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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
SCHEDULE 13E-3
RULE 13-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
(NAME OF ISSUER)
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
FIRST COMMAND FINANCIAL CORPORATION
LAMAR C. SMITH
JAMES N. LANIER
HOWARD M. CRUMP
HAL N. CRAIG
DONALDSON D. FRIZZELL
JERRY D. GRAY
DAVID P. THORESON
CARROLL H. PAYNE II
NAOMI K. PAYNE
(NAME OF PERSON(S) FILING STATEMENT)
CLASS B NONVOTING COMMON STOCK, $0.02 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
NOT APPLICABLE
(CUSIP NUMBER OF CLASS OF SECURITIES)
LAMAR C. SMITH
CHAIRMAN OF THE BOARD
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
4100 SOUTH HULEN STREET
FORT WORTH, TEXAS 76109
(817) 731-8621
WITH A COPY TO:
ROBERT F. WATSON BRIAN D. BARNARD
CORPORATE COUNSEL HAYNES AND BOONE, LLP
INDEPENDENT RESEARCH AGENCY 201 Main Street
FOR LIFE INSURANCE, INC. Suite 2200
4100 South Hulen Street Fort Worth, Texas 76102
Fort Worth, Texas 76109 (817) 347-6600
(817) 731-8621
(NAME, ADDRESSES AND TELEPHONE NUMBERS OF PERSONS AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(s) FILING STATEMENT)
This statement is filed in connection with (check the appropriate box):
a. /X/ The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. / / The filing of a registration statement under the Securities Act of
1933.
c. / / A tender offer.
d. / / None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: /X/
CALCULATION OF FILING FEE
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TRANSACTION VALUATION AMOUNT OF FILING FEE
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$26,756,929.92 (1) $5,351.38 (1)
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(1) The filing fee is calculated pursuant to Section 13(e)(3) of the Securities
Exchange Act of 1934.
/X/ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $5,351.38.
Form or Registration No.: Schedule 14A.
Filing Party: Independent Research Agency for Life Insurance, Inc.
Date Filed: July 6, 1998.
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INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 is being filed
by Independent Research Agency for Life Insurance, Inc., a Texas corporation
(the "Company"), First Command Financial Corporation, a Texas corporation
("First Command"), Lamar C. Smith, James N. Lanier, Howard M. Crump, Hal N.
Craig, Donaldson D. Frizzell, Jerry D. Gray, David P. Thoreson, Carroll H.
Payne II, Naomi K. Payne (such individuals collectively referred to as the
"Management Group") in connection with the proposed merger (the "Merger") of
the Company with and into First Command pursuant to an Agreement and Plan of
Merger, dated as of July 1, 1998, (the "Merger Agreement"), by and between
the Company and First Command.
The Merger Agreement provides for the merger of the Company with and into
First Command, with First Command being the surviving corporation (the
"Surviving Corporation"). Upon the terms and conditions set forth in the Merger
Agreement, upon the Effective Time(as defined in the Proxy Statement), each
share of Class A Voting Common Stock, par value $0.10 per share ("Class A
Stock"), of the Company issued and outstanding immediately prior to the
Effective Time (as defined below) (other than shares of Class A Stock held in
treasury by the Company), subject to and upon the terms and conditions of the
Merger Agreement, will be converted into five shares of Voting Common Stock, par
value $0.01 per share ("Surviving Corporation Voting Stock"), of the Surviving
Corporation (the "Class A Consideration"). Further, (i) each share of Class B
Non-Voting Common Stock, par value $0.02 per share ("Class B Stock"), held by a
holder of Class B Stock (a "Class B Shareholder") that is not a holder of Class
A Stock, issued and outstanding immediately prior to the Effective Time, subject
to and upon the terms and conditions of the Merger Agreement, will be converted
into the right to receive $28.24 in cash, without interest (the "Class B Cash
Consideration"), and (ii) each share of Class B Stock held by a Class B
Shareholder that is also a holder of Class A Stock (a "Class A/B Shareholder"),
issued and outstanding immediately prior to the Effective Time, subject to and
upon the terms and conditions of the Merger Agreement, will be converted into
one share of Nonvoting Common Stock, par value $0.01 per share ("Surviving
Corporation Nonvoting Stock"), of the Surviving Corporation (the "Class B
Nonvoting Stock Consideration," and, together with the Class B Cash
Consideration, the "Class B Consideration"); provided, however that each Class
A/B Shareholder can elect to receive in lieu of receiving the Class B Nonvoting
Stock Consideration the Class B Cash Consideration for all shares of Class B
Stock held thereby immediately prior to the Effective Time. Each holder of
Common Stock, $0.10 par value per share, of First Command ("First Command Common
Stock"), issued and outstanding immediately prior to the Effective Time, subject
to and upon the terms and conditions of the Merger Agreement, will receive one
share of Surviving Corporation Nonvoting Stock for each 25 shares of First
Command Common Stock held by such shareholder.
This Schedule 13E-3 is being filed with the Securities and Exchange
Commission concurrently with the Preliminary Proxy Statement relating to the
solicitation of proxies for the Special Meeting of Shareholders of IRA. A copy
of the Proxy Statement is attached hereto as Exhibit (d). The following
cross reference sheet is being supplied pursuant to General Instruction F to
Schedule 13E-3 and shows the location in the Proxy Statement of the information
required to be included in this Schedule 13E-3. The information contained in
the Proxy Statement, including all the annexes thereto, is expressly
incorporated herein by reference and the responses to each item are qualified in
their entirety by reference to the information contained in the Proxy Statement
and the annexes thereto. Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to such terms in the Proxy
Statement.
<TABLE>
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ITEM NUMBER AND
CAPTION IN SCHEDULE 13e-3 LOCATION IN THE PROXY STATEMENT
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1. ISSUER AND CLASS OF
SECURITY SUBJECT TO THE
TRANSACTION
(a)........................ "SUMMARY OF PROXY STATEMENT" and "CERTAIN
INFORMATION CONCERNING IRA."
(b)........................ "SUMMARY OF PROXY STATEMENT" and "THE
SPECIAL MEETING--Record Date."
(c)........................ "SUMMARY OF PROXY STATEMENT" and "MARKET
PRICE DATA, DISTRIBUTIONS AND SECURITY
OWNERSHIP OF IRA COMMON STOCK."
2
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(d)........................ "MARKET PRICE DATA, DISTRIBUTIONS AND
SECURITY OWNERSHIP OF IRA COMMON
STOCK--Distribution History" and "SPECIAL
FACTORS--Certain Effects of the Merger;
Plans for the Company after the Merger."
(e)........................ Not Applicable.
(f)........................ "SPECIAL FACTORS--Certain Transactions in
IRA Common Stock."
2. IDENTITY AND BACKGROUND.... "SUMMARY OF PROXY STATEMENT," "CERTAIN
INFORMATION CONCERNING IRA," "CERTAIN
INFORMATION CONCERNING FIRST COMMAND" and
"CERTAIN INFORMATION CONCERNING THE
MANAGEMENT GROUP."
3. PAST CONTACTS, TRANSACTIONS
OR NEGOTIATIONS
(a) and (b)................ "CERTAIN INFORMATION CONCERNING IRA,"
"CERTAIN INFORMATION CONCERNING FIRST
COMMAND," "CERTAIN INFORMATION CONCERNING
THE MANAGEMENT GROUP" "SPECIAL FACTORS--
Background of the Merger," "SPECIAL FACTORS--
Interests of Certain Persons in the Merger" and
"THE PROPOSED MERGER."
4. TERMS OF THE TRANSACTION
(a)........................ "SUMMARY OF PROXY STATEMENT," "SPECIAL
FACTORS" and "THE PROPOSED MERGER."
(b)........................ "SUMMARY OF THE PROXY STATEMENT," "SPECIAL
FACTORS--Background of the Merger" and "THE
PROPOSED MERGER--Conversion of Shares."
5. PLANS OR PROPOSALS OF THE
ISSUER OR AFFILIATE
(a) - (g).................. "CERTAIN INFORMATION CONCERNING
IRA--Directors and Executive Officers of
IRA," "SPECIAL FACTORS--Background of the
Merger," "SPECIAL FACTORS--Purpose and
Structure of the Merger," "SPECIAL
FACTORS--Certain Effects of the Merger;
Plans for the Company after the Merger,"
"MARKET PRICE DATA, DISTRIBUTIONS AND
SECURITY OWNERSHIP OF IRA COMMON STOCK" and
"MARKET PRICE DATA, DISTRIBUTIONS AND
SECURITY OWNERSHIP OF FIRST COMMAND COMMON
STOCK."
6. SOURCE AND AMOUNTS OF FUNDS
OR OTHER CONSIDERATION
(a) - (c).................. "SPECIAL FACTORS--Source and Amount of
Funds" and "THE PROPOSED MERGER--The Merger
Agreement--Expenses."
(d)........................ Not Applicable.
3
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7. PURPOSE(S), ALTERNATIVES,
REASONS AND EFFECTS
(a) - (d).................. "SPECIAL FACTORS--Background of the Merger,"
"SPECIAL FACTORS--Purpose and Structure of
the Merger," "SPECIAL FACTORS--Interests of
Certain Persons in the Merger," "SPECIAL
FACTORS--Recommendation of the IRA
Board and the Special Committee; Fairness of
the Merger," "SPECIAL FACTORS--Position of
the Management Group and First Command as to
the Fairness of the Merger," "SPECIAL
FACTORS--Opinion of the Financial Advisor,"
"SPECIAL FACTORS--Certain Effects of the
Merger; Plans for the Company after the
Merger," "SPECIAL FACTORS--Certain Federal
Income Tax Considerations," "SPECIAL
FACTORS--Accounting Treatment" and "THE
PROPOSED MERGER--Conversion of Shares."
8. FAIRNESS OF THE TRANSACTION
(a) - (e).................. "THE SPECIAL MEETING--Votes Required; Voting
Rights," "SPECIAL FACTORS--Background of the
Merger," "SPECIAL FACTORS--Purpose and
Structure of the Merger," "SPECIAL
FACTORS--Certain Effects of the Merger;
Plans for the Company after the Merger,"
"SPECIAL FACTORS--Recommendation of the IRA
Board and the Special Committee; Fairness
of the Merger," "SPECIAL FACTORS--Position of
the Management Group and First Command as to
the Fairness of the Merger," "SPECIAL
FACTORS--Opinion of the Financial Advisor"
and Annex B to the Proxy Statement.
(f)........................ Not Applicable.
9. REPORTS, OPINIONS,
APPRAISALS AND CERTAIN
NEGOTIATIONS
(a) - (c).................. "SPECIAL FACTORS--Background of the Merger,"
"SPECIAL FACTORS--Recommendation of the IRA
Board and the Special Committee; Fairness
of the Merger," "SPECIAL FACTORS--Position of
the Management Group and First Command as to
the Fairness of the Merger," "SPECIAL
FACTORS--Opinion of the Financial Advisor,"
"SPECIAL FACTORS--Certain Federal Income Tax
Considerations," Annex B to the Proxy
Statement and Annex F to the Proxy
Statement.
10. INTEREST IN SECURITIES OF
THE ISSUER
(a) and (b)................ "MARKET PRICE DATA, DISTRIBUTIONS AND
SECURITY OWNERSHIP OF IRA COMMON STOCK" and
"SPECIAL FACTORS--Certain Transactions in
IRA Common Stock."
11. CONTRACTS, ARRANGEMENTS OR "SUMMARY OF PROXY STATEMENT," "SPECIAL
UNDERSTANDINGS WITH RESPECT FACTORS--Background of the Merger," "SPECIAL
TO THE ISSUER'S SECURITIES FACTORS--Contracts with Respect to Surviving
Corporation Common Stock," "THE PROPOSED
MERGER--Conversion of Shares," "THE PROPOSED
MERGER--The Merger Agreement--Conditions to
the Merger" and "THE SPECIAL MEETING--Votes
Required; Voting Rights."
4
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12. PRESENT INTENTION AND
RECOMMENDATION OF CERTAIN
PERSONS WITH REGARD TO THE
TRANSACTION
(a) and (b)................ "SUMMARY OF PROXY STATEMENT," "SPECIAL
FACTORS--Interests of Certain Persons in the
Merger" and "THE SPECIAL MEETING--Votes
Required; Voting Rights."
13. OTHER PROVISIONS OF THE
TRANSACTION
(a)........................ "SUMMARY OF PROXY STATEMENT," "THE SPECIAL
MEETING--Dissenters' Rights" and "THE
PROPOSED MERGER--Rights of Dissenting
Shareholders."
(b)........................ Not Applicable.
(c)........................ Not Applicable.
14. FINANCIAL INFORMATION
(a)........................ "SELECTED FINANCIAL DATA OF IRA" and Annex
D to the Proxy Statement.
(b)........................ "SUMMARY PRO FORMA DATA"and "PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF IRA."
15. PERSONS AND ASSETS
EMPLOYED, RETAINED OR
UTILIZED
(a) and (b)................ "SPECIAL FACTORS--Interests of Certain
Persons in the Merger," "THE PROPOSED
MERGER--The Merger Agreement--Employee
Benefits," "THE PROPOSED MERGER--The Merger
Agreement--Expenses," "SPECIAL
FACTORS--Opinion of the Financial Advisor"
and "THE SPECIAL MEETING--Solicitation of
Proxies."
16. ADDITIONAL INFORMATION..... Additional information concerning the Merger
is set forth in the Preliminary Proxy
Statement attached hereto as Exhibit (d),
which information is incorporated herein by
reference in its entirety.
17. MATERIAL TO BE FILED AS Separately included herewith.
EXHIBITS ..................
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a) The information set forth in "SUMMARY OF PROXY STATEMENT" and
"CERTAIN INFORMATION CONCERNING IRA" in the Proxy Statement is hereby
incorporated herein by reference.
(b) The information set forth in "SUMMARY OF PROXY STATEMENT" and
"THE SPECIAL MEETING--Record Date" in the Proxy Statement is hereby incorporated
herein by reference.
5
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(c) The information set forth in "SUMMARY OF PROXY STATEMENT" and
"MARKET PRICE DATA, DISTRIBUTIONS AND SECURITY OWNERSHIP OF IRA COMMON STOCK" in
the Proxy Statement is hereby incorporated herein by reference.
(d) The information set forth in "MARKET PRICE DATA, DISTRIBUTIONS
AND SECURITY OWNERSHIP OF IRA COMMON STOCK--Distribution History" and "SPECIAL
FACTORS--Certain Effects of the Merger; Plans for the Company after the Merger"
in the Proxy Statement is hereby incorporated herein by reference.
(e) Not Applicable.
(f) The information set forth in "SPECIAL FACTORS--Certain
Transactions in IRA Common Stock" in the Proxy Statement is hereby incorporated
herein by reference.
ITEM 2. IDENTITY AND BACKGROUND
(a) - (d) and (g) This Statement is being filed by the Company and
First Command and the Management Group as affiliates of the Company. The
Company is the issuer of the Class B Stock which is the subject of the Rule
13e-3 transaction. The information set forth in "SUMMARY OF PROXY
STATEMENT," "CERTAIN INFORMATION CONCERNING IRA," "CERTAIN INFORMATION
CONCERNING FIRST COMMAND" and "CERTAIN INFORMATION CONCERNING THE MANAGEMENT
GROUP" in the Proxy Statement is hereby incorporated herein by reference.
(e) - (f) During the last five years, none of the Company, First
Command, the executive officers and directors of the Company and First Command
or the Management Group has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) nor has any of the Company, First
Command, the executive officers and directors of the Company and First
Command or the Management Group been party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order
enjoining further violations of, or prohibiting activities, subject to,
federal or state securities laws or finding any violations of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) and (b) The information set forth in "CERTAIN INFORMATION
CONCERNING IRA," "CERTAIN INFORMATION CONCERNING FIRST COMMAND," "CERTAIN
INFORMATION CONCERNING THE MANAGEMENT GROUP," "SPECIAL FACTORS--Background of
the Merger," "SPECIAL FACTORS--Interests of Certain Persons in the Merger"
and "THE PROPOSED MERGER" in the Proxy Statement is hereby incorporated
herein by reference.
ITEM 4. TERMS OF THE TRANSACTION
(a) The information set forth in "SUMMARY OF PROXY STATEMENT,"
"SPECIAL FACTORS" and "THE PROPOSED MERGER" in the Proxy Statement is hereby
incorporated herein by reference.
(b) The information set forth in "SUMMARY OF PROXY STATEMENT,"
"SPECIAL FACTORS--Background of the Merger" and "THE PROPOSED MERGER--Conversion
of Shares" in the Proxy Statement is hereby incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
(a) - (g) The information set forth in "CERTAIN INFORMATION CONCERNING
IRA--Directors and Executive Officers of IRA," "SPECIAL FACTORS--Background of
the Merger," "SPECIAL FACTORS--Purpose and Structure of the Merger," "SPECIAL
FACTORS--Certain Effects of the Merger; Plans for the Company after the Merger,"
"MARKET PRICE DATA, DISTRIBUTIONS AND SECURITY OWNERSHIP OF IRA COMMON STOCK"
and "MARKET PRICE DATA, DISTRIBUTIONS AND SECURITY OWNERSHIP OF FIRST COMMAND
COMMON STOCK" in the Proxy Statement is hereby incorporated herein by reference.
6
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ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a) - (c) The information set forth in "SPECIAL FACTORS--Source and
Amount of Funds" and "THE PROPOSED MERGER--The Merger Agreement--Expenses" in
the Proxy Statement is hereby incorporated herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(s), ALTERNATIVES, REASONS AND EFFECTS.
(a) - (d) The information set forth in "SPECIAL FACTORS--Background of
the Merger," "SPECIAL FACTORS--Purpose and Structure of the Merger," "SPECIAL
FACTORS--Interests of Certain Persons in the Merger," "SPECIAL
FACTORS--Recommendation of the IRA Board and the Special Committee; Fairness
of the Merger," "SPECIAL FACTORS--Position of the Management Group and First
Command as to the Fairness of the Merger," "SPECIAL FACTORS--Opinion of the
Financial Advisor," "SPECIAL FACTORS--Certain Effects of the Merger; Plans
for the Company after the Merger," "SPECIAL FACTORS--Certain Federal Income
Tax Considerations," "SPECIAL FACTORS--Accounting Treatment" and "THE
PROPOSED MERGER--Conversion of Shares" in the Proxy Statement is hereby
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) - (e) The information set forth in "THE SPECIAL MEETING--Votes
Required; Voting Rights," "SPECIAL FACTORS--Background of the Merger,"
"SPECIAL FACTORS--Purpose and Structure of the Merger," "SPECIAL
FACTORS--Certain Effects of the Merger; Plans for the Company after the
Merger," "SPECIAL FACTORS--Recommendation of the IRA Board and the Special
Committee; Fairness of the Merger," "SPECIAL FACTORS--Position of the
Management Group and First Command as to the Fairness of the Merger,"
"SPECIAL FACTORS--Opinion of the Financial Advisor" in the Proxy Statement
and Annex B to the Proxy Statement is hereby incorporated by reference.
(f) Not Applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) - (c) The information set forth in "SPECIAL FACTORS--Background of
the Merger," "SPECIAL FACTORS--Recommendation of the IRA Board and the
Special Committee; Fairness of the Merger," "SPECIAL FACTORS--Position of the
Management Group and First Command as to the Fairness of the Merger,"
"SPECIAL FACTORS--Opinion of the Financial Advisor" and "SPECIAL
FACTORS--Certain Federal Income Tax Considerations" in the Proxy Statement
and in Annex B and Annex F to the Proxy Statement is hereby incorporated
herein by reference.
A copy of the Financial Advisor Opinion is attached as Annex B to the
Proxy Statement, and a copy of the Tax Opinion of Ernst & Young LLP is
attached as Annex F to the Proxy Statement.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) and (b) "MARKET PRICE DATA, DISTRIBUTIONS AND SECURITY OWNERSHIP OF
IRA COMMON STOCK" and "SPECIAL FACTORS--Certain Transactions in IRA Common
Stock" in the Proxy Statement is hereby incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth in "SUMMARY OF PROXY STATEMENT," "SPECIAL
FACTORS--Background of the Merger," "SPECIAL FACTORS--Contracts with Respect to
Surviving Corporation Common Stock," "THE PROPOSED MERGER--Conversion of
Shares," "THE PROPOSED MERGER--The Merger Agreement--Conditions to the Merger"
and "THE SPECIAL MEETING--Votes Required; Voting Rights" in the Proxy Statement
is hereby incorporated herein by reference.
7
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ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION.
(a) and (b) The information set forth "SUMMARY OF PROXY STATEMENT,"
"SPECIAL FACTORS--Interests of Certain Persons in the Merger" and "THE SPECIAL
MEETING--Votes Required; Voting Rights" in the Proxy Statement is hereby
incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "SUMMARY OF PROXY STATEMENT," "THE
SPECIAL MEETING--Dissenters' Rights" and "THE PROPOSED MERGER--Rights of
Dissenting Shareholders" in the Proxy Statement is hereby incorporated by
reference.
(b) Not Applicable.
(c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "SELECTED FINANCIAL DATA OF IRA"
in the Proxy Statement and in Annex D to the Proxy Statement is hereby
incorporated herein by reference.
(b) The information set forth in "SUMMARY PRO FORMA DATA" and "PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF IRA" in the Proxy Statement
is hereby incorporated herein by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) and (b) The information set forth in "SPECIAL FACTORS--Interests of
Certain Persons in the Merger," "THE PROPOSED MERGER--The Merger
Agreement--Employee Benefits," "THE PROPOSED MERGER--The Merger
Agreement--Expenses," "SPECIAL FACTORS--Opinion of the Financial Advisor" and
"THE SPECIAL MEETING--Solicitation of Proxies" in the Proxy Statement is hereby
incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
Additional information concerning the Merger is set forth in the
Preliminary Proxy Statement attached hereto as Exhibit (d), which information is
incorporated herein by reference in its entirety.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Commitment Letter of Norwest Bank Texas N.A. filed as Exhibit
99(a) to the Schedule 13E-3 filed on July 6, 1998, and incorporated by
reference herein.
(b)(1) Opinion of PricewaterhouseCoopers LLP (the "IRA Financial
Advisor"), financial advisor to the Special Committee of the Board of Directors
of IRA included as Annex B in the Proxy Statement is hereby incorporated by
reference.
(b)(2) Discussion materials prepared by the IRA Financial Advisor for
the Board of Directors of IRA filed as Exhibit 99(b)(2) to the Schedule 13E-3
filed on July 6, 1998, and incorporated by reference herein.
(b)(3) Tax Opinion of Ernst & Young LLP included as Annex F to the
Proxy Statement is hereby incorporated by reference.
(b)(4) Report prepared by Ernst & Young LLP for the Company.
(c)(1) Agreement and Plan of Merger, dated as of July 1, 1998, between
Independent Research Agency for Life Insurance, Inc. and First Command Financial
Corporation, included as Annex A in the Proxy Statement is hereby incorporated
by reference.
8
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(c)(2) Form of Shareholders' Agreement to be entered into among
Surviving Corporation Shareholders and Surviving Corporation filed as Exhibit
99(c)(2) to the Schedule 13E-3 filed on July 6, 1998, and incorporated by
reference herein.
(c)(3) Form of Articles of Incorporation of the Surviving Corporation,
as proposed to be amended, included as Annex E to the Proxy Statement is hereby
incorporated by reference.
(c)(4) Form of Bylaws of the Surviving Corporation, as proposed to be
amended, included as Annex E to the Proxy Statement is hereby incorporated by
reference.
(d) Preliminary copy of Letter to Shareholders, Notice of Special
Meeting of Shareholders, Proxy Statement, Form of Proxy and Form of Election,
dated ___________, 1998, for the Special Meeting of Shareholders to be held
on ____________, 1998 is hereby incorporated by reference.
(e) Articles 5.11 through 5.13 from the Texas Business Corporation
Act Relating to Rights of Dissenting Shareholders included as Annex C in the
Proxy Statement is hereby incorporated by reference.
(f) None.
99.1 Ground Lease, dated June 1, 1998, by and between Independent
Research Agency for Life Insurance, Inc. and First Command Financial
Corporation.
99.2 Memorandum of Ground Lease, dated June 1, 1998, by and
between Independent Research Agency for Life Insurance, Inc. and First
Command Financial Corporation.
99.3 Lease Agreement, dated June 1, 1998, by and between
Independent Research Agency for Life Insurance, Inc. and First Command
Financial Corporation.
99.4 Management Agreement, dated June 1, 1998 by and between
Independent Research Agency for Life Insurance, Inc. and First Command
Financial Corporation.
99.5 Administration Agreement, dated June 1, 1998 by and between
Independent Research Agency for Life Insurance, Inc. and First Command
Financial Corporation.
99.6 Line of Credit Agreement, dated June 1, 1998, by and between
First Command Financial Corporation and Independent Research Agency for Life
Insurance, Inc.
99.7 Promissory Note, dated June 1, 1998, by and between First
Command Financial Corporation and Independent Research Agency for Life
Insurance, Inc.
99.8 Deed of Trust, Security Agreement and Assignment of Rents and
Leases, dated June 1, 1998, by and between First Command Financial
Corporation and Independent Research Agency for Life Insurance, Inc.
99.9 Uniform Commercial Code - Financing Statement, by and between
First Command Financial Corporation and Independent Research Agency for Life
Insurance, Inc.
9
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date: August 25, 1998 INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE,
INC.
By: /s/ Lamar C. Smith
--------------------------------------------
Name: Lamar C. Smith
--------------------------------------------
Title: Chairman of the Board/C.E.O.
--------------------------------------------
FIRST COMMAND FINANCIAL CORPORATION
By: /s/ James N. Lanier
--------------------------------------------
Name: James N. Lanier
--------------------------------------------
Title: President
--------------------------------------------
/s/ Lamar C. Smith
--------------------------------------------
Lamar C. Smith
/s/ James N. Lanier
--------------------------------------------
James N. Lanier
/s/ Howard M. Crump
--------------------------------------------
Howard M. Crump
/s/ Hal N. Craig
--------------------------------------------
Hal N. Craig
/s/ Donaldson D. Frizzell
--------------------------------------------
Donaldson D. Frizzell
/s/ Jerry D. Gray
--------------------------------------------
Jerry D. Gray
/s/ David P. Thoreson
--------------------------------------------
David P. Thoreson
/s/ Carroll H. Payne II
--------------------------------------------
Carroll H. Payne II
/s/ Naomi K. Payne
--------------------------------------------
Naomi K. Payne
10
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT NAME
- ------- ------------
99(a) Commitment Letter of Norwest Bank Texas N.A filed as Exhibit
99(a) to the Schedule 13E-3 filed on July 6, 1998 and
incorporated by reference herein.
99(b)(1) Opinion of the IRA Financial Advisor, included as Annex B in
the Proxy Statement is hereby incorporated by reference.
99(b)(2) Discussion materials prepared by the IRA Financial Advisor for
the Board of Directors of IRA filed as Exhibit 99(b)(2) to
the Schedule 13E-3 filed on July 6, 1998 and incorporated
by reference herein.
99(b)(3) Tax Opinion of Ernst & Young LLP included as Annex F to the
Proxy Statement is hereby incorporated by reference.
99(b)(4) Report prepared by Ernst & Young LLP for the Company.
99(c)(1) Agreement and Plan of Merger, dated as of July 1, 1998, between
Independent Research Agency for Life Insurance, Inc. and First
Command Financial Corporation, included as Annex A in the Proxy
Statement is hereby incorporated by reference.
99(c)(2) Form of Shareholders' Agreement to be entered into among
Surviving Corporation Shareholders and Surviving Corporation
filed as Exhibit 99(c)(2) to the Schedule 13E-3 filed on July 6,
1998, and incorporated by reference herein.
99(c)(3) Form of Articles of Incorporation of the Surviving Corporation,
as proposed to be amended, included as Annex E to the Proxy
Statement is hereby incorporated by reference.
99(c)(4) Form of Bylaws of the Surviving Corporation, as proposed to be
amended, included as Annex E to the Proxy Statement is hereby
incorporated by reference.
99(d) Preliminary copy of Letter to Shareholders, Notice of Special
Meeting of Shareholders, Proxy Statement, Form of Proxy and
Form of Election, dated ___________, 1998, for the Special
Meeting of Shareholders to be held on ____________, 1998 is
hereby incorporated by reference.
99(e) Articles 5.11 through 5.13 from the Texas Business Corporation
Act Relating to Rights of Dissenting Shareholders included as
Annex C in the Proxy Statement is hereby incorporated by
reference.
99(f) None.
99.1 Ground Lease, dated June 1, 1998, by and between Independent
Research Agency for Life Insurance, Inc. and First Command
Financial Corporation.
99.2 Memorandum of Ground Lease, dated June 1, 1998, by and
between Independent Research Agency for Life Insurance, Inc.
and First Command Financial Corporation.
99.3 Lease Agreement, dated June 1, 1998, by and between
Independent Research Agency for Life Insurance, Inc. and
First Command Financial Corporation.
99.4 Management Agreement, dated June 1, 1998, by and between
Independent Research Agency for Life Insurance, Inc. and
First Command Financial Corporation.
99.5 Administration Agreement, dated June 1, 1998, by and between
Independent Research Agency for Life Insurance, Inc. and
First Command Financial Corporation.
99.6 Line of Credit Agreement, dated June 1, 1998, by and between
First Command Financial Corporation and Independent Research
Agency for Life Insurance, Inc.
99.7 Promissory Note, dated June 1, 1998, by and between First
Command Financial Corporation and Independent Research Agency
for Life Insurance, Inc.
