fund provisions.
- 40 -
<PAGE> 43
Part II
-------
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
--------------------------------------------------------
EQUITY AND OTHER STOCKHOLDER MATTERS
------------------------------------
There currently is no established public trading market for the Common
Stock. In February 1995, 1996 and 1997, 6899.724, 5,501.891 and 24,821.118,
respectively, shares of Common Stock were issued by the Company to the 401(k)
Plan. In addition, in March 1996, February 1997 and September 1997, the
Company purchased 5172.42, 3296.991 and 889.990, respectively, shares from
participants in such plan upon termination of their employment. Such shares
were reallocated to the remaining employees in the 401(k) Plan. Management of
the Company is not aware of any other transfers of Common Stock. The Company
has not paid any dividends with respect to the Common Stock during the
disclosed time periods. All share and price information has been adjusted to
reflect all stock splits and stock dividends paid by the Company since January
1, 1995.
<TABLE>
<CAPTION>
SALES PRICE
---------------------------------
HIGH LOW
------- -------
<S> <C> <C>
1995
----
First Quarter $5.1880 $5.1880
Second Quarter -- --
Third Quarter -- --
Fourth Quarter -- --
1996
----
First Quarter 1.5360 1.5354
Second Quarter -- --
Third Quarter -- --
Fourth Quarter -- --
1997
----
First Quarter 0.1028 0.0935
Second Quarter -- --
Third Quarter 1.2312 1.2312
Fourth Quarter -- --
</TABLE>
Because of the closely held nature of the Company, no representation is
made that the foregoing prices are or are not reflective of a "market price."
As of September 30, 1997, the Company reported 33 stockholders of record
holding the Common Stock.
ITEM 2. LEGAL PROCEEDINGS
-----------------
The Company is from time to time a party to various legal actions
arising in the normal course of business. Management believes that there are
no proceedings threatened or pending against the Company or its subsidiaries,
which, if determined adversely, would have a material adverse effect on the
business or financial position of the Company or its subsidiaries.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
---------------------------------------------
This item is not applicable as the Company has had no change in its
principal independent accountant during the Company's two most recent fiscal
years.
- 41 -
<PAGE> 44
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------
For the three years ending December 31, 1996 and through the date of
this Form 10-SB filing, the only sales of the Company's securities have been:
(i) 476 shares of Series B Preferred Stock for $47,600 (Timothy L. Ashburn's
IRA purchased 311 shares for $31,100, Joan Inman purchased 100 shares for
$10,000, Weaver H. Gaines' IRA purchased 50 shares for $5,000 and Anthony
Ghoston purchased 15 shares for $1,500); (ii) 37,222.733 shares of Common
Stock to the 401(k) Plan (6,899.724, 5501.891 and 24,821.118 shares in
February 1995, 1996 and 1997, respectively); (iii) in July 1997, the Company
issued 572,768 shares of Common Stock upon the exercise of options granted
pursuant to the terms of the M.E.R.P. at an exercise price of $0.1314 per
share; and (iv) 325,000 shares of Common Stock issued in connection with the
acquisition of Health Financial. There have been no sales of Series A
Preferred Stock during such period. All shares of Common Stock issued by the
Company were issued pursuant to the exemption provided by Rules 506 and 701 as
promulgated by the Commission. All shares of Series B Preferred Stock were
issued in transactions not involving a public offering pursuant to Section
4(2) of the Securities Act of 1933, as amended.
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
-----------------------------------------
Section 145 of the DGCL provides generally that a Delaware corporation
may indemnify its directors and officers against expenses, judgments, fines
and settlements actually and reasonably incurred by them in connection with
any civil suit or action, except actions by or in the right of the
corporation, or any administrative or investigative proceeding if, in
connection with the matters in issue, they acted in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interest of the
corporation, and in connection with any criminal suit or proceeding, if in
connection with the matters in issue, they had no reasonable cause to believe
their conduct was unlawful. Section 145 further permits a Delaware
corporation to grant its directors and officers additional rights of
indemnification through bylaw provisions and otherwise and to purchase
indemnity insurance on behalf of its directors and officers.
Article 11 of the Certificate of Incorporation provides that a director
of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL or (iv) for any transaction from which the
director derived any improper personal benefit.
The Company maintains a liability insurance policy that indemnifies
directors, officers, employees and agents of the Company.
- 42 -
<PAGE> 45
Part F/S
--------
<TABLE>
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
-----
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT 45
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION OF THE COMPANY AS OF SEPTEMBER 30, 1997
(UNAUDITED) AND DECEMBER 31, 1996 AND 1995 46
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
OF THE COMPANY FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) AND
THE YEARS ENDED DECEMBER 31, 1996 AND 1995 48
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY OF THE COMPANY FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND FOR
THE YEARS ENDED DECEMBER 31, 1996 AND 1995 59
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS OF
THE COMPANY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1996 AND 1995 50
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS 51
INDEPENDENT AUDITORS' REPORT 61
BALANCE SHEET OF FIRST LEXINGTON AS OF DECEMBER 31, 1996 62
STATEMENT OF OPERATIONS AND RETAINED EARNINGS OF FIRST
LEXINGTON FOR THE YEAR ENDED DECEMBER 31, 1996 64
STATEMENTS OF CASH FLOW OF FIRST LEXINGTON
FOR THE YEAR ENDED DECEMBER 31, 1996 65
NOTES TO FINANCIAL STATEMENTS 66
INDEPENDENT AUDITOR'S REPORT 70
BALANCE SHEETS OF FIRST LEXINGTON
AS OF DECEMBER 31, 1995 AND 1994 71
- 43 -
<PAGE> 46
STATEMENTS OF INCOME AND RETAINED EARNINGS OF FIRST
LEXINGTON FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE TEN-MONTH PERIOD ENDED DECEMBER 31, 1994 73
STATEMENTS OF CASH FLOWS OF FIRST LEXINGTON FOR THE
YEAR ENDED DECEMBER 31, 1995 AND THE TEN MONTH
PERIOD ENDED DECEMBER 31, 1994 74
NOTES TO FINANCIAL STATEMENTS 75
INDEPENDENT AUDITORS' REPORT 78
STATEMENTS OF FINANCIAL CONDITION OF VAI AS OF AUGUST 31,
1997 (UNAUDITED) AND NOVEMBER 30, 1996 AND 1995 79
STATEMENTS OF OPERATIONS OF VAI FOR THE NINE MONTHS ENDED
AUGUST 31, 1997 AND 1996 (UNAUDITED) AND THE YEARS ENDED
NOVEMBER 30, 1996 AND 1995 81
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY OF VAI FOR
THE NINE MONTHS ENDED AUGUST 31, 1997 (UNAUDITED) AND
FOR THE YEARS ENDED NOVEMBER 30, 1996 AND 1995 82
STATEMENTS OF CASH FLOWS OF VAI FOR THE NINE MONTHS ENDED
AUGUST 31, 1997 AND 1996 (UNAUDITED) AND THE YEARS ENDED
NOVEMBER 30, 1996 AND 1995 83
NOTES TO FINANCIAL STATEMENTS 84
BALANCE SHEET OF FIRST LEXINGTON AS OF
SEPTEMBER 30, 1997 (UNAUDITED) 89
STATEMENTS OF OPERATIONS OF FIRST LEXINGTON
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996 (UNAUDITED) 91
STATEMENTS OF CASH FLOWS OF FIRST LEXINGTON
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996 (UNAUDITED) 92
NOTE TO FINANCIAL STATEMENTS (UNAUDITED) 93
</TABLE>
- 44 -
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying supplemental consolidated statements of
financial condition of Unified Holdings, Inc. and subsidiaries as of December
31, 1996 and 1995, and the related supplemental consolidated statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. These supplemental consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these supplemental consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the supplemental consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such supplemental consolidated financial statements
present fairly, in all material respects, the financial position of Unified
Holdings, Inc. and subsidiaries at December 31, 1996 and 1995, and the results
of their operations, and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Larry E. Nunn & Associates, L.L.C.
Columbus, Indiana
October 30, 1997
- 45 -
<PAGE> 48
<TABLE>
UNIFIED HOLDINGS, INC.
SUPPLEMENTAL CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1997 (UNAUDITED) AND
DECEMBER 31, 1996 AND 1995
ASSETS
------
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------------
1997 1996 1995
------------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 603,689 $ 426,215 $ 423,986
Investment in affiliated mutual funds 643,232 203,040 --
Investment in non-affiliated mutual funds 188,234 177,915 156,621
Note receivable - affiliated company 50,000 50,000 65,888
Note receivable - non-affiliated company 5,361 30,113 --
Accounts receivable (net of allowance
for doubtful accounts of $2,041) 1,225,255 920,212 691,645
Prepaid and sundry assets 124,605 127,430 127,718
---------- ---------- ----------
Total current assets 2,840,376 1,934,925 1,465,858
---------- ---------- ----------
NON-CURRENT ASSETS
Equity in and advances to affiliate 377,756 445,293 196,401
Notes receivable, net at current maturity 8,090 11,262 --
FIXED ASSETS, AT COST
Property, equipment and furniture (net of accumulated
depreciation of $891,076, $785,453 and
$700,104, respectively) 258,223 411,390 573,874
Capitalized leased equipment (net of accumulated
depreciation of $99,384, $68,058 and $37,299,
respectively) 148,538 99,876 100,127
---------- ---------- ----------
Total fixed assets 406,761 511,266 674,001
---------- ---------- ----------
Total non-current assets 792,607 967,821 870,402
---------- ---------- ----------
TOTAL ASSETS $3,632,983 $2,902,746 $2,336,260
========== ========== ==========
See accompanying notes and independent auditors' report.
</TABLE>
- 46 -
<PAGE> 49
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
DECEMBER 31,
SEPTEMBER 30, ----------------------------
1997 1996 1995
------------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current portion of capitaled leases $ 86,320 $ 38,651 $ 44,637
Accounts payable and accrued liabilities 359,626 482,860 573,385
Accrued compensation and benefits 238,690 139,730 144,265
Payable to broker/dealers 247,998 124,489 140,905
Other liabilities 724,435 183,683 113,094
---------- ---------- ----------
Total current liabilities 1,657,069 969,413 1,016,286
---------- ---------- ----------
LONG-TERM LIABILITIES
Long-term capitaled leases,
net of current portion 41,581 32,695 41,264
---------- ---------- ----------
Total long-term liabilities 41,581 32,695 41,264
---------- ---------- ----------
TOTAL LIABILITIES 1,698,650 1,002,108 1,057,550
---------- ---------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock Series A 8,486 8,486 8,486
Preferred Stock Series B 8,583 8,583 8,583
Common Stock, $.01 par value per share 10,728 1,599 1,577
Subscribed shares to be issued in connection
with acquisition of Health Financial 3,250 3,250 3,250
Additional paid-in capital 1,148,588 1,076,598 1,068,172
Retained earnings 635,101 761,329 149,508
Net unrealized appreciation on securities
available-for-sale 119,597 40,793 39,134
---------- ---------- ----------
Total stockholders' equity 1,934,333 1,900,638 1,278,710
---------- ---------- ----------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $3,632,983 $2,902,746 $2,336,260
========== ========== ==========
</TABLE>
- 47 -
<PAGE> 50
<TABLE>
UNIFIED HOLDINGS, INC.
SUPPLEMENTAL CONSOLIDATED
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------- ----------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Revenue from broker/dealer operations $1,136,368 $1,463,228 $1,846,201 $2,363,345
Investment adviser fees 1,510,491 1,207,793 1,679,728 1,317,965
Revenue from fund service operations 1,015,451 1,509,636 1,968,384 1,395,782
Trail commissions 720,107 759,034 995,318 540,950
Custody and retirement fees 255,217 206,273 246,139 163,044
Software and program fees 126,687 143,178 190,445 213,755
Net investment and other income 107,097 23,095 109,507 38,092
Total revenue 4,871,418 5,312,237 7,035,722 6,032,933
COST OF SALES:
Brokerage revenue charges 724,449 916,776 1,141,291 1,244,893
Trail commission charges 502,909 491,977 653,595 130,281
Investment adviser fees 46,741 42,562 61,558 54,827
Administration fees 4,455 3,060 4,250 3,050
---------- ---------- ---------- ----------
Total cost of sales 1,278,554 1,454,375 1,860,694 1,433,051
---------- ---------- ---------- ----------
Gross profit 3,592,864 3,857,862 5,175,028 4,599,882
---------- ---------- ---------- ----------
EXPENSES:
Employee compensation and benefits 2,182,180 2,122,910 2,742,595 2,392,953
Brokerage operating charges 221,534 264,885 332,508 577,373
Fund services operating charges 189,403 185,803 233,500 170,395
Mail and courier service 35,940 43,034 63,511 76,522
Telephone 77,528 45,478 70,279 154,887
Equipment rental and maintenance 61,610 62,734 105,122 151,787
Occupancy 153,506 149,156 198,651 215,402
Depreciation 123,581 137,664 185,062 148,789
Other 353,104 271,962 393,921 470,557
---------- ---------- ---------- ----------
Total expenses 3,398,386 3,283,626 4,325,149 4,358,665
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS
BEFORE GAIN ON SECURITIES $ 194,478 $ 574,236 $ 849,879 $ 241,217
REALIZED GAIN (LOSS) ON SECURITIES 24,996 39,929 49,684 35,356
RESULTS OF AFFILIATE (67,537) (69,399) (151,108) (1,599)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 151,937 544,766 748,455 274,974
PROVISION FOR INCOME TAXES 16,000 -- -- --
---------- ---------- ---------- ----------
NET INCOME 135,937 544,766 748,455 274,974
---------- ---------- ---------- ----------
DIVIDENDS ON PREFERRED STOCK 101,854 102,309 136,634 136,757
---------- ---------- ---------- ----------
RESULTS AFTER PREFERRED STOCK DIVIDEND $ 34,083 $ 442,457 $ 611,821 $ 138,217
========== ========== ========== ==========
See accompanying notes and independent auditors' report.
</TABLE>
- 48 -
<PAGE> 51
<TABLE>
UNIFIED HOLDINGS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
SUBSCRIBED
SHARES TO BE
ISSUED IN UNREALIZED
PREFERRED PREFERRED CONNECTION ADDITIONAL RETAINED GAIN (LOSS) COMMON
COMMON CLASS A CLASS B WITH HEALTH PAID-IN EARNINGS ON TREASURY
STOCK STOCK STOCK FINANCIAL CAPITAL (DEFICIT) INVESTMENTS STOCK TOTAL
------ --------- --------- ------------ ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE
December 31, 1994 $ 1,577 $8,486 $8,107 $3,250 $ 3,187,148 $ 11,291 $ 39,134 $(2,166,100) $1,092,893
1995 net income 274,974 274,974
Non-qualified option plan
1,500 shares (2,166,100) 2,166,100 --
Sales of preferred stock 476 47,124 47,600
Dividends on Preferred
Stock (136,757) (136,757)
------- ------ ------ ------ ----------- --------- -------- ----------- ----------
BALANCE
December 31, 1995 $ 1,577 $8,486 $8,583 $3,250 $ 1,068,172 $ 149,508 $ 39,134 $ -- $1,278,710
1996 net income 748,455 748,455
Unrealized gain (loss) on
investments 1,659 1,659
Common stock issued 22 8,426 8,448
Dividends on Preferred
Stock (136,634) (136,634)
------- ------ ------ ------ ----------- --------- -------- ----------- ----------
BALANCE
December 31, 1996 $ 1,599 $8,486 $8,583 $3,250 $ 1,076,598 $ 761,329 $ 40,793 $ -- $1,900,638
1997 net income 135,937 135,937
Unrealized gain (loss)
on investments 78,804 78,804
Common Stock issued 97 2,456 2,553
Issuance of Common Stock 5,728 69,534 75,262
Dividend to Health
Financial stockholder (157,007) (157,007)
Dividends on Preferred
Stock (101,854) (101,854)
Adjustment to stated
capital 3,304 (3,304) --
------- ------ ------ ------ ----------- --------- -------- ----------- ----------
BALANCE
September 30, 1997 $10,728 $8,486 $8,583 $3,250 $ 1,148,588 $ 635,101 $119,597 $ -- $1,934,333
======= ====== ====== ====== =========== ========= ======== =========== ==========
See accompanying notes and independent auditors' report.
</TABLE>
- 49 -
<PAGE> 52
<TABLE>
UNIFIED HOLDINGS, INC.
SUPPLEMENTAL CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------- ---------------------------
1997 1996 1996 1995
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 135,937 $ 544,766 $ 748,455 $ 274,974
Adjustments to reconcile net income to net cash
provided (used) in operating activities:
Provision for depreciation and amortization 123,581 137,664 185,062 148,789
Results of affiliated company 67,537 69,399 151,108 1,599
Book value of fixed assets disposed 128,851 41,859 41,859 --
(Increase) decrease in operating assets:
Receivables (305,043) (488,912) (228,567) (22,215)
Prepaid and sundry assets 2,825 12,386 288 25,034
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,255 (29,820) (90,525) (110,995)
Accrued compensation and benefits 98,960 14,090 (4,535) 36,082
Payable to broker/dealers 123,509 (4,971) (16,416) (15,694)
Other liabilities 416,263 71,804 70,589 98,009
--------- --------- --------- ---------
Net cash provided by operating activities 793,675 368,265 857,318 435,583
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (147,927) (29,124) (29,124) (14,859)
Unrealized gain/(loss) on securities 78,804 (4,592) 1,659 --
Notes receivable 27,924 (41,375) (25,487) (65,888)
Equity in affiliate -- -- (400,000) (198,000)
Proceeds from sale of fixed assets -- -- -- 200
Investment in non-affiliated mutual funds (10,319) 28,706 -- --
Investment in affiliated mutual funds (440,192) (219,988) (224,334) (47,804)
--------- --------- --------- ---------
Net cash used by investing activities (491,710) (266,373) (77,286) (326,351)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend to preferred stockholders (101,854) (102,309) (136,634) (136,757)
Dividend to Health Financial stockholder (157,007) -- -- --
Issuance of Common Stock - profit-sharing plan 2,553 8,448 8,448 --
Issuance of Common Stock - MERP 75,262 -- -- --
Proceeds from Series B Preferred Stock issuances -- -- -- 47,600
Reclassification of note receivable from
affiliated company -- (65,888) -- --
Payment receivable on note from
affiliated company -- 15,888 -- --
Repayment on borrowing -- -- -- (78,010)
Borrowings for equipment 93,320 35,063 35,063 80,213
Repayment of capitalized lease obligations (36,765) (73,744) (84,680) (119,120)
--------- --------- --------- ---------
Net cash used by financing activities (124,491) (182,542) (177,803) (206,074)
--------- --------- --------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 177,474 (80,650) 2,229 (96,842)
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS
Beginning of year 426,215 423,986 423,986 520,828
--------- --------- --------- ---------
End of year $ 603,689 $ 343,336 426,215 423,986
========= ========= ========= =========
SUPPLEMENTARY INFORMATION
Interest paid during year $ 6,232 $ 3,364 $ 4,993 $ 10,703
========= ========= ========= =========
</TABLE>
- 50 -
<PAGE> 53
UNIFIED HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 1 - NATURE OF OPERATIONS
The consolidated financial statements include the accounts of Unified
Holdings, Inc. (the "Company"), a Delaware corporation, and its
wholly owned subsidiaries, Unified Management Corp. ("Management"),
Unified Advisers, Inc. ("Advisers") and Health Financial, Inc.
("Health").
Management, an Indiana corporation, is a registered broker dealer
under the Securities Exchange Act of 1934, as amended, and is a member
of the National Association of Securities Dealers, Inc.
Advisers is incorporated in Indiana and is a registered investment
adviser under the Investment Advisers Act of 1940, as amended, and
provides investment advisory, transfer agent, dividend disbursing,
transfer agency system software licensing and fund accounting services
to investment companies.
Health is incorporated in the State of Kentucky and is an investment
advisory business providing services to trusts, retirement plans,
businesses and individuals located primarily in Kentucky.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Merger of Health Financial, Inc.
----------------------------------------------------------
The consolidated financial statements include the accounts of the
Company, Management, Advisers and Health. All intercompany
transactions and balances between the Company and its subsidiaries
have been eliminated.
Effective June 1, 1997, the Company acquired Health in a transaction
accounted for as a pooling-of-interests. In connection with the
acquisition, the Company will issue 325,000 shares of common stock,
$.01 par value, of the Company (the "Common Stock"). The shares are
anticipated to be issued in November 1997.
The Supplemental Consolidated Financial Statements give retroactive
effect to the transaction and, as a result, the Supplemental
Consolidated Statements of Financial Condition, Statements of
Operations and Statements of Cash Flows are presented as if the
combining companies had been consolidated for all periods presented.
(As required by generally accepted accounting principles, the
Supplemental Consolidated Financial Statements become the historical
consolidated financial statements upon issuance of the financial
statements for the period that includes the date of the transaction.)
The Supplemental Consolidated Statements of Changes in Stockholders'
Equity reflects the accounts of the Company as if the Common Stock
issued in the Health acquisition had been outstanding during all
periods presented. The Supplemental Consolidated Financial
Statements, including the notes thereto, should be read in conjunction
with the historical consolidated financial statements of the Company.
- 51 -
<PAGE> 54
UNIFIED HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fees and Commissions
--------------------
The mutual fund and trust administration services operations provides
administrative and investment services to investment companies and
separate accounts. The Company records revenue on the accrual basis
of accounting.
For the brokerage line of business, commissions and clearing revenue
are recorded on the settlement date of the related security
transaction. This does not materially differ from recording
commissions based upon the trade date.
The investment advisory business revenue as well as the investment
advisory fees earned by third party advisers are recorded on the
accrual basis. The fees earned by the operation and paid to the
sub-advisers are based on established fee schedules and contracts.
Generally, the Company has the right to collect fees from the invested
assets. Thus, collection of the fees is reasonably certain.
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation, including the
depreciation of capital leased equipment, is computed on the
straight-line method and accelerated method over the estimated useful
lives of the assets for financial statement purposes.
Income Taxes
------------
The Company files consolidated federal and state income tax returns
with its subsidiaries. Health prior to its acquisition by the
Company, elected to be taxed as a S-corporation. Therefore, federal
and state taxable income and losses were passed through to Health's
stockholder. Subsequent to its acquisition by the Company, Health
will be included in the consolidated tax returns of the Company.