99.8 Deed of Trust, Security Agreement and Assignment of Rents and
Leases, dated June 1, 1998, by and between First Command
Financial Corporation and Independent Research Agency for
Life Insurance, Inc.
99.9 Uniform Commercial Code - Financing Statement, by and between
First Command Financial Corporation and Independent Research
Agency for Life Insurance, Inc.
<PAGE>
[ERNST & YOUNG LETTERHEAD]
March 23, 1998
Mr. Martin R. Durbin, CPA
Treasurer & Chief Financial Officer
United Services Planning Association, Inc. &
Independent Research Agency for Life Insurance, Inc.
USPA&IRA Building
4100 South Hulen Street
P.O. Box 2387
Fort Worth, Texas 76113
Dear Marty:
Pursuant to our previous discussions regarding the advantages and
disadvantages of electing S corporation status for United Services Planning
Association, Inc. & Independent Research Agency for Life Insurance, Inc.
("USPA&IRA"), we are providing you with the following comments for
consideration.
It is our understanding that USPA&IRA files a consolidated federal corporate
income tax return. The ownership structure of USPA&IRA is currently divided
into two classes of shareholders. The "A" class of stock is common stock with
voting rights and limited transferability. Approximately 14 shareholders
currently own A class stock. The "B" class of stock is non voting common
stock with limited transferability and limited growth. There are in excess of
500 shareholders currently holding B class stock. History has shown that
annually, USPA&IRA typically pays out to its shareholders, dividends to the
extent of book earnings. Because USPA&IRA is taxed as a "C" corporation, the
dividends are subject to two layers of tax, or approximately 61% of every
dollar earned is paid as income tax.
IN GENERAL
The principal advantage of the S corporation form over a C corporation form
is that the earnings of an S corporation are generally only subject to a
single level of tax. In contrast, the earnings of a C corporation are
generally taxed twice; first at the corporate level when earned, and second
at the shareholder level when distributed. An S corporation is not subject to
the corporate income tax, the alternative minimum tax, the environmental tax,
the accumulated earnings tax, or the personal holding company tax as are
those businesses which have chosen the C corporation form. Instead, an S
corporation's items of income, gain, deduction, loss and credits pass through
to its shareholders to be taken into account on their personal income tax
returns. In USPA&IRA's situation, if the S election is made, the income and
expense items will pass through to each shareholder and will be taken into
their respective income tax returns. The items will not be
<PAGE>
ERNST & YOUNG LLP
Page 2
Mr. Martin R. Durbin March 23, 1998
subject to the various taxes at the corporation level but will be subject to
tax once on each shareholders personal return. Each pass through item will
then be subject to the limitations set forth for individuals (i.e.,
charitable contributions, long-term capital gains, Section 1231 gains and
capital losses). Therefore, if USPA&IRA elects S corporation status,
generally distributions made from the corporation to the shareholders will be
tax free. For example, as a C corporation, income is taxed at 35%. If the
corporation earns $100, $35 is paid in taxes resulting in $65 dollars
remaining. If the $65 is paid as a dividend to the shareholders, assuming
each shareholder is in the 39.6% tax bracket, another $26 is paid in taxes.
At this point, the corporation earned $100, and the shareholders end up with
$39. Under an S corporation scenario, the $100 passes through to the
shareholders with the shareholders paying $39.6 in taxes. The $100 of income
earned by the S corporation can be distributed tax free to the shareholders,
thus the shareholders have $60.4 remaining as compared to the $39.
If the corporation is operating at a loss, the ability to pass through losses
also favors the S status. Losses passed through to shareholders can offset
earnings from other sources on a current basis and may offset income taxes at
a 39.6% effective tax rate (assuming that the utilization of the losses is
not limited by the basis, at-risk or passive activity loss rules). (Income
tax rate differentials are discussed below). Losses of a regular C
corporation do not pass through to its shareholders and can only be utilized
to offset prior or future earnings of the corporation for a limited period of
time. Therefore, if losses are incurred, then each of USPA&IRA's shareholders
will be allocated the losses. These losses can then be used to offset other
income earned by the shareholders like salaries, interest or capital gains
subject to the availability of their basis in the corporation and the passive
activity rules.
A disadvantage of the S corporation form can be seen in the income tax rate
differential. The differential between the top individual effective marginal
tax rates of 39.6% (federal rate) compared to the 35% marginal federal
corporate rate may favor the C corporation status. Other factors that widen
this differential are the individual's effective marginal rate may be even
higher than 39.6% as a result of the phase-out of the personal exemptions and
the limitation on itemized deductions based on the individual's adjusted
gross income. Therefore, the impact of a change to the S corporate form may
subject any income passed through to the shareholders to a higher effective
tax rate than would be applicable if the C corporate form was used. However,
the decision of whether or not to elect the S corporation form should not be
limited to the increased tax burden on the shareholders. The benefits of
distributing the accumulated earnings of the corporation tax free is in
itself a significant benefit which yields a considerable benefit to electing
the S corporate form as discussed in our previous paragraph. Additionally, with
the ability to distribute the accumulated earnings of the corporation tax
free to the shareholders, any additional taxes that are required to be paid
can be funded with these distributions.
To further illustrate the savings a dividend paying corporation such as
USPA&IRA can save, assume USPA&IRA elected S corporation status for the tax
year ended September 30, 1997. In
<PAGE>
ERNST & YOUNG LLP
Page 3
Mr. Martin R. Durbin March 23, 1998
reviewing the 1996 Form 1120 for Independent Research Agency for Life
Insurance, Inc. and Subsidiaries, taxable income was approximately
$15,000,000. The table below compares the total tax paid by USPA&IRA and
shareholders under a C corporation vs. S corporation election.
For this example, we have assumed all items of income and expense are treated
equally by taxpayers of the S corporation and C corporation and 100% of
income is dividended to shareholders. Additionally, the tax rate used for S
corporation shareholders is 39.6%.
<TABLE>
- -----------------------------------------------------------------------------
C CORPORATION S CORPORATION CASH SAVINGS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable Income $15,000,000 $15,000,000
- -----------------------------------------------------------------------------
Tax at Corporate Level $ 5,250,000 $ 0
- -----------------------------------------------------------------------------
Tax to Shareholders $ 0 $ 5,940,000
- -----------------------------------------------------------------------------
Cash at Corporate Level $ 9,750,000 $15,000,000
- -----------------------------------------------------------------------------
Dividend / Distribution to
Shareholders $ 9,750,000 $15,000,000
- -----------------------------------------------------------------------------
Tax to Shareholders on
Dividend $ 3,861,000 $ 0
- -----------------------------------------------------------------------------
Total Tax Paid $ 9,111,000 $ 5,940,000 $3,171,000
- -----------------------------------------------------------------------------
Cash to Shareholders $ 5,889,000 $ 9,060,000 $3,171,000
- -----------------------------------------------------------------------------
</TABLE>
In this example, by electing S corporation status, USPA&IRA and its
shareholders would pay 54 percent less income taxes and the shareholders
would have $3,171,000 in surplus cash.
S CORPORATION ELIGIBILITY
For USPA&IRA to elect S corporation status it must have no greater than 75
shareholders and have only one class of stock. One method to pare down to 75
shareholders would be to redeem 100% of the B class of stock in exchange for
cash or installment notes. The B class of stock could then be replaced by a
"Phantom Stock" plan which would compensate the current B shareholders as if
they were still holding the B class of stock. One advantage of using a Phantom
Stock plan rather than actual stock certificates, is that Phantom Stock does
not require a capital outlay of cash to purchase the shares. Phantom stock may
be granted to the taxpayer with participation in corporate growth through a
compensatory arrangement. A Phantom Stock plan could be established to place
the current B class of shareholders in a monetary relationship with USPA&IRA
which is equivalent to their current relationship.
BUILT-IN GAINS TAX
As discussed earlier, the election of the S corporate form will allow a
business to avoid double taxation on income and gain items earned in the
corporation. However, when a former C corporation elects S status, generally,
a tax can be imposed on the appreciation of the assets of the former C
corporation if the assets are subsequently sold be the S corporation.
Internal Revenue Code (IRC) Section 1374 imposes a 35% tax on such gains.
Subject to a number of special
<PAGE>
ERNST & YOUNG LLP
Page 4
Mr. Martin R. Durbin March 23, 1998
rules, the tax generally is imposed only on recognized gains attributable to
appreciation in the assets which arose while the corporation was a C
corporation or to income otherwise attributable to a C year. The tax
generally applies only to former C corporations which elected S after 1986,
and in general only for the first 10 years after the corporation converts to
S status. Any built-in gain, net of the corporate-level tax, flows through
and is immediately taxable to the corporation's shareholders. Therefore, a
significant benefit of an immediate election of the S status is to shelter
the future appreciation of the assets in USPA&IRA from the built-in gains
tax, since appreciation is expected. Once the election to convert to an S
corporation is made, the 10 year recognition period begins on the
appreciation of the assets from the date of conversion. Careful planning can
be used to avoid any recognition of this built in gain.
However, if USPA&IRA did pay tax on the appreciated assets, the resulting tax
effect would be equal to the tax position USPA&IRA is in today. That is, the
corporation would pay tax on the recognized built in gains and the S
corporation shareholders would pay tax on the gain passed through. As a C
corporation, USPA&IRA would pay a corporate level tax on the gains and any
dividends paid to shareholders would be subject to tax at the shareholder
level. The potential benefit as an S corporation is where USPA&IRA holds the
appreciated assets for ten years. If USPA&IRA is successful at holding the
appreciated assets for ten years, any appreciation subsequently realized would
not be subject to the corporate level tax.
Historically, USPA&IRA has not disposed of a significant amount of
appreciated assets, and it has been represented to us that there is no plan
in place to sell a significant amount in the next ten years. Currently,
USPA&IRA has approximately $30,000,000 in unrealized gains. If these
unrealized gains do not erode and these assets are held for ten years from
the date of S corporation election, USPA&IRA could reap approximately
$10,500,000 in tax savings.
EXCESS PASSIVE INCOME TAX
Another area that USPA&IRA should consider is the tax on excess passive
income. The excess passive income tax applies to S corporations having any
subchapter C earnings and profits at the close of a taxable year and where
more than 25 percent of the corporation's gross receipts consist of passive
investment income. The tax is imposed on the corporation's "excess passive
income", defined as the amount that bears the same ratio to net passive
income for the taxable year as the excess of passive investment income over
25 percent of gross receipts bears to total passive investment income for the
same year. For example, if an S corporation with subchapter C earnings and
profits has net passive income of $100, gross passive income of $200, and
gross receipts of $400, the excess net passive income is $50 ($100 *
$100/200), with a tax of $34. Through discussions with USPA&IRA we do not
expect USPA&IRA will be subject to an excess passive income tax, however this
should be investigated further.
<PAGE>
ERNST & YOUNG LLP
Page 5
Mr. Martin R. Durbin March 23, 1998
SUMMARY
In reviewing the current dividend paying position of USPA&IRA as discussed in
the beginning of this letter, the benefits discussed above provide a
significant amount of support to elect the S corporation form of entity. The
potential of substantial tax savings due to the avoidance of double taxation
on the distribution of any excess accumulated cash provides strong support
for making this election. Indeed, the additional taxes to be paid by the
shareholder's once they begin receiving the passed through items from the
corporation will cause their individual income taxes to increase, however,
the various options for paying the taxes should allow the shareholders to
pay these taxes without any difficulty or hardship. The overall effect of
the S election will be one that provides the corporation and its shareholders
and agents with optimal cash flow without reducing cash at the corporate
level. It is our understanding that current USPA&IRA shareholders are not
contemplating a sale, thus, this memorandum does not discuss the benefits S
corporation shareholders receive from stock basis increases and the related
savings from a subsequent sale of stock.
We sincerely appreciate this opportunity to serve you. Please contact us if
you have any questions or if we may be of further assistance.
Very truly yours,
/s/ Christopher J. Kealy
Christopher J. Kealy
Senior Manager
<PAGE>
AMENDMENT NO 1
TO
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
(Name of Registrant as Specified in Its Charter)
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Class B Non-Voting Common Stock, $0.02 par value per share
--------------------------------------------------------------------
2) Aggregate number of securities to which transaction
applies: 947,483 (1)
----------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $28.24 (1)
-------------------------------
4) Proposed maximum aggregate value of transaction: $26,756,919.92
------------------
5) Total Fee Paid: $5,351.38
--------------
(1) Total number of shares of Class B Non-Voting Common Stock estimated to be
outstanding as of June 15, 1998.
(2) Pursuant to Rule 0-11, the filing fee was computed on the basis of a $28.24
per share cash price.
/X/ Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $5,351.38
----------------------------------------------
2) Form Schedule or Registration Statement No.: Schedule 14A-Preliminary
------------------------
3) Filing Party: Independent Research Agency for Life Insurance, Inc.
------------------------------------------------------
4) Date Filed: July 6, 1998
---------------------------------------------------------
<PAGE>
[LOGO]
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
4100 SOUTH HULEN STREET
FORT WORTH, TEXAS 76109
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Independent Research Agency for Life Insurance, Inc. (the "Company") to be held
at :00 a.m. local time on _____________, 1998, at 4100 South Hulen Street,
Fort Worth, Texas 76109 (the "Special Meeting"). At the Special Meeting you
will be asked to consider and vote upon a proposal to approve an Agreement and
Plan of Merger, dated as of July 1, 1998 (the "Merger Agreement"), between the
Company and First Command Financial Corporation ("First Command"). Pursuant to
the Merger Agreement, the Company will be merged (the "Merger") with and into
First Command, which will continue in existence (the "Surviving Corporation").
Pursuant to the Merger, each share of Class A Voting Common Stock, par
value $0.10 per share ("Class A Stock"), of the Company issued and outstanding
(other than shares of Class A Stock held in treasury by the Company) immediately
prior to the effective time of the Merger (the "Effective Time"), which the
Board of Directors anticipates will be 12:01 a.m. on October 1, 1998, subject to
and upon the terms and conditions of the Merger Agreement, will be converted
into five shares of Voting Common Stock, par value $0.01 per share ("Surviving
Corporation Voting Stock"), of the Surviving Corporation (the "Class A
Consideration"). Further, (i) each share of Class B Non-Voting Common Stock,
par value $0.02 per share ("Class B Stock"), held by a holder of Class B Stock
(a "Class B Shareholder") that is not a holder of Class A Stock, issued and
outstanding immediately prior to the Effective Time, subject to and upon the
terms and conditions of the Merger Agreement, will be converted into $28.24 in
cash, without interest (the "Class B Cash Consideration"), and (ii) each share
of Class B Stock held by a Class B Shareholder that is also a holder of Class A
Stock (a "Class A/B Shareholder"), issued and outstanding immediately prior to
the Effective Time, subject to and upon the terms and conditions of the Merger
Agreement, will be converted into one share of Nonvoting Common Stock, par value
$0.01 per share ("Surviving Corporation Nonvoting Stock"), of the Surviving
Corporation (the "Class B Nonvoting Stock Consideration," and, together with the
Class B Cash Consideration, the "Class B Consideration"); provided, however that
each Class A/B Shareholder may elect to receive, in lieu of receiving the Class
B Nonvoting Stock Consideration, the Class B Cash Consideration for all shares
of Class B Stock held immediately prior to the Effective Time. Each holder of
Common Stock, $0.01 par value per share of First Command ("First Command Common
Stock"), issued and outstanding immediately prior to the Effective Time, subject
to and upon the terms and conditions of the Merger Agreement, will receive one
share of Surviving Corporation Nonvoting Stock for each 25 shares of First
Command Common Stock held by such shareholder. A copy of the Merger Agreement,
which sets forth, among other things, the terms and conditions concerning the
receipt of the Class A Consideration and the Class B Consideration
(collectively, the "Merger Consideration"), is attached as Annex A to the
accompanying Proxy Statement. You are urged to and should read the accompanying
Proxy Statement and related materials, which, among other things, provide a more
detailed description of the Merger Agreement, the Merger and the other
transactions contemplated thereby.
Your Board of Directors, based upon the unanimous recommendation of a
special committee of independent directors (the "Special Committee"), has
determined that the terms of the proposed Merger are fair to and in the best
interests of the shareholders of the Company (the "IRA Shareholders"), and has
unanimously approved the Merger
<PAGE>
Agreement and the Merger. In arriving at its decision, the Board of Directors
gave careful consideration to a number of factors, including the opinion of
PricewaterhouseCoopers LLP, financial advisor to the Special Committee, to the
effect that, as of the date of such opinion and based on, and subject to the
assumptions, limitations and qualifications set forth in such opinion, the
Merger Consideration to be received by the IRA Shareholders is fair to the Class
A Shareholders and the Class B Shareholders, from a financial point of view. THE
BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT.
The Merger requires the approval at the Special Meeting of (i) the
holders of at least 66-2/3% of the outstanding shares of Class A Stock and
Class B Stock, voting together as a single class, and (ii) the holders of at
least 66-2/3% of the outstanding shares of Class A Stock and Class B Stock,
each voting separately as a class. As of August 15, 1998, Lamar C. Smith,
James N. Lanier, Howard M. Crump, Hal N. Craig, Donaldson D. Frizzell, Jerry
D. Gray, David P. Thoreson, Carroll H. Payne II and Naomi K. Payne
(collectively, the "Management Group"), each of whom is an officer or
director of the Company or First Command and is also a Class A Shareholder,
beneficially owned an aggregate of 16 shares of Class A Stock and 238,504
shares of Class B Stock (representing approximately 64% and 25% of the
outstanding Class A Stock and Class B Stock, respectively). Each member of
the Management Group intends to vote all shares of Class A Stock and Class B
Stock beneficially owned by him or her for approval of the Merger Agreement.
WHETHER OR NOT YOU PLAN TO VOTE IN FAVOR OF THE MERGER AGREEMENT, IF YOU
ARE A CLASS A/B SHAREHOLDER, YOU SHOULD COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED FORM OF ELECTION IN THE ENCLOSED PRE-ADDRESSED POSTAGE-PREPAID
ENVELOPE. FAILURE TO RETURN A PROPERLY COMPLETED AND EXECUTED FORM OF ELECTION
TO THE PAYING AGENT BY THE ELECTION DEADLINE (AS DEFINED IN THE ACCOMPANYING
PROXY STATEMENT) WILL BE TREATED AS A NON-ELECTION (AS DEFINED IN THE
ACCOMPANYING PROXY STATEMENT) AND WILL RESULT IN YOUR RECEIVING THE CLASS B
NONVOTING STOCK CONSIDERATION IN RESPECT OF YOUR SHARES OF CLASS B STOCK, IN
ADDITION TO THE CLASS A CONSIDERATION IN RESPECT OF YOUR SHARES OF CLASS A
STOCK. AN ELECTION TO RECEIVE THE CLASS B NONVOTING STOCK CONSIDERATION OR THE
CLASS B CASH CONSIDERATION IN RESPECT OF YOUR CLASS B STOCK WILL NOT CONSTITUTE
A VOTE IN FAVOR OF THE APPROVAL OF THE MERGER AGREEMENT.
AS DESCRIBED ABOVE, AS A RESULT OF THE MERGER, THE CLASS B SHAREHOLDERS
WILL RECEIVE $28.24 FOR EACH SHARE OF CLASS B STOCK EXCHANGED, THE CLASS B STOCK
WILL BE ELIMINATED AND THE COMPANY WILL BE PRIVATELY OWNED BY THE CURRENT
HOLDERS OF CLASS A STOCK.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Special
Meeting, you are requested to complete, date, sign and return the enclosed proxy
card in the enclosed pre-addressed postage-prepaid envelope. Your shares will be
voted in accordance with the instructions you have given in your proxy. If no
instructions are given on your proxy, the shares represented by the proxy will
be voted at the Special Meeting in favor of the Merger Agreement and in
accordance with the Proxy Statement on any other business that may properly come
before the Special Meeting or any adjournments or postponements thereof. If you
do not return the accompanying form of proxy, your shares will not be voted in
favor of approval of the Merger Agreement and will have the same effect as a
vote against approval of the Merger Agreement. The proxy may be revoked at any
time prior to the vote at the Special Meeting by following the procedures set
forth in the accompanying Proxy Statement. If you attend the Special Meeting,
you may vote in person even if you have previously returned your proxy card.
The Board of Directors and management of the Company appreciate your
continued support. If you need assistance in completing your proxy card or Form
of Election, or if you have any questions about the Proxy Statement, please feel
free to contact Sandy Allen, Corporate Secretary of the Company, at (817)
731-8621.
Sincerely,
Lamar C. Smith
Chairman of the Board
<PAGE>
[LOGO]
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
4100 SOUTH HULEN STREET
FORT WORTH, TEXAS 76109
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________________, 1998
To the Shareholders of Independent Research Agency for Life Insurance, Inc.:
Notice is hereby given that a Special Meeting of Shareholders of
Independent Research Agency for Life Insurance, Inc., a Texas corporation (the
"Company"), will be held at :00 a.m. local time on _____________, 1998, at
4100 South Hulen Street, Fort Worth, Texas 76109 (the "Special Meeting") for the
following purposes:
1. To consider and vote on a proposal to approve the Agreement and Plan
of Merger, dated as of July 1, 1998 (the "Merger Agreement"), between the
Company and First Command Financial Corporation, a Texas corporation
("First Command"). Pursuant to the Merger Agreement, the Company will be
merged (the "Merger") with and into First Command, which will continue in
existence (the "Surviving Corporation").
2. To consider such other matters as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The record date for determining the holders of shares of Class A Voting
Common Stock, par value $0.10 per share ("Class A Stock"), and Class B
Non-Voting Common Stock, par value $0.02 per share ("Class B Stock"), of the
Company entitled to receive notice of, and to vote at, the Special Meeting or
any adjournment or postponement thereof has been fixed as of the close of
business on _________________, 1998.
As a result of the Merger, the Class B Shareholders will receive $28.24
for each share of Class B Stock exchanged, the Class B Stock will be
eliminated and the Company will be privately owned by the current holders of
Class A Stock.
The Merger requires the approval at the Special Meeting of (i) the holders
of at least 66-2/3% of the outstanding shares of Class A Stock and Class B
Stock, voting together as a single class, and (ii) the holders of at least
66-2/3% of the outstanding shares of Class A Stock and Class B Stock, each
voting separately as a class.
You are urged to and should read the accompanying Proxy Statement and
related materials, which are incorporated herein by reference and form a part of
this Notice.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL OF THE MERGER AGREEMENT.
If the Merger is consummated, holders of either Class A Stock or Class B
Stock who properly demand appraisal of their Class A Stock or Class B Stock, as
applicable, prior to the shareholder vote, do not vote in favor of the approval
of the Merger Agreement, and otherwise comply with the requirements of Articles
5.12 and 5.13 of the Texas Business Corporation Act (the "TBCA") (all as more
fully described in the accompanying Proxy Statement) will be entitled to
statutory appraisal rights. A copy of Articles 5.11 through 5.13 of the TBCA is
attached as Annex C to the accompanying Proxy Statement.
_________________, 1998 By order of the Board of Directors
Sandra T. Allen, Corporate Secretary
<PAGE>
PRELIMINARY PROXY MATERIALS CONFIDENTIAL
FOR USE OF THE COMMISSION ONLY
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
PROXY STATEMENT
----------------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DAY], [DATE], 1998
This Proxy Statement is being furnished to the shareholders of Independent
Research Agency for Life Insurance, Inc., a Texas corporation ("IRA" or the
"Company"), in connection with a special meeting of shareholders of IRA (the
"Special Meeting") to be held on __________, ___________, 1998 at
__________________ a.m., local time, at 4100 South Hulen Street, Fort Worth,
Texas 76109. The accompanying proxy is being solicited by IRA's Board of
Directors and is to be voted at the Special Meeting or at any adjournments or
postponements thereof.
At the Special Meeting, shareholders of IRA will be asked to consider and
vote upon a proposed merger (the "Merger") of IRA with and into First Command
Financial Corporation ("First Command"), a Texas corporation, pursuant to an
Agreement and Plan of Merger, dated as of July 1, 1998 (the "Merger Agreement"),
by and between the Company and First Command. In the Merger, the Company will be
merged with and into First Command, which will continue in existence (the
"Surviving Corporation").
As a result of the Merger, the Surviving Corporation will be privately
owned by the current holders of Class A Stock.
Upon the terms and conditions set forth in the Merger Agreement, in the
Merger, each share of Class A Voting Common Stock, par value $0.10 per share
("Class A Stock"), of the Company issued and outstanding immediately prior to
the Effective Time (as defined below) (other than shares of Class A Stock held
in treasury by the Company), subject to and upon the terms and conditions of the
Merger Agreement, will be converted into five shares of Voting Common Stock, par
value $0.01 per share ("Surviving Corporation Voting Stock"), of the Surviving
Corporation (the "Class A Consideration"). Further, (i) each share of Class B
Non-Voting Common Stock, par value $0.02 per share ("Class B Stock"), held by a
holder of Class B Stock (a "Class B Shareholder") that is not a holder of Class
A Stock, issued and outstanding immediately prior to the Effective Time, subject
to and upon the terms and conditions of the Merger Agreement, will be converted
into $28.24 in cash, without interest (the "Class B Cash Consideration"), and
(ii) each share of Class B Stock held by a Class B Shareholder that is also a
holder of Class A Stock (a "Class A/B Shareholder"), issued and outstanding
immediately prior to the Effective Time, subject to and upon the terms and
conditions of the Merger Agreement, will be converted into one share of
Nonvoting Common Stock, par value $0.01 per share ("Surviving Corporation
Nonvoting Stock"), of the Surviving Corporation (the "Class B Nonvoting Stock
Consideration," and, together with the Class B Cash Consideration, the "Class B
Consideration"); provided, however that each Class A/B Shareholder may elect to
receive, in lieu of receiving the Class B Nonvoting Stock Consideration, the
Class B Cash Consideration for all shares of Class B Stock held immediately
prior to the Effective Time. Each holder of Common Stock, $0.10 par value per
share, of First Command ("First Command Common Stock"), issued and outstanding
immediately prior to the Effective Time, subject to and upon the terms and
conditions of the Merger Agreement, will receive one share of Surviving
Corporation Nonvoting Stock for each 25 shares of First Command Common Stock
held by such shareholder. See "THE PROPOSED MERGER--Conversion of Shares."
A Form of Election (the "Form of Election") with which Class A/B
Shareholders may elect to receive the Class B Nonvoting Stock Consideration or
the Class B Cash Consideration for their shares of Class B Stock accompanies
this Proxy Statement. In order to elect the Class B Nonvoting Stock
Consideration or the Class B Cash Consideration, each Class A/B Shareholder must
submit a Form of Election to First Command Bank (the "Paying Agent") by no later
than 5:00 p.m. Central Daylight time on ____________________, 1998, (the
"Election
<PAGE>
Deadline"). The Form of Election accompanying this Proxy Statement contains
important information for Class A/B Shareholders concerning the timing and
procedures for making an election. Please read such materials carefully.
The Merger requires the approval at the Special Meeting of (i) the
holders of at least 66-2/3% of the outstanding shares of Class A Stock and
Class B Stock, voting together as a single class, and (ii) the holders of at
least 66-2/3% of the outstanding shares of Class A Stock and Class B Stock,
each voting separately as a class. Accordingly, failure to vote or
abstentions will have the effect of a vote against the Merger for the purpose
of determining whether the requisite approval by the holders of Class A Stock
and Class B Stock is obtained. As of August 15, 1998, Lamar C. Smith, James
N. Lanier, Howard M. Crump, Hal N. Craig, Donaldson D. Frizzell, Jerry D.
Gray, David P. Thoreson, Carroll H. Payne II and Naomi K. Payne
(collectively, the "Management Group"), each of whom is an officer or
director of the Company or First Command and is also a Class A Shareholder,
beneficially owned an aggregate of 16 shares of Class A Stock and 238,504
shares of Class B Stock (representing approximately 64% and 25% of the
outstanding Class A Stock and Class B Stock, respectively). Each member of
the Management Group intends to vote all shares of Class A Stock and Class B
Stock beneficially owned by him or her for approval of the Merger Agreement.
Approval of the Merger Agreement by the shareholders of First Command
requires the affirmative vote of more than 66-2/3% of the shares of First
Command Common Stock. As of the date hereof, members of the Management Group
beneficially own an aggregate of 975 shares of First Command Common Stock
(representing 97.5% of the outstanding First Command Common Stock). Each
such member of the Management Group intends to vote all shares of First
Command Common Stock beneficially owned by him or her for approval of the
Merger Agreement.
----------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THIS
TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT.
ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
IF THE PROPOSED MERGER IS CONSUMMATED, HOLDERS OF CLASS A STOCK AND
CLASS B STOCK WHO COMPLY WITH THE REQUIREMENTS OF ARTICLES 5.12 AND 5.13 OF
THE TEXAS BUSINESS CORPORATION ACT (THE "TBCA") ARE ENTITLED TO STATUTORY
DISSENTERS' APPRAISAL RIGHTS. TO PERFECT DISSENTERS' RIGHTS, A SHAREHOLDER
MUST SEND A NOTICE TO THE CORPORATION BEFORE THE DATE OF THE VOTE AND MUST
NOT VOTE IN FAVOR OF THE MERGER BY PROXY OR OTHERWISE. A COPY OF ARTICLES
5.11 THROUGH 5.13 OF THE TBCA IS ATTACHED TO THIS PROXY STATEMENT AS ANNEX C.
SEE "THE PROPOSED MERGER--RIGHTS OF DISSENTING SHAREHOLDERS."
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FIRST
COMMAND OR THE COMPANY. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE
SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH SOLICITATION.
<PAGE>
Only holders of record of Class A Shares and/or Class B Shares at the
close of business on [RECORD DATE] are entitled to notice of and to vote at
the Special Meeting. At the close of business on [RECORD DATE], a total of
25 Class A Shares and ______________ Class B Shares were outstanding. Each
share of Class A Stock and Class B Stock is entitled to one vote with respect
to the approval of the Merger Agreement at the Special Meeting. With regard
to any other matters presented at the Special Meeting, each share of Class A
Stock will be entitled to one vote, and the Class B Shareholders will not be
entitled to vote on such matters. See "THE SPECIAL MEETING--Votes Required;
Voting Rights." This Proxy Statement is first being sent to shareholders on
or about [MAILING DATE].
In addition to solicitation by use of the mails, proxies may be solicited
by directors, officers and employees of IRA in person or by telephone, telegram
or other means of communications. Such directors, officers and employees will
not be additionally compensated but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. No proxy
solicitation firm has been retained to assist with soliciting and tabulating
proxies for the Special Meeting. Expenses in connection with the solicitation of
proxies will be paid by the Company.
THE DATE OF THIS PROXY STATEMENT IS ________________, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS. . . . . . . . . . . . . . . 1
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Independent Research Agency for Life Insurance, Inc. . . . . . . . . 2
First Command Financial Corporation. . . . . . . . . . . . . . . . . 2
Trading Markets and Market Price Data. . . . . . . . . . . . . . . . 2
Special Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . 3
Source and Amount of Funds . . . . . . . . . . . . . . . . . . . . . 3
Purpose and Structure of the Merger. . . . . . . . . . . . . . . . . 3
Certain Effects of the Merger; Plans for the Company Following
the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Contracts with Respect to Surviving Corporation Common Stock . . . . 5
Recommendation of the IRA Board and the Special Committee; Fairness
of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . 5
Position of Management Group and First Command . . . . . . . . . . . 5
Opinion of the Financial Advisor . . . . . . . . . . . . . . . . . . 5
Interests of Certain Persons in the Merger . . . . . . . . . . . . . 6
Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . 6
Certain Transactions in IRA Common Stock . . . . . . . . . . . . . . 6
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . 6
Regulatory Filings and Approvals . . . . . . . . . . . . . . . . . . 7
Certain Federal Income Tax Consequences of the Merger. . . . . . . . 7
The Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Time, Date and Place . . . . . . . . . . . . . . . . . . . . . . . . 7
Purpose of the Special Meeting . . . . . . . . . . . . . . . . . . . 7
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Voting Rights; Votes Required. . . . . . . . . . . . . . . . . . . . 8
Security Ownership of IRA's Management . . . . . . . . . . . . . . . 8
Revocability of Proxy. . . . . . . . . . . . . . . . . . . . . . . . 8
The Proposed Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Closing; Effective Time. . . . . . . . . . . . . . . . . . . . . . . 8
Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . 9
Class A/B Shareholders Election; Procedures. . . . . . . . . . . . . 9
Charter and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . .10
Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . .10
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Rights of Dissenting Shareholders. . . . . . . . . . . . . . . . . .12
SELECTED FINANCIAL DATA OF IRA . . . . . . . . . . . . . . . . . . . . . . . .13
SELECTED FINANCIAL DATA OF FIRST COMMAND . . . . . . . . . . . . . . . . . . .15
SUMMARY PRO FORMA DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
i
<PAGE>
SPECIAL FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . . . .18
Source and Amount of Funds. . . . . . . . . . . . . . . . . . . . . . . .20
Credit Facility. . . . . . . . . . . . . . . . . . . . . . . . . . .21
Purpose and Structure of the Merger . . . . . . . . . . . . . . . . . . .22
Certain Effects of the Merger; Plans for the Company after
the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Contracts with Respect to Surviving Corporation Common Stock. . . . . . .24
Surviving Corporation Shareholders' Agreement. . . . . . . . . . . .24
Recommendation of the IRA Board and the Special Committee;
Fairness of the Merger . . . . . . . . . . . . . . . . . . . . . . .25
Position of the Management Group and First Command as to the
Fairness of the Merger . . . . . . . . . . . . . . . . . . . . . . .26
Opinion of the Financial Advisor. . . . . . . . . . . . . . . . . . . . .26
Income Approach. . . . . . . . . . . . . . . . . . . . . . . . . . .27
Transaction Approach . . . . . . . . . . . . . . . . . . . . . . . .27
Market Multiple Approach. . . . . . . . . . . . . . . . . . . . . . . . .27
American Annuity Group, Inc. . . . . . . . . . . . . . . . . . . . .27
Cotton States Life Insurance Company . . . . . . . . . . . . . . . .27
Kansas City Life Insurance Company . . . . . . . . . . . . . . . . .27
Current/Historical Market Pricing and Shareholder Agreement
Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Adjusted Book Value Approach. . . . . . . . . . . . . . . . . . . . . . .28
Interests of Certain Persons in the Merger. . . . . . . . . . . . . . . .29
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . .30
Certain Transactions in IRA Common Stock. . . . . . . . . . . . . . . . .30
Purchases By IRA . . . . . . . . . . . . . . . . . . . . . . . . . .30
Recent Transactions. . . . . . . . . . . . . . . . . . . . . . . . .31
Purchases By Management Group. . . . . . . . . . . . . . . . . . . .31
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . .31
Regulatory Filings and Approvals. . . . . . . . . . . . . . . . . . . . .31
Certain Federal Income Tax Considerations . . . . . . . . . . . . . . . .31
Certain Consequences of Reorganization Status. . . . . . . . . . . .32
The Company and the Surviving Corporation . . . . . . . . . . .32
Class A/B Shareholders. . . . . . . . . . . . . . . . . . . . .32
Shareholders Who Own Only Class B Stock . . . . . . . . . . . .33
Certain Post-Merger Considerations for Surviving
Shareholders . . . . . . . . . . . . . . . . . . . . . . .33
Treatment as an S Corporation . . . . . . . . . . . . . . . . .33
Taxation of Surviving Corporation . . . . . . . . . . . . . . .33
Taxation of Surviving Corporation Shareholders. . . . . . . . .34
Tax Opinion Engagement . . . . . . . . . . . . . . . . . . . . . . .34
CERTAIN INFORMATION CONCERNING IRA . . . . . . . . . . . . . . . . . . . . . .34
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Directors and Executive Officers of IRA . . . . . . . . . . . . . . . . .35
Mission Accomplishment Plan . . . . . . . . . . . . . . . . . . . . . . .35
ii
<PAGE>
CERTAIN INFORMATION CONCERNING FIRST COMMAND . . . . . . . . . . . . . . . . .36
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Directors and Executive Officers of First Command . . . . . . . . . . . .38
CERTAIN INFORMATION CONCERNING THE MANAGEMENT GROUP. . . . . . . . . . . . . .39
THE SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Votes Required; Voting Rights . . . . . . . . . . . . . . . . . . . . . .40
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . .41
Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . . .42
THE PROPOSED MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Closing; Effective Time . . . . . . . . . . . . . . . . . . . . . . . . .42
Conversion of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . .42
Shareholder Elections . . . . . . . . . . . . . . . . . . . . . . . . . .43
The Merger Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . .44
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . .44
Charter and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . .44
Filings; Other Actions; Notification . . . . . . . . . . . . . . . .44
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . .45
Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . .45
Takeover Statute . . . . . . . . . . . . . . . . . . . . . . . . . .46
Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . .46
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
IRA Charter Business Combination Provision. . . . . . . . . . . . . . . .47
State Anti-takeover Statutes. . . . . . . . . . . . . . . . . . . . . . .48
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . . . .49
MARKET PRICE DATA, DISTRIBUTIONS AND SECURITY OWNERSHIP OF IRA
COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Number of Security Holders. . . . . . . . . . . . . . . . . . . . . . . .51
Distribution History. . . . . . . . . . . . . . . . . . . . . . . . . . .51
Security Ownership of Management and Certain Beneficial Owners of IRA
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
MARKET PRICE DATA, DISTRIBUTIONS AND SECURITY OWNERSHIP OF FIRST COMMAND
COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Number of Security Holders. . . . . . . . . . . . . . . . . . . . . . . .54
Distribution History. . . . . . . . . . . . . . . . . . . . . . . . . . .54
Security Ownership of Management and Certain Beneficial Owners of First
Command Common Stock . . . . . . . . . . . . . . . . . . . . . . . .54
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF IRA . . . . . . . . .54
iii
<PAGE>
DESCRIPTION OF IRA CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . .62
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Class A Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Class B Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Distributions; Preemptive Rights; Liquidation . . . . . . . . . . . . . .63
DESCRIPTION OF THE SURVIVING CORPORATION CAPITAL STOCK . . . . . . . . . . . .64
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Restrictions on Transfer of Shares. . . . . . . . . . . . . . . . . . . .64
Subchapter S Provisions . . . . . . . . . . . . . . . . . . . . . . . . .65
Revocation of Election . . . . . . . . . . . . . . . . . . . . . . .65
Inadvertent Termination of Subchapter S Election . . . . . . . . . .65
Provision in Shareholder Wills . . . . . . . . . . . . . . . . . . .66
Distributions to Pay Tax Liabilities . . . . . . . . . . . . . . . .66
Nonrecognition of Certain Transfers. . . . . . . . . . . . . . . . .67
Legends on Share Certificates. . . . . . . . . . . . . . . . . . . .67
Election to Close Books. . . . . . . . . . . . . . . . . . . . . . .67
Business Combination Provision. . . . . . . . . . . . . . . . . . . . . .67
Classified Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . . .69
FIRST COMMAND FINANCIAL CORPORATION INDEX TO BALANCE SHEETS. . . . . . . . . F-1
</TABLE>
ANNEX A -- Agreement and Plan of Merger
ANNEX B -- Opinion of the Financial Advisor
ANNEX C -- Provisions of the Texas Business Corporation Act Relating to
Rights of Dissenting Shareholders
ANNEX D -- IRA Annual Report on Form 10-K for the Fiscal Year Ended
September 30, 1997, and Quarterly Report on Form 10-Q for the
Period Ended June 30, 1998
ANNEX E -- Articles of Incorporation, as Proposed to be Amended, and
Bylaws, as Proposed to be Amended, of Surviving Corporation
ANNEX F -- Tax Opinion of Ernst & Young LLP
iv
<PAGE>
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Proxy Statement and in
documents incorporated herein by reference may be considered forward-looking
statements, including, without limitation, (i) the financial data provided in
"PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS" and the statements in
"SUMMARY PRO FORMA DATA," (ii) the statements in "SPECIAL FACTORS--Purpose
and Structure of the Merger" and "--Certain Effects of the Merger; Plans for
the Company after the Merger," (iii) the statements in "SPECIAL FACTORS--
Recommendation of the IRA Board, the Special Committee and First Command;
Fairness of the Merger" and "--Opinion of the Financial Advisor" concerning,
among other things, prospective considerations that the IRA Board of
Directors (the "IRA Board") took into account in arriving at its
recommendation in favor of the Merger and (iv) variations in the foregoing
statements whenever they appear in this Proxy Statement and the documents
incorporated herein by reference. Forward-looking statements are made based
upon either IRA management's current expectations and beliefs concerning
future developments and their potential effects upon IRA and, if applicable,
the Surviving Corporation. There can be no assurance that future developments
affecting IRA or the Surviving Corporation will be those anticipated by their
respective managements. Actual results may differ materially from those
included in the forward-looking statements. These forward-looking statements
involve risks and uncertainties including, but not limited to, the following:
the event of armed conflict; changes that affect the number of active U.S.
military personnel; changes in general economic conditions, including the
performance of financial markets, interest rates and the level of personal
bankruptcies; customer responsiveness to existing and new services;
competitive, regulatory or tax changes that affect the cost of or demand for
IRA's or the Surviving Corporation's services; adverse litigation results;
and other factors set forth elsewhere in this Proxy Statement and in the
documents incorporated by reference herein.
While IRA reassesses material trends and uncertainties affecting its
financial condition and results of operations, in connection with its
preparation of management's discussion and analysis of financial condition and
results of operations contained in the Company's quarterly and annual reports,
neither IRA nor the Surviving Corporation intends to review or revise in light
of future events any particular forward-looking statement referenced in this
Proxy Statement or incorporated herein by reference.
The information referred to above should be considered by shareholders
of IRA (the "IRA Shareholders") when reviewing any forward-looking statements
contained in this Proxy Statement, in any documents incorporated herein by
reference, in any of IRA's public filings or press releases or in any oral
statements made by either IRA, First Command, the Surviving Corporation, or
any of their respective officers or other persons acting on their behalf.
1
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. IT IS NOT, AND IS NOT INTENDED TO BE, COMPLETE IN ITSELF.
REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE
MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY STATEMENT,
INCLUDING THE ANNEXES HERETO WHICH ARE A PART OF THIS PROXY STATEMENT.
SHAREHOLDERS ARE ENCOURAGED TO READ CAREFULLY ALL OF THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT.
IRA SHAREHOLDERS SHOULD CONSIDER CAREFULLY THE INFORMATION SET FORTH
HEREIN UNDER THE HEADING "SPECIAL FACTORS" IN ADDITION TO THE OTHER INFORMATION
PRESENTED HEREIN.
<TABLE>
<CAPTION>
THE COMPANIES
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Independent Research IRA was incorporated in 1980 under the laws of the
Agency for Life State of Texas and is engaged, directly and
Insurance, Inc. . . . indirectly through subsidiaries, in the business
of a life insurance general agency for sales to
United States military personnel. The Company
conducts its operations in all fifty states, the
District of Columbia, the territory of Guam, the
United Kingdom, Germany and Italy. The Company's
wholly-owned subsidiary, United Services Planning
Association, Inc., is also a Texas corporation and
is a broker-dealer of securities. The Company's
wholly-owned subsidiary, First Command Bank, is a
federal savings bank. The Company's principal
executive offices are located at 4100 South Hulen
Street, Fort Worth, Texas 76109, and its telephone
number is (817) 731-8621. See "CERTAIN
INFORMATION CONCERNING IRA."
First Command Financial First Command, a Texas corporation, was
Corporation . . . . . incorporated on April 1, 1998, for the purpose of
constructing and operating a parking garage (the
"Parking Garage") adjacent to the current
executive offices of IRA. First Command plans to
rent parking spaces to current and future tenants
leasing space in IRA's building with the remaining
parking spaces to be rented to IRA's employees.
IRA has agreed to loan First Command funds to
complete the garage construction. The principal
executive offices of First Command are located at
4100 South Hulen Street, Fort Worth, Texas 76109,
and its telephone number is (817) 731-8621. See
"CERTAIN INFORMATION CONCERNING FIRST COMMAND."
First Command is owned by certain Class A
Shareholders of the Company and is not a subsidiary
of the Company.
The Management The Merger is a "going private transaction"
Group . . . . . . . . under the federal securities laws. Certain
individuals who (i) are executive officers and
directors of IRA, (ii) are Class A
Shareholders, (iii) will retain their position
in the Surviving Corporation after the Merger
and (iv) will retain their equity interest in
the Surviving Corporation, are affiliates
engaged in the going private transaction.
These individuals, each a director of IRA, are
(i) Lamar C. Smith, Chairman of the Board and
Chief Executive Officer of IRA, and Chairman of
the Board, Chief Executive Officer and a
director of First Command, (ii) James N.
Lanier, President and Chief Operating Officer
of IRA, and President, Chief Operating Officer
and a director of First command, (iii) Howard
M. Crump, Senior Vice President and Director of
Marketing of IRA, and Vice President and a
director of First Command, (iv) Carroll H.
Payne II, who is also a director of First
Command, (v) Naomi K. Payne, (vi) Hal N. Craig,
(vii) Donaldson D. Frizzell, (viii) Jerry D.
Gray, and (ix) David P. Thoreson (collectively,
the "Management Group"). See "CERTAIN
INFORMATION CONCERNING THE MANAGEMENT GROUP."
Trading Markets and There is not now and never has been a trading
Market Price Data . . market for shares of either Class A Stock or Class
B Stock, because of certain statutory and
contractual restrictions concerning the ownership
and disposition of such shares. See "MARKET PRICE
DATA, DISTRIBUTIONS AND SECURITY OWNERSHIP OF IRA
COMMON STOCK."
There is currently no market, and it is
anticipated that no market will develop, for the
Surviving Corporation Voting Common Stock or the
Surviving Corporation Nonvoting Common Stock
(collectively, the "Surviving Corporation Common
Stock"), because of certain statutory and
contractual restrictions concerning the ownership
of such shares. See "MARKET PRICE DATA,
DISTRIBUTIONS AND SECURITY OWNERSHIP OF FIRST
COMMAND COMMON STOCK."
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<CAPTION>
SPECIAL FACTORS
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Background of the For a description of events leading to the
Merger . . . . . . . . . approval and adoption of the Merger Agreement by
the Boards of Directors of the Company and First
Command, see "SPECIAL FACTORS--Background of the
Merger."
Source and Amount of Approximately $16.9 million will be required to
Funds . . . . . . . . . . pay the Merger Consideration (assuming that no
Class A/B Shareholder elects to receive the Class
B Cash Consideration), and approximately $1.2
million will be required to pay fees and expenses
related to the Merger. Approximately $2.1 million
of the cash required in connection with the Merger
will be provided by the working capital of IRA,
and approximately $16 million of the cash required
in connection with the Merger will be provided
from the Credit Facility (as defined below). See
"SPECIAL FACTORS--Source and Amount of Funds."
Purpose and Structure of First Command was formed on April 1, 1998, as a
the Merger . . . . . Texas corporation, to construct, own and operate
the Parking Garage adjacent to the executive
offices of IRA. IRA has agreed to provide First
Command with funds pursuant to an interest-bearing
loan to construct the Parking Garage. First
Command was organized as an entity distinct from
IRA to limit potential liability of IRA with
respect to the ownership, construction and
operation of the Parking Garage. As First Command
presently has a limited number of shareholders and
meets the other requirements of S corporation
status, First Command elected S corporation status
in order for its taxable items to "flow through"
to its shareholders. See "SPECIAL
FACTORS--Certain Effects of the Merger; Plans for
the Company after the Merger."
One objective of the Company is to deregister the
Class B Stock under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which
will cause the Company to no longer be subject to
the reporting requirements of the Exchange Act.
The Company currently incurs costs related to its
status as a public reporting corporation under the
federal securities laws, including indirect costs
as a result of, among other things, the executive
time expended to prepare and review various
filings, furnish information to shareholders and
to attend to other shareholder matters. The
Company anticipates that termination of
registration under the Exchange Act will eliminate
the costs and expenses of various federal
securities filings incurred by the Company with
respect to regulatory and reporting requirements
of the Exchange Act and will reduce the amount of
time devoted by management in connection
therewith. Further, the Company has faced certain
competitive disadvantages resulting from the
public reporting requirements of the Exchange Act.
Also, management of the Company believes that
access to public markets by the Company and its
shareholders will not occur because of the
restrictions on ownership of the Class B Stock.
Additionally, the Company believes that it will
qualify for S corporation status immediately
following the elimination of the Class B Stock.
Management of the Company recognized that, if the
Class B Stock were eliminated, both IRA and First
Command would qualify for S corporation status.
As a result, in order to achieve administrative
simplicity, reduce compliance responsibilities and
eliminate public reporting requirements as
described above, the management of IRA and the
management of First Command decided that IRA
should merge with and into First
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Command, rather than to continue both as separate
S corporations. Immediately prior to the Merger,
First Command will transfer all of its assets,
subject to all of its liabilities, to a newly-formed
limited liability company or Qualified Subchapter S
Subsidiary (as defined in the Internal Revenue
Code of 1986, as amended (the "Code")) in return
for all of the capital stock of such subsidiary to
keep the planned operations of First Command
separate and distinct from IRA subsequent to the
Merger. Because First Command currently has
elected to be treated as an S corporation under
the federal tax laws, upon the consummation of the
Merger, the holders of Class A Stock that do not
seek appraisal rights under Articles 5.12 and 5.13
of the TBCA will be shareholders of the Surviving
Corporation, which should be an S corporation.
Accordingly, such holders of Class A Stock, as
holders of Surviving Corporation Voting Stock, and
Class A/B Shareholders that elect to receive
Surviving Corporation Nonvoting Stock for their
Class B Stock will be entitled to the tax
treatment that shareholders of an S corporation
receive under the federal tax laws. See "SPECIAL
FACTORS--Certain Effects of the Merger; Plans for
the Company after the Merger."
The Management Group has engaged in the
transactions contemplated by the Merger
Agreement to assist the Company in attaining
the objectives described above. See "SPECIAL
FACTORS--Purpose and Structure of the Merger."
Certain Effects of the Following the Merger, (i) the holders of Class A
Merger; Plans for the Stock (the "Class A Shareholders"), (ii) the Class
Company Following the A/B Shareholders that elect to receive Surviving
Merger . . . . . . . . . Corporation Nonvoting Stock and (iii) the holders
of First Command Common Stock (the "First Command
Shareholders") will own 100% of the capital stock
of the Surviving Corporation, to the extent that
such shareholders do not elect to seek appraisal
rights. As such, these persons will be the direct
beneficiaries of any future earnings and growth of
the Surviving Corporation, and will have the
ability to benefit from any divestitures,
strategic acquisitions or other corporate
opportunities that may be pursued by the
Company in the future. Upon consummation of the
Merger, the Class B Shareholders that are not
Class A/B Shareholders will cease to have any
direct ownership interest in the Company or
other rights as shareholders of the Company,
including the right to receive distributions.
After the Merger, such shareholders will
benefit from any increases in the cash flow or
the value of the Surviving Corporation only as
a result of any MAP Units (as defined herein)
that such shareholders may then hold. As a
result of the Merger, the Surviving Corporation
will be privately held by the current holders
of Class A Stock, including the Management
Group. See "SPECIAL FACTORS--Certain Effects of
the Merger; Plans for the Company after the
Merger."
Pursuant to the Articles of Incorporation of the
Surviving Corporation and the Surviving
Corporation Shareholders' Agreement (as defined
below), the Surviving Corporation has agreed to
declare and make distributions to all shareholders
of the Surviving Corporation (the "Surviving
Corporation Shareholders") to allow them to pay
their federal income tax liability attributable to
their distributive share of the Surviving
Corporation's taxable income. In addition, the
IRA Board has provided the Class A/B Shareholders
the right to receive the Class B Nonvoting Stock
Consideration. See "SPECIAL FACTORS--Background of
the Merger." Further, the IRA Board, which will
be the Board of the Surviving Corporation upon
consummation of the Merger, anticipates that the
Surviving Corporation, subject to the fiduciary
duties of the Board of Directors of the Surviving
Corporation and the ongoing financial condition of
the Surviving Corporation, will declare and make
distributions that are pro rata to all
shareholders on the
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Surviving Corporation Common Stock that
are intended to approximate the income that the
Class A/B Shareholder would have received
from the competitive reinvestment of the Class B
Cash Consideration, taking into account certain
income tax considerations. In the event the
Surviving Corporation makes ongoing repurchases of
the Surviving Corporation Voting Stock or
Surviving Corporation Nonvoting Stock, the IRA
Board presently anticipates that the repurchase
price for such shares will be $28.24 per share,
unless otherwise determined by the Board of
Directors of the Surviving Corporation. See
"SPECIAL FACTORS--Certain Effects of the Merger;
Plans for the Company after the Merger."
Contracts with Respect to Upon the Effective Time, the management of the
Surviving Corporation Surviving Corporation will request that all
Common Stock . . . . . . Surviving Corporation Shareholders, including
the Management Group, execute the Surviving
Corporation Shareholders' Agreement. The
Surviving Corporation Shareholders' Agreement
provides for, among other things, certain
restrictions on the transfer of the Surviving
Corporation Common Stock held by such Agreeing
Parties and the requirement that shareholders
tender their shares to the Surviving
Corporation upon the occurrence of certain
operative events, such as prior to any transfer
of the shares, the death or divorce of the
shareholder, the termination of the shareholder
as a duly authorized agent of the Surviving
Corporation or the termination of the
shareholder as a Texas life insurance agent.
The Surviving Corporation Shareholders'
Agreement also contains certain provisions
concerning the S corporation status of the
Surviving Corporation. Further, pursuant to
the Surviving Corporation Shareholders'
Agreement, the Surviving Corporation has agreed
to declare and make distributions to all of its
shareholders, including the Management Group,
in a timely manner to allow them to pay their
federal income tax liability attributable to
their distributive share of the Surviving
Corporation's taxable income. See "SPECIAL
FACTORS--Contracts with Respect to Surviving
Corporation Common Stock."
Recommendation of the IRA The IRA Board, based upon the unanimous
Board and the Special recommendation of the Special Committee, has
Committee; Fairness of the determined that the terms of the proposed Merger
Merger . . . . . . . . . are fair to and in the best interests of the IRA
Shareholders, including Class B Shareholders who
do not own Class A Stock, and unanimously approved
the Merger Agreement. In arriving at its decision,
the IRA Board gave careful consideration to a
number of factors, including the written opinion
of PricewaterhouseCoopers LLP, formerly known
as Coopers & Lybrand LLP (the "Financial
Advisor"), financial advisor to the Special
Committee. ACCORDINGLY, THE IRA BOARD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT. The Board of
Directors of First Command has also unanimously
approved the Merger Agreement. See "SPECIAL
FACTORS--Recommendation of the IRA Board and
the Special Committee; Fairness of the Merger."
Position of the The members of the Management Group have
Management Group and considered the process by which the Company
First Command . . . . determined the terms of the Merger and certain
additional factors examined by the Special
Committee and the IRA Board (described in
detail in "SPECIAL FACTORS--Recommendation of
the IRA Board and the Special Committee;
Fairness of the Merger). Members of the
Management Group believe that these factors,
when considered together, provide a reasonable
basis for them to believe, as they do, that the
Merger is fair to the IRA Shareholders,
including Class B Shareholders who do not own
Class A Stock.
The rules of the Securities and Exchange
Commission require First Command to express its
belief as to the fairness of the Merger to the IRA
Shareholders. While First Command has not
undertaken any independent evaluation of the
Merger from the standpoint of fairness to the
Company's shareholders, it has considered the
factors that were taken into account by the
Special Committee and the IRA Board (described in
detail in "SPECIAL FACTORS--Recommendation of the
IRA Board and the Special Committee; Fairness of
the Merger) and by the members of the Management
Group. Based solely on these factors, First
Command believes that the Merger is fair to the
IRA Shareholders, including Class B Shareholders
who do not own Class A Stock.
These beliefs should not, however, be construed as
a recommendation to the IRA Shareholders by the
members of the Management Group in their capacity
as shareholders or First Command to vote or
approve the Merger Agreement. See "SPECIAL
FACTORS--Position of the Management Group and
First Command." Members of the Management Group
and the officers, directors and principal
shareholders of First Command are executive
officers or directors of the Company and have an
interest in the contemplated Merger. See "SPECIAL
FACTORS--Interests of Certain Persons in the
Merger."
Opinion of the Financial On June 27, 1998, the Financial Advisor delivered
Advisor . . . . . . . . . its report and form of written opinion to the
Special Committee and the IRA Board to the effect
that as of such date and based upon and subject to
the assumptions, limitations and qualifications
set forth in such opinion, the Merger is fair to
the Class A Shareholders and the Class B
Shareholders from a financial point of view. The
Financial Advisor indicated that it was prepared
to deliver its written opinion in such form when
requested to do so by the Special Committee. The
Financial Advisor subsequently confirmed such
opinion by delivery of its written opinion, dated
as of the date of this Proxy Statement (the
"Financial Advisor Opinion"). A copy of the
Financial
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Advisor Opinion which sets forth the
assumptions made, procedures followed, other
matters considered and limits of its review is
attached hereto as Annex B. Shareholders are urged
to and should read the Financial Advisor Opinion
in its entirety. See "SPECIAL FACTORS--Opinion of
the Financial Advisor."
Interests of Certain Class B Shareholders should be aware in
Persons in the Merger . . considering whether to vote in favor of the Merger
that the Management Group, along with other
Class A/B Shareholders, have interests in the
Merger in addition to their interests as
shareholders of IRA generally. Those interests
relate to, among other things, the fact that
each of the members of the Management Group is
a Class A Shareholder and, as such, upon
consummation of the Merger will be a
shareholder of the Surviving Corporation,
unless such member of the Management Group
elects to seek appraisal rights for his Class A
Stock. Further, the IRA Board and the
executive officers of IRA will be the directors
and executive officers of the Surviving
Corporation upon consummation of the Merger.
As a result, each member of the Management
Group that is currently an officer or director
of the Company will retain his or her position
with the Surviving Corporation upon
consummation of the Merger. See "CERTAIN
INFORMATION CONCERNING IRA--Directors and
Executive Officers of IRA."
The Merger Agreement provides that IRA, and, after
the Effective Time (as defined below), the
Surviving Corporation, will indemnify (and advance
expenses to) each present and former director,
officer and employee of IRA and its subsidiaries
(the "Indemnified Parties") to the fullest extent
permitted under applicable law or under the
Articles of Incorporation and Bylaws of IRA and
the Surviving Corporation against any costs
incurred in connection with any claim, proceeding
or investigation relating to matters occurring
prior to or at the Effective Time, including the
transactions contemplated by the Merger Agreement.
See "THE PROPOSED MERGER--The Merger
Agreement--Indemnification."
Employment Agreements . . The IRA Board anticipates that the Surviving
Corporation will enter into employment agreements
with each of the Surviving Corporation
Shareholders who are also employees of the
Surviving Corporation. See "SPECIAL
FACTORS--Employment Agreements."