The Company has adopted Statement of Financial Accounting Standards
No. 109, Accounting For Income Taxes. The Statement requires use of
the liability method of accounting for deferred income taxes.
Use of Estimates
----------------
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
- 52 -
<PAGE> 55
UNIFIED HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Statements of Cash Flows
------------------------
For purposes of the statements of cash flows, the Company considers
all liquid investments with an original maturity of three months or
less to be cash equivalents. Cash and cash equivalents included money
market investments of $321,124 which are not insured by the Federal
Deposit Insurance Corporation (the "FDIC").
Options
-------
The Company applies APB Opinion 25 and related interpretations in
accounting for its Management and Employee Retention Plan. Shares
were issued at fair market value at the date granted to the employee.
There is no significant effect on the Company's net income under this
plan consistent with the method of Financial Accounting Standards
Board ("FASB") Statement No. 123.
Organizational Costs
--------------------
Costs relating to the organization of Health have been capitalized and
are not being amortized for financial statement purposes.
Marketable Securities and Investments
-------------------------------------
Investments are recorded at cost and amortized over the period to
maturity for the premium or discount from par value under generally
accepted accounting principles. Other marketable investments are
recorded and adjusted to the fair market value as of the date of the
financial statements.
Note 3 - COMMITMENTS and CONTINGENCIES
The Company has operating leases expiring in 2001 for office
facilities and equipment. The leases include provisions for
adjustment of operating costs and real estate taxes. Such obligations
are allocated between Advisers and Management based on estimated
usage.
The aggregate minimum rental commitments required under operating
leases for office space and equipment at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Lease
Year Ended December 31 Commitments
---------------------- -----------
<S> <C>
1997 $204,831
1998 198,987
1999 187,026
2000 167,280
Thereafter 111,520
--------
Total $869,644
========
</TABLE>
- 53 -
<PAGE> 56
UNIFIED HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 3 - COMMITMENTS and CONTINGENCIES (continued)
Total rental expense was $195,869 and $212,418 for the years ended
December 31, 1996 and 1995, respectively.
The Company and its subsidiaries maintain bank accounts that
periodically exceed the FDIC guarantee limit. As of December 31, 1996
and 1995, the entities did not have any bank accounts that were in
excess of the FDIC limit.
Note 4 - TRANSACTIONS WITH RELATED PARTIES
The Company provided administrative services to Vintage Advisers, Inc.
("Vintage") during the year. The Company owns one-third of the
outstanding capital stock of Vintage. The revenue for these services
was $500,313 for 1996 and $199,275 for 1995. The receivable from this
affiliated company was $100,592 at December 31, 1996 and $4,160 at
December 31, 1995.
In 1995, the Company loaned Vintage $65,888 to reimburse the Vintage
Funds for an outstanding obligation. The promissory note is due on
demand with interest payable at prime plus two percent per annum. The
note receivable at December 31, 1996 was $50,000.
Health leased part of its office to First Lexington Trust Company
("First Lexington"), a related party, and other entities under a
renewable one-year agreement, which amounted to $15,500 per year for
1996 and 1995.
Health was reimbursed by First Lexington for the use of supplies,
equipment and employees costs and benefits expended in connection with
Health's operations, which amounted to $66,000 for the year ended
December 31, 1996. In 1995, Health received advisory fee revenue
amounting to $47,734 from First Lexington. In 1996, the fees were
paid by the investment or trust sponsors.
Note 5 - EMPLOYEE BENEFIT PLANS
The Company sponsors a profit-sharing and Section 401(k) defined
contribution retirement plan that covers substantially all employees.
Contributions to the plan are determined by the Board of Directors.
The plan covers employees of the Company, Management and Advisers.
During 1996, an expense of $45,000 was provided in anticipation of
contributions to be paid in 1997. During 1995, $16,392 was
contributed to the plan.
In 1996, the Company amended the 401(k) plan to include matching for
funds contributed into the Vintage Funds or used to purchase Class B
Preferred Stock of the Company in the 401(k) plan. The Company will
match the employee's contribution up to fifty percent of the first six
percent of the employee's before-tax contribution.
- 54 -
<PAGE> 57
UNIFIED HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 6 - FEDERAL INCOME TAXES
Consolidated net operating loss carryforwards at December 31, 1996
amounted to approximately $14,000,000 expiring through 2008. However,
due to a limitation imposed by the Internal Revenue Code of 1986, as
amended, only approximately $90,000 of such loss carryforwards
incurred prior to December 31, 1989 are available for use in any one
year. The remainder of the loss carryforwards incurred subsequent to
1989, approximately $8,300,000, are fully available to offset taxable
income.
Consolidated state net operating loss carryforwards at December 31,
1996 amounted to approximately $10,000,000 and expire through 2008.
The Company utilized approximately $515,000 and $74,000 of net
operating loss carryforwards during 1996 and 1995, respectively, to
reduce current income tax expense of $174,423 and $13,582,
respectively, to zero.
Note 7 - CAPITALIZED LEASE OBLIGATIONS
Capitalized lease obligations are payable over a 36-month period.
The following is a summary of future minimum lease payments under
capitalized lease obligations as of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------ ------
<S> <C>
1997 $43,292
1998 25,605
1999 10,077
-------
Total 78,974
Less amount representing interest 7,628
-------
Net present value $71,346
=======
</TABLE>
Note 8 - NON-CASH INVESTMENT AND FINANCIAL ACTIVITY
The Company acquired equipment through capital lease obligations in
the amount of $35,063 during 1996 and $80,218 during 1995.
Note 9 - CASH SEGREGATED UNDER FEDERAL REGULATION
Pursuant to Rule 15c3-3 as promulgated by the Securities and Exchange
Commission, the Company calculates its reserve requirement and
segregates cash and/or securities for the exclusive benefit of the
customers on a periodic basis. The reserve requirement calculated by
the Company was $-0- at December 31, 1996 and 1995. Balances
segregated in excess of reserve requirements are not restricted.
- 55 -
<PAGE> 58
UNIFIED HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 10 - NET CAPITAL REQUIREMENTS
The Company is subject to the Securities and Exchange Commission's
"Uniform Net Capital Rule" (Rule 15c3-1), which requires the
maintenance of minimum net capital, as defined, of 6-2/3% of aggregate
indebtedness or $50,000, whichever is greater, and a ratio of
aggregate indebtedness to net capital of not more than 15 to 1. At
December 31, 1996 and 1995, the Company had net capital of $137,894
and $203,377, respectively, which was in excess of its required net
capital of $50,000, and a net capital ratio of 2.28 to 1 at December
31, 1996 and 1.33 to 1 at December 31, 1995.
Note 11 - MAJOR CLIENT AND VENDOR
The Company's gross profit generated from a major client during 1996
and 1995 was approximately 10% and 17%, respectively, of gross profit
and accounts receivable from the client were approximately $62,000 and
$50,000 at December 31, 1996 and 1995, respectively.
The Company's total expenses from a major vendor during 1996 and 1995
were approximately 8% and 13%, respectively, of total expenses.
Accounts payable to this vendor at December 31, 1996 and 1995 were
$-0-.
Note 12 - EQUITY IN AND INVESTMENT IN AFFILIATE
The Company invested $400,000 in November 1996 for 4,756 shares and
$198,000 in December 1995 for 5,244 shares of common stock of Vintage,
a registered investment adviser under the Investment Advisers Act of
1940.
The Company's share of equity investment in Vintage was $32,575 and
$50,804 at December 31, 1996 and 1995, respectively. The Company used
the equity method of accounting for its investment in Vintage for
years ended December 31, 1996 and 1995.
The results of operations for the years ended November 30, 1996 and
November 30, 1995 are as follows:
<TABLE>
<CAPTION>
Audited Audited
1996 1995
--------- --------
<S> <C> <C>
Total assets $ 622,493 $344,630
Total equity 97,823 152,565
Operating revenue 248,254 28,018
Net (loss) (398,988) (47,435)
Unified Holdings -
share of net (loss) $(151,108) $ (1,599)
</TABLE>
- 56 -
<PAGE> 59
UNIFIED HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1996 and
1995. FASB Statement No. 107, Disclosures About Fair Value of
Financial Instruments, defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties.
<TABLE>
<CAPTION>
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
($ in thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash
equivalents $ 426 $ 426 $ 424 $ 424
Investment in
affiliated
mutual fund 381 381 -- --
Notes receivable
from affiliated
Company 91 91 66 66
Receivables
(trade) 920 920 691 691
Investment in
affiliates 445 445 196 196
Prepaid and
sundry assets 127 127 128 128
Financial liabilities
Current
liabilities (969) (969) (1,016) (1,016)
Long--term
capitalized
lease obligations (33) (33) (41) (41)
</TABLE>
The carrying amounts shown in the above table are included in the
statement of financial position under the indicated captions.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
- 57 -
<PAGE> 60
UNIFIED HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Cash and cash equivalents, receivables and current liabilities:
--------------------------------------------------------------
The carrying amounts approximate fair value because of the short
maturity of these instruments. Investment in money market mutual
funds are treated as cash equivalents with maturity under 90 days.
Long-term capitalized lease obligations:
---------------------------------------
The fair value of the Company's long-term capitalized lease
obligations is estimated based on the quoted market prices for similar
issues.
Note 14 - COMMON AND PREFERRED STOCK
Common Stock:
The authorized Common Stock of the Company consisted of 300,000 shares
of Common Stock, no par value, of which 50,000 shares were outstanding
at December 31, 1996 and 1995. At a meeting of the stockholders of
the Company on February 6, 1997, the Company's stockholders approved
an amendment to its Certificate of Incorporation, as amended, that
increased the par value of the Common Stock from no par value per
share to $0.01 per share and increased the authorized number of shares
to 25,000,000.
On July 15, 1997, the Company declared and paid a stock dividend with
respect to the Common Stock such that each issued share of Common
Stock on such date was divided into a greater number of shares of
Common Stock that was equal to a fraction, the numerator of which was
50,000 and the denominator of which was the number of issued and
outstanding shares of Common Stock immediately prior to such division
of shares. Upon payment of such stock dividend, the Company had
50,000 shares of its Common Stock outstanding.
By unanimous written consent dated August 1, 1997, the stockholders of
the Company approved an Amended and Restated Certificate of
Incorporation of the Company that decreased the number of authorized
shares of Common Stock to 10,000,000.
In connection with the acquisition of Health on June 1, 1997, the
Company will issue 325,000 shares of its Common Stock as reflected in
Note 1 of the notes to the financial statements.
Preferred Stock:
The total preferred shares authorized for the Company is 1,000,000
with a par value of $.01 per share of which 22,100 shares have been
designated as follows:
- 58 -
<PAGE> 61
UNIFIED HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 14 - COMMON AND PREFERRED STOCK (continued)
<TABLE>
<CAPTION>
Shares
Shares Issued and Stated Par
Designated Outstanding Value Value
---------- ----------- ------ -----
<S> <C> <C> <C> <C>
Preferred Stock Series A 10,000 8,486 $100 $.01
Preferred Stock Series B 10,000 8,583 100 .01
Preferred Stock Series C 2,100 -- 100 .01
</TABLE>
Required dividend payments on the Series A and Series B Preferred
Stock are cumulative at 8% per annum of the stated value. The Company
may not create any additional class or series of stock ranking or
having a parity as to payment of dividends or as to liquidation
preference over or with the Series A or Series B Preferred Stock.
In the event of non-payment of the cumulative preferred dividends, the
preferred stockholders shall be entitled to vote on all matters
presented to the stockholders of the Company, as provided for in the
Amended and Restated Certificate of Incorporation of the Company.
During 1995, the Board authorized the issuance of 476 shares of Series B
Preferred Stock to certain members of the Board of Directors and
employees upon payment of cash of $100 per share.
On August 1, 1997, the Board designated 2,100 shares of the Preferred
Stock of the Company as Series C 6.75% Cumulative Convertible
Preferred Stock.
Note 15 - SUBSEQUENT EVENT
On February 6, 1997, the Board authorized the payment of a preferred
stock dividend of 8% for Class A and Class B preferred shares for the
three-month period ended January 31, 1997, payable March 1, 1997.
On April 25, 1997, the Company entered into an agreement to acquire
First Lexington located in Lexington, Kentucky. First Lexington is a
non-bank affiliated trust company that is regulated by the Kentucky
Department of Financial Institutions, which has approved the proposed
merger. This acquisition will be accounted for under the
pooling-of-interests method of accounting. In connection with the
acquisition, the Company will issue 80,008 shares of Common Stock,
based upon an exchange ratio of 9.644 shares of Common Stock for each
outstanding share of First Lexington common stock. As of March 31,
1997, First Lexington reported total assets of $1,022,345 and
shareholders' equity of $992,548.
On May 8, 1997, the Company entered into an agreement to acquire
Vintage. Vintage was incorporated in Delaware on December 12, 1994
and is registered to do business in Indiana for the purpose of being
the adviser to the Vintage Funds. Vintage is a registered adviser
under the Investment Advisers Act of 1940, as amended. This
acquisition will be accounted for under the
- 59 -
<PAGE> 62
UNIFIED HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
pooling-of-interests method of accounting. In connection with the
acquisition, the Company will issue 120,000 shares of Common Stock,
based upon an exchange ratio of 1.2 shares of Common Stock for each
outstanding share of Vintage common stock. As of March 31, 1997, Vintage
reported total assets of $607,800 and shareholders' equity of $50,700.
Effective as of December 1, 1997, the Company and Vintage terminated
the definitive agreement dated May 8, 1997. By separate agreement
dated December 1, 1997, the stockholders of Vintage (other than the
Company) have agreed to surrender to Vintage their shares of capital
stock of Vintage. Upon consummation of such stock surrender, the
Company will own all of the outstanding capital stock of Vintage.
- 60 -
<PAGE> 63
To the Stockholders and Board of Directors
First Lexington Trust Company
3320 Tates Creek Road, Suite 101
Lexington, Kentucky
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the balance sheet of First Lexington Trust Company as of
December 31, 1996 and the related statements of operations, retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of First Lexington Trust Company as of December 31, 1995 were
audited by other auditors whose report dated February 27, 1996 expressed an
unqualified opinion on these statements.
We conducted our audit in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of First Lexington Trust Company
as of December 31, 1996 and the results of its operations and its cash flow
for the year then ended in conformity with generally accepted accounting
principles.
/s/ Larry E. Nunn & Associates, L.L.C.
Columbus, Indiana
February 19, 1997
- 61 -
<PAGE> 64
<TABLE>
FIRST LEXINGTON TRUST COMPANY
BALANCE SHEET
December 31, 1996
-----------------
ASSETS
------
<CAPTION>
<S> <C> <C>
CURRENT ASSETS
Cash:
Bank $10,573
Mutual fund money market 10,000
Mutual fund trust account 15,034
Brokerage money market 76,208 $ 111,815
-------
Accounts receivable:
Fee income 48,430
Mutual fund trust account 5,965 54,395
-------
Accrued interest income receivable 4,801
Prepaid expenses 3,424
----------
174,435
----------
INVESTMENT IN DEBT SECURITIES 802,970
----------
PROPERTY AND EQUIPMENT:
Office equipment 3,334
Software 45,392
----------
48,726
Less accumulated depreciation 10,768
----------
37,958
----------
OTHER ASSETS
Organization costs 9,000
----------
TOTAL ASSETS $1,024,363
==========
See accompanying notes and independent auditors' report.
</TABLE>
- 62 -
<PAGE> 65
<TABLE>
STATEMENT 1
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
<S> <C>
CURRENT LIABILITIES
Accounts payable, trade $ 8,604
Accrued advisory fees 4,253
Accrued income taxes 9,200
Deferred income 3,248
Deferred income taxes 15,653
----------
40,958
LONG-TERM LIABILITIES:
Deferred income taxes 2,387
----------
Total liabilities 43,345
----------
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value,
10,000 shares authorized,
8,295 shares issued and outstanding 8,295
Paid-in capital 821,705
----------
Total stock investment 830,000
Retained earnings 151,018
----------
Total stockholders' equity 981,018
----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,024,363
==========
</TABLE>
- 63 -
<PAGE> 66
<TABLE>
STATEMENT 2
FIRST LEXINGTON TRUST COMPANY
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
December 31, 1996
-----------------
<CAPTION>
<S> <C>
REVENUES:
Trustee fees $176,825
Administration fees 12,341
Valuation system fees 2,000
Software maintenance fees 4,181
--------
Total revenue 195,347
--------
DIRECT SUPPLIER COSTS
Investment advisory fees 6,066
Plan administration fees 12,341
Software maintenance fees 4,181
Related party employee, supplies and
operating expenses reimbursed 66,000
--------
Total supplier costs 88,588
--------
TOTAL GROSS PROFIT 106,759
--------
OPERATING EXPENSES:
Computer software expenses 2,237
Insurance 13,652
Legal and professional services 15,273
Depreciation and amortization 10,002
Office supplies and postage 497
Rent 5,000
Telephone 4,690
Publication and subscriptions 810
Property taxes 1,776
Licenses and fees 1,421
Other 41
--------
Total operating expenses 55,399
--------
INCOME FROM OPERATIONS 51,360
--------
OTHER INCOME (EXPENSES)
Investment interest income 59,561
Capital gains and other income 163
--------
INCOME BEFORE INCOME TAXES 111,084
--------
INCOME TAXES
Current 20,400
Deferred 9,600
--------
NET INCOME 81,084
RETAINED EARNINGS, BEGINNING OF YEAR 69,934
--------
RETAINED EARNINGS, END OF YEAR $151,018
========
See accompanying notes and independent auditors' report.
</TABLE>
- 64 -
<PAGE> 67
<TABLE>
STATEMENT 3
FIRST LEXINGTON TRUST COMPANY
STATEMENT OF CASH FLOW
December 31, 1996
-----------------
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 81,084
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred income taxes 9,600
Depreciation and amortization 10,002
(Increase) decrease in assets:
Accounts receivable (25,590)
Accrued interest income receivable 197
Prepaid expenses (1,054)
Increase (decrease) in liabilities:
Accounts payable, trade (20,114)
Accrued advisory fees (10,149)
Accrued income taxes (4,341)
Deferred income 2,172
--------
Net cash provided by (used in)
operating activities 41,807
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase for property and equipment (9,307)
Purchase of investments 103,339
Proceeds from the sale of investments (64,647)
--------
Net cash provided by (used in)
investing activities 29,385
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock 1,000
--------
Net cash provided by (used in)
financing activities 1,000
--------
NET INCREASE (DECREASE) IN CASH 72,192
CASH AT BEGINNING OF YEAR 39,623
--------
CASH AT END OF YEAR $111,815
========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during period - income taxes $ 24,741
See accompanying notes and independent auditors' report.
</TABLE>
- 65 -
<PAGE> 68
FIRST LEXINGTON TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
-----------------
Note 1 - NATURE OF OPERATIONS
The Company, First Lexington Trust Company, was incorporated in
March 1994 and is a non-bank affiliated trust company regulated
by the Department of Financial Institutions, Commonwealth of
Kentucky. The Company received its trust charter in March 1994.
The majority of trust assets as of December 31, 1996, totaling
approximately $21.5 million, are invested in no-load mutual funds
under the direction of the trust investment committee.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenues and Investment Advisory Fees -
-------------------------------------
The revenues representing trust and investment advisory fees as
well as the investment advisory fees earned by third party
advisers are recorded on the accrual basis. The fees earned by
the Company and paid to the sub advisers are based on established
fees, schedules and contracts. The Company, as the trustee, has
the right to collect fees from the trust assets. Thus,
collection of the fees is reasonably certain.
Property and Equipment -
----------------------
Property and equipment are stated at cost. Depreciation is computed
on the straight-line method over the estimated useful
life of the assets for financial statement purposes.
Investments -
-----------
The investments designated as "Held to Maturity" are recorded at
cost and amortized over the period to maturity for the premium or
discount from par value under generally accepted accounting
principles. Other marketable investments are recorded and
adjusted to the fair market value as of the date of the financial
statements.
Organizational Costs -
--------------------
Costs relating to the organization of the Company have been
capitalized and are not being amortized for the financial
statement purposes.
Income Taxes -
------------
Deferred tax assets and liabilities are recognized for the future
tax consequence attributable to the difference between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases under the assets and
liabilities method of Financial Accounting Standards Statement
No. 109 ("SFAS 109"). Deferred assets and liabilities are
measured using differences expected to be recovered or settled.
Under SFAS 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
- 66 -
<PAGE> 69
FIRST LEXINGTON TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
-----------------
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates -
----------------
The presentation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Statement of Cash Flows -
-----------------------
For purposes of the statement of cash flow, the Company considers
all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
3 - INVESTMENTS IN DEBT SECURITIES
The Company is required by the Kentucky Department of Financial
Institutions to maintain a minimum of $800,000 of capital while
trust assets under management do not exceed $100,000,000. When
trust assets under management exceed $100,000,000, the capital
requirement will be increased by $350,000.
The marketable investments in debt securities are classified as
"Held to Maturity" and the amortized cost and fair market value
of the investments as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Maturity
Date Amortized Unrealized Market
Debt Security MO DY YR Face Value Cost Gain (loss) Value
------------- -------- ---------- --------- ----------- ------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation
REMIC 1675-P 10 15 2023 $100,000 $ 94,313 $ (6,652) $ 87,661
REMIC 1646-N 03 15 2023 200,000 189,355 (2,697) 186,658
REMIC 1681-B 11 15 2023 220,000 211,465 (2,551) 208,914
Federal National Mortgage Association
REMIC 94-23-0 10 25 2007 97,000 89,005 490 89,495
Note 03 06 2006 70,000 70,325 (1,225) 69,100
Federal Home Loan Bank
Note 12 29 2003 25,000 24,487 (167) 24,320
U.S. Treasury
Note 02 28 1999 100,000 99,020 105 99,125
Tennessee Valley Authority
Subordinated Debenture 04 24 2002 25,000 25,000 -- 25,000
-------- -------- -------- --------
Totals $837,000 $802,970 $(12,697) $790,273
======== ======== ======== ========
</TABLE>
- 67 -
<PAGE> 70
FIRST LEXINGTON TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
-----------------
Note 4 - RELATED PARTY TRANSACTIONS
The Company leases its office space from Health Financial, Inc.,
a related party, under a renewable one year agreement, which
amounted to $5,000 for the year ended December 31, 1996.