Certain Transactions in See "SPECIAL FACTORS--Certain Transactions in
IRA Common Stock . . . . Company Stock."
Accounting Treatment . . The Merger of the Company into First Command will
be accounted for similar to a business combination
that is accounted for as a pooling of interests.
The conversion of each share of Class A Stock
issued and outstanding into five shares of
Surviving Corporation Voting Stock will, in
effect, result in the net assets of the Company
being recorded at their existing carrying value on
the accounting records of the Surviving
Corporation in conformity with generally accepted
accounting principles ("GAAP"). The purchase of
the Class B Stock for the Class B Cash
Consideration will reduce the shareholders' equity
of the Surviving Corporation by a corresponding
amount. See "SPECIAL FACTORS--Accounting
Treatment."
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Regulatory Filings and See "SPECIAL FACTORS--Regulatory Filings and
Approvals . . . . . . . . Approvals."
Certain Federal Income A Class A/B Shareholder should not recognize gain
Tax Consequences of the or loss upon the exchange of Class A Stock solely
Merger . . . . . . . . . into Surviving Corporation Voting Common Stock
and Class B Stock solely into Surviving
Corporation Nonvoting Common Stock, unless he
or she elects the cash option with respect to
his or her Class B Stock. Assuming the Class
A/B Shareholder does not elect the cash option,
his or her tax basis in shares of Surviving
Corporation Common Stock received pursuant to
the Merger should be the same as the tax basis
of the shares of Class A/B Shareholder
surrendered in exchange therefor. A Class A/B
Shareholder who elects the cash option should
consult his or her own tax advisor(s)
concerning the election of that option. A
Class B Shareholder that is not a Class A/B
Shareholder and is not related to any
shareholder of the Surviving Corporation should
recognize gain or loss equal to the difference
between the amount of the Class B Cash
Consideration and the Class B Shareholder's tax
basis in all the shares of Class B Stock
surrendered in exchange therefor. The Company
should not recognize any gain or loss as a
result of the Merger for U.S. federal income
tax purposes. See "SPECIAL FACTORS--Certain
Federal Income Tax Consequences of the Merger."
Ernst & Young LLP ("Ernst & Young") has provided
the Company with an opinion (the "Tax Opinion"),
attached as Annex F, with respect to certain
United States federal income tax consequences that
should arise from the Merger and the
implementation of the Mission Accomplishment Plan
(as described herein).
<CAPTION>
THE SPECIAL MEETING
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Time, Date and Place . . The Special Meeting will be held on ____________,
1998, _________ a.m., local time, at 4100 South
Hulen Street, Fort Worth, Texas 76109.
Purpose of the Special Class A Shareholders and Class B Shareholders will
Meeting . . . . . . . . . consider and vote upon a proposal to approve the
Merger Agreement between the Company and First
Command. Class A Shareholders and Class B
Shareholders, to the extent that Class B Stock is
permitted to vote on such matters, will also
consider and vote upon all other matters as may
properly be brought before the Special Meeting.
See "THE SPECIAL MEETING" and "THE PROPOSED
MERGER."
Record Date . . . . . . . Only shareholders of record of Class A Stock
and/or Class B Stock at the close of business on
____________, 1998 (the "Record Date"), are
entitled to notice of and to vote at the Special
Meeting. On such date, there were outstanding
25 shares of Class A Stock and ________________
shares of Class B Stock held by holders of record.
See "THE SPECIAL MEETING--Record Date."
Quorum . . . . . . . . . The presence, in person or by proxy, of the
holders of a majority of Class A Stock and the
holders of a majority of Class B Stock entitled to
vote at the Special Meeting is necessary to
constitute a quorum for the transaction of
business at such meeting. See "THE SPECIAL
MEETING--Quorum." Abstentions are counted for
purposes of determining whether a quorum exists at
the Special Meeting. However, proxies that
reflect abstentions and proxies that are not
returned will have the same effect as a vote
against approval of the Merger Agreement because
the affirmative vote of (i) the holders of at
least 66-2/3% of the outstanding shares
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of Class A Stock and Class B Stock, voting together
as a single class, and (ii) the holders of at
least 66-2/3% of the outstanding shares of
Class A Stock and Class B Stock, each voting
separately as a class, is required to approve
the Merger Agreement. See "THE SPECIAL MEETING--
Votes Required; Voting Rights."
Voting Rights; Votes Each share of Class A Stock and Class B Stock is
Required . . . . . . . . entitled to one vote with respect to the approval
of the Merger at the Special Meeting. With regard
to any other matters presented at the Special
Meeting, each share of Class A Stock will be
entitled to one vote, and the Class B Shareholders
will not be entitled to vote. See "THE SPECIAL
MEETING--Votes Required; Voting Rights."
As of the Record Date, there were ___________
shares of Class B Stock held by persons other
than the Management Group. _____________
shares of Class B Stock will be needed to
approve the Merger in addition to the number of
shares of Class B Stock held by Class A/B
Shareholders.
The affirmative vote of (i) the holders of at
least 66-2/3% of the outstanding shares of Class A
Stock and Class B Stock, voting together as a
single class, and (ii) the holders of at least
66-2/3% of the outstanding shares of Class A Stock
and Class B Stock, each voting separately as a
class, is required to approve the Merger
Agreement.
Security Ownership of As of the Record Date, the Management Group
the Management beneficially owns an aggregate of 16 shares of
Group . . . . . . . . . . Class A Stock and ___________ shares of Class B
Stock (representing approximately 64% and
__________% of the outstanding Class A Stock
and Class B Stock, respectively). Each member
of the Management Group intends to vote all
shares of Class A Stock and Class B Stock
beneficially owned by him or her for approval of
the Merger Agreement. See "THE SPECIAL
MEETING--Votes Required; Voting Rights." There
are five First Command Shareholders, who
beneficially own an aggregate of 1,000 shares
of First Command Common Stock (representing
100% of the outstanding shares of First Command
Common Stock). Each of the First Command
Shareholders, other than Freda J. Payne, is a
member of the executive committee of the IRA
Board, and each, other than Freda J. Payne, is
an executive officer or director of First
Command and a member of the Management Group.
To the knowledge of First Command, each of the
First Command Shareholders intends to vote all
shares of First Command Common Stock
beneficially owned by him or her for approval of
the Merger Agreement. See "MARKET PRICE DATA,
DISTRIBUTIONS AND SECURITY OWNERSHIP OF FIRST
COMMAND COMMON STOCK--Security Ownership of
Management and Certain Beneficial Owners of
First Command Common Stock."
Revocability of Proxy . . Any IRA Shareholder who executes and returns a
proxy may revoke such proxy at any time before it
is voted by (i) notifying in writing the Corporate
Secretary of IRA at 4100 South Hulen Street, Fort
Worth Texas 76109, (ii) granting a subsequent
proxy or (iii) appearing in person and voting at
the Special Meeting. Attendance at the Special
Meeting will not in and of itself constitute
revocation of a proxy.
<CAPTION>
THE PROPOSED MERGER
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General . . . . . . . . . At the Effective Time, pursuant to the Merger
Agreement, the Company will be merged with and
into First Command in accordance with the
applicable provisions of the Texas Business
Corporation Act ("TBCA").
Closing; Effective Time . The closing of the Merger (the "Closing") will
take place on the first date that all
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conditions to the Merger shall be satisfied or waived
in accordance with the Merger Agreement or such date
as the Company and First Command may agree in
writing (the "Closing Date"). Pursuant to the
Articles of Merger to be filed with the Secretary
of State of the State of Texas, the Merger will
become effective at 12:01 a.m. on October 1, 1998
(the "Effective Time"). See "THE PROPOSED
MERGER--Closing; Effective Time."
Conversion of Shares . . In the Merger, each share of Class A Stock of the
Company issued and outstanding at the Effective
Time (other than shares of Class A Stock held in
treasury by the Company), subject to and upon the
terms and conditions of the Merger Agreement, will
be converted into five shares of Surviving
Corporation Voting Stock. Further, (i) each share
of Class B Stock held by a Class B Shareholder
that is not a Class A/B Shareholder that is issued
and outstanding immediately prior to the Effective
Time, subject to and upon the terms and conditions
of the Merger Agreement, will be converted into
$28.24 in cash, without interest, and (ii) each
share of Class B Stock held by a Class A/B
Shareholder issued and outstanding immediately
prior to the Effective Time, subject to and upon
the terms and conditions of the Merger Agreement,
will be converted into one share of Surviving
Corporation Nonvoting Stock; provided, however
that each Class A/B Shareholder may elect to
receive, in lieu of receiving the Class B
Nonvoting Stock Consideration, the Class B Cash
Consideration for all shares of Class B Stock held
immediately prior to the Effective Time. Each
holder of First Command Common Stock, issued and
outstanding immediately prior to the Effective
Time, subject to and upon the terms and conditions
of the Merger Agreement, will receive one share of
Surviving Corporation Nonvoting Stock for each 25
shares of First Command Common Stock held by such
shareholder. See "THE PROPOSED MERGER--Conversion
of Shares."
Class A/B Shareholders Subject to certain allocation procedures, Class
Election; Procedures . . A/B Shareholders as of the Record Date will be
entitled to, in addition to receiving the Class A
Consideration for their Class A Stock, elect to
receive for each share of Class B Stock held
thereby either (A) the Class B Nonvoting Stock
Consideration or (B) the Class B Cash
Consideration. A Class A/B Shareholder may not
elect to receive both the Class B Nonvoting Stock
Consideration and the Class B Cash Consideration.
If such Class A/B Shareholder indicates that such
record holder has no preference as to the receipt
of Class B Nonvoting Stock Consideration or the
Class B Cash Consideration or fails to make a
timely election (a "Non-Election"), such Class A/B
Shareholder shall be deemed to have elected to
receive the Class B Nonvoting Stock Consideration.
The Company will use its best efforts to make a
Form of Election available to all persons who
become Class A/B Shareholders of record between
the date of mailing of this Proxy Statement and
the Election Deadline.
In the event a Form of Election is delivered to
the Paying Agent on behalf of a record holder of
Class B Stock (as defined below) who is a Class
A/B Shareholder (as defined below) prior to the
Election Deadline and not revoked prior to such
deadline, or if a Form of Election is delivered to
the Paying Agent after the Election Deadline, the
Company or the Surviving Corporation, as the case
may be, will deem such delivery a revocation of
any objections to the Merger previously filed with
the Company for purposes of exercising dissenter's
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rights and a waiver of any future rights to such
exercise. See "THE PROPOSED MERGER--Rights of
Dissenting Shareholders."
All such elections shall be made on the Form of
Election mailed to Class A/B Shareholders as of
the Record Date along with this Proxy Statement.
To be effective, a Form of Election must be
returned, properly completed, to the Paying Agent
no later than the Election Deadline. A Class A/B
Shareholder that fails to submit an effective Form
of Election prior to the Election Deadline shall
be deemed to have made a Non-Election.
Elections may be revoked or amended upon written
notice to the Paying Agent prior to the Election
Deadline. See "THE PROPOSED MERGER--Shareholder
Elections."
Charter and Bylaws . . . Pursuant to the Merger Agreement, the Articles of
Incorporation and Bylaws of First Command as in
effect immediately prior to the Effective Time
will be the Articles of Incorporation and Bylaws,
respectively, of the Surviving Corporation
following the Merger until duly amended as
provided therein and by applicable law. The Merger
Agreement provides that at the Effective Time the
Articles of Incorporation of the Surviving
Corporation shall be amended to provide for the
change of the name of the Surviving Corporation to
"Independent Research Agency for Life Insurance,
Inc." A copy of the Articles of Incorporation, as
proposed to be amended, and the Bylaws, as
proposed to be amended, of the Surviving
Corporation are attached hereto as Annex E. See
"THE PROPOSED MERGER--The Merger Agreement--
Charter and Bylaws."
Conditions to the Merger . The obligation of First Command to consummate the
Merger is subject to the satisfaction of a number
of conditions, including, among others (i) the
performance and compliance of IRA in all material
respects with all agreements, obligations and
conditions required by the Merger Agreement to be
performed or complied with by IRA on or prior to
the Closing Date; (ii) the holders of (A) two-
thirds (2/3) of the outstanding shares of Class A
Stock and Class B Stock, voting as a single class,
and (B) two-thirds (2/3) of the outstanding shares
of Class A Stock and Class B Stock, each voting
separately as a class, that are eligible to vote
at the Special Meeting shall have voted for
approval and adoption of the Merger Agreement;
(iii) the holders of two-thirds (2/3) of the
outstanding shares of First Command Common Stock
shall have voted for approval and adoption of the
Merger Agreement; (iv) all approvals, consents,
authorizations and waivers from governmental and
other regulatory agencies and other third parties
required to consummate the transactions
contemplated by the Merger Agreement, which either
individually or in the aggregate, if not obtained,
would have a materially adverse effect on the
financial condition, results of operations or
business of IRA or would prevent consummation of
the Merger and the other transactions contemplated
by the Merger Agreement, shall have been obtained;
(v) on the Closing Date, there shall be no
effective injunction, writ, temporary restraining
order or any order of any nature issued by a court
of competent jurisdiction or other governmental
authority directing that the transactions provided
for in the Merger Agreement or any of them not be
consummated as so provided or imposing any
conditions on the consummation of the transactions
contemplated by the Merger Agreement that First
Command deems unacceptable in its sole discretion;
(vi) no suit, action, or other proceeding seeking
to restrain, prevent
10
<PAGE>
or change the transactions contemplated by the
Merger Agreement or otherwise questioning the
validity or legality of such transactions shall have
been instituted and be pending; and (vii) the
holders of no more than 20% of either of the
outstanding Class A Stock or the Class B Stock
shall have delivered notice of their intent to
exercise their right to dissent under the TBCA.
The obligation of IRA to consummate the Merger is
subject to the satisfaction of a number of
conditions, including, among others (i) the
performance and compliance of First Command with
all agreements, obligations and conditions
required by the Merger Agreement to be performed
or complied with by First Command on or prior to
the Closing Date; (ii) IRA shall not have received
written notice from the Financial Advisor that it
has withdrawn, revoked or modified its opinion as
to the fairness of the Merger to the IRA
Shareholders, from a financial point of view;
(iii) the holders of (A) two-thirds (2/3) of the
outstanding shares of Class A Stock and Class B
Stock, voting as a single class, and (B) two-
thirds (2/3) of the outstanding shares of Class A
Stock and Class B Stock, each voting separately as
a class, that are eligible to vote at the Special
Meeting shall have voted for approval and adoption
of the Merger Agreement; (iv) the holders of two-
thirds (2/3) of the outstanding shares of First
Command Common Stock shall have voted for approval
and adoption of the Merger Agreement; (v) all
approvals, consents, authorizations and waivers
from governmental and other regulatory agencies
and other third parties required to consummate the
transactions contemplated by the Merger Agreement,
which either individually or in the aggregate, if
not obtained, would have a materially adverse
effect on the financial condition, results of
operations or business of IRA or would prevent
consummation of the Merger and the other
transactions contemplated by the Merger Agreement,
shall have been obtained; (vi) on the Closing
Date, there shall be no effective injunction,
writ, temporary restraining order or any order of
any nature issued by a court of competent
jurisdiction or other governmental authority
directing that the transactions provided for in
the Merger Agreement or any of them not be
consummated as so provided or imposing any
conditions on the consummation of the transactions
contemplated by the Merger Agreement that IRA
deems unacceptable in its sole discretion; (vii)
no suit, action, or other proceeding seeking to
restrain, prevent or change the transactions
contemplated by the Merger Agreement or otherwise
questioning the validity or legality of such
transactions shall have been instituted and be
pending; and (viii) the holders of no more than
20% of either of the outstanding Class A Stock or
the Class B Stock shall have delivered notice of
their intent to exercise their right to dissent
under the TBCA.
The conditions to each of the parties' obligations
to consummate the Merger are for the sole benefit
of such party and may be waived by such party in
whole or in part to the extent permitted by
applicable law. In the event a modification or
waiver by IRA or First Command is contemplated
that requires shareholder approval under
applicable law, a supplement to this Proxy
Statement will be distributed to IRA Shareholders,
and proxies will be resolicited. See "SPECIAL
MEETING OF IRA SHAREHOLDERS--Solicitation of
Proxies." Neither First Command nor IRA currently
contemplates waiving or modifying any of the
foregoing conditions. See "THE PROPOSED
MERGER--The Merger Agreement--Conditions to the
Merger."
11
<PAGE>
Termination . . . . . . . The Merger Agreement may be terminated and the
Merger abandoned at any time prior to the
Effective Time, (i) by mutual consent of the
Boards of Directors of First Command and IRA; (ii)
by either IRA or First Command if at the Special
Meeting, or any adjournment thereof, the
shareholders of IRA fail to adopt and approve the
Merger; (iii) by either IRA or First Command if
the shareholders of First Command fail to adopt
and approve the Merger; and (iv) by either IRA or
First Command if a court of competent jurisdiction
or governmental, regulatory or administrative
agency or commission shall have issued an order,
decree or ruling or taken any other action, in
each case permanently restraining, enjoining or
otherwise prohibiting the transactions
contemplated by the Merger Agreement, and such
order, decree, ruling or other action shall have
become final and nonappealable. See "THE PROPOSED
MERGER--The Merger Agreement--Termination."
Rights of Dissenting If the Merger is consummated, shareholders that
Shareholders . . . . . . comply with certain requirements of the TBCA
("Dissenting Shareholders") will be entitled to
exercise their appraisal rights with regard to
their shares of Class A Stock or Class B Stock in
accordance with the procedures set forth in
Articles 5.12 and 5.13 of the TBCA. Shareholders
wishing to exercise dissenters' rights must (i)
not vote in favor of approval of the Merger
Agreement (which would include submitting a signed
proxy without voting instructions); (ii) deliver
to the Company, prior to the Meeting, written
notice of their objection to the Merger stating
that they will exercise their right to dissent
under the TBCA if the Merger is effected; and
(iii) strictly comply with the other requirements
of the TBCA. Failure to follow the procedures
required by Articles 5.12 and 5.13 of the TBCA may
result in the loss of dissenters' rights (in which
event a shareholder will be entitled to receive
the Merger Consideration with respect to such
shareholder's shares of Class A Stock or Class B
Stock in accordance with the Merger Agreement).
See "THE PROPOSED MERGER--Rights of Dissenting
Shareholders."
</TABLE>
12
<PAGE>
SELECTED FINANCIAL DATA OF IRA
The following table presents summary historical financial data of IRA and
its consolidated subsidiaries for the periods indicated. The related data for
the five years ended September 30, 1997 are derived from the audited financial
statements of IRA and its subsidiaries. IRA's Annual Report on Form 10-K for
the fiscal year ended September 30, 1997 (the "IRA 10-K") is incorporated by
reference in this Proxy Statement and enclosed herewith. The financial data as
of and for the nine months ended June 30, 1998 and 1997 were derived from IRA's
unaudited quarterly financial statements included in IRA's Quarterly Report on
Form 10-Q for the nine months ended June 30, 1998 and incorporated by reference
in this Proxy Statement and enclosed herewith, and, in the opinion of IRA's
management, reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of such data. The data for the nine months
ended June 30, 1998 and 1997 are not necessarily indicative of results of
operations for the entire year. The data should be read in conjunction with the
consolidated financial statements, related notes and other financial
information of IRA included and incorporated by reference in this Proxy
Statement.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Commissions revenue . . . . . $ 122,329,601 $ 116,632,069 $ 108,443,810 $ 100,491,633 $ 93,767,954
Bank operations . . . . . . . 58,458 -0- -0- -0- -0-
Operating expenses . . . . . (113,528,791) (109,040,366) (102,510,314) (93,421,636) (86,224,269)
-------------- -------------- -------------- -------------- --------------
Operating income . . . . . . 8,859,268 7,591,703 5,933,496 7,069,997 7,543,685
Other income . . . . . . . . 5,216,114 3,719,793 4,201,478 3,464,253 3,280,284
-------------- -------------- -------------- -------------- --------------
Income before income taxes 14,075,382 11,311,496 10,134,974 10,534,250 10,823,969
Income taxes . . . . . . . . (4,639,886) (3,842,639) (3,417,024) (3,561,062) (3,567,212)
-------------- -------------- -------------- -------------- --------------
Net income . . . . . . . . . $ 9,435,496 $ 7,468,857 $ 6,717,950 $ 6,973,188 $ 7,256,757
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Basic earnings per share . . $ 10.06 $ 7.97 $ 7.18 $ 7.51 $ 7.65
<CAPTION>
As of September 30,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets . . . . . . . $ 23,860,692 $ 23,926,327 $ 21,367,029 $ 20,067,223 $ 19,700,911
Property and equipment . . . 12,145,961 12,614,194 13,303,488 10,883,370 10,918,721
Bank assets . . . . . . . . . 22,062,980 -0- -0- -0- -0-
Other assets . . . . . . . . 67,826,675 52,149,411 44,964,482 35,145,007 23,970,401
-------------- -------------- -------------- -------------- --------------
Total assets . . . . . . $ 125,896,308 $ 88,689,932 $ 79,634,999 $ 66,095,600 $ 54,590,033
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Current liabilities . . . . . $ 33,395,193 $ 27,742,525 $ 27,243,419 $ 26,644,967 $ 22,211,796
Bank liabilities . . . . . . 13,437,520 -0- -0- -0- -0-
Long-term obligations . . . . 25,127,512 16,998,700 12,376,835 7,256,834 3,256,623
Equity . . . . . . . . . . . 53,936,083 43,948,707 40,014,745 32,193,799 29,121,614
-------------- -------------- -------------- -------------- --------------
Total liabilities and
equity. . . . . . . . . . . $ 125,896,308 $ 88,689,932 $ 79,634,999 $ 66,095,600 $ 54,590,033
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Per Share Data:
Book value per share . . . . $ 51.20 $ 44.72 $ 39.70 $ 35.79 $ 29.55
Cash dividends per share . . (7.73) (7.63) (4.50) (4.88) (7.31)
Unrealized gains per share,
net (1). . . . . . . . . . . (15.23) (10.05) (8.16) (5.79) -
-------------- -------------- -------------- -------------- --------------
Per share price (2) . . . . . $ 28.24 $ 27.04 $ 27.04 $ 25.12 $ 22.24
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
<CAPTION>
Nine Months Ended
June 30,
----------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Income Statement Data:
Commissions revenue . . . . . $ 95,006,492 $ 90,834,961
Bank operations . . . . . . . 1,087,339 41,995
Operating expenses . . . . . (92,511,232) (84,944,354)
-------------- -------------
Operating income . . . . . . 3,582,599 5,932,602
Other income . . . . . . . . 7,416,922 5,472,678
-------------- -------------
Income before income taxes 10,999,521 11,405,280
Income taxes . . . . . . . . (3,467,015) (3,728,593)
-------------- -------------
Net income . . . . . . . . . $ 7,532,506 $ 7,676,687
-------------- -------------
-------------- -------------
Basic earnings per share. . . $ 7.64 $ 8.23
<CAPTION>
As of June 30,
----------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Balance Sheet Data:
Current assets . . . . . . . $ 13,750,383 $ 23,860,692
Property and equipment . . . 12,668,931 12,145,961
Bank assets . . . . . . . . . 59,685,034 22,062,980
Other assets . . . . . . . . 78,028,243 67,826,675
-------------- -------------
Total assets . . . . . . $ 164,132,591 $ 125,896,308
-------------- -------------
-------------- -------------
Current liabilities . . . . . $ 33,962,103 $ 33,395,193
Bank liabilities . . . . . . 50,874,747 13,437,520
Long-term obligations . . . . 27,613,452 25,127,512
Equity . . . . . . . . . . . 51,682,289 53,936,083
-------------- -------------
Total liabilities and
equity. . . . . . . . . . . $ 164,132,591 $ 125,896,308
-------------- -------------
-------------- -------------
Per Share Data:
Book value per share . . . . $ 54.55 $ 50.30
Cash dividends per share . . - -
Unrealized gains per share,
net (1). . . . . . . . . . . (18.27) (14.78)
-------------- -------------
Per share price (2) . . . . . (3) (3)
-------------- -------------
-------------- -------------
</TABLE>
- --------------------
(1) Beginning in fiscal year 1994, as required by Statement of Financial
Accounting Standards ("SFAS") 115 "Accounting for Certain Investments in
Debt and Equity Securities," the Company accounted for unrealized
investment gains in its balance sheet's equity section, net of federal
income taxes. Since the appreciation is unrealized, it is not, and has
never been, included in the determination of the Company's per share
price.
(2) The increase in per share price over the previous year's share price is
added incrementally, 1/12th per month for the ensuing 12 months, to the
current September 30 share price (based upon the prior year's
computation). For example, the book value per share exclusive
13
<PAGE>
of unrealized gains at September 30, 1996, less the dividends declared as
of that date, resulted in a Class B Stock price per share at September 30,
1997 of $27.04. The increase in book value per share, exclusive of
unrealized gains (and net of the fiscal 1996 dividend paid in December
1996), for the fiscal year ended September 30, 1997 was $8.93, of which
$7.73 was paid as a dividend in December 1997. The remaining $1.20 per
share has been allocated at $0.10 per month throughout fiscal year 1998,
which will result in a per share price of $28.24 as of September 1998.
(3) The share price at interim periods is based on the prior year's book value
per share, net of unrealized gains, net of tax, and dividends per share.
Current year net income is either paid as a dividend as of the end of the
year or included in the stock price the following year (see Note 2 above).
14
<PAGE>
SELECTED FINANCIAL DATA OF FIRST COMMAND
The following table presents summary historical financial data of First
Command as of the periods indicated. The historical financial data as of May
31, 1998, are derived from First Command's audited balance sheet enclosed
herewith. The historical financial data as of June 30, 1998, are derived from
First Command's unaudited balance sheet enclosed herewith. Because First
Command had only three months of operations as of June 30, 1998, only balance
sheet data have been presented. The data should be read in conjunction with
the balance sheet, related notes and other financial information of First
Command included elsewhere in this Proxy Statement. See "FIRST COMMAND
FINANCIAL CORPORATION BALANCE SHEET."
<TABLE>
<CAPTION>
AS OF AS OF
MAY 31, 1998 JUNE 30, 1998
------------ -------------
<S> <C> <C>
Balance Sheet Data:
Current assets. . . . . . . . . . . $ 893 $ 1,000
Total assets. . . . . . . . . . . . 13,203 34,265
Current liabilities . . . . . . . . 12,310 -0-
Stockholders' equity. . . . . . . . 893 (6,746)
Per Share Data:
Book value per share. . . . . . . . $ 0.89 $ (6.75)
Cash dividends per share. . . . . . -- --
</TABLE>
15
<PAGE>
SUMMARY PRO FORMA DATA
The following table sets forth selected unaudited pro forma financial data
derived from the Pro Forma Condensed Consolidated Financial Statements included
under the section "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
IRA." The pro forma balance sheet data and the pro forma statement of
operations data gives effect to the Merger as if it were consummated on June
30, 1998 and October 1, 1996, respectively. The pro forma financial information
is based on assumptions that management believes are reasonable and such
information is presented for comparative and informational purposes only. The
pro forma financial information does not purport to represent what the Company's
results of operations or financial condition would have actually been had the
Merger in fact occurred on such dates or to project the Company's results of
operations for any future period or financial condition of any future date.
This table should be read in conjunction with the Pro Forma Condensed
Consolidated Financial Statements included under the section "PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF IRA" and the IRA 10-K, the
Company's Quarterly Reports on Form 10-Q for the nine months ended June 30,
1998, the Consolidated Financial Statements of the Company and related notes
thereto, the Balance Sheet of First Command and related notes thereto and the
other financial information contained in the documents included or incorporated
by reference herein. See "INCORPORATION BY REFERENCE."
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC. AND
FIRST COMMAND CORPORATION
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
SEPTEMBER 30, 1997 ENDED JUNE 30, 1998
------------------ -------------------
<S> <C> <C>
Income Statement Data:
Commissions revenue . . . . . . . . . . . . . $ 122,329,601 $ 95,006,492
Bank operations . . . . . . . . . . . . . . . 58,458 1,087,339
Operating expenses. . . . . . . . . . . . . . (126,484,173) (102,665,308)
---------------- ------------------
Operating income. . . . . . . . . . . . . . . (4,096,114) (6,571,477)
Other income. . . . . . . . . . . . . . . . . 4,096,114 6,571,477
---------------- ------------------
Income before income taxes. . . . . . . . . . -- --
Income taxes. . . . . . . . . . . . . . . . . -- --
---------------- ------------------
Net income. . . . . . . . . . . . . . . . . . $ -- $ --
---------------- ------------------
---------------- ------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1998
-------------
<S> <C>
Balance Sheet Data:
Current assets. . . . . . . . . . . . . . . . $ 12,608,585
Property and equipment. . . . . . . . . . . . 12,695,701
Bank assets . . . . . . . . . . . . . . . . . 59,685,034
Other assets. . . . . . . . . . . . . . . . . 78,034,738
-------------
Total assets . . . . . . . . . . . . . . $ 163,024,058
-------------
-------------
Current liabilities . . . . . . . . . . . . . $ 33,962,103
Bank liabilities. . . . . . . . . . . . . . . 50,874,747
Long-term obligations . . . . . . . . . . . . 42,240,784
Equity. . . . . . . . . . . . . . . . . . . . 35,946,058
-------------
Total liabilities and equity . . . . . . $ 163,024,058
-------------
-------------
Book value per share (1). . . . . . . . . . . $ 99.96
</TABLE>
(1) Pro forma book value per share does not include the anticipated charge
to equity to reflect the Mission Accomplishment Plan compensation
that is expected to be recorded for subsequent periods. Per the Pro
Forma Condensed Consolidated Income Statement, the charge to equity
for the nine months ending June 30, 1998 is expected to have been
$10,154,076.
<TABLE>
<CAPTION>
Per share data:
First Command
Independent Financial Pro Forma
Research Agency Corporation Combined
--------------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share
Fiscal year ended 9/30/97 $10.06 $ 0.00 $0.00
Nine months ended 6/30/98 7.64 (7.75) 0.00
Dividends per share
Fiscal year ended 9/30/97 7.73 0.00 0.00
Nine months ended 6/30/98 0.00 0.00 0.00
Book value per share
At June 30, 1998 54.55 (6.75) 99.96
</TABLE>
17
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE MERGER
In early 1997, because of the costs associated with its being a public
company and the competitive disadvantages of having to make public disclosures
in Exchange Act filings, the Company began to consider becoming a privately-held
company pursuant to a transaction in which the registration of the Class B Stock
under the Exchange Act would be terminated. Ernst & Young advised the Company
that, based upon the facts presented at that time, upon the elimination of the
Class B Stock, the Company could be eligible for S corporation status. In the
ensuing months of 1997, the Company continued to study the feasibility and
ramifications of such a transaction. In March 1998, Ernst & Young prepared a
report for the Company that summarized the differences between an S corporation
and a C corporation under federal income tax laws. A copy of this report has
been filed as an exhibit to the Schedule 13E-3, and it will be made available
for inspection and copying at the principal executive offices of the Company
during its regular business hours by any IRA Shareholder or his
representative who has been so designated in writing. Alternatively, the
Company will transmit a copy of the report to such IRA Shareholder (or his or
her designated representative) upon written request and at the expense of
such IRA Shareholder.
Additionally, during 1997 the Company established plans to construct and
operate a parking garage for employees of the Company and current and future
tenants in IRA's building. Management was concerned, however, about the
potential liability of IRA in connection with the construction and operation of
a parking garage. As a result, First Command was formed on April 1, 1998, to
limit this potential liability of IRA. At its inception, First Command
qualified for, and elected, S corporation status. See "CERTAIN INFORMATION
CONCERNING FIRST COMMAND--Business."
In April 1998, management of the Company determined that it would be in the
best interests of the Company to further investigate the deregistration of the
Class B Stock, thereby eliminating the Company's reporting requirements under
the Exchange Act and minimizing the administrative duties that correspond with
such reporting requirements. Additionally, management believed that the Company
would qualify for S corporation status after the elimination of its Class B
Stock.
On April 27, 1998, at a special meeting of the IRA Board attended by all
directors except Naomi K. Payne, after a presentation by Lamar C. Smith,
Chairman of the Board and Chief Executive Officer of IRA, and Martin R. Durbin,
Chief Financial Officer of IRA, the IRA Board adopted by a unanimous vote of all
directors present a resolution authorizing and instructing the officers of the
Company to pursue a plan that would allow the Company to achieve operating
efficiencies through elimination of the Class B Stock and its subsequent
qualification for S corporation status. The Company then retained Haynes and
Boone, LLP, Fort Worth, Texas as special securities and tax counsel. The
Company also engaged Ernst & Young LLP, as tax advisors. The Company selected
these firms because of their reputation in corporate and securities and tax law
matters.
The IRA Board held a special meeting on May 8, 1998, which was attended by
all directors other than Mr. Arnold Punaro. Because Texas law requires all
directors of a Texas insurance company be licensed insurance agents and because
Mr. Punaro was not a licensed insurance agent, Mr. Punaro resigned and became an
advisory director of the Company at this special meeting. Martin R. Durbin and
Lamar C. Smith updated the IRA Board regarding the plan to achieve the IRA
Board's objectives of eliminating its Class B Stock and qualifying for S
corporation status. As part of this plan, management contemplated that, upon
the elimination of the Class B Stock, IRA should qualify as an S corporation.
As a result, in order to achieve administrative simplicity associated with the
elimination of costs and time necessary to prepare two sets of tax returns and
to reduce compliance responsibilities and reporting requirements that would
result from the deregistration of the Class B Stock, management of IRA and First
Command proposed a merger between IRA and First Command, pursuant to which IRA
would merge with and into First Command, which would be the surviving
corporation.
Following this presentation and a discussion, the IRA Board determined
that it would be advisable to establish a special committee of independent
directors (the "Special Committee") to determine whether the terms of the
proposed transaction were fair to and in the best interests of the IRA
Shareholders, which includes the Class B Shareholders who do not own Class A
Stock (and certain Class A/B Shareholders who are not officers or directors).
As the IRA Board had no members that did not own Class A Stock or Class B
Stock, pursuant to the Bylaws of IRA, the IRA Board elected James J. Ellis to
serve in the class of directors whose term expires on December 31, 1999, and
Logan Dickinson to
18
<PAGE>
serve in the class of directors whose term expires on December 31, 2000. Mr.
Ellis and Mr. Dickinson were also appointed as the members of the Special
Committee.
Mr. Ellis and Mr. Dickinson were elected to fill two
vacancies that existed on the IRA Board and have agreed to serve on the IRA
Board at least through the end of their respective terms. Both Mr. Ellis and
Mr. Dickinson were selected to serve as directors and members of the Special
Committee because each has many years of experience in the insurance
industry. Mr. Dickinson also has extensive experience in the investment
industry. Messrs. Ellis and Dickinson had (i) no prior relations with the
Company or its affiliates and (ii) little, if any, knowledge of the Company's
operations, prior to their election to the IRA Board. Each of Messrs. Ellis
and Dickinson is paid $1,000 per Special Committee meeting, unless such
meeting is held in conjunction with or immediately prior to a full meeting of
the IRA Board, in which case each receives $500 per Special Committee
meeting. Each of them will receive compensation in his capacity as a member
of the IRA Board to the same extent as other members of the IRA Board receive
compensation.
The Special Committee met on May 18, 19, 20 and 26
for the purposes of holding initial discussions regarding the Merger,
engaging Gardere & Wynne, LLP, Dallas, Texas, as independent legal counsel
for the Special Committee and interviewing potential financial advisors.
During each of these meetings, the Special Committee members, among
themselves, with legal counsel, and with prospective financial advisors,
discussed their understanding of the Company's history and business, the
proposed structure and effect of the Merger and the incentive compensation
plans in effect and to be implemented by the Company. At its meeting on May
26, 1998, the Special Committee determined to engage Coopers & Lybrand LLP,
now known as PricewaterhouseCoopers LLP, as the Financial Advisor, reviewed
the Financial Advisor's proposed engagement letter and directed the Special
Committee's independent legal counsel to review the proposed engagement
letter and provide comments to the Financial Advisor. The engagement letter
was finalized on and dated June 4, 1998, and executed on behalf of the
Special Committee and the Company on June 8, 1998.
The Financial Advisor had no prior material relationships with the
Company, its affiliates or members of the Special Committee. The Company has
engaged the Financial Advisor to assist the Company in making its information
systems Year 2000 compliant. The Financial Advisor will be paid $74,000 as
compensation for such services.
On June 4, 1998, the Special Committee met by telephone conference call
with representatives of the Financial Advisor and the Special Committee's
independent legal counsel for further discussions regarding the Merger and to
determine the due diligence plan and schedule for the Financial Advisor's
engagement. The primary purpose of the meeting was to ensure that the
Financial Advisor had sufficient information to form the foundation of an
effective due diligence effort and to gain the benefit of the Special
Committee's analysis in progress of the Company. The Special Committee
members discussed in more detail with the representatives of the Financial
Advisor the Special Committee's growing understanding of the business of the
Company, the proposed terms of the Merger and the Mission Accomplishment Plan
anticipated to be implemented by the Company. On June 5, 1998,
representatives of the Financial Advisor and the Special Committee's
independent legal counsel began a due diligence review of documents and
information related to the Company and the Merger and due diligence
discussions with Martin Durbin, the Company's Chief Financial Officer, and
Robert F. Watson, the Company's General Counsel. On June 10, 1998, the
Special Committee again met by telephone conference call with representatives
of the Financial Advisor and the Special Committee's independent legal
counsel to discuss the schedule for the Financial Advisor's review and
analysis, the status of the due diligence and the detailed terms of the
Merger, which had been distributed to the Special Committee and the Financial
Advisor by the Company.
On June 15, 1998, the Special Committee, its independent legal counsel
and representatives of the Financial Advisor met at the Company's offices for
due diligence meetings with Lamar Smith, the Company's Chief Executive
Officer, James Lanier, the Company's Chief Operating Officer, Mr. Watson, Mr.
Durbin and Howard Crump, Director of Marketing (Agency Relations). During
this meeting, the Company's management presented a detailed overview of the
Company's history, business and philosophy, as well as the Company's intent
in proposing the Merger, and responded to questions from the Special
Committee and the Financial Advisor. Messrs. Watson and Durbin outlined the
proposed structure and terms of the Merger, the effect on the IRA
Shareholders as a whole and on each category of IRA Shareholders. Messrs.
Watson and Durbin also responded to detailed questions from the Special
Committee and the Financial Advisor.
During the meeting on June 15, 1998, the members of the Special
Committee and representatives of the Financial Advisor interviewed an agent
and a district agent, each of whom is a Class B Shareholder and has been
associated with the Company for approximately 20 years and 6 years,
respectively. During this interview, the agent and district agent were asked
questions regarding the Company's operations, their respective positions with
the Company, their roles as Class B Shareholders and the restrictive nature
of the Class B Shareholder Agreements, and their understanding with respect
to the proposed transaction. The agents informed the Special Committee that
they viewed the Class B Stock as compensatory in nature. Based on the
Special Committee's and the Financial Advisor's discussions with the Company
and other due diligence, the Special Committee believed these two individuals
were representative of the Company's agents, the agent being a long-time and
larger Class B Shareholder and the district agent being a more recent and
smaller Class B Shareholder. The Special Committee did not assign, and did
not find it practicable to assign, a specific weight to these discussions,
but considered them along with other due diligence by the Special Committee
with respect to the Company and its operations and shareholders.
On June 24, 1998, the Special Committee, representatives of the
Financial Advisor and the Special Committee's independent legal counsel met
by telephone conference call to discuss the Financial Advisor's preliminary
analysis regarding the Merger and the rendering by the Financial Advisor of a
fairness opinion. The Special Committee members and the representatives of
the Financial Advisor discussed in detail the effect of the Merger on the IRA
Shareholders and on each category of the IRA Shareholders.
At the meeting of the Special Committee on June 27, 1998, which was held
immediately prior to the IRA Board meeting, the Financial Advisor provided
the members of the Special Committee and the Special Committee's independent
legal counsel with its "Presentation to the Board of Directors" and the
proposed form of fairness opinion the Financial Advisor was prepared to
render when requested to do so. The Financial Advisor also indicated that it
was prepared to make such a presentation to the IRA Board.
19
<PAGE>
On June 27, 1998, the IRA Board held a special
meeting. During the special meeting of the IRA Board, the Special Committee
made a presentation regarding its review of the Merger. At the conclusion of
such presentation, the Special Committee announced that it had determined
that the Merger was fair to the IRA Shareholders, including the Class B
Shareholders who do not own Class A Stock. Subsequent to the presentation of
the Special Committee, the IRA Board approved the Merger.
The IRA Board based the amount of the Class B Cash Consideration on the
methodology used by the Company in previous years to determine the price of
Class B Stock in its offerings to agents of the Company, using September 1998
as the month of the stock price calculation. This methodology has been used
by the Company to establish each purchase and sales price for shares of Class
B Stock since 1981. See "DESCRIPTION OF IRA CAPITAL STOCK--Class B Stock" and
note 2 to "SELECTED FINANCIAL DATA OF IRA."
The IRA Board decided that Class A Shareholders who own Class B Stock
should be entitled to receive Surviving Corporation Nonvoting Stock pursuant
to the Merger because the Class A/B Shareholders otherwise would be taxed at
ordinary income tax rates (rather than at capital gain tax rates) if they
could receive only Class B Cash Consideration for the Class B Stock pursuant
to the Merger. The IRA Board, which will be the Board of the Surviving
Corporation upon consummation of the Merger, anticipates that the Surviving
Corporation, subject to the fiduciary duties of the Board of Directors of the
Surviving Corporation and the ongoing financial condition of the Surviving
Corporation, will declare and pay dividends that are pro rata to all
shareholders on the Surviving Corporation Common Stock that are intended to
approximate the income that the Class A/B Shareholder would have received
from the competitive reinvestment of the Class B Cash Consideration, taking
into account income tax considerations. See "--Certain Effects of the
Merger; Plans for the Company after the Merger." However, if a Class A/B
Shareholder would prefer not to receive the Surviving Corporation Nonvoting
Stock for such shareholder's Class B Stock pursuant to the Merger, the IRA
Board has provided the Class A/B Shareholders with the alternative to receive
the Class B Cash Consideration instead of the Surviving Corporation Nonvoting
Stock.
The IRA Board determined that the consideration to be paid to the
holders of Class A Stock was fair because the Class A Stock is the voting
class of common stock and is primarily held by members of the IRA Board and
officers of the Company.
SOURCE AND AMOUNT OF FUNDS
Approximately $16.9 million will be required to pay the Class B Cash
Consideration in the Merger (assuming no Class A/B Shareholder elects to
receive Class B Cash Consideration), and the Surviving Corporation will pay
approximately $1.2 million in fees and expenses associated with the Merger. The
cash required in connection with the Merger will be provided (i) by working
capital of the Company and (ii) pursuant to the terms of a loan described in the
Credit Facility Commitment Letter (as defined below). The following table sets
forth the estimated sources and uses of funds in connection with the Merger,
assuming consummation of the Merger effective October 1, 1998. In the event
that a Class A/B Shareholder elects to receive the Class B Consideration, or in
the event that any IRA Shareholder elects to seek appraisal rights, the Company
will pay such amounts from working capital or through increases in its
outstanding lines of credit.
<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT
---------------------------------------- ------------
<S> <C>
Cash . . . . . . . . . . . . . . . . . . $ 2,056,000
Credit facility. . . . . . . . . . . . . 16,000,000
------------
Total sources. . . . . . . . . . . . $ 18,056,000
------------
------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
USES OF FUNDS AMOUNT
---------------------------------------- ------------
<S> <C>
Class B Cash Consideration . . . . . . . $ 16,890,000
Professional fees. . . . . . . . . . . . 1,095,000
Filing fees. . . . . . . . . . . . . . . 6,000
Printing and mailing costs . . . . . . . 25,000
Miscellaneous. . . . . . . . . . . . . . 40,000
-------------
Total uses . . . . . . . . . . . . . $ 18,056,000
-------------
-------------
</TABLE>
CREDIT FACILITY. The Company has received a commitment letter from Norwest
Bank Texas, N.A. ("Norwest"), dated June 26, 1998 (the "Credit Facility
Commitment Letter") pursuant to which Norwest has agreed to provide a $16
million senior secured term loan to IRA (the "Credit Facility"), upon the terms
and conditions set forth in the Credit Facility Commitment Letter.
Principal and interest payments under the Credit Facility will be made
monthly in equal payments of $185,362. Interest on indebtedness outstanding
under the Credit Facility is expected to be payable at a rate per annum equal to
the 90-day LIBOR rate plus 127 basis points fixed at the funding date of the
Credit Facility. The maturity date of the Credit Facility will be September 20,
1008. The Company would incur no fees as a result of the Credit Facility, and
there would be no prepayment penalty imposed for early repayments of amounts
owed under the Credit Facility. The Company would be required to pay all
expenses of Norwest in connection with the negotiation, preparation and
documentation of the Credit Facility, including standard closing costs and all
reasonable legal fees and expenses.
Borrowings under the Credit Facility would be secured by a first perfected
security interest in specifically pledged marketable securities acceptable to
Norwest and owned by IRA and its subsidiaries, and the market value of the
securities pledged at the date of the funding of the Credit Facility by Norwest
must be equivalent to 140% of the funded loan amount. Further, the market value
of these securities may not be less than 120% of the loan balance outstanding at
any time. In the event that the market value of the securities does decrease
below 120% of the loan balance, the Credit Facility provides for a cure period
as follows: (i) if the value is between 110% and 119%, there will be a cure
period of 30 days; (ii) if the value is between 100% and 109%, there will be a
cure period of 15 days; and (iii)) if the value is below 100%, there will be a
cure period of 5 days.
The Credit Facility Commitment Letter provides that the Credit Facility
must be closed on or before October 1, 1998. In the event the Credit Facility
is not closed by such date, all of Norwest's obligations under the Credit
Facility Commitment Letter automatically expire. The Credit Facility Commitment
Letter also provides that there must be no material adverse change in the
business or financial condition of the Company from the condition described in
its most recent financial statements presented to Norwest as of the date of the
Credit Facility Commitment Letter, and there must be no material adverse change
with respect to the collateral.
The Credit Facility would be evidenced and governed by the provisions of a
loan agreement, a note and supporting documentation and would contain various
conditions precedent to each advance, standard reporting requirements,
covenants, events of default, representations and warranties, covenants and
other provisions customary for credit facilities of this type. Norwest would
require the Company to deliver copies of audited annual financial statements and
monthly borrowing base certificates within the time periods described in the
Credit Facility Commitment Letter.
The foregoing discussion of the Credit Facility Commitment Letter and does
not purport to be complete and is qualified in its entirety by reference to the
Credit Facility Commitment Letter, a copy of which have been filed as
21
<PAGE>
an exhibit to the Rule 13e-3 Transaction Statement on Schedule 13E-3 (the
"Schedule 13E-3"), which has been filed with the Commission. See "AVAILABLE
INFORMATION."
The Company intends that the Surviving Corporation will utilize tax
savings available after the Merger to repay any debts incurred as a result of
the Merger. On a pro forma basis, S corporation status would have reduced
the Company's income tax expense by $4,639,886 for the year ended September
30, 1997, and $3,467,015 for the nine months ended June 30, 1998. The
Company believes that these tax savings are adequate to service its debt
pursuant to the Credit Facility incurred as a result of the Merger, which the
Company anticipates will be approximately $2,224,344 annually. The Company
believes that, until such debt is repaid, distributions under the Mission
Accomplishment Plan will be at least equal to those made on the Class B
Stock. See "THE PROPOSED MERGER." See "PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF IRA."
PURPOSE AND STRUCTURE OF THE MERGER
First Command was formed on April 1, 1998, as a Texas corporation, to
construct, own and operate the Parking Garage on the Adjacent Land. IRA has
agreed to provide First Command with funds pursuant to an interest- bearing loan
to construct the Parking Garage. See "CERTAIN INFORMATION CONCERNING FIRST
COMMAND--Business." First Command was organized as an entity distinct from IRA
to limit potential liability of IRA with respect to the ownership, construction
and operation of the Parking Garage. As First Command presently has a limited
number of shareholders and meets the other requirements of S corporation status,
First Command elected S corporation status in order for its taxable items to
"flow through" to its shareholders. See "SPECIAL FACTORS--Certain Effects of
the Merger; Plans for the Company after the Merger."
One objective of the Company is to deregister the Class B Stock under the
Exchange Act, which will cause the Company to no longer be subject to the
reporting requirements of the Exchange Act. The Company currently incurs costs
related to its status as a public reporting corporation under the federal
securities laws, including indirect costs as a result of, among other things,
the executive time expended to prepare and review various filings, furnish
information to shareholders and to attend to other shareholder matters. The
Company anticipates that termination of registration under the Exchange Act will
eliminate the costs and expenses of various federal securities filings incurred
by the Company with respect to regulatory and reporting requirements of the
Exchange Act and will reduce the amount of time devoted by management in
connection therewith. Further, the Company has faced certain competitive
disadvantages resulting from the public reporting requirements of the Exchange
Act. Also, management of the Company believes that access to public markets by
the Company and its shareholders will not occur because of the restrictions on
ownership and transfer of the Class B Stock.
The Company did consider commencing an issuer tender offer in order to
accomplish this goal. However, a successful issuer tender offer could not
ensure that there would not still be shares of Class B Stock outstanding upon
such tender offer's conclusion. In the event that the IRA Shareholders approve
the Merger by the requisite vote, the Class B Stock will be eliminated in
accordance with the terms of the Merger Agreement, which will enable the Company
to deregister the Class B Stock under the Exchange Act.
Additionally, the Company believes that it will qualify for S corporation
status immediately following the elimination of the Class B Stock. Management
of the Company recognized that, if the Class B Stock were eliminated, both IRA
and First Command would qualify for S corporation status. As a result, in order
to achieve administrative simplicity, reduce compliance responsibilities and
eliminate public reporting requirements as described above, the management of
IRA and the management of First Command decided that IRA should merge with and
into First Command, rather than continue both companies as separate S
corporations. Immediately prior to the Merger, First Command will transfer all
of its assets, subject to all of its liabilities, to a newly-formed limited
liability company or Qualified Subchapter S Subsidiary in return for all of the
capital stock of such subsidiary in order to keep the planned operations of
First Command separate and distinct from IRA subsequent to the Merger. Because
First Command currently has elected to be treated as an S corporation under the
federal tax laws, upon the consummation of the Merger, the holders of Class A
Stock that do not seek appraisal rights under Articles 5.12 and 5.13 of the TBCA
will be shareholders of the Surviving Corporation, which will also be an S
corporation. Accordingly, such holders of Class A Stock, as holders of
Surviving Corporation Voting Stock, and Class A/B Shareholders that elect to
receive Surviving Corporation Nonvoting Stock for their Class B Stock will be
entitled to the tax treatment that shareholders of an S corporation receive
under the federal tax laws.
The Management Group has engaged in the transactions contemplated by the
Merger Agreement to assist the Company in attaining the objectives described
above.
CERTAIN EFFECTS OF THE MERGER; PLANS FOR THE COMPANY AFTER THE MERGER
Following the Merger, (i) the Class A Shareholders, (ii) the Class A/B
Shareholders that elect to receive Surviving Corporation Nonvoting Stock and
(iii) the First Command Shareholders will own 100% of the capital stock of the
Surviving Corporation, to the extent that such shareholders do not elect to seek
appraisal rights. As such, these persons will be the direct beneficiaries of
any future earnings and growth of the Surviving Corporation
22
<PAGE>
and will have the ability to benefit from any divestitures, strategic
acquisitions or other corporate opportunities that may be pursued by the
Company in the future. Upon consummation of the Merger, the Class B
Shareholders that are not Class A/B Shareholders will cease to have any
direct ownership interest in the Company or other rights as shareholders of
the Company, including the right to receive distributions. After the Merger,
such shareholders will benefit from any increases in the cash flow or the
value of the Surviving Corporation only as a result of any MAP Units that
such shareholders may then hold. However, the Class B Shareholders that are
not Class A/B Shareholders will be entitled to receive $28.24 per share for
their Class B Stock, which the IRA Board, First Command and the Management
Group have determined is fair consideration to the holders of Class B Stock.
Additionally, the IRA Board traditionally has utilized the dividends
declared and paid on the Class B Stock as a means of compensating its agents,
members of management and key employees, who are the holders of Class B Stock.
After the Merger, the Class B Stock will be eliminated and dividends on Class B
Stock will no longer be paid. However, the IRA Board intends to make similar
payments of compensation to holders of MAP Units pursuant to the Mission
Accomplishment Plan.
Class A/B Shareholders who are not affiliates of the Company will receive
following the Merger shares of Surviving Corporation Voting Stock representing
the same proportionate interest owned by such Class A/B Shareholder in IRA prior
to the Merger. The Class A/B Shareholders who are not affiliates of the Company
will be entitled to receive $28.24 per share of Class B Stock owned by them. As
these Class A/B Shareholders would be subject to income tax at ordinary income
rates on any resulting gain, these Class A/B Shareholders may elect instead to
receive Surviving Corporation Nonvoting Stock in exchange for their Class B
Stock.
The impact on Class A/B Shareholders who are affiliates of the Company will
be the same as for Class A/B Shareholders who are not affiliates except they
will also remain as officers and/or directors of the Surviving Corporation.
Under Texas law, each IRA Shareholder has the right to exercise statutory
appraisal rights in the event any shareholder disagrees with the consideration
to be paid pursuant to the Merger. See "THE PROPOSED MERGER--Rights of
Dissenting Sharehlders."
Class B Stock is currently registered under the Exchange Act, which
requires, among other things, that the Company furnish certain information to
its shareholders and to the Securities and Exchange Commission (the
"Commission") and comply with the Commission's proxy rules in connection with
meetings of the Company's Class B Shareholders. After the Merger, the Surviving
Company will no longer be subject to the reporting requirements of the Exchange
Act with respect to Class B Stock, and Class B Stock will be subject to
termination of registration under Section 12(g)(4) of the Exchange Act. After
the Merger, the Company will no longer be subject to the reporting requirements
of the Exchange Act.
The termination of the registration of Class B Stock under the Exchange Act
will substantially reduce the information required to be furnished by the
Company to its shareholders and to the Commission and would render inapplicable
certain provisions of the Exchange Act, including requirements that the Company
file periodic reports (including financial statements), the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions,
requirements that the Company's officers, directors and ten-percent shareholders
file certain reports concerning ownership of the Company's equity securities and
provisions that any profit by such officers, directors and shareholders through
purchases and sales of the Company's equity securities within any six month
period may be recaptured by the Company.
It is expected that following the Merger the business and operations of
the Company will be continued by the Surviving Corporation in the Merger,
substantially as they are being conducted presently through IRA and First
Command. There are no known facts or trends that may indicate that the
Company's agency relationships with represented insurance companies will
change as a result of the consummation of the Merger. The Surviving
Corporation's corporate headquarters are expected to remain in Fort Worth,
Texas, and the current directors and executive officers of IRA are expected
to be the directors and executive officers of the Surviving Corporation. See
"CERTAIN INFORMATION CONCERNING IRA--Directors and Executive Officers of IRA."
For a discussion of the federal tax implications for holders of Class B
Stock, see "--Certain Federal Income Tax Considerations."
First Command is currently an S corporation for federal income tax
purposes. All corporate income, losses, deductions and other taxable items of
an S corporation are "passed through" and taxed at the shareholder level. As a
result, generally an S corporation does not pay federal income taxes on
corporate income; instead, the shareholders of the S corporation are taxed for
their proportionate share of the net income of the S corporation, based on
their respective ownership of the corporation. Consequently, to the extent that
an S corporation generates taxable income, the shareholders of the S
corporation may be subject to tax liability as a result of that corporate
income. Upon consummation of the Merger, management believes that the
Surviving Corporation should be treated as an S corporation, and, as a result
of the Merger, (i) each Class A Shareholder, (ii) each Class A/B Shareholder
electing to receive Surviving Corporation Nonvoting Stock and (iii) each
First Command Shareholder, that do not elect to seek appraisal rights, will
be a shareholder in an S corporation and could be subject to personal tax
liability arising from any taxable income generated by the Surviving
Corporation. After the Merger, however, there can be no assurance that the
Surviving Corporation will continue to maintain its status as an S
corporation. If the Surviving Corporation fails to maintain the requirements
for S corporation, the shareholders of the Surviving Corporation will not
receive the tax treatment accorded to shareholders of S corporations.
The Company has made distributions in the past only on Class B Stock.
Pursuant to the Articles of Incorporation of the Surviving Corporation and the
Surviving Corporation Shareholders' Agreement, the Surviving Corporation will
agree to declare and make distributions pro rata to all the Surviving
Corporation Shareholders to allow them to pay the federal income tax
liability attributable to their distributive share of the Surviving
Corporation's taxable income. In addition, the IRA Board has provided the
Class A/B Shareholders the right to receive the Class B
23
<PAGE>
Nonvoting Stock Consideration. See "SPECIAL FACTORS--Background of the Merger."
Further, the IRA Board, which will be the Board of the Surviving Corporation
upon consummation of the Merger, anticipates that the Surviving Corporation,
subject to the fiduciary duties of the Board of Directors of the Surviving
Corporation and the ongoing financial condition of the Surviving Corporation,
will declare and make distributions that are pro rata to all shareholders on the
Surviving Corporation Common Stock that are intended to approximate the income
that the Class A/B Shareholder would have received from the competitive
reinvestment of the Class B Cash Consideration, taking into account certain
income tax considerations. See "--Purpose and Structure of the Merger."
The purpose of this provision is to provide a minimum return to the
Class A/B Shareholders that elect to receive the Class B Nonvoting Stock
Consideration. This minimum return is to be determined based on the
hypothetical after-tax proceeds that would have resulted if the Class A/B
Shareholder had received the Class B Cash Consideration and received capital
gains tax treatment for federal income tax purposes. For example, assuming a
reasonable after-tax return of 5%, an annual dividend of $1.13 (or $28.24
- -($28.24 x 20%) x 5%) would be paid on each outstanding share of First
Command Common Stock after the Merger. The distribution will apply to both
the Surviving Corporation Voting Stock and the Surviving Corporation
Nonvoting Stock held by the Class A/B Shareholders. The consideration to be
paid for the Class B Stock held by the Class A/B Shareholders is economically
the same as that to be received by the Class B Shareholders that do not own
Class A Stock. The Class A/B Shareholders can elect to receive the Class B
Cash Consideration, or the Class A/B Shareholders can elect to receive the
Class B Nonvoting Stock Consideration with a value equal to the Class B Cash
Consideration.
In the event the Surviving Corporation makes ongoing repurchases of the
Surviving Corporation Nonvoting Stock, the IRA Board presently anticipates
that the repurchase price for such shares will be $28.24 per share, unless
otherwise determined by the Board of Directors of the Surviving Corporation.