Additionally, the Company reimburses Health Financial, Inc. for
the use of supplies, equipment and employees costs and benefits
expended in connection with the Company's operations, which
amounted to $66,000 for the year ended December 31, 1996. The
sole shareholder of Health Financial, Inc. owns approximately 36%
of the outstanding capital stock of the Company.
5 - DEFERRED INCOME TAX
As discussed in Note 2, the Company records income taxes in
accordance with SFAS 109. The Company reports revenue and
expenses on the cash basis while tax depreciation is deducted
using accelerated methods. Organizational costs are being
amortized using the straight line method over 60 months. The
deferred tax liability in the financial statements as of December
31, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset $ 1,040
Deferred tax liability 19,080
-------
Net deferred tax asset (liability) $18,040
=======
</TABLE>
The components of income tax expense for the year ended
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Current income tax
Federal $14,925
State and local 5,475
-------
Total current 20,400
-------
Deferred income tax
Federal 7,025
State and local 2,575
-------
Total deferred 9,600
-------
Total Income Tax $30,000
=======
</TABLE>
- 68 -
<PAGE> 71
FIRST LEXINGTON TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
-----------------
Note 6 - CONTINGENCIES
The Company maintains bank accounts that periodically exceed the
Federal Deposit Insurance Corporation (the "FDIC") guarantee
limit during the year. At December 31, 1996 the Company had bank
accounts that were in excess of the FDIC limit by approximately
$16,440. The Company maintains a Trust Cash Fund with a no load
mutual fund for the deposit of funds for customer investments and
disbursement with the mutual fund. The following represents the
account as of December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Total account balance $837,102
Due to customers or investment 822,068
--------
Company balance in fund $ 15,034
========
</TABLE>
7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated
fair values of the Company's financial instruments at December
31, 1996. Financial Accounting Standards Board Statement No.
107, Disclosures About Fair Value of Financial Instruments,
defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction
between willing parties
<TABLE>
<CAPTION>
1996
-------------------------
Carrying Fair
Amount Value
-------- -----
<S> <C> <C>
Financial Assets
Cash and cash equivalents $118,815 $118,815
Receivables 56,196 56,196
Investments in debt securities 802,970 790,274
Current liabilities 40,958 40,958
</TABLE>
The carrying amounts shown in the table are included in the
balance sheet under the indicated captions.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and cash equivalents, receivables and current liabilities -
--------------------------------------------------------------
The carrying amounts approximate fair value because of the short
maturity of those instruments. Investments in money market funds
are treated as cash equivalents with maturities under 90 days.
Investments and debt obligations -
--------------------------------
The fair value of the Company's investments are estimated based
on the quoted market price for similar issues.
- 69 -
<PAGE> 72
First Lexington Trust Company
3320 Tates Creek Road, Suite 101
Lexington, Kentucky
Independent Auditor's Report
----------------------------
We have audited the accompanying balance sheets of First Lexington Trust
Company (a Corporation) as of December 31, 1995 and 1994, and the related
statements of income and retained earnings and cash flows for the year ended
December 31, 1995 and for the ten-month period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of First Lexington
Trust Company as of December 31, 1995 and 1994, and the results of its
operations and cash flows for the year ended December 31, 1995 and ten-month
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
/s/ Barr, Anderson & Roberts, P.S.C.
Lexington, Kentucky
February 27, 1996
- 70 -
<PAGE> 73
<TABLE>
FIRST LEXINGTON TRUST COMPANY
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<CAPTION>
1995 1994
-------- --------
ASSETS
------
<S> <C> <C>
Current assets
Cash $ 39,623 $ 32,866
Accounts receivable 28,805 6,971
Accrued interest receivable 4,998 4,825
Prepaid insurance 2,370 2,232
-------- --------
Total current assets 75,796 46,894
-------- --------
Investments in debt securities - Note B 841,662 791,367
-------- --------
Equipment and software - Note A
Office equipment 3,334 3,334
Software 36,085 0
Accumulated depreciation (766) (234)
-------- --------
Net equipment and software 38,653 3,100
-------- --------
Organization costs - Note A 9,000 9,000
-------- --------
Total assets $965,111 $850,361
======== ========
The accompanying notes are an integral part of these
financial statements.
</TABLE>
- 71 -
<PAGE> 74
<TABLE>
FIRST LEXINGTON TRUST COMPANY
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(CONTINUED)
<CAPTION>
1995 1994
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Accounts payable $ 28,718 $ 864
Accrued liabilities 14,402 2,500
Deferred income 1,076 1,346
Income taxes payable - Notes A and D 13,541 450
Deferred income taxes - Notes A and D 6,453 1,990
-------- --------
Total current liabilities 64,190 7,150
Deferred income taxes - Notes A and D 1,987 1,012
-------- --------
Total liabilities 66,177 8,162
-------- --------
Stockholders' equity
Common stock, $1.00 par value, 829,000 829,000
10,000 shares authorized and
8,290 shares issued and outstanding
Retained earnings 69,934 13,199
-------- --------
Total stockholders' equity 898,934 842,199
-------- --------
Total liabilities and
stockholders' equity $965,111 $850,361
======== ========
The accompanying notes are an integral part of these
financial statements.
</TABLE>
- 72 -
<PAGE> 75
<TABLE>
FIRST LEXINGTON TRUST COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
TEN-MONTH PERIOD ENDED DECEMBER 31, 1994
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Revenues
Trustee and advisory fees $108,429 $15,266
-------- -------
Total revenues 108,429 15,266
-------- -------
Expenses
Investment advisory fees - Note C 55,701 --
Advertising and promotion 281 265
Insurance 10,562 7.943
Publications and subscriptions 238 9,838
Seminars and expositions -- 2,075
Professional fees 8,474 3,379
Plan administration fees 3,875 --
Taxes and licenses 2,668 --
Rent - Note C 5,000 5,000
Telephone 913 863
Office supplies 36 7,577
Commissions 6 18
Depreciation - Note A 532 234
-------- -------
Total expenses 88,286 37,192
-------- -------
Net income (loss) from operations 20,143 (21,926)
Other revenues
Interest income 55,946 38,577
-------- -------
Net income before income taxes 76,089 16,651
Income taxes - Notes A and D 19,354 3,452
-------- -------
Net income 56,735 13,199
Beginning retained earnings 13,199 --
-------- -------
Ending retained earnings $ 69,934 $13,199
======== =======
The accompanying notes are an integral part of these
financial statements.
</TABLE>
- 73 -
<PAGE> 76
<TABLE>
FIRST LEXINGTON TRUST COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
TEN-MONTH PERIOD ENDED DECEMBER 31, 1994
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 56,735 $ 13,199
-------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization (372) (411)
(Increase) in accounts receivable (21,834) (6,971)
(Increase) in accrued interest receivable (173) (4,825)
(Increase) in prepaid insurance (138) (2,232)
Increase in accounts payable 27,854 3,364
Increase in accrued liabilities 11,902 --
Increase (decrease) in deferred income (270) 1,346
Increase in income taxes payable 13,091 460
Increase in deferred income taxes payable 5,438 3,002
-------- ---------
Total adjustments 35,498 (6,277)
-------- ---------
Net cash provided by operating activities 92,233 6,922
-------- ---------
Cash flows from investing activities:
Payments for purchase of equipment and software (36,085) (3,334)
Payments for the purchase of bonds (49,391) (795,588)
Payments for organization costs -- (9,000)
Proceeds from return of principal -- 4,866
-------- ---------
Net cash used by investing activities (85,476) (803,056)
-------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 829,000
-------- ---------
Net cash provided by financing activities -- 829,000
-------- ---------
Net increase in cash 6,757 32,866
Cash, beginning of year 32,866 --
-------- ---------
Cash, end of year $ 39,623 $ 32,866
======== =========
Cash paid for income taxes $ 825 $ --
======== =========
The accompanying notes are an integral part of these
financial statements.
</TABLE>
- 74 -
<PAGE> 77
First Lexington Trust Company
Notes To Financial Statements
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Business Activity - The Company is a non-bank affiliated trust
-----------------
company regulated by the Department of Financial Institutions,
Commonwealth of Kentucky. The Company manages trust assets of
approximately $11.2 and $4.1 million as of December 31, 1995 and 1994,
respectively. The majority of the trust assets, over ninety-five
percent (95%), are invested in no-load mutual funds under the direction
of the trust investment committee. Fees are charged based on the
Company's fee schedule. These fees are recorded on the accrual basis.
The trustee has the right to collect fees from trust assets. Thus,
collection of fees is reasonably certain.
Equipment and Software - Equipment and software are carried at
----------------------
cost. Depreciation of equipment is provided using the straight-line
method for financial reporting purposes at rates based on estimated
useful lives. Depreciation is computed for federal income tax purposes
using the modified accelerated cost recovery system. Amortization of
software will begin when the software is placed in service during 1996.
Organization Costs - Costs relating to the organization of the
------------------
Company have been capitalized and are being amortized using the
straight-line method over a sixty-month period for income tax purposes.
Income Taxes - Deferred tax assets and liabilities are recognized
------------
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases under the asset and liability method of
Financial Accounting Standards Statement No. 109 ("SFAS 109") .
Deferred tax assets and liabilities are measured using differences
expected to be recovered or settled. Under SFAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
NOTE B - INVESTMENTS IN DEBT SECURITIES
- ---------------------------------------
The Company is required by the Kentucky Department of Financial
Institutions to maintain a minimum of $800,000 capital while trust assets
under management do not exceed $100,000,000. When trust assets under
management exceed $100,000,000 the capital requirement will be increased by
$350,000.
- 75 -
<PAGE> 78
First Lexington Trust Company
Notes To Financial Statements
NOTE B - INVESTMENTS IN DEBT SECURITIES (CONTINUED)
- ---------------------------------------------------
The marketable debt securities are classified as "Held to Maturity." The
amortized cost and fair value of the investments as of December 31, 1995 and
1994, are as follows:
<TABLE>
<CAPTION>
1995
----
Due to Amortized Unrealized
Debt Security Mature Cost Gain (Loss) Fair Value
- --------------------------- ------ --------- ----------- ----------
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation 10/15/23 $ 94,241 $ (2,031) $ 92,210
Federal Home Loan
Mortgage Corporation 03/15/23 189,219 1,957 191,176
Federal Home Loan
Mortgage Corporation 11/15/23 211,364 8,475 219,839
Federal Home Loan
Mortgage Corporation 12/29/03 24,427 370 24,797
Federal National
Mortgage Association 10/25/07 88,812 3,376 92,188
U. S. Treasury Notes 02/29/96 69,869 65 69,934
U. S. Treasury Notes 02/28/99 98,730 1,926 100,656
General Electric
Capital Corporation 12/08/06 40,000 1,190 41,190
Toyota Motor Credit
Corporation 04/24/02 25,000 319 25,319
-------- -------- --------
Total $841,662 $ 15,647 $857,309
======== ======== ========
<CAPTION>
1994
----
Due to Amortized Unrealized
Debt Security Mature Cost Gain (Loss) Fair Value
- --------------------------- ------ --------- ----------- ----------
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation 10/15/23 $ 94,175 $(18,068) $ 76,107
Federal Home Loan
Mortgage Corporation 03/15/23 189,093 (24,321) 164,772
Federal Home Loan
Mortgage Corporation 11/15/23 211,270 (26,934) 184,336
Federal National
Mortgage Association 10/25/07 88,630 (8,689) 79,941
U. S. Treasury Notes 02/29/96 69,744 (1,888) 67,856
U. S. Treasury Notes 02/28/99 98,455 (6,611) 91,844
General Electric
Capital Corporation 12/08/06 40,000 (400) 39,600
-------- -------- --------
Total $791,367 $(86,911) $704,456
======== ======== ========
</TABLE>
- 76 -
<PAGE> 79
First Lexington Trust Company
Notes To Financial Statements
NOTE C - RELATED PARTY TRANSACTIONS
- -----------------------------------
Lease - The Company leases office space from Health Financial, Inc., a
-----
related party, under renewable one year agreements. Rent expense under this
lease was $5,000 for 1995 and 1994.
Investment Advisory Fees - There were no advisory fees incurred in 1994.
------------------------
The Company incurred investment advisory fees to the following parties in
1995:
<TABLE>
<S> <C>
Health Financial, Inc. $47,734
Protrust Capital 5,184
Commonwealth Investment Services 1,556
Non-related party 1,227
-------
Total $55,701
=======
</TABLE>
NOTE D - INCOME TAXES
- ---------------------
As discussed in Note A, the Company records income taxes in accordance
with SFAS 109. The net deferred tax liability in the accompanying balance
sheet includes the following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
Deferred tax asset $ 5,779 $1,024
Deferred tax liability 14,239 4,026
------- ------
Net deferred tax liability $ 8,440 $3,002
======= ======
</TABLE>
The deferred tax liability results from the use of accelerated methods
of depreciation that reduce the tax basis of equipment, payables and
receivables not recognized in the current year for tax purposes, and prepaid
insurance fully deducted for tax purposes. The deferred tax asset results
from unearned revenue included in income for tax purposes.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Current Deferred Total
----------------------- --------------------- ----------------------
1995 1994 1995 1994 1995 1994
------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
U. S. federal $11,190 $450 $4,013 $2,047 $15,203 $2,497
State and local 2,726 -- 1,425 955 4,151 955
------- ---- ------ ------ ------- ------
Total $13,916 $450 $5,438 $3,002 $19,354 $3,452
======= ==== ====== ====== ======= ======
</TABLE>
- 77 -
<PAGE> 80
To the Board of Directors and
Stockholder of Vintage Advisers, Inc.
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying statements of financial condition of Vintage
Advisers, Inc. as of November 30, 1996 and 1995, and the related statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of Vintage's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Vintage Advisers as of November 30, 1996
and 1995, and the results of its operations, changes in stockholders' equity
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Larry E. Nunn & Associates, L.L.C.
Columbus, Indiana
October 30, 1997
- 78 -
<PAGE> 81
<TABLE>
VINTAGE ADVISERS, INC.
STATEMENTS OF FINANCIAL CONDITION
August 31, 1997 (Unaudited) and
November 30, 1996 and 1995
--------------------------
<CAPTION>
ASSETS
------
November 30,
August 31, --------------------------
1997 1996 1995
----------- -------- --------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 19,367 $ 27,123 $ 3,135
Investment in affiliated
mutual fund (cost approximates market) 63,389 40,023 86,280
Receivable from affiliated mutual funds 26,420 23,585 15,864
Other receivables 19,064 30,000 --
Prepaid insurance 2,746 1,100 --
-------- -------- --------
Total current assets 130,986 121,831 105,279
======== ======== ========
OTHER ASSETS
Organization cost, net of $119,675, $79,783 and
$26,594, respectively, accumulated amortization 146,270 186,162 239,351
Deferred development cost, net of $13,104, $-0- and $-0-,
respectively, accumulated depreciation 294,844 314,500 --
-------- -------- --------
Total other assets 441,114 500,662 239,351
-------- -------- --------
TOTAL ASSETS $572,100 $622,493 $344,630
======== ======== ========
- 79 -
<PAGE> 82
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
November 30,
August 31, --------------------------
1997 1996 1995
----------- -------- --------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Loan payable to stockholder $ -- $ 10,000 $ 10,000
Loan payable to stockholder -- 75,000 75,000
Loan payable to stockholder 50,000 50,000 --
Payable to affiliated companies 255,174 117,177 98,103
Accounts payable and accrued liabilities 375,754 272,493 8,962
-------- --------- --------
Total current liabilities 680,928 524,670 192,065
-------- --------- --------
TOTAL LIABILITIES 680,928 524,670 192,065
-------- --------- --------
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock par value, $.01 per share, 100,000 shares
authorized, 30,000, 20,000 and 25,244 shares
outstanding, respectively 300 300 252
Paid-in capital 599,700 599,700 199,748
Retained earnings (deficit) (677,758) (446,423) (47,435)
Unrealized (loss) on securities (31,070) (55,754) --
-------- --------- --------
Total stockholders' equity (108,828) 97,823 152,565
-------- --------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $572,100 $ 622,493 $344,630
======== ========= ========
See accompanying notes and independent auditors' report.
</TABLE>
- 80 -
<PAGE> 83
<TABLE>
VINTAGE ADVISERS, INC.
STATEMENTS OF OPERATIONS
Nine Months Ended August 31, 1997 and 1996 (Unaudited)
and Years Ended November 30, 1996 and 1995
<CAPTION>
August 31, November 30,
--------------------------- ---------------------------
1997 1996 1996 1995
--------- --------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Investment adviser fees
from affiliated companies $ 239,153 $ 175,293 $ 248,090 $ 27,207
Miscellaneous income 134 -- 100 --
Interest income 1,117 48 64 811
--------- --------- --------- --------
Total revenue 240,404 175,341 248,254 28,018
--------- --------- --------- --------
COST OF SALES:
Reimbursement (303,943) (35,194) (65,560) (24,922)
--------- --------- --------- --------
Total cost of sales (303,943) (35,194) (65,560) (24,922)
--------- --------- --------- --------
Gross profit (63,539) 140,147 182,694 3,096
--------- --------- --------- --------
EXPENSES:
Wages and payroll taxes (132,722) 115,668 181,835 --
Professional fees 45,863 31,802 92,263 6,827
Printing, brochures, marketing expenses 10,123 10,769 13,854 3,209
Telephone 50 1,835 2,549 199
Courier 158 241 276 108
License fees 347 270 565 290
Insurance 4,955 3,851 5,501 --
Taxes 2,367 2,757 3.705 387
Travel and entertainment (9,043) 10,066 20,536 7,122
Interest expense 8,009 10,669 14,119 5,450
Amortization 59,548 39,892 53,189 26,594
Equipment -- 3,799 3,909 --
Office supplies 35 304 386 --
Management fee 154,728 54,141 185,500 --
All other 1,060 -- 142 371
--------- --------- --------- --------
Total expenses 145,478 286,064 578,329 50,557
--------- --------- --------- --------
Income from operations
before gain (loss) on securities (209,012) (145,917) (395,635) (47,461)
Realized gain (loss) on securities (22,318) -- (3,353) 26
--------- --------- --------- --------
NET INCOME (LOSS) $(231,335) $(145,917) $(398,988) $(47,435)
========= ========= ========= ========
See accompanying notes and independent auditors' report.
</TABLE>
- 81 -
<PAGE> 84
<TABLE>
VINTAGE ADVISERS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended August 31, 1997 (Unaudited)
and Years Ended November 30, 1996 and 1995
------------------------------------------
<CAPTION>
Common
Stock Common Paid-in Retained
Shares Stock Capital Deficit Total
------ ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Initial incorporation 20,000 $200 $ 1,800 $ -- $ 2,000
Unified Holdings, Inc.
investment 5,244 52 197,948 -- 198,000
Net income (loss) -- -- -- (47,435) (47,435)
------ ---- -------- --------- ---------
Balance, Nov. 30, 1995 25,244 252 199,748 (47,435) 152,565
Unified Holdings, Inc.
investment 4,756 48 399,952 -- 400,000
Unrealized gain (loss)
on securities -- -- -- (55,754) (55,754)
Net income (loss) -- -- -- (398,988) (398,988)
------ ---- -------- --------- ---------
Balance, Nov. 30, 1996 30,000 300 $599,700 $(502,177) $ 97,823
Unrealized gain (loss)
on securities -- -- -- 24,684 24,684
Net income (loss) -- -- -- (231,335) (231,335)
------ ---- -------- --------- ---------
Balance, August 31, 1997
(Unaudited) 30,000 300 $599,700 $(708,828) $(108,828)
====== ==== ======== ========= =========
See accompanying notes and independent auditors' report.
</TABLE>
- 82 -
<PAGE> 85
<TABLE>
VINTAGE ADVISERS, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended August 31, 1997 and 1996 (Unaudited)
and Years Ended November 30, 1996 and 1995
<CAPTION>
August 31, November 30,
--------------------------- ---------------------------
1997 1996 1996 1995
--------- --------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) $(231,335) $(145,917) $(398,988) $(47,435)
Adjustment to reconcile net income
to net cash provided (used) in
operating activities:
Amortization 59,548 39,892 53,189 26,594
Loss on sale of securities -- -- 3,353 --
(Increase) decrease in operating assets:
Prepaid insurance (1,646) (2,750) (1,100) --
Receivable from affiliated mutual fund (2,835) 422 (7,721) (15,864)
Receivable from other 10,936 (24,266) (30,000) --
Increase (decrease) in liabilities:
Payable to affiliated companies 137,997 (43,371) 19,074 98,103
Accounts payable and accrued liabilities 103,261 173,969 263,531 8,962
--------- --------- --------- --------
Net cash (used)
provided by operating activities 75,926 (2,021) (98,662) 70,360
--------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization cost -- -- -- (265,945)
Deferred development cost -- -- (314,500) --
Investment in affiliated mutual funds 1,318 (12,850) (12,850) (86,280)
--------- --------- --------- --------
Net cash used by investing activities 1,318 (12,850) (327,350) (352,225)
--------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan from stockholders and repayments (85,000) -- -- 85,000
Loan from Unified Holdings, Inc. -- 65,888 65,888 --
Repayment of loan to Unified Holdings, Inc. -- (15,888) (15,888) --
Issuance of common stock -- -- 400,000 200,000
Loan payable to stockholders -- 10,442 -- --
--------- --------- --------- --------
Net cash
provided by financing activities (85,000) 60,442 450,000 285,000
--------- --------- --------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS (7,756) 45,571 23,988 3,135
CASH AND CASH EQUIVALENTS,
Beginning of year 27,123 3,135 3,135 --
--------- --------- --------- --------
CASH AND CASH EQUIVALENTS, end of year $ 19,367 $ 48,706 $ 27,123 $ 3,135
========= ========= ========= ========
NON--CASH ITEMS:
Operating activities reflect cash paid for:
-- Interest $ 8,009 $ 10,669 $ 14,119 $ 5,450
--------- --------- --------- --------
See accompanying notes and independent auditors' report.
</TABLE>
- 83 -
<PAGE> 86
VINTAGE ADVISERS, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1996 and 1995
--------------------------
Note 1 - ORGANIZATION AND CAPITALIZATION
Vintage Advisers, Inc. (the "Company") was incorporated in
Delaware on December 12, 1994 and is registered to do business in
Indiana for the purpose of being the adviser to the Vintage
Mutual Funds (the "Funds"). The Company is a registered
investment adviser under the Investment Advisers Act of 1940, as
amended.