The IRA Board also anticipates that such Surviving Corporation Nonvoting
Stock will only be repurchased by the Surviving Corporation in the event that
a Surviving Corporation Shareholder is required to tender his or her shares
to the Surviving Corporation pursuant to the terms of the Surviving
Corporation Shareholders' Agreement. See "--Contracts With Respect to
Surviving Corporation Common Stock."
After the Merger, the Surviving Corporation intends to adopt IRA's
Mission Accomplishment Plan and award MAP Units pursuant to the Mission
Accomplishment Plan to the former Class B Shareholders who are agents, members
of management or employees at the time of award as well as to other active
agents and employees of the Surviving Corporation.
Except as otherwise indicated in this Proxy Statement, the Company and
First Command do not have any plans or proposals subsequent to the Merger that
relate to or would result in an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving the Company, a sale or transfer
of a material amount of the assets of the Company or any material change in the
Company's corporate structure.
CONTRACTS WITH RESPECT TO SURVIVING CORPORATION COMMON STOCK
SURVIVING CORPORATION SHAREHOLDERS' AGREEMENT. Upon the Effective Time,
the management of the Surviving Corporation will request that all Surviving
Corporation Shareholders execute the Surviving Corporation Shareholders'
Agreement (the parties to the Surviving Corporation Shareholders' Agreement
referred to as the "Agreeing Parties"). The Surviving Corporation Shareholders'
Agreement provides for, among other things, (i) restrictions on the transfer of
Surviving Corporation Common Stock that would cause the Surviving Corporation's
status as an S corporation to terminate; (ii) a requirement that a shareholder
tender his or her shares to the Surviving Corporation (at a price to be
determined by the Surviving Corporation at least annually) in the event of any
threatened or actual transfer of the shares, the death of such Agreeing Party,
any termination of marriage of a Agreeing Party by death or divorce in which
such shareholder does not receive his or her spouse's community interest in the
Surviving Corporation Common Stock, any threatened or actual bankruptcy of the
Agreeing Party, the termination of such Agreeing Party as a Texas life insurance
agent, the cessation of the shareholder as a duly authorized agent of the
Surviving Corporation pursuant to a current written agency agreement (except
that with respect to an involuntary termination as a duly authorized agent of
the Surviving Corporation, such termination requires approval by a vote of 80%
of the Board of Directors of the Surviving Corporation), the change in status of
an Agreeing Party to a "nonresident alien" (as defined in the Code) or any
threatened or actual levy by a creditor or claimant upon the Surviving
Corporation Common Stock held by the Agreeing Party; and (iii) certain
provisions with respect to the S corporation status of the Surviving
Corporation. However, the Surviving Corporation Shareholders' Agreement does
permit, under certain circumstances, Surviving Corporation Shareholders to
pledge the Surviving Corporation Common Stock with the prior written consent of
the executive committee of the Surviving Corporation, subject to such terms,
conditions and restrictions as the executive committee of the Board of Directors
of the Surviving Corporation determines to be appropriate. Pursuant to the
Surviving Corporation Shareholders' Agreement, the Surviving Corporation has
agreed to declare and make annual distributions to all of its shareholders in a
timely manner to allow them to pay their federal income tax liability
attributable to their distributive share of the Surviving Corporation's taxable
income.
24
<PAGE>
RECOMMENDATION OF THE IRA BOARD AND THE SPECIAL COMMITTEE;
FAIRNESS OF THE MERGER
The IRA Board, based upon the unanimous recommendation of the Special
Committee, determined that the terms of the proposed Merger are fair to and
in the best interests of the IRA Shareholders, including Class B Shareholders
who do not own Class A Stock, and unanimously approved the Merger Agreement
and the Merger and recommended that the Merger Agreement be submitted for
approval at a special meeting of the Company's shareholders. In arriving at
its decision, the IRA Board gave careful consideration to a number of
factors, including the opinion of the Financial Advisor. ACCORDINGLY, THE IRA
BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT.
The IRA Board's approval and recommendation to the Company's shareholders
and the Special Committee's recommendation to the IRA Board were based upon
the following material positive factors:
(1) the Merger will provide the Class B Shareholders with an
opportunity to receive the fair value for their Class B Stock because the
price per share of $28.24 was determined pursuant to a methodology utilized
by the Company since 1981 to establish the price pursuant to which (i) sales
of Class B Stock have been made in offerings to its agents, members of
management and key employees and (ii) purchases of Class B Stock have been
made by the Company pursuant to the terms of shareholder's agreements between
the Company and each Class B Shareholder;
(2) the flexibility provided by the additional resources available to the
Company after the Merger because savings resulting from the Company being an
S corporation under federal income tax laws and no longer being a public
reporting company following the Merger, will be utilized to make compensation
payments pursuant to the Mission Accomplishment Plan, after the payment of
debt incurred to finance the Merger and the use of such funds for general
corporate purposes;
(3) the opinion of the Financial Advisor that the Merger is fair to the
Class A Shareholders and the Class B Shareholders, from a financial point of
view;
(4) the belief of the IRA Board that the costs, both economic as well as
in personnel time, in complying with the many obligations of being a public
company have not provided a commensurate benefit to the Company or the Class B
Shareholders because the Company and its shareholders have not accessed the
public capital markets due to the restrictions on ownership and transfer of
the Class B Stock;
(5) the ability of Class A Shareholders that do not seek appraisal rights
to maintain their proportionate interest in the Surviving Corporation, which
the management of IRA currently anticipates will be an S corporation for
federal income tax purposes; and
(6) the previous adoption of the Mission Accomplishment Plan, pursuant
to which the IRA Board intends to utilize the earnings of the Company to make
compensation payments to its agents, members of management and key employees,
thereby diminishing the availability of earnings for appreciation and
distributions on its stock.
Neither the Special Committee nor the IRA Board considered the following
factors, for the reasons specified: (i) current or historical market values,
because of the lack of a trading market for the Class A Stock and the Class B
Stock (see "MARKET PRICE DATA, DISTRIBUTIONS AND SECURITY OWNERSHIP OF IRA
COMMON STOCK"); (ii) liquidation value, given the Company's unique structure;
and (iii) firm offers, because neither the Company, First Command nor the
Management Group were aware of any firm offer for the merger or consolidation of
the Company, the sale or transfer of all or any substantial part of the assets
of the Company or securities of the Company that would enable the holder
thereof to exercise control of the Company.
Because the Financial Advisor considered the following factors, the Special
Committee and the IRA Board adopted the analysis of the Financial Advisor with
respect to such factors: (i) net book value of the Company (see "--Opinion of
the Financial Advisor--Adjusted Book Value Approach"); (ii) going concern value
of the Company (see "--Financial Advisor--Income Approach; --Market Multiple
Approach"); and (iii) historical purchase prices paid in previous purchases (see
"--Financial Advisor--Current/historical Market Pricing and Shareholder
Agreement Analysis").
The foregoing discussion of the information and factors considered and
given weight by the Special Committee and the IRA Board is not intended to be
exhaustive. In view of the variety of factors considered in connection with
their evaluation of the Merger, the Special Committee and the IRA Board did not
find it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching their determinations.
Neither the Special Committee nor the IRA Board concluded that any factor
weighed against the fairness of the transaction to the IRA Shareholders.
The Special Committee and the IRA Board evaluated the factors described
above in light of their knowledge of the business and operations of the Company,
and their business judgment, and concluded that the Merger and Merger Agreement
and the transactions contemplated thereby are fair to, and in the best interests
of, the Company and its shareholders.
The Special Committee and the IRA Board believe that the terms of the
Merger are procedurally fair because: (i) the Special Committee was
disinterested and was appointed to represent the interests of the Company's
shareholders, including its unaffiliated shareholders; (ii) the Special
Committee retained and was advised by counsel separate from counsel for the
Company; and (iii) the Special Committee obtained an opinion concerning the
fairness, from a financial point of view, of the Merger to the IRA
Shareholders. In light of these approvals and factors, the Special Committee
and the IRA Board did not find it necessary to provide for the approval of
the Merger Agreement by the affirmative vote of at least a majority of the
unaffiliated shareholders of the Company. The Special Committee was not
retained to act solely on behalf of unafilliated shareholders, and the
Special Committee did not negotiate the terms of the Merger.
25
<PAGE>
POSITION OF THE MANAGEMENT GROUP AND FIRST COMMAND AS TO THE FAIRNESS OF THE
MERGER
The members of the Management Group have considered the process by which
the Company determined the terms of the Merger and certain additional factors
examined by the Special Committee and the IRA Board (described in detail in
"SPECIAL FACTORS--Recommendation of the IRA Board and the Special Committee;
Fairness of the Merger). Members of the Management Group believe that these
factors, when considered together, provide a reasonable basis for them to
believe, as they do, that the Merger is fair to the IRA Shareholders, including
Class B Shareholders who do not own Class A Stock.
The rules of the Securities and Exchange Commission require First Command
to express its belief as to the fairness of the Merger to the IRA Shareholders.
While First Command has not undertaken any independent evaluation of the Merger
from the standpoint of fairness to the Company's shareholders, it has
considered the factors that were taken into account by the Special Committee and
the IRA Board (described in detail in "SPECIAL FACTORS--Recommendation of the
IRA Board and the Special Committee; Fairness of the Merger) and by the members
of the Management Group. Based solely on these factors, First Command believes
that the Merger is fair to the IRA Shareholders, including Class B Shareholders
who do not own Class A Stock.
These beliefs should not, however, be construed as a recommendation to the
IRA Shareholders by the members of the Management Group in their capacity as
shareholders or First Command to vote or approve the Merger Agreement. Members
of the Management Group and the officers, directors and principal shareholders
of First Command are executive officers or directors of the Company and have an
interest in the contemplated Merger. Neither First Command nor any member of the
Management Group has assigned specific relative weights to the factors
considered in reaching its belief as to fairness.
OPINION OF THE FINANCIAL ADVISOR
The Special Committee retained PricewaterhouseCoopers LLP, formerly
known as Coopers & Lybrand LLP, as the Financial Advisor in June 1998 to
render an opinion to the Special Committee and the IRA Board as to the
fairness, from a financial point of view, of the Merger to the IRA
Shareholders.
PricewaterhouseCoopers, LLP (the "Financial Advisor") was formed by the
merger of Price Waterhouse L.L.P. and Coopers & Lybrand L.L.P. The Financial
Advisor maintains an internationally recognized valuation services group which
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The Financial
Advisor implements a rigorous internal review process prior to issuing a
fairness opinion.
On June 27, 1998, the Financial Advisor made its presentation to the IRA
Board and delivered its form of written opinion to the Special Committee and
the IRA Board that the Transaction (as defined below) is fair from a
financial point of view to the Class A Shareholders and Class B Shareholders.
On __________, 1998, the Financial Advisor delivered its signed, written
opinion to the Special Committee and the IRA Board that, as of the date of
the opinion, the Transaction (as defined below) is fair from a financial
point of view to the Class A Shareholders and Class B Shareholders.
In rendering its opinion, the Financial Advisor considered the following
contemplated transactions: (i) the merger of IRA with and into First Command;
(ii) the simultaneous exchange of the Surviving Corporation Voting Stock for
the Class A Stock; (iii) the simultaneous exchange of the Class B Cash
Consideration for the Class B Stock held by Class B Shareholders that are not
Class A Shareholders; (iv) the simultaneous conversion of the Class B Stock
held by the Class A/B Shareholders into the Class B Cash Consideration or an
equivalent amount of the Surviving Corporation Nonvoting Stock; and (v) the
conversion of the Company's status from a C Corporation to an S corporation
(collectively, the "Transaction").
The full text of the Financial Advisor Opinion, which includes the
assumptions made, general procedures followed and matters considered is set
forth as Annex B to this Proxy Statement. The Financial Advisor relied upon and
assumed the accuracy and completeness of all financial and historical and
prospective operating information that was publicly available or furnished to
the Financial Advisor and did not attempt to independently verify any of such
information nor did it make or obtain any independent evaluations or appraisal
of any assets of the Company. The Financial Advisor was not requested to and
did not solicit third party indications of interest in acquiring all or any part
of the Company. No limitations were imposed by the IRA Board or the Special
Committee upon the Financial Advisor with respect to the investigation made, or
procedures followed by the Financial Advisor in rendering its opinion. The
Financial Advisor did not determine or recommend the amount of the consideration
to be paid by the Company in connection with the Merger.
In rendering its opinion, the Financial Advisor carried out various
procedures and considered certain facts, including: (i) the terms of the Merger
Agreement; (ii) the various incentive compensation plans contemplated by the
management of the Company as of the date of its analysis; (iii) the fact that
the benefit of additional compensation (in the form of future dividend
equivalency rights and stock appreciation rights) will be available to
participants in the aforementioned incentive compensation plans, and thus
will be unavailable to current shareholders; (iv) the financial and operating
implications of the Company's proposed conversion to S corporation status; (v)
management's ongoing commitment to the Company's agents and the maintenance of
the Company's mission and corporate culture; (vi) certain financial and other
operating information relating to the Company that was publicly available or
furnished to it by the Company, including cash flow analyses prepared by the
Company's management; (vii) that the Financial Advisor met with members of the
Company's management to discuss the business, operations, historical financial
results and future prospects of the Company, including the prospective
implications of the Company's S corporation election and post transaction
incentive plan; (viii) certain financial and securities data of the Company and
compared that data with similar data for other companies in businesses similar
to those of the Company; (ix) the financial terms of certain recent acquisitions
of companies in businesses similar to those of the Company; (x) that the
Financial Advisor performed a discounted cash flow analysis; and (xi) such other
information, financial studies, tax opinions, analyses and investigations and
financial, economic and market criteria as it deemed relevant and appropriate
for purposes of the Financial Advisor Opinion.
26
<PAGE>
The Financial Advisor considered the following approaches in its analysis:
INCOME APPROACH. The concept underlying this approach is that realistic
valuation of any investment in an income-producing property is directly related
to the future cash flow attributable to such property. Therefore, future cash
flow represents the recovery of investments as well as a return on investment.
The ability of an enterprise to create adequate cash flow, fund the proper cash
disbursements and provide for related financing activities is the primary
determinant of value in that enterprise.
A major requirement of the income approach is a cash flow analysis, which
is management's estimate of what will occur in the future as it pertains to
revenues, expenses, capital expenditures and working capital requirements. This
analysis is compared to the forecasted financial and operating results of
comparable businesses with an emphasis on growth and profitability.
Another important component of the income approach is the determination of
the cost of equity. Since the cash flow analyses provided by the Company's
management included debt proceeds, principal repayment and interest expense, the
resulting cash flows were appropriately discounted at a cost of equity
ranging from 15% to 20%. The cost of equity is utilized to convert to
present value the operating cash flow the subject property is expected to
generate in the future. Various financial tools and modes are used to
calculate these returns. Central to this analysis was the assumption that
the majority of the future cash flow generated by the Company will accrue to
the benefit of the participants of the Company's incentive compensation plans.
Since virtually all prospective earnings for the Company will accrue to the
participants of the incentive compensation plans, the "Income Approach" yielded
minimal value indications for the Class B Stock. This is consistent with
management's assertions that there will be insufficient cash flow prospectively
to fund dividends or capital appreciation on the Class B Stock. However,
because the current per share price of Class B Stock as determined by the
Company is $28.24 and the Class B Shareholders can "put" the Class B Stock to
the Company at that price, the Financial Advisor considered the indications of
value derived from the "Income Approach" as supportive of its ultimate
conclusion.
TRANSACTION APPROACH. This approach required an analysis of recent
transactions involving financial planning companies deemed comparable to the
Company. Market derived multiples, based on revenue, EBDIT (earnings before
depreciation, interest and taxes) and book value of equity were developed and
analyzed to consider differences between the Company and the comparable
transactions used in the analysis for factors such as size, product
concentration, market share, growth potential and profitability. Central to
this analysis was the assumption that the majority of the future cash flow
generated by the Company will accrue to the benefit of the participants in
the Company's incentive compensation plans, and, therefore, the growth
potential and profit available to the Class A Stock and Class B Stock would
be significantly reduced.
The Financial Advisor conducted an analysis of transactions over the past
twenty-four months for companies in the life insurance and insurance agency
business. Although the life insurance and financial planning industry is
undergoing consolidation, the majority of the transactions identified involved
companies that did not possess qualities similar to the Company. For example, a
large majority of the target companies maintained underwriting operations for
their own insurance products and securities. The few transactions that did
contain pure agency and/or financial planning operations were small in deal size
and considered immaterial by the acquiror. Therefore, financial data pertaining
to the operations of these target companies was unavailable.
However, two transactions relating to pure agency and/or financial planning
operations for which adequate financial information was available were
identified. In September 1997, Amerus Life Insurance Company acquired Delta
Life Corporation for approximately $163 million, and in November 1996, the
annuity division of John Alden Financial Corp. was acquired by SunAmerica Inc.
for approximately $238 million. These transactions posed several issues when
comparing the Company to the targets mentioned above. The issues can be
summarized as follows:
(1) the products offered by both target companies were not from
contractual relationships with independent underwriters, but rather
from affiliations with parent companies;
(2) these transactions were synergistic acquisitions, not
recapitalizations;
(3) the equity of the targets was not severely restricted by shareholder
agreements (as is the case with the Class A Stock and the Class B
Stock of the Company);
(4) the targets' equity was not principally owned by the agents who are
responsible for the generation of revenue (as is the case with the
Company); and
(5) the equity owners of the targets did not have to be registered life
insurance agents in the state of Texas.
Based on these factors and the fact that virtually all earnings generated by
the Company in the future will accrue to the participants of the various
incentive compensation plans the Financial Advisor assigned minimal weight to
the value indications generated by the "Transaction Approach."
In order to apply transaction multiples to the historical parameters of the
Company, the Financial Advisor first needed to adjust the historical financial
performance of the Company to reflect the impact of the various incentive
compensation plans enacted by the IRA Board prior to the Transaction. After
making such adjustments, the "Transaction Approach" yielded minimal value
indications for the Class B Stock. This is consistent with management's
position that there will be insufficient cash flow prospectively to fund
dividends or capital appreciation on the Class B Stock. However, since the
current stock price as determined by the Company is $28.24 and the Class B
Shareholders can "put" the stock on the Company at that price, the Financial
Advisor considered the indications of value derived from the "Transaction
Approach" to be supportive of its ultimate conclusion.
MARKET MULTIPLE APPROACH. This approach required an analysis of the
publicly traded companies operating in the relevant industry. Market valuation
multiples were developed from the financial statements of the identified
guideline companies. The guideline companies used in this analysis included
American Annuity Group, Cotton States Life Insurance and Kansas City Life
Insurance Company. The Financial Advisor conducted an analysis of
comprehensive lists and directories of public companies engaged in life
insurance sales and/or financial planning. The following criteria were used
in choosing potential guideline companies for this analysis: (i) the company
has been profitable; (ii) the company provides similar services to those
provided by IRA (i.e., life insurance agencies); (iii) the company is not
involved in the underwriting of its own insurance or financial products;
(iv) adequate financial data is available for the company; and (v) the
company's stock is traded on an exchange or in the over the counter market.
Central to this analysis was the assumption that the majority of the future
cash flow generated by the Company will accrue to the benefit of the
participants in the Company's incentive compensation plans. The companies
considered by the Financial Advisor in its analysis are described more fully
below.
Due to the nature of the industry, the majority of publicly traded life
insurance and financial planning companies engage in many diverse lines of
business (most underwrite insurance and/or sell mutual funds in which they
manage themselves). Therefore, the guideline company search yielded only three
companies deemed remotely comparable to IRA.
AMERICAN ANNUITY GROUP, INC. ("AAG"). AAG is a holding company whose
subsidiaries are engaged primarily in the marketing of single premium annuities
for retirement planning. Operations in this area accounted for approximately
80% of premiums in 1997. Within the past three years however, AAG has made a
concentrated effort to expand their operations into the areas of life insurance
and pre-need funeral financing. Through acquisitions, AAG nearly doubled its
asset base from $4.5 billion in 1992 to over $7.7 billion in 1997, AAG markets
its products in every state except New York through approximately 1,500
registered agents.
COTTON STATES LIFE INSURANCE COMPANY ("COTTON STATES"). Cotton States is a
holding company whose subsidiaries market individual life insurance, payroll
deduction life insurance, guaranteed-simplified issue life insurance and
individual annuities. Life insurance related premiums accounted for 25% of
revenue in 1997 while investment income constituted 60%. The maximum individual
insurance policy that is offered is $100,000. Cotton States markets its
products through an agency force of 1,400. All of its business is conducted
in the southeastern United States.
KANSAS CITY LIFE INSURANCE COMPANY ("KANSAS CITY"). Kansas City markets
life insurance and annuities through their wholly owned subsidiaries Sunset
Life Insurance Company of America and Old American Insurance Company. The
life insurance segment constituted 86% of Kansas City's revenue in 1997. The
company focuses its marketing efforts primarily on the senior market to cover
retirement and funeral needs. Marketing is executed through an agent force
of approximately 1,000 in 48 states.
In analyzing these "comparable" companies and assessing their comparability
to the Company, the Financial Advisor considered certain key facts (e.g., size,
target market, profitability, etc.). The following provides an overview of
significant differences between the "comparable" companies and the Company:
(1) AAG offers only annuity products. Over one third of the Company's
revenues are derived from life insurance premiums. Also AAG's total
asset base is ten times greater than the Company's;
(2) the operations of Cotton States are concentrated only in the southern
region of the United States; the Company, on the other hand, has a
defined global presence;
(3) agents employed by Cotton States also serve as underwriters for the
parent company;
(4) the products sold by the "comparable" companies are underwritten by
parent or related companies;
(5) none of the "comparable" companies has a customer base or agent base
similar to the Company's;
(6) the equity of the "comparable" companies was not severely restricted
by shareholder agreements (as is the case with the Class A Stock and
the Class B Stock of the Company);
(7) the "comparable" companies' equity was not principally owned by the
agents who are responsible for the generation of revenue (as is the
case with the Company); and
(8) the equity owners of the "comparable" companies did not have to be
registered life insurance agents in the state of Texas.
Based on these factors and the fact that virtually all earnings generated by the
Company in the future will accrue to the participants of the various incentive
compensation plans, the Financial Advisor did not assign significant weight to
market "comparables."
In order to apply multiples derived from the "Market Multiple Approach" to
the historical parameters of the Company, the Financial Advisor first needed to
adjust the historical financial performance of the Company to reflect the impact
of the various incentive compensation plans enacted by the IRA Board prior to
the Transaction. After making such adjustments, the "Market Multiple Approach"
yielded minimal value indications for the class B Stock. This is consistent
with management's position that there will be insufficient cash flow
prospectively to fund dividends or capital appreciation on the Class B Stock.
However, since the current stock price as determined by the Company is $28.24
and the Class B Shareholders can "put" the Class B Stock to the Company at that
price, the Financial Advisor considered the indications of value derived from
the "Market Multiple Approach" to be supportive of its ultimate conclusion.
27
<PAGE>
CURRENT/HISTORICAL MARKET PRICING AND SHAREHOLDER AGREEMENT ANALYSIS.
In addition to the traditional valuation, the Financial Advisor considered
the financial implications of the agreements signed by each of the Class A
Shareholders and Class B Shareholders as key to its determination of fairness
to the IRA Shareholders. According to the Class B Shareholder agreements,
the Class B Stock price is set at the discretion of management on an annual
basis. Company management has historically adjusted the per share price of
Class B Stock based on a consistently applied formulaic approach, and $28.24
reflects the stock price determined in 1998 utilizing that approach.
Further, the Class B Shareholders have the right to "put" the Class B Stock
back to the Company at the price determined by management. Based on this
fact, and the fact that the various incentive compensation plans enacted by
the IRA Board will severely reduce the ability of the Company to fund future
dividends and capital appreciation on the Class B Stock, the Class B
Shareholders maximize the present value of their investment in the Company by
accepting the cash payment of $28.24.
For the Class B Stock owned by Class A Shareholders, the above analysis is
also appropriate. However, due to negative tax implications of redeeming the
Class B Stock while accepting Surviving Corporation Voting Stock for the Class A
Stock, the Class A Shareholders have also been given the option to accept
Surviving Corporation Nonvoting Stock in exchange for their Class B Stock.
Although the Surviving Corporation Nonvoting Stock will have a fixed price of
$28.24 per share, the owners of the Surviving Corporation Nonvoting Stock will
receive a "competitive reinvestment" dividend to compensate for the lack of
reinvestment opportunity.
For the Class A Stock, the price is set at five times the price of the
Class B Stock, and holders of Class A Stock have never been paid dividends. The
Class A Shareholders will receive five shares of Surviving Corporation Voting
Stock in exchange for each share of their Class A Stock. Since the Surviving
Corporation Voting Stock and the Surviving Corporation Nonvoting Stock will have
a fixed price of $28.24 per share, the five-for-one exchange fairly adjusts for
the value as delineated in the Class A Shareholder Agreements.
Based upon the proposed Surviving Corporation Shareholder Agreement, the
Surviving Corporation Voting Stock and the Surviving Corporation Nonvoting
Stock will receive dividends to pay tax liabilities that will offset the S
corporation tax liabilities. In addition, all Surviving Corporation Common
Stock will receive a competitive reinvestment dividend on the current price
of $28.24 set by the Surviving Corporation's Board of Directors. The
operative events set forth in the Surviving Corporation Shareholders'
Agreement, which trigger repurchase of the Surviving Corporation Common Stock
by the Company, are comparable to the events outlined in the existing
shareholder agreements that trigger repurchase of the Class A Stock or Class
B Stock by the Company.
ADJUSTED BOOK VALUE APPROACH. Due to the fact that the Company is an
insurance agency (and is therefore not asset intensive) and is not contemplating
liquidation, the Adjusted Book Value Approach was deemed inappropriate for the
valuation of the stock of the Company.
Based upon the foregoing, it is the Financial Advisor's opinion that, as of
the date of this opinion, the Transaction is fair, from a financial point of
view, to the Class A Shareholders and the Class B Shareholders. The
Financial Advisor believes that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors considered by
it, without considering all factors and analyses, could create a misleading
view of the processes underlying its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description.
28
<PAGE>
As compensation for the professional services rendered by the Financial
Advisor, the Company agreed to pay the Financial Advisor a non-refundable
professional fee on the terms outlined below. The Financial Advisor's total fee
for services in rendering the Financial Advisor Opinion was $250,000. Of such
fee, $100,00 was due and payable upon execution of the engagement letter,
$100,000 was due and payable when the Financial Advisor informed IRA that it was
prepared to render the Financial Advisor Opinion, and the balance was due and
payable upon issuance of the Financial Advisor Opinion. Additionally, IRA
agreed to reimburse the Financial Advisor for its actual out-of-pocket expenses
(including the fees and expenses of outside counsel) incurred by the Financial
Advisor in connection with the engagement (not to exceed an aggregate of $25,000
without the mutual written agreement of the Financial Advisor and the
Committee). Neither the employment to conduct its analysis, nor the
compensation for its engagement, was contingent upon the tenor of the
conclusions ultimately reported.
The Financial Advisor has performed numerous valuation and fairness opinion
engagements encompassing a wide and diversified range of industries, including
the insurance industry. The Financial Advisor was retained by the Special
Committee after consideration by it of several candidate firms.
As noted above, certain internal management cash flow analyses were
provided by the Company to the Financial Advisor for purposes of its analysis
in arriving at its Opinion. These analyses were based upon pessimistic
assumptions with the intent of ascertaining whether the Company could
adequately service debt resulting from the Merger. As a matter of course,
the Company does not publish or make generally available internal forecasts
as to its future performance, earnings or financial condition, and such
information was not prepared with a view to public disclosure or in
accordance with applicable accounting guidelines. These analyses were based
on numerous variables and assumptions which are inherently uncertain,
difficult to predict and may not be within the control of the Company,
including without limitation economic and competitive conditions.
Consequently, actual results may differ materially from those set forth in
such analyses.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Class B Shareholders should be aware in considering whether to vote in
favor of the Merger that the Management Group along with other Class A/B
Shareholders, have interests in the Merger in addition to their interests as
shareholders of IRA generally. Those interests relate to, among other things,
the fact that each of the members of the Management Group is a Class A
Shareholder and, as such, upon consummation of the Merger will be a
shareholder of the Surviving Corporation, unless such member of the
Management Group elects to seek appraisal rights for his Class A Stock. As a
result, each member of the Management Group that is currently an officer or
director of the Company will retain his or her position with the Surviving
Corporation upon consummation of the Merger. Further, the IRA Board and the
executive officers of IRA will be the directors and executive officers of the
Surviving Corporation upon consummation of the Merger.
Upon consummation of the Merger, the Surviving Corporation will be owned
by the following persons, assuming that none of such persons elects to seek
appraisal rights with respect to his or her shares: (i) the Class A
Shareholders; (ii) the Class A/B Shareholders that elect to receive the Class
B Nonvoting Stock Consideration with respect to their Class B Stock; and
(iii) the First Command Shareholders.
The Merger Agreement provides that IRA, and, after the Effective Time, the
Surviving Corporation, will indemnify (and advance expenses to) each present and
former director, officer and employee of IRA and its subsidiaries (the
"Indemnified Parties") to the fullest extent permitted under applicable law or
under the Articles of Incorporation and Bylaws of IRA and the Surviving
Corporation against any costs incurred in connection with any claim, proceeding
or investigation relating to matters occurring prior to or at the Effective
Time, including the transactions contemplated by the Merger Agreement. See "THE
PROPOSED MERGER--The Merger Agreement--Indemnification."
Other than the recommendation of the Special Committee, the IRA Board,
First Command and the Management Group, neither IRA nor First Command is
aware of any recommendations in support of or in opposition to the Merger.