Since incorporation, the Company authorized an increase in the
capitalization of the Company from 1,000 shares to 100,000 shares
and declared a 100 to 1 stock split on outstanding shares.
On November 30, 1995, Unified Holdings, Inc. subscribed to invest
$198,000 for 5,244 shares of common stock. This transaction was
completed in December 1995. On October 22, 1996, Unified
Holdings, Inc. invested $400,000 for 4,756 shares of common
stock.
The Company instituted a Management and Employee Retention Plan
(the "Plan") and reserved 60,000 common shares of the Company to
be issued pursuant to the plan. Of such shares, 25,760 shares
have been designated for issuance pursuant to the Plan. The
Company applies APB Opinion 25 and related interpretations in
accounting for this plan. Accordingly, no compensation cost has
been recognized. Had compensation cost been determined, based on
the fair market value at the grant dates of the awards under this
plan consistent with the method of Financial Accounting Standards
Board ("FASB") Statement 123, the Company's net income (loss)
would be reduced to the pro forma amounts indicated:
<TABLE>
<CAPTION>
Year Ended Year Ended
November 30, 1996 November 30, 1995
----------------- -----------------
<S> <C> <C>
Net income (loss),
as reported $(398,988) $(47,435)
Pro forma $(406,693) $(55,140)
</TABLE>
The Company authorized 10,000 common shares for an option to a
significant stockholder for the V.O.I.C.E.sm program. This option had
not been issued as of November 30, 1996.
- 84 -
<PAGE> 87
VINTAGE ADVISERS, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1996 and 1995
--------------------------
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents -
----------------
Investments in affiliated money market mutual funds are treated
as cash equivalents with maturities under 90 days.
Securities Owned -
----------------
Investments in mutual funds are valued at their respective net
asset value and recorded on a trade date basis. The Company
considers these as short-term investments in its operations.
Fees -
----
The Company provides investment advisory services to the Vintage
mutual funds and records revenue on the accrual basis of
accounting.
Organization and Development Costs -
----------------------------------
The organizational costs for the Company were capitalized and
will be charged to earnings over a sixty-month period on a
straight-line basis. These costs were an integral part of the
process of organizing the Company and various fees and expenses
of the funds that will benefit future periods. The development
costs for the Company were capitalized and will be charged to
earnings over a 120-month period on a straight-line basis.
Use of Estimates -
----------------
The presentation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Flows -
----------
For purposes of the statement of cash flows, the Company
considers all liquid investments with an original maturity of
three months or less to be cash equivalents. Cash equivalents
included money market investments of $1,620 for 1996 and $1,556
for 1995, which are not insured by the Federal Deposit Insurance
Corporation.
Income Taxes -
------------
The Company has adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109") accounting for income taxes. The
statement requires use of the liability method of accounting for
deferred income taxes.
- 85 -
<PAGE> 88
VINTAGE ADVISERS, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1996 and 1995
--------------------------
Note 3 - LOANS PAYABLE
The Company has borrowed from three of the principal stockholders
on a demand basis during 1996 and 1995. The Company pays
interest at prime plus two percent (2%). Interest is paid
periodically until the loan is repaid.
4 - TRANSACTIONS WITH RELATED PARTIES
The Company provides investment advisory and affiliated companies
provide administrative services to the Vintage Mutual Funds.
Fees for such services are based on the net assets under
management for each fund in accordance with the terms of the
respective fund prospectus. Such fees may be limited by
regulatory or prospectus imposed expense limitations.
During December 1995, the Company has committed to repay the
Vintage Mutual Funds for the initial registration and
organization cost of the funds, which were $65,888. During
October 1996, the Company reimbursed the Vintage Mutual Funds
$84,717. Under the agreement, the Company is obligated to repay
the funds, to the extent of fees earned for the annual fiscal
year expenses incurred by the funds that are in excess of expense
limits imposed by securities laws and regulations. The following
is a summary of these transactions:
<TABLE>
<CAPTION>
December 1, 1995 September 1, 1995
to November 30, 1996 to November 30, 1995
-------------------- --------------------
<S> <C> <C>
Fees earned $248,090 $27,207
Funds excess expenses $ 65,560 $24,922
-------- -------
Total $182,530 $ 2,285
======== =======
</TABLE>
Management and administrative services are provided by an
affiliated company, Unified Holdings, Inc. and its subsidiaries.
- 86 -
<PAGE> 89
VINTAGE ADVISERS, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1996 and 1995
--------------------------
Note 4 - TRANSACTIONS WITH RELATED PARTIES (continued)
During fiscal 1995, the Company was invoiced $198,000 for various
services included in the funds registration and organization cost
and $13,915 for expenses and organization cost. During fiscal
1996, the Company was invoiced $500,000 for expenses incurred of
which $314,500 was capitalized as a deferred development cost.
For the years ended November 30, 1996 and 1995, the Company
incurred recurring management fees from an affiliate in the
amount of $185,000 and $0, respectively. The amount is reflected
on the Company's Statements of Operations as part of all other.
At November 30, 1996 and 1995, the Company owed $115,856 and
$4,160, respectively, to this affiliated Company.
5 - PROVISION FOR INCOME TAXES
During its two years of operation, the Company has incurred
taxable losses. No tax benefit has been reflected in accordance
with the Financial Accounting Standards Board Statement No. 96,
Accounting for Income Taxes (SFAS 96). The Company does not
expect a material impact on the Company's results of operations
because of the tax benefit.
6 - COMMITMENTS
Vintage Advisers, Inc. has an obligation with the Vintage Mutual
Funds to provide the Company's V.O.I.C.E.sm program. This
program will cause the Company to pay twenty-five basis points to
approved designated charitable organizations on behalf of each
stockholder of the Vintage Mutual Funds which have invested an
average of twenty-five thousand dollars or more quarterly. The
payment is made quarterly.
During 1996, the Company licensed the V.O.I.C.E.sm program to a
regional bank. This Agreement should provide future on-going
revenue.
7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated
fair values of the Company's financial instruments at November
30, 1996 and 1995. FASB Statement No. 107, Disclosures About
Fair Value of Financial Instruments, defines the fair value of a
financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties.
- 87 -
<PAGE> 90
VINTAGE ADVISERS, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1996 and 1995
--------------------------
Note 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
<TABLE>
<CAPTION>
1996 1995
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
($ in thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and
cash equivalents $ 27.1 $ 27.1 $ 3.1 $ 3.1
Receivables 53.5 53.5 15.8 15.8
Investments 40.0 40.0 86.2 86.2
Financial liabilities
Payables
(trade) (272.4) (272.4) 8.9 8.9
(affiliated
company) 117.2 117.2 (98.1) (98.1)
</TABLE>
The carrying amounts shown in the table are included in the
statement of financial condition under the indicated captions.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash, receivables and payables: The carrying amounts
------------------------------
approximate fair value because of the short maturity of
those instruments.
Investments: The carrying amounts have been adjusted to
-----------
fair value according to the daily net asset value prices at
the close of the markets on November 30 for each respective
year.
8 - DEFERRED COMPENSATION
For the year-ended November 30, 1996, the Company charged results
of operations for deferred compensation in the amount of
$178,500. The deferred compensation amounts for the employees
are as follows:
<TABLE>
<CAPTION>
DEFERRED AMOUNT
NAME AT NOVEMBER 30, 1996
---- --------------------
<S> <C>
Timothy L. Ashburn $ 50,000
David A. Bogaert 35,000
Thomas G. Napurano 45,000
Jack Orben 10,000
Lynn E. Wood 38,500
--------
Total $178,500
========
</TABLE>
The Company anticipates paying the deferred compensation when the
Company's financial resources and net worth are sufficient.
- 88 -
<PAGE> 91
<TABLE>
FIRST LEXINGTON TRUST COMPANY
BALANCE SHEET
September 30, 1997
(Unaudited)
ASSETS
------
<S> <C>
CURRENT ASSETS
Cash:
Bank $ 20,777
Mutual fund money market 12,122
Mutual fund trust account 9,781
Brokerage money market 18,028
----------
60,708
----------
Accounts receivable:
Fee income 78,788
Mutual fund trust account 4,769
----------
83,557
----------
Accrued interest income receivable 5,917
Prepaid expenses 6,900
----------
12,817
----------
Total current assets 157,082
----------
INVESTMENT IN DEBT SECURITIES 957,771
----------
PROPERTY AND EQUIPMENT:
Office equipment 3,334
Software 9,444
----------
Gross property and equipment 12,778
----------
Less accumulated depreciation (4,823)
----------
Net property and equipment 7,955
----------
OTHER ASSETS
Organization costs 2,550
----------
TOTAL ASSETS $1,125,358
==========
See accompanying notes and independent auditors' report.
- 89 -
<PAGE> 92
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
<S> <C>
CURRENT LIABILITIES
Accounts payable, trade $ 18,055
Accrued advisory fees --
Accrued income taxes 21,405
Deferred income 4,122
Deferred income taxes 22,000
----------
Total current liabilities 65,582
LONG-TERM LIABILITIES:
Deferred income taxes 250
----------
Total liabilities 65,832
----------
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value
10,000 shares authorized
8,295 shares issued and outstanding 8,295
Paid-in capital 821,705
----------
Total stock investment 830,000
Retained Earnings 229,526
----------
Total stockholders' equity 1,059,526
----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,125,358
==========
</TABLE>
- 90 -
<PAGE> 93
<TABLE>
FIRST LEXINGTON TRUST COMPANY
STATEMENTS OF OPERATIONS
Nine Months ended September 30, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
REVENUES:
Trustee fees $209,789 $111,129
Administration fees 25,390 10,431
Valuation system fees -- 2,000
Software maintenance fees -- 4,181
-------- --------
Total revenue $235,179 $127,741
-------- --------
DIRECT SUPPLIER COSTS
Investment advisory fees 16,558 10,132
Plan administration fees 27,290 10,431
Related party employee, supplies and
operating expenses reimbursed 50,499 44,000
-------- --------
Total supplier costs 94,347 64,563
-------- --------
TOTAL GROSS PROFIT 140,832 63,178
-------- --------
OPERATING EXPENSES:
Computer software expenses 3,785 4,181
Insurance 10,593 14,706
Legal and professional services 14,136 13,824
Depreciation 6,827 9,420
Office supplies and postage 1,733 283
Rent 2,500 2,500
Telephone 3,954 3,553
Property taxes 8,672 --
Licenses and fees 10 15
Other 6,063 19,978
-------- --------
Total operating expenses 58,273 68,460
-------- --------
INCOME FROM OPERATIONS 82,559 (5,282)
OTHER INCOME (EXPENSES)
Investment interest income 33,849 40,619
Capital gains and other income -- 131
-------- --------
INCOME BEFORE INCOME TAXES 116,408 35,468
INCOME TAXES
Current 29,000 --
Deferred 8,000 --
-------- --------
NET INCOME 79,408 35,468
RETAINED EARNINGS, BEGINNING OF YEAR 151,018 69,934
-------- --------
RETAINED EARNINGS, END OF YEAR $230,426 $105,402
======== ========
See accompanying notes and independent auditors' report.
</TABLE>
- 91 -
<PAGE> 94
<TABLE>
FIRST LEXINGTON TRUST COMPANY
STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 78,508 $ 35,468
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred income taxes 4,210 9,420
Depreciation and amortization 9,188 (6,453)
Loss on disposed assets 20,065 --
(Increase) decrease in assets:
Accounts receivable (29,161) 28,805
Accrued interest income receivable (1,116) 4,998
Prepaid expenses (3,476) 2,370
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (1,406) (48,698)
Accrued advisory fees 13,803 --
Accrued income taxes 12,205 (13,541)
Deferred income 874 1,484
--------- --------
Net cash provided by (used in)
operating activities 103,694 13,853
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (732)
Purchase of investments (154,801) (487)
Proceeds from the sale of investments -- --
--------- --------
Net cash provided by (used in)
investing activities (154,801) (1,219)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- --
Purchase of treasury stock -- --
Proceeds from the sale of Company stock -- --
--------- --------
Net cash provided by (used in)
financing activities -- --
--------- --------
NET INCREASE (DECREASE) IN CASH (51,107) 12,634
CASH AT BEGINNING OF YEAR 111,815 39,623
--------- --------
CASH AT END OF YEAR $ 60,708 $ 52,257
========= ========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during period - income taxes $ 8,885 $ 23,347
See accompanying notes and independent auditors' report.
</TABLE>
- 92 -
<PAGE> 95
FIRST LEXINGTON TRUST COMPANY
NOTE TO FINANCIAL STATEMENTS
Nine Months ended September 30, 1997
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included.
- 93 -
<PAGE> 96
Part III
--------
ITEM 1. INDEX TO EXHIBITS
-----------------
See Exhibit Index hereto.
ITEM 2. DESCRIPTION OF EXHIBITS
-----------------------
See Exhibit Index hereto.
- 94 -
<PAGE> 97
Signatures
----------
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Amendment No. 1 to the Registration Statement on
Form 10-SB to be signed on its behalf by the undersigned, thereunto duly
authorized, as of the 18th day of December, 1997.
UNIFIED HOLDINGS, INC.
By /s/ Timothy L. Ashburn
---------------------------------------------
Timothy L. Ashburn, Chairman of the Board and
Chief Executive Officer
- 95 -
<PAGE> 98
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
2.1 Agreement and Plan of Merger dated
April 25, 1997 by and among the Company, HFI
Acquisition Corporation, Health Financial, Inc.
and Dr. Gregory W. Kasten.<F*>
2.2 Amended and Restated Agreement and Plan of
Merger dated as of April 25, 1997 by and among
the Company, FLTC Acquisition Corporation, First
Lexington Trust Company and Dr. Gregory W.
Kasten.<F*>
2.3 Agreement and Plan of Merger dated as of
May 8, 1997 by and among the Company, VAI
Acquisition Corporation, Vintage Advisers, Inc.
and Timothy L. Ashburn.<F*>
2.4 First Amendment to Agreement and Plan of Merger
dated as of May 31, 1997 by and among the
Company, HFI Acquisition Corporation, Health
Financial, Inc. and Dr. Gregory W. Kasten.
2.5 Termination Agreement dated as of
December 1, 1997 by and among the Company, VAI
Acquisition Corporation, Vintage Advisers, Inc.
and Timothy L. Ashburn.
2.6 Release and Surrender Agreement dated as of
December 1, 1997 by and among the Company,
Vintage Advisers, Inc., Timothy L. Ashburn and
Jack R. Orben.
3.1(a) Amended and Restated Certificate of
Incorporation of the Company, filed as
Exhibit 4.1(a) to the Company's Quarterly Report
on Form 10-QSB for the quarter ended
September 30, 1997, is incorporated herein by
reference.
3.1(b) Certificate of Designations, Preferences, and
Relative Rights, Qualifications and Restrictions
of the Series A 8% Cumulative Preferred Stock of
the Company, filed as Exhibit 4.1(b) to the
Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1997, is
incorporated herein by reference.
3.1(c) Certificate of Designations, Preferences, and
Relative Rights, Qualifications and Restrictions
of the Series B 8% Cumulative Preferred Stock of
the Company, filed as Exhibit 4.1(c) to the
Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1997, is
incorporated herein by reference.
3.1(d) Certificate of Designations, Preferences, and
Relative Rights, Qualifications and Restrictions
of the Series C 6.75% Cumulative Convertible
Preferred Stock of the Company, filed as Exhibit
4.1(d) to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997,
is incorporated herein by reference.
- 96 -
<PAGE> 99
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
3.2 By-laws of the Company, filed as Exhibit 4.2 to
the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1997, is
incorporated herein by reference.
10.1 Employment Agreement dated as of June 1, 1997 by
and between Health Financial, Inc. and
Dr. Gregory W. Kasten.
10.2 Business Loan Agreement dated as of
September 10, 1997 by and between the Company
and Bank One, Indiana, N.A.
10.3 Commercial Security Agreement dated as of
September 10, 1997 by and between the Company
and Bank One, Indiana, N.A.
10.4 Promissory Note dated as of September 10, 1997
issued by the Company in favor of Bank One,
Indiana, N.A.
21.1 List of Subsidiaries.
27.1 Financial Data Schedule.
<FN>
- ----------------------
<F*>Previously filed on May 30, 1997.
</TABLE>
- 97 -
<PAGE> 1
EXHIBIT 2.4
-----------
FIRST AMENDMENT TO THE
AGREEMENT AND PLAN OF MERGER
----------------------------
This Amendment to the Agreement and Plan of Merger (the "Amendment") is
made and entered into this 31st day of May 1997 by and among Unified
Holdings, Inc., a Delaware corporation ("Unified"), HFI Acquisition
Corporation, a Kentucky corporation and wholly owned subsidiary of Unified
("Merger Sub" and, collectively with Unified, the "Buyers"), Health
Financial, Inc., a Kentucky corporation ("Seller"), and Dr. Gregory W.
Kasten, the sole shareholder of Seller ("Shareholder").
WITNESSETH:
WHEREAS, Unified, Merger Sub, Seller and Shareholder entered into that
certain Agreement and Plan of Merger dated April 25, 1997 (the "Agreement");
and
WHEREAS, the respective Board of Directors of Unified, Merger Sub and
Seller as well as Stockholder have heretofore approved the merger of Merger
Sub with and into Seller; and
WHEREAS, each of Unified, Merger Sub, Seller and Shareholder believes
that based upon events subsequent to April 25, 1997, certain provisions of
the Agreement should be amended to change the following: (i) the means of
effecting the proposed transaction; and (ii) the conditions to each party's
obligations to effect the proposed transaction.
NOW THEREFORE, in consideration of the premises and the agreements
herein contained, the receipt and adequacy of which are hereby acknowledged,
the parties hereto agree that the Agreement is hereby amended in each of the
following respects:
(1) Article I is hereby amended in its entirety to read as follows:
"THE STOCK PURCHASE
1.01 The Stock Purchase. Shareholder agrees to sell, and Unified
------------------
agrees to purchase, all of the issued and outstanding shares of
common stock, no par value, of Seller ("Seller Common Stock")
(the "Stock Purchase Transaction"). The purchase price shall
be 325,000 shares of common stock, $0.01 par value, of Unified
("Unified Common Stock"), in the aggregate (the "Stock Purchase
Consideration").
<PAGE> 2
1.02. Closing. The closing (the "Closing") of the Stock Purchase
-------
Transaction shall take place at 10:00 a.m., local time, on the date
that the Effective Time (as defined in Section 1.03) occurs (the
"Closing Date"), or at such other time, and at such place, as Unified
and Shareholder shall agree.
1.03. Effective Time. The Stock Purchase Transaction shall become
--------------
effective (the "Effective Time") as of June 1, 1997. Unified shall,
as soon as practicable after the Effective Time, issue a stock
certificate representing the Stock Purchase Consideration. The
parties contemplate that Unified shall immediately undertake a review
of its books and records in connection with the filing of the
Registration Statement (as defined in Section 5.02(a)) and that the
stock certificate representing the Stock Purchase Consideration shall
be issued on the day after such review is completed (the "Issue
Date").
1.04. Boards of Directors and Officers. At the Effective Time, the
--------------------------------
directors and officers of Seller immediately prior to the Effective
Time shall be the directors and officers, respectively, of the Seller
following the Stock Purchase Transaction, and such directors and
officers shall hold office in accordance with the Seller's Bylaws and
applicable law; provided, however, as of the Effective Time, Seller
shall take any and all actions necessary to add Timothy L. Ashburn as
a member of the Board of Directors of Seller.
1.05. Anti-Dilution Adjustments. If, on the Issue Date, the number
-------------------------
of issued and outstanding shares of Unified Common Stock exceeds
625,000, excluding shares issued in connection with any possible
acquisition transaction by Unified, then appropriate and
proportionate adjustment or adjustments will be made such that
Shareholder's proportionate interest in the outstanding Unified
Common Stock equals the quotient of 325 divided by 950.
1.06. Material Adverse Effect. As used in the Agreement, the term
-----------------------
"Material Adverse Effect" with respect to an entity means any
condition, event, change or occurrence that has or may reasonably be
expected to have a material adverse effect on the condition
(financial or otherwise), properties, business or results of
operations, of such entity and its "Subsidiaries" (as defined in Rule
1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission (the "SEC")), taken as a whole as reflected in the Seller
Financial Statements (as defined in Section 2.05(b)) or the Unified
Financial Statements (as defined in Section 3.04), as the case may
be; it being understood that a Material Adverse Effect shall not
include: (i) a change with respect to, or effect on, such entity and
its Subsidiaries resulting from a change in law, rule, regulation,
generally accepted accounting principles or regulatory accounting
principles; or (ii) a change disclosed in the Seller Financial
Statements or the Unified Financial Statements, as the case may be."
- 2 -
<PAGE> 3
(2) The Agreement is hereby amended such that any reference to the
Merger shall mean the Stock Purchase Transaction, any reference to the
Surviving Corporation shall mean Seller and any reference to the Merger
Consideration shall mean the Stock Purchase Consideration.
(3) Section 3.02 is hereby amended to read as follows:
"3.02. Capitalization of Unified. As of the date hereof, Unified
-------------------------
had designated 10,000 shares of preferred stock, $0.01 par value, of
Unified ("Unified Preferred Stock") as "Series A 8% Cumulative
Preferred Stock," of which 8,486 shares were issued and outstanding,
and 10,000 shares of Unified Preferred Stock as "Series B 8%
Cumulative Preferred Stock, of which 8,583 shares were issued and
outstanding. As of the date hereof, 17,069 shares of Unified
Preferred Stock were issued and outstanding. At the Issue Date,
excluding shares to be issued in connection with any possible
acquisition transaction by Unified, no more than 625,000 shares of
Unified Common Stock will be issued and outstanding. At the Issue
Date, Unified shall have no authorized capital stock other than
Unified Common Stock and Unified Preferred Stock. At the Issue Date,
there shall be no shares of Unified Common Stock reserved for
issuance or issuable pursuant to any (i) Unified employee and/or
director stock option, incentive and/or benefits plans ("Unified
Employee/Director Stock Grants"), (ii) stock split or dividend.
Seller acknowledges that Unified anticipates filing with the
Secretary of State of the State of Delaware, prior to the Issue Date,
a change in the par value of Unified Common Stock to $0.01, (ii) an
increase in the number of shares of Unified Common Stock authorized
to a number equal to or less than 25,000,000, and (iii) a possible
reduction in the number of shares of Unified Preferred Stock
authorized to a number equal to or less than the number currently
outstanding.