29
<PAGE>
EMPLOYMENT AGREEMENTS
The IRA Board anticipates that the Surviving Corporation will enter into
employment agreements with each of the Surviving Corporation Shareholders who
are also employees of the Surviving Corporation. Pursuant to these
employment agreements, it is expected that each of the Surviving Corporation
Shareholders will receive compensation for services rendered to the Surviving
Corporation and reimbursement for certain expenditures in furtherance of the
Surviving Corporation's business paid by the Surviving Corporation
Shareholder. The actual amount of compensation to be received by the
Surviving Corporation Shareholders will not be described in or affected by
the employment agreements. Such compensation will be determined as currently
done so by the Board of Directors or Chief Executive Officer. In addition,
the IRA Board believes that the Surviving Corporation will offer to the
Surviving Corporation Shareholders, pursuant to the employment agreements,
(i) the right to participate in the Mission Accomplishment Plan and any other
equity-based compensation incentives offered by the Surviving Corporation in
the future and (ii) tax preparation assistance due to the complexity of
preparing the Surviving Corporation Shareholder's individual tax return
because of the S corporation status of the Surviving Corporation. The
Surviving Corporation will reimburse the cost of preparation of such income
tax returns up to $1,000.
CERTAIN TRANSACTIONS IN IRA COMMON STOCK
PURCHASES BY IRA. The following table sets forth the purchases by IRA of
the Class B Stock since October 1, 1995, including the number of shares of Class
B Stock purchased, the range of prices paid by IRA and the average purchase
price for each quarterly period of IRA during such period.
<TABLE>
<CAPTION>
Number of Highest Price Lowest Price Average Price
Quarter Ended Shares Purchased Per Share Per Share Per Share
------------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C>
December 31, 1995 25,975 $25.60 $25.28 $25.30
March 31, 1996 48,976 26.08 25.76 25.84
June 30, 1996 53,088 26.56 26.24 26.39
September 30, 1996 3,475 27.04 26.72 26.92
December 31, 1996 24,810 27.04 27.04 27.04
March 31, 1997 35,725 27.04 27.04 27.04
June 30, 1997 16,375 27.04 27.04 27.04
September 30, 1997 1,675 27.04 27.04 27.04
December 31, 1997 10,575 27.34 27.14 27.15
March 31, 1998 85,324 27.64 27.44 27.45
June 30, 1998 10,075 27.94 27.74 27.75
------- ------
Total 316,073 26.80
</TABLE>
30
<PAGE>
RECENT TRANSACTIONS. Within the last sixty days, IRA has purchased Class B
Stock from certain agents of IRA in private repurchases, on the date, in the
amounts and at the price per share indicated:
<TABLE>
<CAPTION>
Date Number of Shares Price Per Share
---- ---------------- ---------------
<S> <C> <C>
May 5, 1998 125 $ 27.84
May 5, 1998 300 27.84
June 1, 1998 100 27.94
June 11, 1998 125 27.94
July 1, 1998 175 28.04
July 1, 1998 250 28.04
July 23, 1998 175 28.04
</TABLE>
PURCHASES BY MANAGEMENT GROUP. The following table sets forth the
purchases by certain members of the Management Group of the Class B Stock since
October 1, 1995, including the member, the number of shares of Class B Stock
purchased, the range of prices paid by such member and the average purchase
price for each quarterly period of such member during such period.
<TABLE>
Number of Highest Lowest Average
Member Quarter Ended Shares Purchased Price Per Share Price Per Share Price Per Share
------ ------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Lamar C. Smith September 30, 1996 2,000 26.56 26.56 26.56
September 30, 1997 4,000 27.04 27.04 27.04
James N. Lanier September 30, 1996 2,000 26.56 26.56 26.56
September 30, 1997 4,000 27.04 27.04 27.04
Howard M. Crump September 30, 1996 2,000 26.56 26.56 26.56
September 30, 1997 4,000 27.04 27.04 27.04
Hal N. Craig September 30, 1996 500 26.56 26.56 26.56
September 30, 1997 600 27.04 27.04 27.04
Donaldson D. Frizzell September 30, 1996 500 26.56 26.56 26.56
September 30, 1997 600 27.04 27.04 27.04
Jerry D. Gray September 30, 1997 1,500 27.04 27.04 27.04
David P. Thoreson September 30, 1996 1,000 26.56 26.56 26.56
September 30, 1997 1,500 27.04 27.04 27.04
Carroll H. Payne II September 30, 1996 2,000 26.56 26.56 26.56
Naomi K. Payne September 30, 1996 2,000 26.56 26.56 26.56
</TABLE>
Except as described above, none of IRA, First Command nor any of their
respective executive officers or directors have participated in any transaction
involving Class B Stock in the last sixty days.
ACCOUNTING TREATMENT
The Merger of the Company into First Command will be accounted for similar
to a business combination that is accounted for as a pooling of interests. The
conversion of each share of Class A Stock of the Company issued and outstanding
into five shares of Surviving Corporation Voting Stock will, in effect, result
in the net assets of the Company being recorded at their existing carrying value
on the accounting records of First Command in conformity with GAAP. The
purchase of the Class B Stock for cash will reduce shareholders' equity of the
Company by a like amount.
In addition, certain accounting adjustments will be made as a result of
the Merger to the financial statements of the Surviving Corporation. For
GAAP purposes, certain deferred tax asset accounts will not be reversed at
the Effective Date. The majority of the Company's deferred tax asset account
is comprised of the effect of the future tax deduction of agent Deferred
Career Commission Plan. Also for GAAP purposes, certain deferred tax
liability accounts, with the exception of those related to depreciable assets
expected to be used in operations, will not be reversed at the Effective
Time. The remainder of the deferred tax liability account should remain on
the books of the Surviving Corporation for ten years until the built-in gain
income tax provision expires. The majority of the Company's deferred tax
liability account is comprised of the effect of the potential future tax
recognition of its current unrealized gains on investments.
REGULATORY FILINGS AND APPROVALS
After the Merger, the Surviving Corporation will file a disclosure document
with the Office of Thrift Supervision as the holding company of First Command
Bank. Also after the Merger, the Surviving Corporation will file a report
notifying the Texas Department of Insurance of the change in the corporate
members of the Surviving Corporation and the change from IRA's Articles of
Incorporation to those of the Surviving Corporation.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary discussion of the material U.S. federal
income tax considerations for Class A Shareholders and Class B Shareholders
regarding the Merger and for Surviving Corporation Shareholders regarding the
ownership of Surviving Corporation Common Stock after the Merger. This
summary discussion includes, where so indicated, certain of the opinions
rendered by Ernst & Young in its Tax Opinion, which is attached hereto as
Annex F. (Except as otherwise specifically indicated herein, the following
federal income tax considerations are not included in the Tax Opinion.) The
Tax Opinion is based on certain assumptions, facts and representations
provided by IRA and First Command management and is subject to certain
limitations and qualifications as noted therein. The facts and
representations provided by management have not been verified by Ernst &
Young in rendering its Tax Opinion.
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<PAGE>
The Company has not requested, and does not intend to request, a ruling from the
Internal Revenue Service (the "IRS") with regard to any of the matters discussed
in the Tax Opinion or herein. Unlike a ruling from the IRS, an opinion is not
binding on the IRS, and there can be no assurance that the IRS will not take a
position contrary to one or more of the positions included in the Tax Opinion or
discussed herein or that such positions will be upheld by the courts if
challenged by the IRS.
This summary discussion does not address all of the tax considerations that
may be relevant to an IRA shareholder in light of his or her particular
circumstances. For this summary discussion, the Company has assumed that the
shares of Class A Stock and Class B Stock are held as "capital assets" (within
the meaning of Section 1221 of the Code). In addition, this summary discussion
does not consider the effect of any applicable foreign, state, local or other
tax law, or of U.S. estate and gift tax laws.
This summary discussion is based upon an interpretation of the Code,
Treasury Regulations promulgated thereunder, court decisions and administrative
rulings and practice, all in effect as of the date hereof. As noted above, the
IRS is not precluded from adopting a contrary position. In addition, there can
be no assurance that future legislation or judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the Merger and
the considerations of Surviving Corporation Shareholders after the Merger.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INTENDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO A PARTICULAR SHAREHOLDER'S
SITUATION. PERSONS CONSIDERING AN EXCHANGE OF CLASS A STOCK AND/OR CLASS B STOCK
FOR THE MERGER CONSIDERATION SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
PARTICULAR TAX CONSEQUENCES OF THE EXCHANGE, INCLUDING THE TAX CONSEQUENCES
UNDER FOREIGN, STATE, LOCAL OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES (POSSIBLY INCLUDING RETROACTIVE CHANGES) IN U.S. FEDERAL AND OTHER TAX
LAWS.
CERTAIN CONSEQUENCES OF REORGANIZATION STATUS. The Tax Opinion includes
an opinion that the Merger should constitute a "reorganization" (within the
meaning of Section 368(a) of the Code), which should have the following U.S.
federal income tax consequences:
THE COMPANY AND THE SURVIVING CORPORATION. The Tax Opinion includes an
opinion that no gain or loss should be recognized by either the Company or the
Surviving Corporation as a result of the Merger. The Tax Opinion also includes
an opinion that the tax basis and holding period of the Company's assets in the
hands of the Surviving Corporation should be the same as the tax basis and
holding period of the Company immediately prior to the Merger.
CLASS A/B SHAREHOLDERS. The Tax Opinion includes an opinion that a
Class A/B Shareholder should not recognize gain or loss upon the exchange of
his or her Class A Stock and Class B Stock solely for Surviving Corporation
Common Stock. The Tax Opinion also includes an opinion that such shareholder's
aggregate tax basis in his or her shares of Surviving Corporation Common Stock
should be the same as his or her aggregate tax basis in
32
<PAGE>
his or her shares of Class A Stock and Class B Stock surrendered in exchange
therefor, decreased by the amount of cash received, if any, and increased
by any gain recognized on the exchange. The Tax Opinion includes an opinion
that such shareholder's holding period in shares of Surviving Corporation Common
Stock should include his or her holding period in his or her shares of Class A
Stock and Class B Stock surrendered in exchange solely therefor.
A Class A/B Shareholder who (i) exchanges his or her Class A Stock for
Surviving Corporation Voting Stock and (ii) elects to take cash in exchange
for his or her Class B Stock, should recognize income to the extent of the
lesser of (x) the excess of the value of his or her Class A and Class B Stock
over his or her tax basis in such stock, and (y) the amount of cash received.
Such income should be treated as a dividend unless such shareholder is
entitled, based on his or her particular circumstances and certain other
factors, to take the position that the exchange, as to such shareholder, does
not have the effect of the distribution of a dividend under Section 356(a)(2)
of the Code. If the exchange has the effect of a dividend, income will be
ordinary income taxable at rates up to 39.6%. If the exchange, as to a
shareholder, does not have the effect of a dividend, such income will be
capital gain. Any Class A/B Shareholder electing the Class B Cash
Consideration should consult his or her own tax advisor(s) concerning the
tax consequences of electing that option.
Each Class A/B Shareholder will be required to attach a statement to
his or her federal income tax return for the year of the Merger that contains
information listed in Treasury Regulation Section 1.368-3(b).
SHAREHOLDERS WHO OWN ONLY CLASS B STOCK. The Tax Opinion includes an
opinion that a Class B Shareholder who does not own any Class A Stock and is
not related, under the constructive ownership rules of Section 318 of the
Code, to any Surviving Corporation Shareholder after the Merger, who
exchanges his or her Class B Stock solely for cash should recognize capital
gain (or loss) to the extent the cash received exceeds (or is exceeded by)
the tax basis in his or her Class B Stock. Shareholders should consult their
own tax advisor concerning the tax consequences of receiving solely cash for
Class B Stock with respect to the new capital gains tax rates and holding
period rules effective for transactions after January 1, 1998.
CERTAIN POST-MERGER CONSIDERATIONS FOR SURVIVING SHAREHOLDERS.
TREATMENT AS AN S CORPORATION. The Tax Opinion includes an opinion that
the Surviving Corporation should be an S corporation immediately after the
Merger. However, the Tax Opinion does not provide assurance as to future
facts and circumstances that could affect the tax status of the Surviving
Corporation. The Surviving Corporation intends to be organized and operated
in a manner to meet, on a continuing basis, the Code requirements for
qualification as an S corporation for federal income tax purposes. In order
to qualify as an S corporation, the Surviving Corporation cannot be an
ineligible corporation (as defined in Section 1361(b)(2) of the Code and
cannot have (i) more than 75 shareholders, (ii) as a shareholder a person
(other than certain specified estates, trusts and tax exempt organizations)
who is not an individual, (iii) a nonresident alien as a shareholder, and
(iv) more than one (1) class of stock (other than differences in voting
rights). The Articles of Incorporation of the Surviving Corporation and the
Surviving Corporation Shareholders' Agreement provide for, among other
things, certain restrictions on the transfer of the Surviving Corporation
Common Stock and the requirement that Surviving Corporation Shareholders
tender their shares to the Surviving Corporation upon the occurrence of
certain operative events, each of which is provided at least in part to
preserve the Surviving Corporation's status as an S corporation. See
"DESCRIPTION OF THE SURVIVING CORPORATION CAPITAL STOCK--Restrictions on
Transfers of Shares." However, no assurance can be given that such
requirements will be met or that the Company will be so qualified at any time.
TAXATION OF SURVIVING CORPORATION. Provided the Surviving Corporation is
an S corporation, it generally will not pay any federal income tax. Instead,
its items of income, gains, losses, deductions and credits will be allocated
to the Surviving Corporation Shareholders and taken into account on their
individual federal income tax returns. However, as indicated in the Tax
Opinion, the Surviving
33
<PAGE>
Corporation will be subject to the "built-in gains tax" provisions of Section
1374 of the Code to the extent any asset received in the Merger has a "net
unrealized built-in gain" (within the meaning of Section 1374(d)(1) of the Code)
at the Effective Time and is disposed of by the Surviving Corporation during the
ten-year "recognition period" (within the meaning of Section 1374(d)(7) of the
Code) after that date. In addition, if an S corporation has subchapter C
earnings and profits at the close of its tax year and more than 25% of its
gross receipts are "passive investment income" (within the meaning of Section
1362(d)(3)(C) of the Code), the corporation may be subject to tax on its
"excess net passive" income (within the meaning of Section 1375(b) of the
Code). In addition, if these two conditions are met for three successive
years, its S corporation status will be automatically terminated. The Company
believes that, although the Surviving Corporation will have subchapter C
earnings and profits after the Merger, the Surviving Corporation will be
operated in such a manner to avoid such termination.
TAXATION OF SURVIVING CORPORATION SHAREHOLDERS. Provided the Surviving
Corporation is an S corporation, the Surviving Corporation will allocate to
and among the Surviving Corporation Shareholders its items of income, gains,
losses, deductions and credits for federal income tax purposes. Each
shareholder will be required to report on his or her federal income tax
return his or her such distributive share of such items and will be subject
to tax on such amounts. Pursuant to the Articles of Incorporation of the
Surviving Corporation and the Surviving Corporation Shareholders' Agreement,
the Surviving Corporation has agreed to declare and make distributions to the
Surviving Corporation Shareholders in a timely manner to allow them to pay
their tax liability attributable to their distributive shares of its taxable
income. See "DESCRIPTION OF THE SURVIVING CORPORATION CAPITAL
STOCK--Subchapter S Provisions--Distributions to Pay Tax Liabilities."
Although there can be no assurances that a Surviving Corporation Shareholder
will not have a tax burden from such allocation in an amount in excess of the
amount of cash previously distributed by the Surviving Corporation to such
shareholder (thus requiring such shareholder to use funds from other sources
to pay any tax liability arising from such allocation), the Surviving
Corporation believes this result is highly unlikely. EACH SURVIVING
CORPORATION SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR(S)
CONCERNING HIS OR HER OWNERSHIP OF SURVIVING CORPORATION COMMON STOCK.
TAX OPINION ENGAGEMENT. Ernst & Young, who is also the principal
independent accountants for the Company and First Command, has agreed to be
paid by the Company a non-refundable professional fee for its engagement with
respect to the Tax Opinion of $180,000, payable upon delivery of the Tax
Opinion. Additionally, the Company has agreed that, in the event Ernst &
Young is requested or authorized by the Company (including its successor) or
is required by legal process to produce its documents or its personnel
as witnesses with respect to services for the Company, the Company will, so
long as Ernst & Young is not a party to the proceeding or the subject of the
investigation, as the case may be, in which information is sought, reimburse
Ernst & Young for its professional time and expenses, as well as the fees
and expenses of its counsel, incurred in responding to such requests.
CERTAIN INFORMATION CONCERNING IRA
GENERAL
The Company began operations in January 1964, as a sole proprietorship
owned by Carroll H. Payne, doing business as the "Carroll H. Payne Agency." On
January 1, 1971, the name was changed to "Independent Research Agency for Life
Insurance." On January 1, 1977, the Company was organized as a partnership (the
"IRA Partnership") under the general partnership laws of the State of Texas. On
March 9, 1981, the IRA Partnership exchanged all of its assets relating to the
operation of its life insurance business (which constituted substantially all of
its assets) to Independent Research Agency for Life Insurance, Inc. ("IRA"), a
Texas corporation formed by the partners of the IRA Partnership on December 9,
1980. Thereafter, the IRA Partnership continued in existence under another
name, but all of its former life insurance operations are now owned and
conducted by the Company. The IRA Partnership was dissolved in 1992. IRA is
engaged in the business of a life insurance general agency for sales to United
States military personnel. IRA has six wholly-owned subsidiaries engaged in the
same business in the states of Hawaii, Wyoming, Montana, New York, Nevada and
Alabama, respectively. IRA's wholly-owned subsidiary, United Services Planning
Association, Inc., is also a Texas corporation and is a broker-dealer of
securities. IRA's wholly-owned subsidiary, First Command Bank, is a federal
savings bank. IRA's principal executive offices are located at 4100 South Hulen
Street, Fort Worth, Texas 76109, and its telephone number is (817) 731-8621.
For more information regarding the business and other information regarding
IRA, see the IRA 10-K, which has been delivered to the Class A Shareholders and
the Class B Shareholders as Annex D to this Proxy Statement.
RECENT DEVELOPMENTS
On June 25, 1998, IRA entered into a Line of Credit Agreement (the "United
American Line of Credit") with United American Insurance Company ("United
American Insurance"), pursuant to which United American Insurance agreed to
loan IRA up to $27,000,000. IRA intends to advance approximately $7,000,000
of the proceeds under the United American Line of Credit to First Command
pursuant to the Line of Credit (as defined herein) that First Command has
entered into with IRA. See "CERTAIN INFORMATION CONCERNING FIRST
COMMAND--Business." The remainder of the United American Line of Credit will
be used, if at all, for general corporate purposes. The interest rate on
funds advanced under the United American Line of Credit is 7% per annum, and
advances may be made from time to time until November 30, 2001, upon the
request of IRA. Prior to December 1, 2001, interest on the unpaid principal
balance outstanding under the United American Line of Credit is due and
payable monthly as it accrues, commencing on the last day of the month in
which the first advance is made by United American Insurance. However, if IRA
is entitled to advances under the United American Line of Credit, United
American Insurance will, at IRA's request, make an advance under the United
American Line of Credit that is sufficient to pay the accrued interest that
is then due and payable. After November 30, 2001, the unpaid principal and
accrued and unpaid interest on principal amounts outstanding under the United
American Line of Credit shall be converted into a term loan and shall be due
and payable in 180 equal quarterly installments, with the final payment on
November 30, 2016. The United American Line of Credit is secured by shares
in mutual fund holdings of IRA. IRA intends to repay amounts due under the
United American Line of Credit through cash flow from its operations. In the
event of the failure of IRA to pay any amount when due, the failure of IRA to
perform certain covenants, false representations by IRA, bankruptcy or
insolvency of IRA, the execution of the collateral, or decrease in the value
of the collateral such that the collateral does not exceed 90% of the loan
balance, United American Insurance may (i) exercise all rights with respect
to the collateral; (ii) foreclose or reduce its claim to judgment; (iii) sell
the collateral; (iv) purchase the collateral; (v) apply for a receiver for
the collateral; (vi) retain the collateral in satisfaction of the
indebtedness; or (vii) realize upon the collateral in any other manner
permitted by the issuer of the mutual funds.
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF IRA
The directors and executive officers of IRA will be the directors and
executive officers of the Surviving Corporation after the Merger. For more
information concerning IRA's directors and executive officers, including certain
information regarding executive compensation, see the IRA 10-K, which has been
delivered to the Class A Shareholders and the Class B Shareholders as Annex D to
this Proxy Statement.
On May 8, 1998, the IRA Board elected James J. Ellis and Logan Dickinson as
directors of IRA. See "SPECIAL FACTORS--Background of the Merger."
James J. Ellis has operated his own insurance practice since retiring as
General Manager of Mutual of New York in January of 1992. Mr. Ellis joined
Mutual of New York in 1960 and was appointed General Manager in 1976. Mr. Ellis
is a member of the Board of Jack Henry and Associates and the Advisory Board of
Westwood Trust, the First National Bank Park Cities, Merit Medical Systems,
Inc. and Sentir, Inc. His business address is Regency Plaza, LB 72, 3710
Rawlins, Suite 1010, Dallas, Texas 75219-4239.
Logan Dickinson has served since 1982 as President and Managing Principal
of Compensation Strategies Group of Texas, Inc., which provides planning for
employee benefits, life and health insurance and administers qualified
retirement and benefit plans. Mr. Dickinson is a Chartered Life Underwriter,
Chartered Financial Consultant and a CPA. His business address is 314 Main
Street, Suite 202, Fort Worth, Texas 76102.
Each of the directors and executive officers of IRA is a United States
citizen, and, to the knowledge of IRA, none of the directors or executive
officers of IRA has, during the last 5 years, (i) been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining further violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation of such
laws.
MISSION ACCOMPLISHMENT PLAN
On June 27, 1998, the IRA Board authorized the Mission Accomplishment Plan,
pursuant to which certain agents, members of management and key employees of IRA
will be awarded stock appreciation rights ("SARs"), along with dividend
equivalent rights ("DERs" and, together with SARs, "MAP Units").
The SARs award holders the right to participate in changes in the value of
the Company, based on a formula established by the IRA Board. While the IRA
Board may change such formula, the initial policy of the IRA Board is to value
each SAR based on the change in the Company's per SAR unit value as reported by
the Company using GAAP; provided, however, that this per unit value will be
reduced by the dividend equivalent declared by the Company for payment based on
the current year's earnings, if any. For this purpose, the per SAR unit value
does not include the effect of reporting the Company's investments at market
value net of estimated federal income taxes as stated in SFAS 115. Each SAR
will carry a basis equal to the SAR unit value at the time of issuance, and the
appreciation in the value of the SAR will be paid to participants following
their termination from the Company or upon the maturity of the SAR ten years
after the issuance of the SAR. The Company expects that the value of each SAR
will be established no less frequently than monthly. A holder of a SAR may
exercise such SAR, upon compliance with certain requirements, following the
participant's termination from the Company, termination of the participant as a
licensed Texas life insurance agent, death or disability of the participant or
at the end of the exercise period (which is typically ten years), and such
holder will be entitled to receive a cash payment equal to the difference
between (i) the per SAR unit value as of the last day of the calendar quarter
during which such holder provides a request for such payment and (ii) the per
SAR unit value as of the date of the grant. The Company may unilaterally
exercise SARs of any participant who holds unexercised SARs exceeding 5% of
total unexercised SARs outstanding.
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<PAGE>
The DERs provide holders the right to participate in certain dividend
equivalents that may be declared by the IRA Board. The Company expects that the
DERs will reflect payments of annual profits realized by the Company that are
not included in the SARs.
Holders of MAP Units have no voting rights with regard to the Company, and
the MAP Units are not intended to confer any other rights as a shareholder to
such holder. The MAP Units may not be transferred, pledged, assigned or
otherwise encumbered by a holder and are subject to immediate forfeiture if,
among other things, the agency appointment or employment of the holder of the
MAP Units is terminated for cause.
MAP Units will be awarded pursuant to a policy that is adopted from time to
time by the IRA Board, and only licensed agents of IRA will be eligible to
receive the MAP Units. Recipients of MAP Units will not be required to pay
any consideration for the receipt of the MAP Units.
On July 22, 1998 the Company issued 138,275 MAP Units to 563 of its agents
and employees, including members of the Management Group. The following table
sets forth the number of MAP Units issued to members of the Management Group.
<TABLE>
Member of Management Group Number of MAP Units Distributed
-------------------------- -------------------------------
<S> <C>
Lamar C. Smith 1,500
James N. Lanier 1,500
Howard M. Crump 1,500
Hal N. Craig 400
Donaldson D. Frizzell 400
Jerry D. Gray 800
David P. Thoreson 800
Carroll H. Payne II 500
Naomi K. Payne 500
-----
Total MAP Units
held by Management Group 7,900
-----
-----
</TABLE>
After the Merger, the Surviving Corporation intends to implement the
Mission Accomplishment Plan and to award MAP Units pursuant to the Mission
Accomplishment Plan to the former Class B Shareholders who are agents, members
of management or employees at the time of award as well as to other active
agents and employees of the Surviving Corporation.
CERTAIN INFORMATION CONCERNING FIRST COMMAND
GENERAL
First Command, a Texas corporation, was incorporated on April 1, 1998, to
construct, own and operate a parking garage (the "Parking Garage") adjacent
to the current executive offices of IRA. The principal executive offices of
First Command are located at 4100 South Hulen Street, Fort Worth, Texas
76109, and its telephone number is (817) 731-8621.
BUSINESS
IRA owns the building in Fort Worth, Texas, in which its home office
operation is conducted, and leases a small portion (approximately 4%) to
third parties. During 1997, the management of IRA determined that it was
necessary to construct the Parking Garage on certain land that is adjacent to
IRA's building (the "Adjacent Land") in order to efficiently use the property
and to provide sufficient parking space for IRA and its tenants. The IRA
Board desired to limit the liability of IRA and its subsidiaries in
connection with the construction and operation of the parking facility.
Consequently, First Command was formed on April 1, 1998, as a Texas
corporation, to construct, own and operate the Parking Garage on the Adjacent
Land. Four of the five shareholders of First Command are members of the
executive committee of the IRA Board: Lamar C. Smith, who is the Chairman and
Chief Executive Officer of IRA, James N. Lanier, who is the President and
Chief Operating Officer of IRA, Howard M. Crump, who is the Senior Vice
President and Director of Marketing of IRA, and Carroll H. Payne, II, who is
a director of IRA. Freda J. Payne, who is the fifth shareholder of First
Command, is a Class A/B Shareholder. Freda J. Payne became a shareholder of
First Command on June 26, 1998. Because First Command is owned by such
shareholders and not by the Company, First Command is not a subsidiary of the
Company.
Each First Command Shareholder will be entitled to receive, pursuant to
the Merger, one share of Surviving Corporation Nonvoting Stock for each 25
shares of First Command Common Stock held by such shareholder.
Pursuant to a Line of Credit Agreement dated June 1, 1998 (the "Line of
Credit"), IRA has agreed to loan up to $7,000,000 to First Command for the
construction of the Parking Garage. The interest rate on funds advanced under
the Line of Credit is 7% per annum. Advances may be made under the Line of
Credit from time to time until November 30, 1999, upon the request of First
Command, provided that the total amount of all advances under the Line of Credit
will not exceed $7,000,000 plus up to $1,500,000 to pay interest accruing on
amounts advanced. Prior to December 1, 1999, interest on the unpaid principal
balance outstanding under the Line of Credit is due and payable monthly as it
accrues, commencing on July 1, 1998. However, if First Command is entitled to
advances under the Line of Credit, IRA will, at First Command's request, make an
advance under the Line of Credit that is sufficient
36
<PAGE>
to pay the accrued interest that is then due and payable. After November 30,
1999, the unpaid principal of and accrued and unpaid interest on amounts
outstanding under the Line of Credit shall be converted into a term loan and
shall be due and payable in 60 equal quarterly installments, with the final
payment on December 1, 2014. The Line of Credit is secured by the Adjacent
Land, the Parking Garage and rents, deposits and other revenues with respect to
the Parking Garage. First Command intends to repay amounts due under the Line
of Credit through revenues generated from the Parking Garage. In the event of
the failure of First Command to pay any amount when due, IRA may (i) declare the
outstanding principal balance, along with any accrued but unpaid interest, due;
(ii) refuse to make further advancements under the Line of Credit; and (iii)
pursue any other legal remedies it may have.
First Command currently has two employees who manage the day-to-day
operations of First Command, including, but not limited to, negotiating
contracts with architecture firms and construction firms, working with municipal
authorities with regard to building code issues and ordinances, overseeing the
progress of the construction of the garage, responding to issues and requests
from the construction companies, and administering other duties such as the
authorization of payment of construction invoices.
In addition, pursuant to a Management Agreement (the "Management
Agreement"), dated June 1, 1998, between IRA and First Command, First Command
has retained IRA, as an independent contractor, to perform various services on
behalf of First Command, including (i) the preparation and processing of payroll
and payroll records for First Command's business, (ii) the processing of
accounts payable for First Command's business and (iii) the administration of
benefits for employees of First Command. Pursuant to the Management Agreement,
IRA will provide certain facilities, equipment and supplies necessary to conduct
these services. First Command will pay IRA a monthly fee of $2,030 for services
rendered under the Management Agreement. The term of the Management Agreement
is one year, and it is automatically renewed thereafter unless otherwise
terminated by (i) mutual agreement or (ii) notice by First Command or IRA at
least 30 days prior to the anniversary of the Management Agreement. First
Command and IRA have agreed to indemnify one another for all claims arising from
each of their negligence or willful misconduct.