Unified continually evaluates possible acquisitions and may prior
to the Issue Date enter into one or more agreements providing for,
and may consummate, the acquisition by it of another company (or the
assets thereof) for consideration that may include Equity Securities.
Notwithstanding the foregoing, neither Unified nor any Unified
Subsidiary has taken any action that would (i) prevent the
transactions contemplated hereby from qualifying as a reorganization
within the meaning of Section 368 of the Code or (ii) materially
impede or delay receipt of any approval referred to in Section
6.01(b) or the consummation of the transactions contemplated by this
Agreement. At the Issue Date, the Unified Common Stock to be issued
in the Stock Purchase Transaction will be duly authorized, validly
issued, fully paid and nonassessable, and will not be issued in
violation of any preemptive right of any shareholder of Unified."
(4) Section 6.01 of the Agreement is hereby amended to eliminate
subsection (d).
(5) Section 6.02 of the Agreement is hereby amended to eliminate
subsections (e) and (f).
- 3 -
<PAGE> 4
(6) Section 6.03 of the Agreement is hereby amended such that
subsection (e) shall read in its entirety as follows:
"(e) Surrender of Seller Common Stock. Shareholder shall have
--------------------------------
delivered to Unified a stock certificate representing 1,200 shares of
Seller Common Stock, which shares shall be the only shares of Seller
Common Stock issued and outstanding. In addition, Shareholder shall
represent to Unified that he has full power and authority to
exchange, sell, assign and transfer such shares of Seller Common
Stock and that, when the same are accepted by Unified, Unified will
acquire good, marketable and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances, and that
such shares are not subject to any adverse claims or proxies."
(7) Section 7.01 of the Agreement is hereby amended to eliminate
subsection (f).
(8) The third sentence of Section 9.01 is hereby amended in its
entirety to read as follows:
"In the event of consummation of the Stock Purchase Transaction,
the agreements contained in or referred to in Sections 5.02(b), 5.06,
5.08, 5.09, 5.12, 5.13 and 5.14 and Article 8 shall survive the
Effective Time."
(9) Section 9.01 is hereby amended by appending the following sentence
to the end thereof:
"The representations set forth in Section 3.02 shall survive until
the Issue Date."
(10) The second sentence of Section 9.02 is hereby amended in its
entirety to read as follows:
"There shall not be any third party beneficiaries of any
provisions hereof except for Sections 5.08, 5.09 and 5.12 and Article
8, which may be enforced against Buyers, Seller or Shareholder by the
parties therein identified."
Other than as amended hereby, the Agreement remains in full force and
effect. This Amendment may be executed in several counterparts, each of
which shall be deemed the original, but all of which together constitute one
and the same instrument.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
UNIFIED HOLDINGS, INC.
By: /s/ Timothy L. Ashburn
---------------------------------------
Timothy L. Ashburn, Chairman and
Chief Executive Officer
By: /s/ Lynn E. Wood
---------------------------------------
Lynn E. Wood, President and
Chief Operating Officer
HFI ACQUISITION CORPORATION
By: /s/ Timothy L. Ashburn
---------------------------------------
Timothy L. Ashburn, President and
Chief Executive Officer
HEALTH FINANCIAL, INC.
By: /s/ Dr. Gregory W. Kasten
---------------------------------------
Dr. Gregory W. Kasten, President
"SHAREHOLDER"
/s/ Dr. Gregory W. Kasten
-------------------------------------------
Dr. Gregory W. Kasten
- 5 -
<PAGE> 1
TERMINATION AGREEMENT
---------------------
This Termination Agreement (the "Termination Agreement") is made and
entered into as of the 1st day of December 1997 by and among Unified Holdings,
Inc., a Delaware corporation ("Unified"), VAI Acquisition Corporation, a
Delaware corporation and wholly owned subsidiary of Unified ("Merger Sub" and,
collectively with Unified, the "Buyers"), Vintage Advisers, Inc., a Delaware
corporation ("Seller"), and Timothy L. Ashburn, a stockholder of Seller
("Stockholder").
WITNESSETH:
WHEREAS, Unified, Merger Sub, Seller and Stockholder entered into that
certain Agreement and Plan of Merger dated as of May 8, 1997 (the
"Agreement"); and
WHEREAS, each of Unified, Merger Sub, Seller and Stockholder believes
that based upon events subsequent to May 8, 1997, that is in the best
interests of the parties to terminate the Agreement.
NOW THEREFORE, in consideration of the premises and the agreements
herein contained, the receipt and adequacy of which are hereby acknowledged,
pursuant to the provisions of Sections 7.01 and 7.02 of the Agreement, the
parties hereto agree that the Agreement is terminated as of the date hereof
and there shall be no liability on the part of Buyers or Seller or their
respective officers or directors except as set forth in the second sentence of
Section 5.01 and in Section 5.08 and Article 8 of the Agreement.
This Amendment may be executed in several counterparts, each of which
shall be deemed the original, but all of which together constitute one and the
same instrument.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Termination
Agreement as of the day and year first above written.
UNIFIED HOLDINGS, INC.
By: /s/ Timothy L. Ashburn
----------------------------------
Timothy L. Ashburn, Chairman and
Chief Executive Officer
By: /s/ Lynn E. Wood
----------------------------------
Lynn E. Wood, President and
Chief Operating Officer
VAI ACQUISITION CORPORATION
By: /s/ Timothy L. Ashburn
----------------------------------
Timothy L. Ashburn, President and
Chief Executive Officer
VINTAGE ADVISERS, INC.
By: /s/ Lynn E. Wood
----------------------------------
Lynn E. Wood, President and
Chief Operating Officer
"STOCKHOLDER"
/s/ Timothy L. Ashburn
-------------------------------------
Timothy L. Ashburn
-2-
<PAGE> 1
ASSIGNMENT AND SURRENDER
FOR VALUE RECEIVED each of the undersigned hereby agrees to assign,
transfer and surrender to VINTAGE ADVISERS, INC. (the "Company"), when
requested by the Company, all right, title and interest of the undersigned in
and to any and all shares of common stock, $1.00 par value, of the Company
owned by the undersigned, together with any and all rights of the undersigned,
if any, to acquire any other or additional securities of the Company; and the
undersigned hereby irrevocably constitutes and appoints any officer of the
Company as his true and lawful attorney-in-fact to make such transfer on the
books of the Company maintained for the purpose, with full power of
substitution.
TIMOTHY L. ASHBURN JACK R. ORBEN
/s/ Timothy L. Ashburn /s/ Jack R. Orben
- ------------------------------------- -------------------------------------
SIGNATURE SIGNATURE
December 1, 1997 December 1, 1997
IN THE PRESENCE OF IN THE PRESENCE OF
/s/ Barbara Ashburn /s/ Tilishia N. Goveia
- ------------------------------------- -------------------------------------
AGREED AND ACCEPTED:
December 1, 1997
VINTAGE ADVISERS, INC. UNIFIED HOLDINGS, INC.
By: /s/ Lynn E. Wood By: /s/ Timothy L. Ashburn
---------------------------------- ----------------------------------
Lynn E. Wood, President and Timothy L. Ashburn, Chairman
Chief Operating Officer and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.1
------------
EMPLOYMENT AGREEMENT
This agreement ("Agreement") has been entered into this 1st day
of June, 1997, by and between Health Financial, Inc., a Kentucky corporation
("Health Financial"), and Dr. Gregory W. Kasten, an individual ("Executive"),
in connection with and as further mutual consideration for the sale of Health
Financial by Executive to Unified Holdings, Inc., a Delaware corporation
("Company"), pursuant to that certain Agreement and Plan of Merger (the
"Agreement and Plan of Merger") between Company and HFI Acquisition
Corporation, a Kentucky corporation ("HFI"), as Buyers, and Health Financial
and Executive, as Sellers, as amended by that certain First Amendment to the
Agreement and Plan of Merger dated May 31, 1997 by and between the Company
and HFI, as Buyers, and Health Financial and Executive, as Sellers.
RECITALS
The Board of Directors of Health Financial (the "Board"), has
determined that it is in the best interests of Health Financial and its
shareholder to reinforce and encourage the continued attention and dedication
of the Executive to Health Financial as a member of Health Financial's
management and to assure that Health Financial will have the continued
dedication of the Executive. The Board desires to provide for the continued
employment of the Executive on the terms hereof, and the Executive is willing
to commit himself to continue to serve Health Financial. Additionally, the
Board believes it is imperative to encourage the Executive's full attention
and dedication to Health Financial currently and to provide the Executive
with compensation and benefits arrangements upon the breach of this Agreement
by Health Financial, which ensures that the compensation and benefits
expectations of the Executive will be satisfied. Therefore, in order to
accomplish these objectives, the Board has caused Health Financial to enter
into this Agreement. Executive acknowledges that his assent to, and
fulfillment of, the terms and conditions of this Agreement is an
indispensable element of the consideration provided by Executive pursuant to
the Agreement and Plan of Merger.
IT IS AGREED AS FOLLOWS:
SECTION 1: DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. For purposes of this Agreement, the following
words and phrases, whether or not capitalized, shall have the meanings
specified below, unless the context plainly requires a different meaning.
1.1(a) "BOARD" means the Board of Directors of Health
Financial or the Company, as the case may be.
1.1(b) "CASH COMPENSATION" means the Executive's
Annual Base Salary (as defined in Section
2.3(a)) plus the Incentive Bonus (as defined in
Section 2.3(b)) awarded to the Executive in any
given year.
1.1(c) "CODE" shall mean the Internal Revenue Code of
1986, as amended.
1.1(d) "COMPANY" shall mean Unified Holdings, Inc., a
Delaware corporation and the sole shareholder
of Health Financial.
1.1(e) "EMPLOYMENT PERIOD" means the period that
begins on the Effective Date and ends on the
earlier of: (i) the close of business on the
date ending twenty-four (24) months after the
Effective Date, provided that, commencing on
the first anniversary of the Effective Date,
and continuing at each anniversary date
thereafter, this Agreement shall renew for an
additional year such that
-1-
<PAGE> 2
the remaining term shall be twenty-four (24)
months unless written notice is provided to
Executive at least ten (10) days and not more
than thirty (30) days prior to any such
anniversary date, that this Agreement shall not
renew, in which event this Agreement shall
expire at the end of twelve (12) months
following such anniversary date; or (ii) the
Date of Termination as defined in Section 3.6.
1.1(f) "EFFECTIVE DATE" shall mean June 1, 1997.
1.1(g) "HEALTH FINANCIAL" means Health Financial,
Inc., a Kentucky corporation.
1.1(h) "PERSON" means any "person" within the meaning
of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended.
1.2 GENDER AND NUMBER. When appropriate, pronouns in this
Agreement used in the masculine gender include the feminine gender, words in
the singular include the plural, and words in the plural include the
singular.
1.3 HEADINGS. All headings in this Agreement are included
solely for ease of reference and do not bear on the interpretation of the
text. Accordingly, as used in this Agreement, the terms "Article" and
"Section" mean the text that accompanies the specified Article or Section of
the Agreement.
1.4 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the state of Kentucky, without
reference to its conflict of law principles.
SECTION 2: TERMS AND CONDITIONS OF EMPLOYMENT.
2.1 PERIOD OF EMPLOYMENT. Throughout the Employment Period,
the Executive shall remain in the employ of Health Financial in accordance
with the terms and provisions of this Agreement.
2.2 POSITIONS AND DUTIES.
2.2(a) Throughout the Employment Period, the Executive
shall be the President and Chief Executive Officer of
Health Financial. The Executive shall render
administrative and management services as are customarily
performed by persons situated in similar executive
capacities, and may have such other powers and duties as
may from time to time be prescribed by the Board. The
Executive shall also manage the investment portfolios under
the control of Health Financial in accordance with past
practice, and shall endeavor to maintain the levels of
investment performance previously achieved by Health
Financial.
2.2(b) Throughout the Employment Period (but excluding
any periods of vacation and sick leave to which he is
entitled), the Executive shall devote reasonable attention
and time during normal business hours to the business and
affairs of Health Financial and shall use his reasonable
best efforts to perform faithfully and efficiently such
responsibilities as are assigned to him under or in
accordance with this Agreement; provided that, it shall not
be a violation of this paragraph for the Executive to (i)
serve on corporate, civic or charitable boards or
committees, (ii) deliver lectures or fulfill speaking
engagements, or (iii) manage personal investments for the
Executive's own account or those of family members, so long
as such activities do not interfere with the performance of
the Executive's responsibilities as an employee of Health
Financial in accordance with this Agreement.
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<PAGE> 3
2.3 COMPENSATION. The Executive's annual Compensation and
other benefits described in this Section 2.3, shall be provided by Health
Financial.
2.3(a) ANNUAL BASE SALARY. For the first two-year
period within the Employment Period, the Executive shall
receive an annual base salary of $500,000, which shall be
due and paid in equal or substantially equal monthly
installments. Thereafter, during the Employment Period,
the annual base salary payable to the Executive shall be
reviewed thereafter at least annually beginning upon the
second anniversary of the Effective Date and upon each
anniversary date thereafter, but need not be adjusted
upward as a result of such review and shall not be reduced.
"Annual Base Salary" as used herein shall mean the annual
base salary for a then current year.
2.3(b) INCENTIVE BONUSES. In addition to Annual Base
Salary, the Executive shall be awarded an incentive bonus
on a basis commensurate with those provided through any
incentive compensation plan generally available to other
peer executives of Health Financial.
2.3(c) INCENTIVE, SAVINGS AND RETIREMENT PLANS.
Throughout the Employment Period, the Executive shall be
entitled to participate in, or receive cash benefits on a
basis commensurate with, all incentive, savings and
retirement plans generally available to other peer
executives of Health Financial.
2.3(d) WELFARE BENEFIT PLANS. Throughout the
Employment Period (and thereafter, subject to Section
4.1(c) hereof), the Executive and/or the Executive's
family, as the case may be, shall be eligible for
participation in and shall receive all benefits under, or
receive cash benefits on a basis commensurate with, welfare
benefit plans, practices, policies and programs provided by
Health Financial (including, without limitation, medical,
prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent
generally available to other peer executives of Health
Financial.
2.3(e) EXPENSES. Throughout the Employment Period,
the Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies,
practices and procedures generally applicable to other peer
executives of Health Financial.
2.3(f) FRINGE BENEFITS. Throughout the Employment
Period, the Executive shall be entitled to such fringe
benefits as generally are provided to other peer executives
of Health Financial or shall receive cash benefits
commensurate therewith.
2.3(g) VACATION. Throughout the Employment Period,
the Executive shall be entitled to five (5) weeks paid
vacation.
SECTION 3: TERMINATION OF EMPLOYMENT.
3.1 DEATH. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period.
3.2 DISABILITY. If Health Financial determines in good
faith that the Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 7.1 of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with Health Financial shall terminate effective on the
thirtieth (30th) day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the thirty (30) days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean that the Executive has been unable to perform the
services required of
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<PAGE> 4
the Executive hereunder on a full-time basis for a period of one hundred
eighty (180) consecutive business days by reason of a physical and/or mental
condition. "Disability" shall be deemed to exist when certified by a
physician selected by Health Financial or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably). The Executive will submit to
such examinations and tests as such physician deems necessary to make any
such Disability determination.
3.3 TERMINATION FOR CAUSE. Health Financial may terminate the
Executive's employment during the Employment Period for "Cause," which shall
mean termination based upon: (i) the Executive's willful and continued
failure to perform substantially his duties with Health Financial (other than
as a result of incapacity due to physical or mental condition), after a
demand for substantial performance is delivered to him by the Chairman of the
Board or the President or the Chairman of the Board of the Company, which
specifically identifies the manner in which the Executive has not
substantially performed his duties, (ii) the Executive's willful commission
of misconduct which is materially injurious to Health Financial, monetarily
or otherwise, or (iii) the Executive's material breach of any provision of
this Agreement. For purposes of this paragraph, no act, or failure to act on
the Executive's part shall be considered "willful" unless done, or omitted to
be done, without good faith and without reasonable belief that the act or
omission was in the best interest of Health Financial. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for
Cause unless and until (i) he receives a Notice of Termination (as defined in
Section 3.5) from the Chairman of the Board or the President or the Chairman
of the Board of Directors of the Company, (ii) he is given the opportunity,
with counsel to be heard before the Board of Directors of the Company, and
(iii) the Board of Directors of the Company finds, in its good faith opinion,
that the Executive was guilty of the conduct set forth in the Notice of
Termination.
3.4 GOOD REASON. The Executive may terminate his employment
with Health Financial for "Good Reason," which shall mean termination based
upon:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by
Section 2.2 or any other action by Health Financial which
results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose any
action not taken in bad faith and which is remedied by Company
or Health Financial promptly after receipt of notice thereof
given by the Executive;
(ii) (a) the failure by Health Financial to provide
benefits commensurate with any benefit or compensation plan,
stock ownership plan, life insurance plan, health and accident
plan or disability plan to which the Executive is entitled as
specified in Section 2.3, (b) the taking of any action by
Health Financial which would adversely affect the Executive's
participation in, or materially reduce the Executive's benefits
under, any plans described in Section 2.3, or deprive the
Executive of any material fringe benefit enjoyed by the
Executive as described in Section 2.3(f), or (c) the failure by
Health Financial to provide the Executive with the number of
paid vacation days to which the Executive is entitled as
described in Section 2.3(g); or
(iii) a material breach by Health Financial of any
provision of this Agreement.
3.5 NOTICE OF TERMINATION. Any termination by Health Financial
for Cause or Disability, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party, given in accordance
with Section 7.1. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision
in this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated,
and (iii) if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination
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<PAGE> 5
date (which date shall be not more than fifteen (15) days after the giving of
such notice). The failure by the Executive or Health Financial to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
Health Financial hereunder or preclude the Executive or Health Financial from
asserting such fact or circumstance in enforcing the Executive's or Health
Financial's rights hereunder.
3.6 DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by Health Financial for Cause, or by
the Executive for Good Reason, the Date of Termination shall be the date of
receipt of the Notice of Termination or any later date specified therein, as
the case may be, (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be, (iii) if
the Executive's employment is terminated by Health Financial other than for
Cause, death or Disability, the Date of Termination shall be the date of
receipt of the Notice of Termination, or (iv) if the Executive shall
terminate employment with Health Financial for any reason other than for Good
Reason, the Date of Termination shall be the date the Executive shall
terminate his employment with Health Financial; provided that if within
thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date
on which the dispute is finally determined, either by mutual written
agreement of the parties, or by a final judgment, order or decree of a court
of competent jurisdiction (the time for appeal therefrom having expired and
no appeal having been perfected).
SECTION 4: CERTAIN BENEFITS UPON TERMINATION.
4.1 TERMINATION WITHOUT CAUSE OR TERMINATION FOR GOOD REASON.
If during the Employment Period: (i) Health Financial shall terminate the
Executive's employment without Cause, or (ii) the Executive shall terminate
employment with Health Financial for Good Reason, the Executive shall be
entitled to the benefits provided below:
4.1(a) "Accrued Obligations": On the fifth (5th)
business day following the Date of Termination, Health
Financial shall pay to the Executive the sum of (1) the
Executive's Annual Base Salary through the Date of Termination
to the extent not previously paid, (2) any compensation
previously deferred by the Executive (together with any accrued
interest or earnings thereon) and (3) any accrued vacation pay;
in each case to the extent not previously paid.
4.1(b) "Annual Base Salary Continuation": For the
remainder of the initial twenty-four (24) month period
occurring after the Date of Termination, if any, Health
Financial shall pay to the Executive, the Executive's
then-current Annual Base Salary as would have been paid to the
Executive had the Executive remained in Health Financial's
employ during such twenty-four (24) month period. Health
Financial at any time may elect to pay the balance of such
payments then remaining in a lump sum, in which case the total
of such payments shall be discounted to present value as
determined according to Code Section 280G(d)(4).
4.1(c) "Annual Noncompete Payments": After the later
of the Date of Termination and the expiration of the
twenty-four (24) month period described in Section 4.1(b), Health
Financial shall pay to the Executive, on a monthly basis in
arrears, $41,600 until the later of (i) the date five (5) years
after the date hereof and (ii) the date three (3) years after
the Date of Termination.
4.1(d) "Other Benefits": To the extent not previously
paid or provided, Health Financial shall timely pay or provide
to the Executive and/or the Executive's family any other
amounts or benefits required to be paid or provided for which
the Executive and/or the Executive's family is eligible to
receive pursuant to this Agreement and under any plan,
program, policy or practice or contract or agreement of Health
Financial as those provided
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<PAGE> 6
generally to other peer executives and their families during
the ninety (90) day period immediately preceding the Effective
Date or, if more favorable to the Executive, as those provided
generally after the Effective Date to other peer executives of
Health Financial and their families. Over the remainder of
the Employment Period, the Executive shall also receive health
insurance benefits as maintained by Health Financial for the
benefit of its senior executive officers.
The Executive shall not be required to mitigate the amount
of any payment provided for in this Section by seeking other
employment or otherwise, nor shall the amount of any payment
provided for in this Section be reduced by any compensation
earned by the Executive as the result of employment by another
employer after the Date of Termination, or otherwise.
4.2 DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of Accrued
Obligations (as defined in Section 4.1(a)) (which shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash
within five (5) days of the Date of Termination) and (ii) the timely payment
or provision of Other Benefits (as defined in Section 4.1(d)), including
death benefits pursuant to the terms of any plan, policy, or arrangement of
Health Financial.
4.3 DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for (i) payment of Accrued Obligations (as defined in Section 4.1(a))
(which shall be paid to the Executive in a lump sum in cash within five (5)
days of the Date of Termination) and (ii) the timely payment or provision of
Other Benefits (as defined in Section 4.1(d)) including disability benefits
pursuant to the terms of any plan, policy or arrangement of Health Financial.
4.4 TERMINATION FOR CAUSE; TERMINATION OTHER THAN FOR GOOD
REASON. If the Executive's employment shall be terminated for Cause during
the Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the
Executive Accrued Obligations (as defined in Section 4.1(a)). If the
Executive terminates employment with Health Financial during the Employment
Period, (excluding a termination for Good Reason), this Agreement shall
terminate without further obligations to the Executive, other than for
Accrued Obligations (as defined in Section 4.1(a)) and the timely payment or
provision of Other Benefits (as defined in Section 4.1(d)). In such case, all
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within thirty (30) days of the Date of Termination. If the Executive's
employment shall terminate for the reasons stated in this Section, the
provisions of Section 5 shall continue to apply.
4.5 NON-EXCLUSIVITY OF RIGHTS. Except as provided in Sections
4.1(d) nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by Health Financial and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive
may have under any contract or agreement with Health Financial. Amounts
which are vested benefits of which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of, or any contract or
agreement with, Health Financial at or subsequent to the Date of Termination,
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
4.6 FULL SETTLEMENT. Health Financial's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which Health Financial
may have against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, except as provided in Sections 4.1(d), such
amounts shall not be
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reduced whether or not the Executive obtains other employment. Health
Financial agrees to pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses which the Executive may reasonable incur as
a result of any contest (regardless of the outcome thereof) by Health
Financial, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
regarding the amount of any payment pursuant to this Agreement), plus in each
case interest on any delayed payment at the applicable Federal rate provided
for in Code Section 7872(f)(2)(A).
4.7 RESOLUTION OF DISPUTES. If there shall be any dispute
between Health Financial and the Executive (i) in the event of any
termination of the Executive's employment by Health Financial, whether such
termination was for Cause, or (ii) in the event of any termination of
employment by the Executive, whether Good Reason existed, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made
in good faith, Health Financial shall pay all amounts, and provide all
benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that Health Financial would be required to
pay or provide pursuant to Section 4.1 as though such termination were by
Health Financial without Cause or by the Executive with Good Reason;
provided, however, that Health Financial shall not be required to pay any
disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Executive to repay all such amounts to
which the Executive is ultimately adjudged by such court not to be entitled.
SECTION 5: NON-COMPETITION.
5.1 NON-COMPETE AGREEMENT.
5.1(a) It is agreed that during the Employment Period
and until the later of (i) the date five (5) years after the
date hereof and (ii) the date three (3) years after the Date
of Termination, the Executive shall not, without prior written
approval of the Board of Directors of the Company, become an
officer, employee, agent, partner, or director of any business
enterprise in substantial direct competition (as defined in
Section 5.1(b)) with Health Financial.
5.1(b) For purposes of Section 5.1, a business
enterprise with which the Executive becomes associated as an
officer, employee, agent, partner, or director shall be
considered in substantial direct competition, if such entity
competes with Health Financial in any business in which Health
Financial is engaged and is within in Health Financial's
market area (as defined herein) during the Employment Period
and as of the Date of Termination. Health Financial's market
area is defined for this purpose, as those states in which
reside customers of Health Financial or the Company. In the
event any court shall determine that such area where
competition is prohibited or the time period during which
competition is prohibited is overbroad, then the area or time
where such competition is prohibited shall be reduced
appropriately as the court may determine is necessary to make
this Section 5 enforceable.
5.2 NON-SOLICITATION OF EMPLOYEES. It is agreed that during
the Employment Period and until the later of (i) the date five (5) years
after the date hereof and (ii) the date three (3) years after the Date of
Termination, Executive shall not, either directly or indirectly, approach or
solicit any employee of the Company or any subsidiary or affiliate thereof,
with a view towards enticing such employee to leave the employ of the Company
or any subsidiary or affiliate thereof, as the case may be, to work for the
Executive or any Person.
5.3 NON-SOLICITATION OF CUSTOMERS. It is agreed that during
the Employment Period and until the later of (i) the date five (5) years
after the date hereof and (ii) the date three (3) years after the Date of
Termination, Executive shall not, either directly or indirectly, approach or
solicit any past or existing customers of the Company or any subsidiary or
affiliate thereof, with a view towards diverting or
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attempting to divert from the Company or any subsidiary or affiliate thereof,
as the case may be, any business that the Company or any subsidiary or
affiliate thereof, as the case may be, has enjoyed, to the Executive or to
any other Person who or which is competitive with the Company and/or its
subsidiaries and/or its affiliates.
5.4 CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of Health Financial all secret or
confidential information, knowledge or data relating to Health Financial or
any of its affiliated companies, and their respective businesses, which shall
have been obtained by the Executive during the Executive's employment by
Health Financial and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in
violation of this Agreement). After termination of the Executive's
employment with Health Financial, the Executive shall not, without the prior
written consent of Health Financial, or as may otherwise be required by law
or legal process, communicate or divulge any such information, knowledge or
data to anyone other than Health Financial and those designated by it. In no
event shall an asserted violation of the provisions of this Section
constitute a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
5.5 REASONABLENESS OF COVENANTS. The Executive acknowledges
and agrees that the covenants and agreements contained in Sections 5.1
through 5.4 hereof are reasonable, and the Executive shall not raise any
issue of their reasonableness in any proceeding to enforce such covenants and
agreements.
SECTION 6: SUCCESSORS.
6.1 SUCCESSORS OF EXECUTIVE. This Agreement is personal to the
Executive, and without the prior written consent of Health Financial, amounts
receivable hereunder shall not be assignable by the Executive otherwise than
by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal
representatives.
SECTION 7: MISCELLANEOUS.
7.1 NOTICE. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by certified
or registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses as set forth below; provided that all notices to
Health Financial shall be directed to the attention of the President of
Health Financial with a copy to the Secretary of Health Financial, or to such
other address as one party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
Notice to Executive:
-------------------
Dr. Gregory W. Kasten
3320 Tates Creek Road
Lexington, Kentucky 40502
Notice to Health Financial:
--------------------------
Health Financial, Inc.
c/o Unified Holdings, Inc.
429 North Pennsylvania Street
Indianapolis, Indiana 46204
Attention: President
7.2 VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
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<PAGE> 9
7.3 WITHHOLDING. Health Financial may withhold from any
amounts payable under this Agreement such Federal, state or local taxes as
shall be required to be withheld pursuant to any applicable law or
regulation.
7.4 WAIVER. The Executive's or Health Financial's failure to
insist upon strict compliance with any provision hereof or any other
provision of this Agreement or the failure to assert any right the Executive
or Health Financial may have hereunder, including, without limitation, the
right of the Executive to terminate employment for Good Reason pursuant to
Section 3.4 shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
7.5 REPLACEMENT OF PRIOR AGREEMENT. This Agreement supersedes
and replaces any prior agreement between the Executive and Health Financial.
[remainder of this page intentionally left blank]
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<PAGE> 10
IN WITNESS WHEREOF, the Executive and Health Financial, pursuant
to the authorization from its Board, have caused this Agreement to be
executed in its name on its behalf, all as of the day and year first above
written.
/s/ Dr. Gregory W. Kasten
---------------------------------------
Dr. Gregory W. Kasten (Executive)
HEALTH FINANCIAL, INC.
By /s/ Dr. Gregory W. Kasten
-------------------------------------
Name: Dr. Gregory W. Kasten
Title: President
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<PAGE> 1
BUSINESS LOAN AGREEMENT
<TABLE>
________________________________________________________________________________________________________________________
<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$500.000.00 09-10-1997 12-31-2001 599 328 0189952980 00582 --
________________________________________________________________________________________________________________________
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item
Borrower: UNIFIED HOLDINGS, INC. Lender: Bank One. Indiana, NA
429 N PENNSYLVANIA STREET SUITE 420 111 Monument Circle
INDIANAPOLIS, IN 46204 Indianapolis, IN 46277
THIS BUSINESS LOAN AGREEMENT between UNIFIED HOLDINGS, INC. ("Borrower") and
Bank One, Indiana, NA ("Lender") is made and executed as of September 10,
1997. This Agreement governs all loans, credit facilities and/or other
financial accommodations described herein and, unless otherwise agreed to In
writing by Lender and Borrower, all other present and future loans, credit
facilities and other financial accommodations provided by Lender to Borrower.
All such loans, credit facilities and other financial accommodations,
together with all renewals, amendments and modifications thereof, are
referred to in this Agreement Individually as the "Loan" and collectively as
the "Loans." Borrower understands and agrees that: (a) In granting. renewing,
or extending any Loan, Lender Is relying upon Borrower's representations,
warranties, and agreements, as set forth In this Agreement; and (b) all such
Loans shall be and shall remain subject to the following terms and conditions
of this Agreement.
TERM. This Agreement shall be effective as of September 10, 1997, and shall
continue thereafter until all Loans and other obligations owing by Borrower
to Lender hereunder have been paid in full and Lender has no commitments or
obligations to make further advances under the Loans to Borrower.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms In the Uniform Commercial Code as
adopted In the State of Indiana. All references to dollar amounts shall mean
amounts in lawful money of the United States of America.
Agreement. The word "Agreement" means this Business Loan Agreement,
as may be amended or modified from time to time, together with all
exhibits and schedules attached hereto from time to time.
Borrower. The word "Borrower" means UNIFIED HOLDINGS, INC.
Collateral. The word "Collateral" means and Includes without
limitation all property and assets granted as collateral for any
Loan, whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether
granted in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien
or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
Grantor. The word "Grantor" means and includes each and all of the
persons or entities granting a Security Interest in any Collateral
for any of the Loans.
Guarantor. The word "Guarantor" means and Includes each and all of
the guarantors, sureties, and accommodation parties for any of the
Loans.
Indebtedness. The word "Indebtedness" means the Indebtedness
evidenced by the Note, including all principal and accrued interest
thereon, together with all other liabilities, costs and expenses for
which Borrower is responsible under this Agreement or under any of
the Related Documents. In addition, the word "Indebtedness"
includes all other obligations, debts and liabilities, plus any
accrued interest thereon, owing by Borrower, or any one or more of
them, to Lender of any kind or character, now existing or hereafter
arising, as well as all present and future claims by Lender against
Borrower, or any one or more of them, and all renewals, extensions,
modifications, substitutions and rearrangements of any of the
foregoing; whether such Indebtedness arises by note, draft,
acceptance, guaranty, endorsement, letter of credit, assignment,
overdraft, indemnity agreement or otherwise; whether such
Indebtedness is voluntary or involuntary, due or not due, direct or
indirect, absolute or contingent, liquidated or unliquidated;
whether Borrower may be liable Individually or jointly with others;
whether Borrower may be liable primarily or secondarily or as
debtor, maker, comaker, drawer, endorser, guarantor, surety,
accommodation party or otherwise.
Lender. The word "Lender" means Bank One, Indiana, NA, its
successors and assigns.
<PAGE> 2
Note. The word "Note" means any and all promissory note or notes
which evidence Borrower's Loans in favor of Lender, as well as any
amendment, modification, renewal or replacement thereof.
Permitted Lions. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender;
(b) liens for taxes, assessments, or similar charges either (I) not
yet due, or (II) being contested in good faith by appropriate
proceedings for and which Borrower has established adequate
reserves; (c) purchase money liens or purchase money security
interests upon or in any property acquired or hold by Borrower in
the ordinary course of business to secure any indebtedness permitted
under this Agreement; and (d) liens and security interests which, as
of the date of this Agreement, have been disclosed to and approved
by the Lender in writing.
Related Documents. The words "Related Documents" mean and Include
without limitation the Note and all credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the Note.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants,
arrangements, understandings or other agreements, whether created by
law, contract, or otherwise, evidencing, governing, representing, or
creating a Security Interest.
Security Interest. The words "Security Interest" mean and include
without limitation any type of security interest, whether in the
form of a lien, charge, mortgage, deed of trust, assignment, pledge,
chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien or title retention contract,
lease or consignment Intended as a security device, or any other
security or lien Interest whatsoever, whether created by law,
contract, or otherwise.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each request for an
advance or disbursement of Loan proceeds, as of the date of any renewal,
extension or modification of any Loan, and at all times any Indebtedness
exists hereafter:
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State
of Indiana and is duly qualified and in good standing in all other
states in which Borrower is doing business. Borrower has the full
power and authority to own its properties and to transact the
business in which it is presently engaged or presently proposes to
engage.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents to which Borrower is a party
have been duly authorized by all necessary action; do not require
the consent or approval of any other person, regulatory authority or
governmental body; and do not conflict with, result in a violation
of, or constitute a default under (a) any provision of its articles
of incorporation or organization, or bylaws, or any agreement or
other instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower. Borrower
has all requisite power and authority to execute and deliver this
Agreement and all other Related Documents to which Borrower is a
party.
Financial Information. Each financial statement of Borrower
supplied to Lender truly and completely discloses Borrower's
financial condition as of the date of the statement, and there has
been no material adverse change in Borrower's financial condition
subsequent to the date of the most recent financial statement
supplied to Lender. Borrower has no material contingent obligations
except as disclosed in such financial statements.
Legal Effect. This Agreement and all other Related Documents to
which Borrower is a party constitute legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance
with their respective terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and except to the extent specific
remedies may generally be limited by equitable principles.
Properties. Except as contemplated by this Agreement or as
previously disclosed in Borrower's financial statements or in
writing to Lender and as accepted by Lender, and except for property
tax liens for taxes not presently due and payable, Borrower is the
sole owner of, and has good title to, all of Borrower's properties
free and clear of all Security Interests, and has not executed any
security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing
statement under, any other name for at least the last six (6) years.
Compliance. Except as disclosed in writing to Lender (a) Borrower
is conducting Borrower's businesses in material compliance with all
applicable federal, state and local laws, statutes, ordinances,
rules, regulations, orders, determinations and court decisions,
Including without limitation, those pertaining to health or
environmental matters, and (b) Borrower otherwise does not have any
known material contingent liability In connection with the release
into the environment, disposal or the improper storage of any toxic
or hazardous substance or solid waste.
Litigation and Claims. No litigation, claim, Investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no
other event has occurred which may in any one case or in the
aggregate materially adversely affect Borrower's financial condition
or properties, other than litigation, claims, or other events, if
any, that have been disclosed to and acknowledged by Lender in
writing.
<PAGE> 3
Taxes. All tax returns and reports of Borrower that are or were
required to be filed, have been filed, and all taxes, assessments
and other governmental charges have been paid in full, except those
that have been disclosed in writing to Lender which are presently
being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been
provided.
Lien Priority. Unless otherwise previously disclosed to and
approved by Lender In writing, Borrower has not entered into any
Security Agreements, granted a Security Interest or permitted the
filing or attachment of any Security Interests on or affecting any
of the Collateral, except in favor of Lender.
Licenses, Trademarks and Patents. Borrower possesses and will
continue to possess all permits, licenses, trademarks, patents and
rights thereto which are needed to conduct Borrower's business and
Borrower's business does not conflict with or violate any valid
rights of others with respect to the foregoing.
Commercial Purposes. Borrower intends to use the Loan proceeds
solely for business or commercial related purposes approved by
Lender and such proceeds will not be used for the purchasing or
carrying of "margin stock" as defined in Regulation U issued by the
Board of Governors of the Federal Reserve System.
Employee Benefit Plans. Each employee benefit plan as to which
Borrower may have any liability complies In all material respects
with all applicable requirements of law and regulations, and (i) no
Reportable Event nor Prohibited Transaction (as defined in ERISA)
has occurred with respect to any such plan, (ii) Borrower has not
withdrawn from any such plan or initiated steps to do so, (iii) no
steps have been taken to terminate any such plan, and (iv) there are
no unfunded liabilities other than those previously disclosed to
Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of
business, or Borrower's chief executive office if Borrower has more
than one place of business, is located at 429 N PENNSYLVANIA STREET
SUITE 420, INDIANAPOLIS, IN 46204. Unless Borrower has designated
otherwise In writing this location is also the office or offices
where Borrower keeps Its records concerning the Collateral.
Information. All information heretofore or contemporaneously
herewith furnished by Borrower to Lender for the purposes of or in
connection with this Agreement or any transaction contemplated
hereby is, and all information hereafter furnished by or on behalf
of Borrower to Lender will be, true and accurate in every material
respect on the date as of which such information is dated or
certified; and none of such information is or will be incomplete by
omitting to state any material fact necessary to make such
information not misleading.
Survival of Representations and Warranties. Borrower understands
and agrees that Lender, without Independent investigation, is
relying upon the above representations and warranties in extending
Loan advances to Borrower. - Borrower further agrees that the
foregoing representations and warranties shall be continuing in
nature and shall remain In full force and effect during the term of
this Agreement.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, (b) all existing
and all threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Borrower or
any Guarantor which could materially affect the financial condition
of Borrower or the financial condition of any Guarantor, and (c) the
creation, occurrence or assumption by Borrower of any actual or
contingent liabilities not permitted under this Agreement.
Financial Records. Maintain its books and records in accordance
with generally accepted accounting principles, applied on a
consistent basis, and permit Lender to examine, audit and make and
take away copies or reproductions of Borrower's books and records at
all reasonable times. If Borrower now or at any time hereafter
maintains any records (including without limitation computer
generated records and computer software programs for the generation
of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free
access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's
expense.
Financial Statements. Furnish Lender with, as soon as available,
but in no event later than one hundred twenty (120) days after the
end of each fiscal year, Borrower's balance sheet, income statement,
and statement of changes in financial position for the year ended,
compiled by a certified public accountant satisfactory to Lender,
together with the management letter, if any, prepared by such
accountants promptly upon receipt, and, as soon as available, but in
no event later than forty five (45) days after the end of each
fiscal quarter, Borrower's balance sheet, income statement, and
statement of changes in financial position for the period ended,
prepared and certified, subject to year-end review adjustments, as
correct to the best knowledge and belief by Borrower's chief
financial officer or other officer or person acceptable to Lender.
All financial reports required to be provided under this Agreement
shall be prepared in accordance with generally accepted accounting
principles, applied on a consistent basis, and certified by Borrower
as being true and correct.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables
and payables, inventory schedules, budgets, forecasts, tax returns,
and other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, business interruption insurance and such other Insurance
as Lender may require with respect to Borrower's properties and
operations, in form, amounts, coverages and with insurance companies
reasonably acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished
without at least thirty (30) days' prior written notice to Lender.
In connection with all policies covering
<PAGE> 4
assets in which Lender holds or is offered a Security Interest for the
Loans, Borrower will provide Lender with such lender loss payable or
other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender,
reports on each existing Insurance policy showing such information
as Lender may reasonably request, including without limitation the
following: (a) the name of the insurer; (b) the risks insured; (c)
the amount of the policy; (d) the properties insured; (a) the then
current property values on the basis of which Insurance has been
obtained, and the manner of determining those values; and (f) the
expiration date of the policy.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and
any other party and notify Lender immediately in writing of any
default in connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender
in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon
any of Borrower's properties, income, or profits; provided however,
Borrower will not be required to pay and discharge any such
assessment, tax, charge, levy lien or claim so long as (a) the
legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books
adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting principles. Borrower, upon demand of Lender, will
furnish to Lender evidence of payment of the assessments, taxes,
charges, levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written
statement of any assessments, taxes, charges, levies, liens and
claims against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents
in a timely manner, and promptly notify Lender if Borrower learns of
the occurrence of any event which constitutes an Event of Default
under this Agreement or under any of the Related Documents.
Operations. Conduct its business affairs in a reasonable and
prudent manner and in compliance with all applicable federal, state
and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance wit the Americans With Disabilities Act, all
applicable environmental statutes, rules, regulations and ordinances
and with all minimum funding standards and other requirements of
ERISA and other laws applicable to Borrower's employee benefit
plans.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all federal, state and local environmental laws,
statutes, regulations and ordinances; not cause or permit to exist,
as a result of an intentional or unintentional action or omission on
its part or on the part of any third party, on property owned and/or
occupied by Borrower, any environmental activity where damage may
result to the environment, unless such environmental activity is
pursuant to and in compliance with the conditions of a permit issued
by the appropriate federal, state or local governmental authorities;
and furnish to Lender promptly and In any event within thirty (30)
days after receipt thereof a copy of any notice, summons, lien,
citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part In connection
with any environmental activity whether or not there Is damage to
the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, Instruments, documents and other agreements as
Lender or Its attorneys may reasonably request to evidence and
secure the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while
this Agreement is in effect, Borrower shall not, without the prior written
consent of Lender:
Maintain Basic Business. Engage in any business activities
substantially different than those in which Borrower is presently
engaged.
Continuity of Operations. Cease operations, liquidate, dissolve or
merge or consolidate with or into any other entity.
Liens. Mortgage, assign, pledge, grant a security Interest In or
otherwise encumber Borrower's assets, except as allowed as a
Permitted Lien.
Transfer of Assets. Transfer, sell or otherwise dispose of any of
Borrower's assets other than in the ordinary course of business.
Transfer of Ownership. Permit the sale, pledge or other transfer of
any ownership interest In Borrower.
Investments. Invest in, or purchase, create, form or acquire any
Interest in, any other enterprise or entity.
CONDITIONS PRECEDENT TO ADVANCES. If Lender is obligated to make any Loan
advances or to otherwise disburse any Loan proceeds to Borrower, such
obligation shall be subject to the conditions precedent that as of the date
of such advance or disbursement and after giving effect thereto (a) all
representations and
<PAGE> 5
warranties made to Lender In this Agreement and the Related Documents shall
be true and correct as of and as if made on such date, (b) no material
adverse change In the financial condition of Borrower or any Guarantor since
the effective date of the most recent financial statements furnished to
Lender, or in the value of any Collateral, shall have occurred and be
continuing, (c) no event has occurred and Is continuing, or would result from
the requested advance or disbursement, which with notice or lapse of time, or
both, would constitute an Event of Default, (d) no Guarantor has sought,
claimed or otherwise attempted to limit, modify or revoke such Guarantor's
guaranty of any Loan, and (a) Lender has received all Related Documents
appropriately executed by Borrower and all other proper parties.
TANGIBLE NET WORTH. Borrower will maintain a Minimum Tangible Net Worth of
$975,000.00 until 12-31-1997, and increasing each January 1 at to the greater
of the existing covenant or 90% of prior FYE Tangible Net Worth.
FIXED CHARGE RATIO. Maintain as of the end of each fiscal year a ratio of
Adjusted Net Income for the 12 month period ending with such fiscal year to
Fixed Charges for such 12 month period of not less than 1.20 to 1.00.
For purposes of this Agreement and to the extent the following terms are
utilized in this Agreement, the term "Tangible Net Worth" shall mean
borrower's total assets excluding all intangible assets (including, without
limitation, goodwill, trademarks, patents, copyrights, organization expenses,
and similar Intangible items) less total liabilities excluding Subordinated
Debt. The term "Subordinated Debt" shall mean all indebtedness owing by
Borrower which has been subordinated by written agreement to all indebtedness
now or hereafter owing by Borrower to Lender, such agreement to be in form
and substance acceptable to Lender. The term "Liquid Assets" shall mean
borrower's unencumbered cash, marketable securities and accounts receivable
net of reserves. The term "Adjusted Net Income" means earnings before
interest, taxes, -depreciation and amortization. The term "Fixed Charges"
mean interest expense plus current maturities of long-term debt plus current
maturities of capital leases plus dividends plus cash capital expenditures.
The term "Cash Flow" shall mean net income after taxes, and exclusive of
extraordinary items, plus depreciation and amortization. Except as provided
above, all computations made to determine compliance with the requirements
contained In this paragraph shall be made in accordance with generally
accepted accounting principles, applied on a consistent basis, and certified
by Borrower as being true and correct.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys, delivers,
pledges, and transfers to Lender all Borrower's right, title and interest in
and to, Borrower's accounts with Lender (whether checking, savings, or any
other account), including without limitation all accounts held jointly with
someone else and all accounts Borrower may open in the future. Borrower
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all sums owing on the Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an event of
Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment
when due on any of the Indebtedness.
Other Defaults. Failure of Borrower, any Guarantor or any Grantor
to comply with or to perform when due any other term, obligation,
covenant or condition contained in this Agreement, the Note or in
any of the other Related Documents, or failure of Borrower to comply
with or to perform any other term, obligation, covenant or condition
contained in any other agreement now existing or hereafter arising
between Lender and Borrower.
False Statements. Any warranty, representation or statement made or
furnished to Lender under this Agreement or the Related Documents is
false or misleading In any material respect.
Default to Third Party. The occurrence of any event which permits
the acceleration of the maturity of any indebtedness owing by
Borrower, Grantor or any Guarantor to any third party under any
agreement or undertaking.
Bankruptcy or Insolvency. If the Borrower, Grantor or any
Guarantor: (i) becomes insolvent, or makes a transfer in fraud of
creditors, or makes an assignment for the benefit of creditors, or
admits in writing its Inability to pay its debts as they become due;
(ii) generally is not paying its debts as such debts become due;
(iii) has a receiver, trustee or custodian appointed for, or take
possession of, all or substantially all of the assets of such party
or any of the Collateral, either in a proceeding brought by such
party or in a proceeding brought against such party and such
appointment is not discharged or such possession Is not terminated
within sixty (60) days after the effective date thereof or such
party consents to or acquiesces In such appointment or possession;
(iv) files a petition for relief under the United States Bankruptcy
Code or any other present or future federal or state insolvency,
bankruptcy or similar laws (all of the foregoing hereinafter
collectively called "Applicable Bankruptcy Law") or an involuntary
petition for relief is filed against such party under any Applicable
Bankruptcy Law and such involuntary petition is not dismissed within
sixty (60) days after the filing thereof, or an order for relief
naming such party is entered under any Applicable Bankruptcy Law, or
any composition, rearrangement, extension, reorganization or other
relief of debtors now or hereafter existing is requested or
consented to by such party; (v) fails to have discharged within a
period of sixty (60) days any attachment, sequestration or similar
writ levied upon any property of such party; or (vi) fails to pay
within thirty (30) days any final money judgment against such party.
Liquidation, Death and Related Events. If Borrower, Grantor or any
Guarantor is an entity, the liquidation, dissolution, merger or
consolidation of any such entity or, If any of such parties is an
individual, the death or legal incapacity of any such individual.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
Indebtedness, or by any governmental agency.
<PAGE> 6
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, Lender
may, at its option, without further notice or demand, (a) terminate all
commitments and obligations of Lender to make Loans to Borrower, if any,
(b) declare all Loans and any other Indebtedness immediately due and
payable, (c) refuse to advance any additional amounts under the Note, or
(d) exercise all the rights and remedies provided in the Note or in any
of the Related Documents or available at law, in equity, or otherwise;
provided, however, if any Event of Default of the type described in the
"Bankruptcy or Insolvency" subsection above shall occur, all Loans and
any other Indebtedness shall automatically become due and payable,
without any notice, demand or action by Lender. Except as may be
prohibited by applicable law, all of Lender's rights and remedies shall
be cumulative and may be exercised singularly or concurrently. Election
by Lender to pursue any remedies shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform
an obligation of Borrower or any Grantor shall not affect Lender's right
to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS.
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in
writing and signed by the party or parties sought to be charged or
bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Indiana. Subject to the
provisions on arbitration, this Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana without
regard to any conflict of laws or provisions thereof.
JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF)
HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE
UNDERSIGNED AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS
DOCUMENT OR ANY OTHER RELATED DOCUMENT. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED
HEREIN OR IN THE OTHER RELATED DOCUMENTS.
ARBITRATION. Lender and Borrower agree that upon the written demand
of either party, whether made before or after the institution of any
legal proceedings, but prior to the rendering of any judgment In
that proceeding, all disputes, claims and controversies between
them, whether individual, joint, or class in nature, arising from
this Agreement, any Related Document or otherwise, Including without
limitation contract disputes and tort claims, shall be arbitrated
pursuant to the Commercial Rules of the American Arbitration
Association. Any arbitration proceeding held pursuant to this
arbitration provision shall be conducted In the city nearest the
Borrower's address having an AAA regional office, or at any other
place selected by mutual agreement of the parties. No act to take
or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration
agreement. This arbitration provision shall not limit the right of
either party during any dispute, claim or controversy to seek, use,
and employ ancillary, provisional or preliminary rights and/or
remedies, judicial or otherwise, for the purposes of realizing upon,
preserving, protecting, foreclosing upon or proceeding under
forcible entry and detainer for possession of, any real or personal
property, and any such action shall not be deemed an election of
remedies. This includes, without limitation, obtaining injunctive
relief or a temporary restraining order, invoking a power of sale
under any deed of trust or mortgage, obtaining a writ of attachment
or imposition of a receivership, or exercising any rights relating
to personal property, Including taking or disposing of such property
with or without judicial process pursuant to Article 9 of the
Uniform Commercial Code. Any disputes, claims, or controversies
concerning the lawfulness or reasonableness of any act, or exercise
of any right or remedy, concerning any Collateral, including any
claim to rescind, reform, or otherwise modify any agreement relating
to the Collateral, shall also be arbitrated; provided however that
no arbitrator shall have the right or the power to enjoin or
restrain any act of either party. Judgment upon any award rendered
by any arbitrator may be entered In any court having jurisdiction.
Nothing In this arbitration provision shall preclude either party
from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches
and similar doctrines which would otherwise be applicable in an
action brought by a party shall be applicable in any arbitration
proceeding, and the commencement of an arbitration proceeding shall
be deemed the commencement of any Action for these purpose. The
Federal Arbitration Act (Title 9 of the United States Code) shall
apply to the construction, Interpretation, and enforcement of this
arbitration provision.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to
Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers,
whether related or unrelated to Lender. Lender may provide, without
any limitation whatsoever, to any one or more purchasers, or
potential purchasers, any information or knowledge Lender may have
about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with
respect to such matters. Borrower additionally waives any and all
notices of sale of participation Interests, as well as all notices
of any repurchase of such participation interests.
Costs and Expenses. Borrower agrees to pay upon demand all of
Lender's expenses, Including attorneys' fees, incurred in connection
with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made
pursuant to this Agreement. Lender may hire one or more attorneys
to help collect the Indebtedness If Borrower does not pay, and
Borrower will pay Lender's reasonable attorneys' fees.
Notices. All notices required to be given under this Agreement
shall be given in writing, and shall be effective when actually
delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be
<PAGE> 7
given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to
change the party's address. For notice purposes, Borrower will keep
Lender informed at all times of Borrower's current addresses).
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances.
If feasible, any such offending provision shall be deemed to be
modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall
be stricken and all other provisions of this Agreement in all other
respects shall remain valid and enforceable.
Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of
which together shall constitute the same document. Signature pages
may be detached from the counterparts to a single copy of this
Agreement to physically form one document.
Successors and Assigns. All covenants and agreements contained by
or on behalf of Borrower shall bind its successors and assigns and
shall inure to the benefit of Lender, its successors and assigns.
Borrower shall not, however, have the right to assign its rights
under this Agreement or any interest therein, without the prior
written consent of Lender.
Survival. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's
behalf.
Time Is of the Essence. Time is of the essence In the performance
of this Agreement.
Waiver. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given In writing and signed by
Lender. No delay or omission on the part of Lender in exercising
any right shall operate as a waiver of such right or any other
right. A waiver by Lender of a provision of this Agreement shall
not prejudice or constitute a waiver of Lender's right otherwise to
demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of
dealing between Lender and Borrower, or between Lender and any
Grantor or Guarantor, shall constitute a waiver of any of Lender's
rights or of any obligations of Borrower or of any Grantor as to any
future transactions. Whenever the consent of Lender is required
under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent
instances where such consent is required, and in all cases such
consent may be granted or withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS EXECUTED AS
OF THE DATE SET FORTH ABOVE.
BORROWER:
UNIFIED HOLDINGS, INC.
By: /s/ Lynn E. Wood
LYNN E. WOOD, PRESIDENT & CEO
LENDER:
Bank One, Indiana, NA
By:
Authorized Officer
<PAGE> 1
COMMERCIAL SECURITY AGREEMENT
<TABLE>
________________________________________________________________________________________________________________________
<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$500.000.00 09-10-1997 12-31-2001 599 328 0189952980 00582 --
________________________________________________________________________________________________________________________
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item
Borrower: UNIFIED HOLDINGS, INC. Lender: Bank One, Indiana, NA
429 N PENNSYLVANIA STREET SUITE 420 111 Monument Circle
INDIANAPOLIS, IN 46204 Indianapolis, IN 46277
THIS COMMERCIAL SECURITY AGREEMENT Is entered Into by UNIFIED HOLDINGS, INC.
(referred to below as "Grantor") for the benefit of Bank One, Indiana, NA
(referred to below as "Lender"). For valuable consideration, Grantor grants
to Lender a security interest In the Collateral to secure the Indebtedness
and agrees that Lender shall have the rights stated In this Agreement with
respect to the Collateral, in addition to all other rights which Lender may
have by law.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code as
adopted in the State of Indiana ("Code"). All references to dollar amounts
shall mean amounts In lawful money of the United States of America.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located:
All inventory, chattel paper, equipment and general intangibles
In addition, the word "Collateral" includes all the following,
whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of
and substitutions for any property described above.
(b) All products and produce of any of the property described
in this Collateral section.
(c) All proceeds (including, without limitation, insurance
proceeds) from the sale, lease, destruction, loss, or other
disposition of any of the property described in this
Collateral section.
(d) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
Event of Default. The words "Event of Default" mean and include any
of the Events of Default set forth below in the section titled
"Events of Default."
Grantor. The word "Grantor" means UNIFIED HOLDINGS, INC., its
successors and assigns (which is a debtor under the Code)
Guarantor. The word "Guarantor" means and includes without
limitation, each and all of the guarantors, sureties, and
accommodation parties in connection with the indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness
evidenced by the Note, including all principal and accrued interest
thereon, together with all other liabilities, costs and expenses for
which Grantor is responsible under this Agreement or under any of
the Related Documents. In addition, the word "Indebtedness"
Includes all other obligations, debts and liabilities, plus any
accrued interest thereon, owing by Grantor, or any one or more of
them, to Lender of any kind or character, now existing or hereafter
arising, as well as all present and future claims by Lender against
Grantor, or any one or more of them, and all renewals, extensions,
modifications, substitutions and rearrangements of any of the
foregoing; whether such Indebtedness arises by note, draft,
<PAGE> 2
acceptance, guaranty, endorsement, letter of credit, assignment,
overdraft, indemnity agreement or otherwise; whether such
Indebtedness is voluntary or involuntary, due or not due, direct or
indirect, absolute or contingent, liquidated or unliquidated;
whether Grantor may be liable individually or jointly with others;
whether Grantor may be liable primarily or secondarily or as debtor,
maker, comaker, drawer, endorser, guarantor, surety, accommodation
party or otherwise.
Lender. The word "Lender" means Bank One, Indiana, NA, its
successors and assigns (which is a secured party under the Code).
Note. The word "Note" means the promissory note dated September 10,
1997, in the principal amount of $500,000.00 from UNIFIED HOLDINGS,
INC. to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and
substitutions for such promissory note.
Related Documents. The words "Related Documents" mean and include
without limitation the Note and all credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the Note.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, Grantor hereby grants Lender a contractual
possessory security interest In and hereby assigns, conveys, delivers,
pledges, and transfers all of Grantor's right, title and interest in and to
Grantor's accounts with Lender (whether checking, savings, or any other
account), including all accounts hold jointly with someone else and all
accounts Grantor may open in the future. Grantor authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all Indebtedness
against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor represents, warrants and covenants to Lender
as follows:
Perfection of Security Interest. Grantor agrees to execute such
financing statements and to take whatever other actions are
requested by Lender to perfect and continue Lender's security
interest in the Collateral. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or
constituting the Collateral, and Grantor will note Lender's interest
upon any and all chattel paper if not delivered to Lender for
possession by Lender. Grantor hereby Irrevocably appoints Lender as
its attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in
this Agreement. Lender may sign and file financing statements
without Grantor's signature. Lender may at any time, and without
further authorization from Grantor, file a carbon, photographic or
other reproduction of any financing statement or of this Agreement
for use as a financing statement. Grantor will reimburse Lender for
all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor
has disclosed to Lender all tradenames and assumed names currently
used by Grantor, all tradenames and assumed names used by Grantor
within the previous six (6) years and all of Grantor's current
business locations. Grantor will notify Lender in writing at least
thirty (30) days prior to the occurrence of any of the following:
(i) any changes in Grantor's names, tradename(s) or assumed name(s),
or (ii) any change in Grantor's business location(s) or the location
of any of the Collateral.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor
is a party, and its certificate or articles of incorporation and
bylaws do not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists
of accounts, chattel paper, or general intangibles, the Collateral
is enforceable in accordance with its terms, is genuine, and
complies with applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated
on the Collateral have authority and capacity to contract and are in
fact obligated as they appear to be on the Collateral.
Location of the Collateral. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's
operations, including without limitation the following: (a) all
real property owned or being purchased by Grantor; (b) all real
property being rented or leased by Grantor; (c) all storage
facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except
in the ordinary course of its business, Grantor shall not remove the
Collateral from its existing locations without the prior written
consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as
accounts, the records concerning the Collateral) at Grantor's
address shown above, or at such other locations as are acceptable to
Lender. Except in the ordinary course of its business, including
the sales of inventory, Grantor shall not remove the Collateral from
its existing locations without the prior written consent of Lender.
To the extent that the Collateral consists of vehicles, or other
titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Indiana, without the prior written consent of
Lender.
Transactions Involving Collateral. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or
dispose of the Collateral. While Grantor is not in default under
this Agreement, Grantor may sell inventory, but only in the ordinary
course of its business and only to buyers who qualify as a buyer in
the ordinary course of business. A sale in the ordinary course of
Grantor's business does not include a transfer In partial or total
satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than
the security Interest provided for in this Agreement, without the
prior written consent of Lender. This includes security interests
even if junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any
disposition of the Collateral (for whatever reason) shall be held in
trust for Lender and shall not be commingled with any other
<PAGE> 3
funds; provided however, this requirement shall not constitute consent
by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it is the
owner of the Collateral and holds good and marketable title to the
Collateral, free and clear of all liens and encumbrances except for
the lien of this Agreement. No financing statement covering any of
the Collateral is on file in any public office other than those
which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend
Lender's rights in the Collateral against the claims and demands of
all other persons.
Collateral Schedules and Locations. As often as Lender shall
require, and insofar as the Collateral consists of general
intangibles, Grantor shall deliver to Lender schedules of such
Collateral, including such information as Lender may require,
including without limitation names and addresses of account debtors
and agings of general intangibles. Insofar as the Collateral
consists of inventory an equipment, Grantor shall deliver to Lender,
as often as Lender shall require, such lists, descriptions, and
designations of such Collateral as Lender may require to identify
the nature, extent, and location of such Collateral. Such
information shall be submitted for Grantor and each of Its
subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain
all tangible Collateral in good condition and repair. Grantor will
not commit or permit damage to or destruction of the Collateral or
any part of the Collateral. Lender and its designated
representatives and agents shall have the right at all reasonable
times to examine, inspect, and audit the Collateral wherever
located. Grantor shall immediately notify Lender of all cases
involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally
of all happenings and events affecting the Collateral or the value
or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and governmental charges or levies upon the Collateral
and provide Lender evidence of such payment upon its request.
Grantor may withhold any such payment or may elect to contest any
lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lender's
interest in the Collateral is not jeopardized in Lender's sole
opinion. If the Collateral Is subjected to a lien which is not
discharged within fifteen (15) days, Grantor shall deposit with
Lender cash, a sufficient corporate surety bond or other security
satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, costs, attorneys' fees or
other charges that could accrue as a result of foreclosure or sale
of the Collateral. In any contest Grantor shall defend itself and
Lender and shall satisfy any final adverse judgment before
enforcement against the Collateral. Grantor shall name Lender as an
additional obligor under any surety bond furnished in the contest
proceedings.
Compliance With Governmental Requirements. Grantor is conducting
and will continue to conduct Grantor's businesses in material
compliance with all federal, state and local laws, statutes,
ordinances, rules, regulations, orders, determinations and court
decisions applicable to Grantor's businesses and to the production,
disposition or use of the Collateral, including without limitation,
those pertaining to health and environmental matters such as the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (collectively, together with any
subsequent amendments, hereinafter called "CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil
Recycling Act of 1980, the Solid Waste Disposal Act Amendments of
1980, and the Hazardous Substance Waste Amendments of 1984
(collectively, together with any subsequent amendments, hereinafter
called "RCRA"). Grantor represents and warrants that (i) none of
the operations of Grantor is the subject of a federal, state or
local investigation evaluating whether any material remedial action
is needed to respond to a release or disposal of any toxic or
hazardous substance or solid waste into the environment; (ii)
Grantor has not filed any notice under any federal, state or local
law indicating that Grantor is responsible for the release into the
environment, the disposal on any promises in which Grantor is
conducting its businesses or the improper storage, of any material
amount of any toxic or hazardous substance or solid waste or that
any such toxic or hazardous substance or solid waste has been
released, disposed of or is improperly stored, upon any premises on
which Grantor is conducting its businesses; and (iii) Grantor
otherwise does not have any known material contingent liability in
connection with the release into the environment, disposal or the
improper storage, of any such toxic or hazardous substance or solid
waste. The terms "hazardous substance" and "release", as used
herein, shall have the meanings specified in CERCLA, and the terms
"solid waste" and "disposal", as used herein, shall have the
meanings specified in RCRA; provided, however, that to the extent
that the laws of the State of Indiana establish meanings for such
terms which are broader than that specified in either CERCLA or
RCRA, such broader meanings shall apply. The representations and
warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances.
Grantor hereby (a) releases and waives any future claims against
Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender against any and all
claims and losses resulting from a breach of this provision of this
Agreement. This obligation to indemnify shall survive the payment
of the Indebtedness and the termination of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and
maintain all risk insurance, including without limitation fire,
theft and liability coverage together with such other Insurance as
Lender may require with respect to the Collateral, in form, amounts,
Coverages and basis reasonably acceptable to Lender and issued by a
company or companies reasonably acceptable to Lender. Grantor, upon
request of Lender, will deliver to Lender from time to time the
policies or certificates of Insurance In form satisfactory to
Lender, including stipulations that coverages will not be cancelled
or diminished without at least thirty (30) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy
also shall include an endorsement providing that coverage in favor
of Lender will not be impaired in any way by any act, omission or
default of Grantor or any other person. In connection with all
policies covering assets in which Lender holds or is offered a
security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. If Grantor at
any time fails to obtain or maintain any insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain
such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
<PAGE> 4
Application of Insurance Proceeds. Grantor shall promptly notify
Lender of any loss or damage to the Collateral. Lender may make
proof of loss if Grantor fails to do so within fifteen (15) days of
the casualty. All proceeds of any insurance on the Collateral,
including accrued proceeds thereon, shall be held by Lender as part
of the Collateral. If Lender consents to repair or replacement of
the damaged or destroyed Collateral, Lender shall, upon satisfactory
proof of expenditure, pay or reimburse Grantor from the proceeds for
the reasonable cost of repair or restoration. If Lender does not
consent to repair or replacement of the Collateral, Lender shall
retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds
which have not been disbursed within six (6) months after their
receipt and which Grantor has not committed to the repair or
restoration of the Collateral shall be used to prepay the
Indebtedness. Application of insurance proceeds to the payment of
the Indebtedness will not extend, postpone or waive any payments
otherwise due, or change the amount of such payments to be made and
proceeds may be applied in such order and such amounts as Lender may
elect.
Solvency of Grantor. As of the date hereof, and after giving effect to
this Agreement and the completion of all other transactions contemplated by
Grantor at the time of the execution of this Agreement, (i) Grantor is and
will be solvent, (ii) the fair salable value of Grantor's assets exceeds and
will continue to exceed Grantor's liabilities (both fixed and contingent),
(iii), Grantor is paying and will continue to be able to pay its debts as
they mature, and (iv) if Grantor is not an individual, Grantor has and will
have sufficient capital to carry on Grantor's businesses and all businesses
in which Grantor is about to engage.
Lien Not Released. The lien, security interest and other security
rights of Lender hereunder shall not be impaired by an indulgence, moratorium
or release granted by Lender, including but not limited to, the following:
(a) any renewal, extension, increase or modification of any of the
Indebtedness; (b) any surrender, compromise, release, renewal, extension,
exchange or substitution granted in respect of any of the Collateral; (c) any
release or indulgence granted to any endorser, guarantor or surety of any of
the Indebtedness; (d) any release of any other collateral for any of the
Indebtedness; (e) any acquisition of any additional collateral for any of the
Indebtedness; and (f) any waiver or failure to exercise any right, power or
remedy granted herein, by law or in any of the Related Documents.
Request for Environmental Inspections. Upon Lender's reasonable request
from time to time, Grantor will obtain at Grantor's expense an inspection or
audit report(s) addressed to Lender of Grantor's operations from an
engineering or consulting firm approved by Lender, indicating the presence or
absence of toxic and hazardous substances, underground storage tanks and
solid waste on any premises in which Grantor is conducting a business;
provided, however, Grantor will be obligated to pay for the cost of any such
inspection or audit no more than one time in any twelve (12) month period
unless Lender has reason to believe that toxic or hazardous substance or
solid wastes have been dumped or released on any such promises. If Grantor
fails to order or obtain an inspection or audit within ton (10) days after
Lender's request, Lender may at its option order such inspection or audit,
and Grantor grants to Lender and its agents, employees, contractors and
consultants access to the premises in which it is conducting its business and
a license (which is coupled with an interest and is irrevocable) to obtain
inspections and audits. Grantor agrees to promptly provide Lender with a
copy of the results of any such inspection or audit received by Grantor. The
cost of such inspections and audits by Lender shall be a part of the
Indebtedness, secured by the Collateral and payable by Grantor on demand.
Chattel Paper. To the extent a security interest in the chattel
paper of Grantor is granted hereunder, Grantor represents and
warrants that all such chattel paper have only one original
counterpart and no other party other than Grantor or Lender is in
actual or constructive possession of any such chattel paper. Grantor
agrees that at the option of and on the request by Lender, Grantor
will either deliver to Lender all originals of the chattel paper
which is included in the Collateral or will mark all such chattel
paper with a legend indicating that such chattel paper is subject to
the security interest granted hereunder.
Landlord's Waivers. Grantor egress that upon the request of Lender,
Grantor shall cause each landlord of real property leased by Grantor
at which any of the Collateral is located from time to time to
execute and deliver agreements satisfactory in form and substance to
Lender by which such landlord waives or subordinates any rights it
may have in the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and
may use it in any lawful manner not inconsistent with this Agreement or the
Related Documents, provided that Grantor's right to possession and beneficial
use shall not apply to any Collateral where possession of the Collateral by
Lender is required by law to perfect Lender's security interest in such
Collateral. If Lender at any time has possession of any Collateral, whether
before or after an Event of Default, Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral if Lender
takes such action for that purpose as Grantor shall request or as Lender, in
Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take
any steps necessary to preserve any rights In the Collateral against prior
parties, nor to protect, preserve or maintain any security interest given to
secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and be payable on
demand by Lender. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when
due on the Indebtedness.
<PAGE> 5
Other Defaults. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement, the Note, any of the other Related Documents or in any
other agreement now existing or hereafter arising between Lender and
Grantor.
False Statements. Any warranty, representation or statement made or
furnished to Lender under this Agreement, the Note or any of the
other Related Documents is false or misleading in any material
respect.
Default to Third Party. The occurrence of any event which permits
the acceleration of the maturity of any indebtedness owing by Grantor
or any Guarantor to any third party under any agreement or
undertaking.
Bankruptcy or Insolvency. If the Grantor or any Guarantor: (i)
becomes insolvent, or makes a transfer in fraud of creditors, or
makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts as they become due; (ii)
generally is not paying its debts as such debts become due; (iii) has
a receiver, trustee or custodian appointed for, or take possession
of, all or substantially all of the assets of such party or any of
the Collateral, either in a proceeding brought by such party or in a
proceeding brought against such party and such appointment is not
discharged or such possession is not terminated within sixty (60)
days after the effective date thereof or such party consents to or
acquiesces in such appointment or possession; (iv) files a petition
for relief under the United States Bankruptcy Code or any other
present or future federal or state insolvency, bankruptcy or similar
laws (all of the foregoing hereinafter collectively called
"Applicable Bankruptcy Law") or an involuntary petition for relief is
filed against such party under any Applicable Bankruptcy Low and such
involuntary petition is not dismissed within sixty (60) days after
the filing thereof, or an order for relief naming such party is
entered under any Applicable Bankruptcy Law, or any composition,
rearrangement, extension, reorganization or other relief of debtors
now or hereafter existing is requested or consented to by such party;
(v) fails to have discharged within a period of sixty (60) days any
attachment, sequestration or similar writ levied upon any property of
such party; or (vi) fails to pay within thirty (30) days any final
money judgment against such party.
Liquidation, Death and Related Events. If Grantor or any Guarantor
is an entity, the liquidation, dissolution, merger or consolidation
of any such entity or, if any of such parties is an individual, the
death or legal incapacity of any such individual.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by
any governmental agency against the Collateral or any other
collateral securing the Indebtedness.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Code. In addition and without limitation, Lender may
exercise any one or more of the following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to
pay, immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession
of and remove the Collateral. If the Collateral contains other goods
not covered by this Agreement at the time of repossession, Grantor
agrees Lender may take such other goods, provided that Lender makes
reasonable efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease,
transfer, or otherwise dispose of the Collateral or the proceeds
thereof in its own name or that of Grantor. Lender may sell the
Collateral (as a unit or in parcels) at public auction or private
sale. Lender may buy the Collateral, or any portion thereof, (i) at
any public sale, and (ii) at any private sale if the Collateral is of
a type customarily sold in a recognized market or is of a type which
is the subject of widely distributed standard price quotations.
Lender shall not be obligated to make any sale of Collateral
regardless of a notice of sale having been given. Lender may adjourn
any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
Unless the Collateral is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time and place of
any public sale thereof or of the time after which any private sale
or any other intended disposition of the Collateral is to be made.
The requirements of reasonable notice shall be met if such notice is
given at least ten (10) days prior to the date any public sale, or
after which a private sale, of any of such Collateral is to be held.
All expenses relating to the disposition of the Collateral, including
without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a part of
the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid. Under all circumstances, the Indebtedness will be repaid
without relief from any Indiana or other valuation and appraisement
laws.
Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the
appointment of a receiver: (a) Lender may have a receiver appointed
as a matter of right, (b) the receiver may be an employee of Lender
and may serve without bond, and (c) all fees of the receiver and his
or her attorney shall become part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may transfer any Collateral into its own name
or that of its nominee and receive the payments, rents, income, and
revenues therefrom and hold the same as security for the Indebtedness
or apply it to payment of the Indebtedness in such order of
preference as Lender may determine. Insofar as the Collateral
<PAGE> 6
consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, choses in action, or similar property,
Lender may demand, collect, receipt for, settle, compromise, adjust,
sue for, foreclose, or realize on the Collateral as Lender may
determine. For these purposes, Lender may, on behalf of and in the
name of Grantor, receive, open and dispose of mail addressed to
Grantor; change any address to which mail and payments are to be
sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or
storage of any Collateral. To facilitate collection, Lender may
notify account debtors and obligors on any Collateral to make
payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Code, as
may be amended from time to time. In addition, Lender shall have and
may exercise any or all other rights and remedies it may have
available at law, in equity, or otherwise. Grantor waives any right
to require Lender to proceed against any third party, exhaust any
other security for the Indebtedness or pursue any other right or
remedy available to Lender.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Grantor
under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its
remedies.
MISCELLANEOUS PROVISIONS.
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement and supercedes all prior
written and oral agreements and understandings, it any, regarding
same. No alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or parties
sought to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Indiana. Subject to the
provisions on arbitration in any Related Document, this Agreement
shall be governed by and construed in accordance with the laws of the
State of Indiana without regard to any conflict of laws or provisions
thereof.
JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE
HEREOF), HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER ARISING OUT OF
OR IN ANY WAY RELATED TO THIS DOCUMENT OR ANY OTHER RELATED DOCUMENT.
THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE
FINANCING DESCRIBED HEREIN OR IN THE OTHER RELATED DOCUMENTS.
Attorneys' Fees; Expenses. Grantor will upon demand pay to Lender
the amount of any and all costs and expenses (including without
limitation, reasonable attorneys' fees and expenses) which Lender may
incur in connection with (i) the perfection and preservation of the
collateral assignment and security interests created under this
Agreement, (ii) the custody, preservation, use or operation of, or
the sale of, collection from, or other realization upon, the
Collateral, (iii) the exercise or enforcement of any of the rights of
Lender under this Agreement, or (iv) the failure by Grantor to
perform or observe any of the provisions hereof.
Termination. Upon (i) the satisfaction in full of the Indebtedness
and all obligations hereunder, (ii) the termination or expiration of
any commitment of Lender to extend credit that would become
Indebtedness hereunder, and (iii) Lender's receipt of a written
request from Grantor for the termination hereof, this Agreement and
the security interests created hereby shall terminate. Upon
termination of this Agreement and Grantor's written request, Lender
will, at Grantor's sole cost and expense, return to Grantor such of
the Collateral as shall not have been sold or otherwise disposed of
or applied pursuant to the terms hereof and execute and deliver to
Grantor such documents as Grantor shall reasonably request to
evidence such termination.
Indemnity. Grantor hereby agrees to indemnify, defend and hold
harmless Lender, and its officers, directors, shareholders,
employees, agents and representatives (each an "Indemnified Person")
from and against any and all liabilities obligations, claims, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature (collectively, the "Claims")
which may be imposed on, incurred by or asserted against, any
Indemnified Person (whether or not caused by any Indemnified Person's
sole, concurrent or contributory negligence) arising in connection
with the Related Documents, the Indebtedness or the Collateral
(including, without limitation, the enforcement of the Related
Documents and the defense of any Indemnified Person's action and/or
inactions in connection with the Related Documents), except to the
limited extent that the Claims against the Indemnified Person are
proximately caused by such Indemnified Person's gross negligence or
willful misconduct. The indemnification provided for in this Section
shall survive the termination of this Agreement and shall extend and
continue to benefit each individual or entity who is or has at any
time been an Indemnified Person hereunder.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
<PAGE> 7
Notices. All notices required to be given under this Agreement shall
be given in writing, and shall be effective when actually delivered
or when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if there
is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep
Lender informed at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby irrevocably appoints Lender as its
true and lawful attorney-in-fact, such power of attorney being
coupled with an interest, with full power of substitution to do the
following in the place and stead of Grantor and in the name of
Grantor: (a) to demand, collect, receive, receipt for, sue and
recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c)
to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any
claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the Indebtedness,
and the authority hereby conferred is and shall be irrevocable and
shall remain in full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances.
If feasible, any such offending provision shall be deemed to be
modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall
be stricken and all other provisions of this Agreement in all other
respects shall remain valid and enforceable.
Successor interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns;
provided, however, Grantor's rights and obligations hereunder may not
be assigned or otherwise transferred without the prior written
consent of Lender.
Waiver. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Lender's right to thereafter demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing
between Lender and Grantor, shall constitute a waiver of any of
Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted
or withheld in the sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
SEPTEMBER 10, 1997.
GRANTOR:
UNIFIED HOLDINGS, INC.
By: /s/ Lynn E. Wood
LYNN E. WOOD, PRESIDENT & CEO
<PAGE> 1
PROMISSORY NOTE
<TABLE>
________________________________________________________________________________________________________________________
<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$500.000.00 09-10-1997 12-31-2001 599 328 0189952980 00582 --
________________________________________________________________________________________________________________________
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item
Borrower: UNIFIED HOLDINGS, INC. Lender: Bank One, Indiana, NA
429 N PENNSYLVANIA STREET SUITE 420 111 Monument Circle
INDIANAPOLIS, IN 46204 Indianapolis, IN 46277
Principal Amount: $500,000.00 Date of Note: September 10, 1997
PROMISE TO PAY. For value received, UNIFIED HOLDINGS, INC. ("Borrower")
promises to pay to Bank One, Indiana, NA ("Lender"), or order, in lawful
money of the United States of America, the principal amount of Five Hundred
Thousand & 00/100 Dollars ($500,000.00) ("Total Principal Amount") or so much
as may be outstanding, together with Interest on the unpaid outstanding
principal balance from the date advanced until paid in full.
PAYMENT. Borrower will pay this loan in accordance with the following
payment schedule:
This Note shall be payable as follows: During the Draw Period (as
hereafter defined), Interest shall be due, and payable as it
accrues, commencing on September 30, 1997, and continuing on the
same day of each month thereafter. Commencing on December 31, 1997,
and continuing on the same day of each month occurring thereafter
until this Note matures (the "Term Period"), Borrower shall pay to
Lender forty-seven (47) monthly installments equal to the sum of (i)
principal in an amount that represents 1/48th of the principal
amount outstanding on the last day of the Draw Period, plus (ii) all
accrued but unpaid interest, and a final payment on December 31,
2001, of the outstanding principal balance of this Note, plus all
accrued but unpaid interest and any other unpaid amounts under this
Note.
Interest on this Note Is computed on a 365/360 simple interest basis; that
is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance Is outstanding. Borrower will
pay Lender at the address designated by Lender from time to time in writing.
If any payment of principal of or Interest on this Note shall become due on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day. As used herein, the term "Business Day" shall mean
any day other than a Saturday, Sunday or any other day on which national
banking associations are authorized to be closed. Unless otherwise agreed
to, In writing, or otherwise required by applicable law, payments will be
applied first to accrued, unpaid Interest, then to principal, and any
remaining amount to any unpaid collection costs, late charges and other
charges, provided, however, upon delinquency or other default, Lender
reserves the right to apply payments among principal, interest, late charges,
collection costs and other charges at its discretion. The books and records
of Lender shall be prima facie evidence of all outstanding principal of and
accrued but unpaid interest on this Note. If this Note is governed by or is
executed in connection with a loan agreement, this Note is subject to the
terms and provisions thereof.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
fluctuation based upon the Prime Rate of interest in effect from time to time
(the "Index") (which rate may not be the lowest, best or most favorable rate
of interest which Lender may charge on loans to its customers). "Prime Rate"
shall mean the rate announced from time to time by Lender as its prime rate.
Each change in the rate to be charged on this Note will become effective
without notice on the same day as the Index changes. Except as otherwise
provided herein, the unpaid principal balance of this Note will accrue
interest at a rate per annum which will from time to time be equal to the sum
of the Index, plus 0.500%. NOTICE: Under no circumstances will the Interest
rate on this Note be more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without fee all or a portion of the principal
amount owed hereunder earlier than It is due. All prepayments shall be
applied to the indebtedness owing hereunder In such order and manner as
Lender may from time to time determine In its sole discretion.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $26.00, whichever is greater, up
to the maximum amount of $260.00 per late charge.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment of principal or interest when due under
this Note or any other indebtedness owing now or hereafter by Borrower to
Lender; (b) failure of Borrower or any other party to comply with or perform
any term, obligation, covenant or condition contained in this Note or in any
other promissory note, credit agreement, loan agreement, guaranty, security
agreement, mortgage, deed of trust or any other instrument, agreement or
document, whether now or hereafter existing, executed in connection with this
Note (the Note and all such other instruments, agreements, and documents
shall be collectively known herein as the "Related Documents"); (c) Any
representation or statement made or furnished to Lender herein, in any of the
Related Documents or in connection with any of the foregoing is false or
misleading in any material respect; (d) Borrower or any other party liable
for the payment of this Note, whether as maker, endorser, guarantor, surety
or otherwise, becomes insolvent or bankrupt, has a receiver or trustee
appointed for any part
<PAGE> 2
of its property, makes an assignment for the benefit of its creditors, or any
proceeding is commenced either by any such party or against it under any
bankruptcy or Insolvency laws; (a) the occurrence of any event of default
specified in any of the other Related Documents or in any other agreement now
or hereafter arising between Borrower and Lender; (f) the occurrence of any
event which permits the acceleration of the maturity of any indebtedness
owing now or hereafter by Borrower to any third party; or (g) the
liquidation, termination, dissolution, death or legal incapacity of Borrower
or any other party liable for the payment of this Note, whether as maker,
endorser, guarantor, surety, or otherwise.
LENDER'S RIGHTS. Upon default, Lender may at its option, without further
notice or demand (i) declare the entire unpaid principal balance on this Note
and all accrued unpaid interest immediately due, (II) refuse to advance any
additional amounts under this Note, (iii) foreclose all liens securing
payment hereof. (iv) pursue any other rights, remedies and recourses
available to the Lender, including without limitation, any such rights,
remedies or recourses under the Related Documents, at law or in equity, or
(v) pursue any combination of the foregoing. Upon default resulting from the
bankruptcy or Insolvency of the Borrower as described in clause (a) above
under the heading "DEFAULTS", the unpaid principal balance of this Note and
all accrued but unpaid Interest thereon shall automatically become due and
payable immediately and shall not be subject to the discretion of Lender.
Upon default, including failure to pay upon final maturity, Lender, at its
option, may also do one or both of the following: (a) increase the variable
interest rate on this Note to 3.500 percentage points over the Index, and (b)
add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (including any
Increased rate). The Interest rate will not exceed the maximum rate
permitted by applicable law. Lender may hire an attorney to help collect
this Note if Borrower does not pay and Borrower will pay Lender's reasonable
attorneys' fees and all other costs of collection, unless prohibited by
applicable law. This Note will be repaid under all circumstances without
relief from any Indiana or other valuation and appraisement laws. This Note
has been delivered to Lender and accepted by Lender in the State of Indiana.
Subject to the provisions on arbitration, this Note shall be governed by and
construed in accordance with the laws of the State of Indiana without regard
to any conflict of laws or provisions thereof.
JURY WAIVER. THE BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR IN
ANY WAY RELATED TO THIS NOTE OR THE OTHER RELATED DOCUMENTS. THIS PROVISION
IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THIS
NOTE.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys, delivers,
pledges, and transfers to Lender all Borrower's right, title and interest in
and to, Borrower's accounts with Lender (whether checking, savings, or any
other account), including without limitation all accounts held jointly with
someone else and all accounts Borrower may open in the future. Borrower
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all sums owing on this Note against any and all such accounts.
LINE OF CREDIT. This Note evidences a non-revolving line of credit. Once an
amount equal to the Total Principal Amount has been advanced hereunder,
Borrower is not entitled to further advances under this Note. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person.
Lender may, but need not, require that all oral requests be confirmed in
writing. Borrower agrees to be liable for all sums either (a) advanced in
accordance with the instructions of an authorized person or (b) credited to
any of Borrower's accounts with Lender.
ARBITRATION. Lender and Borrower agree that upon the written demand of
either party, whether made before or after the institution of any legal
proceedings, but prior to the rendering of any judgment in that proceeding,
all disputes, claims and controversies between them, whether individual,
joint, or class in nature, arising from this Note, any Related Document or
otherwise, including without limitation contract disputes and tort claims,
shall be arbitrated pursuant to the Commercial Rules of the American
Arbitration Association. Any arbitration proceeding held pursuant to this
arbitration provision shall be conducted in the city nearest the Borrower's
address having an AAA regional office, or at any other place selected by
mutual agreement of the parties. No act to take or dispose of any collateral
shall constitute a waiver of this arbitration agreement or be prohibited by
this arbitration agreement. This arbitration provision shall not limit the
right of either party during any dispute, claim or controversy to seek, use,
and employ ancillary, provisional or preliminary rights and/or remedies,
judicial or otherwise, for the purposes of realizing upon, preserving,
protecting, foreclosing upon or proceeding under forcible entry and detainer
for possession of, any real or personal property, and any such action shall
not be deemed an election of remedies. This Includes, without limitation,
obtaining injunctive relief or a temporary restraining order, Invoking a
power of sale under any deed of trust or mortgage, obtaining a writ of
attachment or Imposition of a receivership, or exercising any rights relating
to personal property, including taking or disposing of such property with or
without judicial process pursuant to Article 9 of the Uniform Commercial
Code. Any disputes, claims, or controversies concerning the lawfulness or
reasonableness of any act, or exercise of any right or remedy, concerning any
collateral, including any claim to rescind, reform, or otherwise modify any
agreement relating to the collateral, shall also be arbitrated; provided
however that no arbitrator shall have the right or the power to enjoin or
restrain any act of either party. Judgment upon any award rendered by any
arbitrator may be entered In any court having jurisdiction. Nothing in this
arbitration provision shall preclude either party from seeking equitable
relief from a court of competent jurisdiction. The statute of limitations,
estoppel, waiver, laches and similar doctrines which would otherwise be
applicable In an action brought by a party shall be applicable in any
arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purpose. The
Federal Arbitration Act (Title 9 of the United States Code) shall apply to
the construction, interpretation, and enforcement of this arbitration
provision.
<PAGE> 3
REQUIREMENTS FOR ADVANCES. Commencing on the date of this Note and
concluding on November 30, 1997 (the "Draw Period"), Borrower may request
advances under this Note ("Advances") from time to time. Advances shall be
subject to the following conditions; (i) Advances are only permitted during
the Draw Period; (ii) the aggregate of all Advances may not exceed the Total
Principal Amount; (iii) Borrower must request an Advance at least one banking
day before the Advance is to be made; and (iv) Borrower's right to obtain
Advances shall terminate on the last business day of the Draw Period.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive. presentment, demand for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly stated
in writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this Note, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this Note without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
BORROWER:
UNIFIED HOLDINGS, INC.
By: /s/ Lynn E. Wood
LYNN E. WOOD, PRESIDENT & CEO
<PAGE> 1
Exhibit 21.1
<TABLE>
LIST OF SUBSIDIARIES
<CAPTION>
Corporation State
----------- -----
<S> <C>
Unified Management Corporation Indiana
Unified Advisers, Inc. Indiana
HFI Acquisition Corporation Kentucky
FLTC Acquisition Corporation Kentucky
VAI Acquisition Corporation Delaware
Health Financial, Inc. Kentucky
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AND THE CONSOLIDATED
STATEMENTS OF OPERATION OF UNIFIED HOLDINGS, INC. FILED AS A PART OF
THE COMPANY'S REGISTRATION STATEMENT ON FORM 10-SB AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH REGISTRATION STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 423,986
<SECURITIES> 156,621
<RECEIVABLES> 759,574
<ALLOWANCES> 2,041
<INVENTORY> 0
<CURRENT-ASSETS> 1,465,858
<PP&E> 1,411,404
<DEPRECIATION> 737,403
<TOTAL-ASSETS> 2,336,260
<CURRENT-LIABILITIES> 1,016,286
<BONDS> 0
<COMMON> 4,827
0
17,069
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,336,260
<SALES> 0
<TOTAL-REVENUES> 6,032,933
<CGS> 1,433,051
<TOTAL-COSTS> 1,433,051
<OTHER-EXPENSES> 4,351,236
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,429
<INCOME-PRETAX> 274,974
<INCOME-TAX> 0
<INCOME-CONTINUING> 274,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 274,974
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.15
</TABLE>