First Command also entered into an administrative agreement (the
"Administrative Agreement") with IRA on June 1, 1998 to manage IRA's building.
Under the agreement, IRA is required to pay a monthly fee to First Command in
the amount of $2,080 for the services rendered by First Command. The term of
the Administrative Agreement is one year, and it is automatically renewed
thereafter unless otherwise terminated by (i) mutual agreement or (ii) notice by
First Command or IRA at least 30 days prior to the anniversary of the Management
Agreement. First Command and IRA have agreed to indemnify one another for all
claims arising from each of their negligence or willful misconduct.
First Command is not currently a party to any legal proceedings.
PROPERTIES
On June 1, 1998, pursuant to a Ground Lease (the "Ground Lease") between
IRA and First Command, IRA leased the Adjacent Land to First Command for a term
of 99 years and for a nominal annual rental payment. The approximate value of
the transaction was $99.00. Pursuant to the Ground Lease, First Command is
permitted to use the Adjacent Land only for the Parking Garage. First Command
is required to maintain general public liability insurance covering the Adjacent
Land and business operations conducted on the Adjacent Land, property damage
insurance, casualty insurance, builder's risk insurance and such other insurance
as may reasonably be required by IRA. IRA and its agents and employees are not
liable for damages resulting from any accident occurring on the Adjacent Land,
and First Command has agreed to indemnify IRA for any claims against IRA for any
such accidents. First Command is required to conform with all applicable
environmental laws with regard to operations and maintenance of the Adjacent
Land and has agreed to indemnify IRA with respect to environmental claims
imposed on IRA with respect to the Adjacent Land.
First Command entered into an agreement on May 4, 1998 with an independent
third party ("Contractor") to act as a general contractor with respect to the
construction of the Parking Garage. The Parking Garage is expected
37
<PAGE>
to be an 801-car parking garage with a surface parking lot. Construction on
this project commenced on or about June 15, 1998. It is anticipated that the
Parking Garage will be completed in the summer of 1999.
On June 1, 1998, pursuant to a Lease Agreement (the "Lease Agreement")
between First Command and IRA, First Command leased to IRA the Adjacent Land,
along with all buildings located on the Adjacent Land, commencing after
substantial completion of the Parking Garage and continuing for fifteen years
thereafter. First Command is obligated under the Lease Agreement to erect the
Parking Garage on the leased premises. IRA is required under the Lease
Agreement to pay rent in the amount of $51,250 per month plus operating expenses
associated with the Parking Garage. In addition, IRA is obligated under the
Lease Agreement to maintain utilities and liability insurance of at least
$1,000,000 for injury and death and at least $100,000 for property damage and
pay all applicable taxes. First Command is required to maintain the premises
and maintain fire and extended coverage insurance in an amount equal to at least
80% of the replacement cost of the Parking Garage. IRA has agreed to indemnify
First Command for any claims resulting from injuries or death of any person or
damages on the leased premises, the negligence of IRA or the use of the leased
premises by IRA. If First Command receives an offer to purchase the leased
premises from a third party during the term of the Lease Agreement, and First
Command wishes to accept the offer, IRA has the right to purchase the leased
premises under the same terms as presented in the third party's offer to
purchase.
Immediately prior to the Merger, First Command will transfer all of its
assets, subject to liabilities, to a newly-formed limited liability company or
Qualified Subchapter S Subsidiary in return for all of the capital stock of such
subsidiary. This transfer will keep the planned operations of First Command
separate and distinct from IRA subsequent to the Merger.
DIRECTORS AND EXECUTIVE OFFICERS OF FIRST COMMAND
The following is a list of all directors and executive officers of First
Command as of August 15, 1998, describing their respective names, ages as
positions held with First Command, along with the period of time they have
served in such position. No arrangements or understandings exist between any of
these individuals and any other persons pursuant to which they have been, or
will be, selected as a director or executive officer of First Command. The term
of office of all executive officers and directors is one year. The term of
office of a Director, under the classified board system of election provided in
First Command's Bylaws, is three years.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lamar C. Smith 50 Director, Chairman of the
Board and Chief Executive
Officer
James N. Lanier 58 Director, President and
Chief Operating Officer
Howard M. Crump 51 Director
Carroll H. Payne II 43 Director
Martin R. Durbin 37 Treasurer
Robert F. Watson 62 Secretary
</TABLE>
Each of the directors and executive officers of First Command is currently
a director or executive officer of IRA. Members of the Board of Directors of
First Command receive a fee of $100 for each meeting. Other than this
attendance fee, none of the executive officers or directors of First Command
receive compensation from First
38
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Command for services provided to First Command. For more information concerning
the directors and executive officers, including certain information concerning
executive compensation, see the IRA 10-K, which has been delivered to the Class
A Shareholders and the Class B Shareholders attached as Annex D to this Proxy
Statement.
CERTAIN INFORMATION CONCERNING THE MANAGEMENT GROUP
The Management Group consists of Lamar C. Smith, James N. Lanier, Howard M.
Crump, Hal N. Craig, Donaldson D. Frizzell, Jerry D. Gray, David P. Thoreson,
Carroll H. Payne II, and Naomi K. Payne. Each member of the Management Group is
a Class A Shareholder.
The following contains certain information with respect to each member of
the Management Group. Each member of the Management Group is a citizen of the
United States and, unless otherwise noted, has a business address of 4100 South
Hulen, Fort Worth, Texas 76113.
Mr. Smith has served as the Company's Chairman of the Board and Chief
Executive Officer since 1992 and has served as a Director of the Company since
1983. Mr. Smith also has served as Chairman of the Board and Chief Executive
Officer and a Director of First Command since its incorporation in 1998.
Mr. Lanier has served as President and Chief Operating Officer of the
Company since 1992 and has served as a Director of the Company since 1988. Mr.
Lanier also has served as President and Chief Operating Officer and a Director
of First Command since its incorporation in 1998.
Mr. Crump has served as Senior Vice President and Director of Marketing of
the Company since 1992 and as a Director of the Company since 1990. Mr. Crump
also has served as a Director of First Command since its incorporation in 1998.
Mr. Craig has served as Vice President and Director of Insurance of the
Company since 1997 and as a Director of the Company since 1993. From 1994 to
1997, Mr. Craig served as Vice President and Chief Information Officer of the
Company, and from 1992 to 1993 he served as Vice President and Director of
Management Information Systems of the Company.
Mr. Frizzell has served as Vice President and Director of Investments of
the Company since 1992 and as a Director of the Company since 1993.
Mr. Gray has been Regional Agent of the Company's South Atlantic Region
since 1996 and has served as a Director of the Company since 1990. Prior to
such time, he served as a Regional Agent in the midwestern United States for the
Company. His business address is 5705 Cameron Hall Place, Atlanta, Georgia
30328.
Mr. Thoreson has been a Regional Agent with respect to the Company's
activities in California and in the Pacific area since 1994 and has served as a
Director of the Company since 1994. Prior to such time, he served as a regional
agent with respect to the Company's activities in Europe. His business address
is 2016 Empire Mine Circle, Gold River, California 95670.
Mr. Payne has been a Director of the Company since 1983 and as a Director
of First Command since its incorporation in 1998. Mr. Payne has been an
architect since 1988. His business address is 1814 8th Avenue, Suite A-3, Fort
Worth, Texas 76110-1354.
Ms. Payne has been a Director of the Company since 1983. Ms. Payne works
with, and coordinates assistance for, deaf and otherwise handicapped students
through various agencies and institutions dedicated to such students. Her
business address is 11 Marion Terrace, Brookline, Massachusetts 02146-4937.
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to Class A Shareholders and Class B
Shareholders in connection with the solicitation of proxies by the IRA Board for
use at the Special Meeting and any adjournment or postponement thereof.
At the Special Meeting, the Class A Shareholders and Class B Shareholders
will be asked to consider and vote upon a proposal (the "Merger Proposal") to
approve and adopt the Merger Agreement entered into between First Command and
the Company, and the transactions contemplated thereby, including the Merger. If
the Merger is approved by the IRA Shareholders, the Company will merge with and
into First Command, and each share of Class A Stock of the Company issued and
outstanding immediately prior to the Effective Time (other than shares of Class
A Stock held in treasury by the Company), subject to and upon the terms and
conditions of the Merger Agreement, will be converted into five shares of
Surviving Corporation Voting Stock. Further, (i) each share of Class B Stock
held by a Class B Shareholder that is not a Class A/B Shareholder that is issued
and outstanding immediately prior to the Effective Time, subject to and upon the
terms and conditions of the Merger Agreement, will be converted into $28.24 in
cash, without interest, and (ii) each share of Class B Stock held by a Class A/B
Shareholder issued and outstanding immediately prior to the Effective Time,
subject to and upon the terms and conditions of the Merger Agreement, will be
converted into one share of Surviving Corporation Nonvoting Stock; provided,
however that each Class A/B Shareholder may elect to receive, in lieu of
receiving the Class B Nonvoting Stock Consideration, the Class B Cash
Consideration for all shares of Class B Stock held immediately prior to the
Effective Time. Each holder of First Command Common Stock, issued and
outstanding immediately prior to the Effective Time, subject to and upon the
terms and conditions of the Merger Agreement, will receive one share of
Surviving Corporation Nonvoting Stock for each 25 shares of First Command Common
Stock held by such shareholder. If the Merger is approved, all of the
outstanding shares of Surviving Corporation Common Stock will be held by (i) the
Class A Shareholders, (ii) the Class
39
<PAGE>
A/B Shareholders who do not elect to receive Class B Cash Consideration and
(iii) the First Command Shareholders, to the extent that such shareholders do
not seek appraisal rights (see "THE PROPOSED MERGER--Conversion of Shares" and
"RISK FACTORS--Risk Factors Pertaining to the Merger--Loss of Voting Rights").
The Merger Agreement (including the principal exhibits thereto) is attached to
this Proxy Statement as Annex A. See "THE PROPOSED MERGER." The IRA Board,
based upon the unanimous recommendation of the Special Committee, determined
that the terms of the proposed Merger are fair to and in the best interests of
the IRA Shareholders, including the Class B Shareholders who do not own Class A
Stock, and unanimously approved the Merger Agreement and the Merger and
recommended that the Merger Agreement be submitted for approval at a special
meeting of the IRA Shareholders. In arriving at its decision, the IRA Board
gave careful consideration to a number of factors, including the opinion of the
Financial Advisor, the financial advisor to the Special Committee. ACCORDINGLY,
THE IRA BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT.
RECORD DATE
The IRA Board has fixed the close of business on _______________, 1998, as
the Record Date for the determination of holders of Class A Stock and Class B
Stock entitled to vote at and receive notice of the Special Meeting. Only Class
A Shareholders and Class B Shareholders as of the Record Date will be entitled
to vote at the Special Meeting. At the close of business on the Record Date, the
Company had outstanding and entitled to vote 25 shares of Class A Stock held by
14 holders of record and _________________ shares of Class B Stock held by
_______________ holders of record.
QUORUM
The presence, in person or by proxy, of the holders of a majority of Class
A Stock and the holders of a majority of Class B Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum for the transaction of
business at such meeting.
Abstentions are counted for purposes of determining whether a quorum exists
at the Special Meeting. However, proxies that reflect abstentions and proxies
that are not returned will have the same effect as a vote against approval of
the Merger Agreement because the affirmative vote of (i) the holders of at least
66-2/3% of the outstanding shares of Class A Stock and Class B Stock, voting
together as a single class, and (ii) the holders of at least 66-2/3% of the
outstanding shares of Class A Stock and Class B Stock, each voting separately as
a class, is required to approve the Merger Agreement. See "--Votes Required;
Voting Rights."
VOTES REQUIRED; VOTING RIGHTS
Each share of Class A Stock and Class B Stock is entitled to one vote
with respect to the approval of the Merger at the Special Meeting. The
affirmative vote of (i) the holders of at least 66-2/3% of the outstanding
shares of Class A Stock and Class B Stock, voting together as a single class,
and (ii) the holders of at least 66-2/3% of the outstanding shares of Class A
Stock and Class B Stock, each voting separately as a class, is required to
approve the Merger Agreement. As of August 15, 1998, Lamar C. Smith, James
N. Lanier, Howard M. Crump, Hal N. Craig, Donaldson D. Frizzell, Jerry D.
Gray, David P. Thoreson, Carroll H. Payne II and Naomi K. Payne
(collectively, the "Management Group"), each of whom is an officer or
director of the Company or First Command and is also a Class A Shareholder,
beneficially owned an aggregate of 16 shares of Class A Stock and 238,504
shares of Class B Stock (representing approximately 64% and 25% of the
outstanding Class A Stock and Class B Stock, respectively). Each of the
Management Group intends to vote all shares of Class A Stock and Class B
Stock beneficially owned by him or her for approval of the Merger Agreement.
With regard to any other matters presented at the Special Meeting, each
share of Class A Stock will be entitled to one vote, and the Class B
Shareholders will not be entitled to vote on such matters.
If fewer shares of either Class A Stock or Class B Stock are voted in favor
of the Merger Proposal than the number required for approval, it is expected
that the Special Meeting will be postponed or adjourned for the purpose
40
<PAGE>
of allowing additional time for soliciting and obtaining additional proxies or
votes. If a motion to adjourn the meeting is presented for the purpose of
allowing additional time to solicit proxies, shareholders providing proxies that
are not voted against the Merger Proposal will be deemed to have conferred
discretionary authority to vote for such adjournment, and shares voted against
the Merger Proposal shall be voted against a motion to adjourn such meeting. See
"--Solicitation of Proxies."
Because 25 shares of Class A Stock and _________________ shares of Class
B Stock were outstanding as of the Record Date, the affirmative vote of at
least 17 shares of Class A Stock and ________________ shares of Class B Stock
is a condition to the consummation of the Merger. As of the Record Date,
there were _______ shares of Class B Stock held by persons other than the
Management Group. ___________ shares of Class B Stock will be needed to
approve the Merger in addition to the number of shares of Class B Stock held
by Class A/B Shareholders.
DISSENTERS' RIGHTS
Holders of Class A Stock or Class B Stock who comply with the applicable
requirements of the TBCA may dissent from the vote on the Merger and exercise
appraisal rights with respect to their Class A Stock or Class B Stock. See "THE
PROPOSED MERGER--Rights of Dissenting Shareholders" and the excerpted sections
of the TBCA attached hereto as Annex C.
SOLICITATION OF PROXIES
If a shareholder attends the Special Meeting, he or she may vote by ballot.
However, many of IRA's shareholders may be unable to attend the Special Meeting.
Therefore, the IRA Board is soliciting proxies so that each holder of Class A
Stock or Class B Stock on the Record Date has the opportunity to vote on the
proposals to be considered at the Special Meeting.
When a proxy is returned properly signed and dated, the shares represented
thereby will be voted in accordance with the instructions on the proxy. If a
shareholder does not return a signed proxy or vote in person at the Special
Meeting, his or her shares will not be voted. Shareholders are urged to mark the
boxes on the proxy to indicate how their shares are to be voted. If a holder of
Class A Stock or Class B Stock returns a signed proxy, but does not indicate how
his or her shares are to be voted, the shares represented by the proxy will be
voted FOR approval and adoption of the Merger Proposal. A properly executed
proxy marked "ABSTAIN," although counted for purposes of determining whether
there is a quorum and for purposes of determining the aggregate voting power and
number of shares represented and entitled to vote at the Special Meeting, will
not be voted and will have the effect of a vote against the Merger Proposal.
The IRA Board does not know of any matters other than those described in
the notice of the Special Meeting that are to come before the Special Meeting.
If any other matters are properly brought before the Special Meeting, including,
among other things, a motion to adjourn or postpone the Special Meeting to
another time and/or place for the purpose of, among other things, permitting
dissemination of information regarding material developments relating to the
Merger or soliciting additional proxies in favor of the Merger Proposal, one or
more of the persons named on the proxy card will vote the shares represented by
such proxy upon such matters as determined in their best judgment and consistent
with the voting rights of such shares as provided by the IRA Bylaws and the
TBCA; provided, however, that no proxy that is voted against the Merger Proposal
will be voted in favor of any adjournment or postponement for the purpose of
soliciting additional proxies. At any subsequent reconvening of the Special
Meeting, all proxies will be voted in the same manner as such proxies would have
been voted at the original convening of the Special Meeting, except for proxies
that have been effectively revoked or withdrawn prior to the time such Proxies
are voted at such reconvened meeting. See "--Votes Required; Voting Rights."
In addition to solicitation by use of the mails, proxies may be solicited
by directors, officers and employees of IRA in person or by telephone, telegram
or other means of communications. Such directors, officers and employees will
not be additionally compensated but may be reimbursed for reasonable
out-of-pocket expenses in connection with
41
<PAGE>
such solicitation. No proxy solicitation firm has been retained to assist with
soliciting and tabulating proxies for the Special Meeting. Expenses in
connection with the solicitation of proxies will be paid by the Company.
PLEASE DO NOT SEND ANY SHARE CERTIFICATES WITH YOUR PROXY CARD OR THE
FORM OF ELECTION.
REVOCABILITY OF PROXIES
Any IRA Shareholder who executes and returns a proxy may revoke such proxy
at any time before it is voted by (i) notifying in writing Sandra T. Allen,
Corporate Secretary of IRA, at 4100 South Hulen Street, Fort Worth, Texas 76109,
(ii) granting a subsequent proxy or (iii) appearing in person and voting at the
Special Meeting. Attendance at the Special Meeting will not in and of itself
constitute revocation of a proxy.
THE PROPOSED MERGER
GENERAL
The following is a brief summary of certain aspects of the Merger. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is included in this Proxy
Statement as Annex A and is incorporated herein by reference.
CLOSING; EFFECTIVE TIME
The Closing will take place on the first date that all conditions to the
Merger shall be satisfied or waived in accordance with the Merger Agreement or
such date as the Company and First Command may agree in writing. Pursuant to
the Articles of Merger to be filed with the Secretary of State of the State of
Texas, the Merger will become effective at 12:01 a.m. on October 1, 1998 (the
"Effective Time").
CONVERSION OF SHARES
Upon the terms and subject to the conditions set forth in the Merger
Agreement, each share of Class A Stock of the Company issued and outstanding
immediately prior to the Effective Time (other than shares of Class A Stock held
in treasury by the Company), subject to and upon the terms and conditions of the
Merger Agreement, will be converted into five shares of Surviving Corporation
Voting Stock. Further, (i) each share of Class B Stock held by a Class B
Shareholder that is not a Class A/B Shareholder that is issued and outstanding
immediately prior to the Effective Time, subject to and upon the terms and
conditions of the Merger Agreement, will be converted into $28.24 in cash,
without interest, and (ii) each share of Class B Stock held by a Class A/B
Shareholder issued and outstanding immediately prior to the Effective Time,
subject to and upon the terms and conditions of the Merger Agreement, will be
converted into one share of Surviving Corporation Nonvoting Stock; provided,
however that each Class A/B Shareholder may elect to receive, in lieu of
receiving the Class B Nonvoting Stock Consideration, the Class B Cash
Consideration for all shares of Class B Stock held thereby immediately prior to
the Effective Time. Each holder of First Command Common Stock, issued and
outstanding immediately prior to the Effective Time, subject to and upon the
terms and conditions of the Merger Agreement, will receive one share of
Surviving Corporation Nonvoting Stock for each 25 shares of First Command Common
Stock held by such shareholder.
On the first business day following the Effective Time, the Surviving
Corporation will deposit in trust with the Paying Agent the following amounts
and forms of Merger Consideration required for conversion at the Effective Time
of the Class A Stock and Class B Stock (such deposit being the "Payment Fund"):
(i) certificates representing the requisite number of shares of Surviving
Corporation Voting Common Stock, (ii) cash representing the Class B Cash
Consideration and (iii) certificates representing the requisite number of shares
of Surviving Corporation Nonvoting Common Stock.
42
<PAGE>
Promptly after the Effective Time, the Paying Agent will mail to each
record holder of Class A Stock or Class B Stock, a transmittal letter and
instructions for the surrender of the certificates for payment. Upon surrender
to the Paying Agent of certificates, together with a duly executed letter of
transmittal, the holder will be entitled to receive the appropriate Merger
Consideration. No interest will be paid or accrue on the Merger Consideration
payable in cash upon the surrender of the certificates. The Paying Agent shall
pay the Merger Consideration attributable to a certificate that has been lost or
destroyed upon receipt of satisfactory evidence of ownership of the shares of
Class A Stock or Class B Stock and of appropriate indemnification. After the
Effective Time, until surrendered in accordance with these provisions, each
certificate (other than certificates representing Dissenting Shares) shall
represent only the right to receive the Merger Consideration as set forth in the
Merger Agreement.
After the Effective Time, there shall be no transfers on the stock transfer
books of the Surviving Corporation of the shares of IRA Common Stock or First
Command Common Stock which were outstanding immediately prior to the Effective
Time. Certificates presented to the Surviving Corporation after the Effective
Time shall be cancelled.
Any portion of the Payment Fund that remains unclaimed by the shareholders
of IRA or First Command for six months after the Effective Time shall be repaid
to the Surviving Corporation, upon demand, and any shareholders of IRA or First
Command who have not complied with the herein provisions shall look as a general
creditor only to the Surviving Corporation for payment of their claims for the
Merger Consideration. Notwithstanding the foregoing, the Surviving Corporation
shall not be liable to a holder of shares of IRA Common Stock or First Command
Common Stock for any amounts delivered to a public official pursuant to any
applicable abandoned property, escheat or similar laws.
At the Effective Time, all shares of either Class A Stock or Class B Stock
that are held in treasury by the Company will cease to be outstanding, shall be
cancelled and retired without payment of any consideration therefor and will
cease to exist.
SHAREHOLDER ELECTIONS
All shareholder elections by Class A/B Shareholders shall be made on the
Form of Election which will be provided by the Paying Agent and mailed to IRA
Shareholders as of the Record Date along with this Proxy Statement. To be
effective, a Form of Election must be returned, properly completed, to the
Paying Agent no later than the Election Deadline. A Class A/B Shareholder
that fails to submit an effective Form of Election prior to the Election
Deadline shall be deemed to have made a Non-Election, which will result in
the Class A/B Shareholder receiving the Class B Nonvoting Stock
Consideration. An election by a Class A/B Shareholder to receive either the
Class B Nonvoting Stock Consideration or the Class B Cash Consideration will
not constitute a vote in favor of the approval of the Merger Agreement. A
Class A/B Shareholder may not elect to receive both the Class B Nonvoting
Stock Consideration and the Class B Cash Consideration.
In the event a Form of Election is delivered to the Paying Agent on behalf
of a record holder of Class B Stock (as defined below) who is a Class A/B
Shareholder (as defined below) prior to the Election Deadline and not revoked
prior to such deadline, or if a Form of Election is delivered to the Paying
Agent after the Election Deadline, the Company or the Surviving Corporation, as
the case may be, will deem such delivery a revocation of any objections to the
Merger previously filed with the Company for purposes of exercising dissenter's
rights and a waiver of any future rights to such exercise. See "--Rights of
Dissenting Shareholders."
Elections may be revoked or amended by a Class A/B Shareholder upon written
notice to the Paying Agent prior to the Election Deadline. If a Class A/B
Shareholder revokes the Form of Election and does not properly resubmit such
form thereafter, the Class A/B Shareholder shall be deemed to have made a
Non-Election.
The Company will use its best efforts to make a Form of Election available
to all persons who become Class A/B Shareholders between the date of mailing of
this Proxy Statement and the Election Deadline.
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<PAGE>
THE MERGER AGREEMENT
The following is a summary of certain material provisions of the Merger
Agreement not summarized elsewhere in this Proxy Statement. A copy of the Merger
Agreement is attached as Annex A to this Proxy Statement and is incorporated
herein by reference. The following summary does not purport to be complete and
is qualified in its entirety by reference to the Merger Agreement.
THE MERGER. The Merger Agreement provides that, on the first date that all
conditions to the Merger shall be satisfied or waived in accordance with the
Merger Agreement or such date as the Company and First Command may agree in
writing and at the time the Articles of Merger are filed with the Secretary of
State of the State of Texas in accordance with the TBCA, IRA will be merged with
and into First Command in accordance with the TBCA, the separate corporate
existence of IRA will cease, and First Command will continue as the Surviving
Corporation in the Merger.
DIRECTORS AND OFFICERS. Pursuant to the Merger Agreement, the directors and
officers of IRA immediately prior to the Effective Time shall, from and after
the Effective Time, be the directors and officers of the Surviving Corporation,
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation. See "CERTAIN
INFORMATION CONCERNING IRA--Directors and Executive Officers of IRA." Because
the Bylaws of the Surviving Corporation will contain a provision for a
classified board similar to that of the Bylaws of IRA, the Merger Agreement
provides that the directors will retain their respective current classes after
the Merger.
CHARTER AND BYLAWS. Pursuant to the Merger Agreement, the Articles of
Incorporation and Bylaws of First Command as in effect immediately prior to
the Effective Time will be the Articles of Incorporation and Bylaws,
respectively, of the Surviving Corporation following the Merger until duly
amended as provided therein and by applicable law. The Merger Agreement
provides that at the Effective Time the Articles of Incorporation of the
Surviving Corporation shall be amended to provide for the change of the name
of the Surviving Corporation to "Independent Research Agency for Life
Insurance, Inc." A copy of the Articles of Incorporation, as proposed to be
amended, and the Bylaws of the Surviving Corporation, as proposed to be
amended, are attached hereto as Annex E.
FILINGS; OTHER ACTIONS; NOTIFICATION. Pursuant to the Merger Agreement,
the parties have agreed, among other things, that (i) each party will provide
certain information, or access to such information, to the other party; (ii)
each party will hold certain information received pursuant to the
contemplated Merger confidential; (iii) IRA will call and hold the Special
Meeting as soon as reasonably practicable after the date of the Merger
Agreement, and subject to their fiduciary duties as advised by counsel, the
directors of IRA will recommend approval and adoption of the Merger
Agreement; (iv) IRA and First Command will prepare and file, and each will
cooperate with the other in the preparation and filing of the Schedule 13E-3
with respect to the transactions described in this Proxy Statement; IRA will
prepare, file and distribute, and First Command will cooperate with IRA in
the preparation and filing of, this Proxy Statement; and each party will
notify the other party of certain communications with the Commission
concerning these documents; (v) each of IRA and First Command will use its
reasonable best efforts to obtain any waivers, consents or approvals under
the terms of any agreement or commitment to which IRA or First Command is a
party that are necessary for the consummation of the Merger; (vi) IRA and
First Command will consult with each other concerning certain publicity
issues; (vii) IRA will attempt to obtain all required approvals, consents,
authorizations and waivers, and First Command will cooperate with IRA in
obtaining such consents; and (viii) certain written information supplied or
to be supplied by IRA or First Command will not contain any untrue statement
of a material fact or omit any material fact necessary in order to make the
statements made, in light of the circumstances under which they are made, not
misleading.
EXPENSES. The Merger Agreement provides that IRA will pay all expenses
incurred by the parties in connection with the preparation, negotiation,
execution, delivery and consummation of the Merger Agreement and the
transactions contemplated by the Merger Agreement.
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INDEMNIFICATION. The Merger Agreement provides that IRA will indemnify and,
after the Effective Time, the Surviving Corporation will indemnify each present
and former employee, agent, officer or director of IRA or, after the Effective
Time, First Command (the "Indemnified Parties"), to the fullest extent permitted
under applicable law or under the Articles of Incorporation and Bylaws of IRA
and the Surviving Corporation against any losses, claims, damages, liabilities,
costs, expenses, judgments and amounts paid in settlement in connection with any
threatened, pending or contemplated claim, action, suit, proceeding or
investigation arising out of or pertaining to any action or omission occurring
prior to or at the Effective Time (including, without limitation, any claim,
action, suit, proceeding or investigation to which he is a party or is
threatened to be made a party by reason of such relationship with IRA and which
arises out of or relates to the transactions contemplated by the Merger
Agreement) (a "Claim"). The Merger Agreement further provides that the
Surviving Corporation agrees that the provisions of the Surviving Corporation's
Articles of Incorporation or Bylaws as in effect at the Effective Time of the
Merger with respect to exculpation of liability and indemnification of officers,
directors and employees shall not be modified, changed or amended in any manner
adverse to an Indemnified Party except as required by law. In addition, IRA
and, after the Effective Time, the Surviving Corporation, to the fullest extent
permitted under applicable law, will periodically advance reasonable expenses as
incurred with respect to any Claim or potential claim provided that the person
to whom expenses are advanced, if required by applicable law, provides an
undertaking to repay such advances if it is ultimately determined by a court of
competent jurisdiction that such person is not entitled to indemnification
pursuant to these provisions of the Merger Agreement.
In the event any Claim is brought against any Indemnified Party (whether
before or after the Effective Time) in connection with which such Indemnified
Party asserts that he is entitled to be indemnified and held harmless pursuant
to these provisions of the Merger Agreement, (i) the Indemnified Parties may
retain counsel which will be reasonably satisfactory to IRA (or the Surviving
Corporation after the Effective Time), (ii) IRA (or, after the Effective Time,
the Surviving Corporation) shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received, and (iii) IRA (or, after the Effective Time, the Surviving
Corporation) will use their reasonable best efforts to assist in the vigorous
defense of any such matter. Neither IRA nor the Surviving Corporation shall be
liable for any settlement effected without their written consent, which consent,
however, shall not be unreasonably withheld. Any Indemnified Party wishing to
claim indemnification under these provisions of the Merger Agreement, upon
learning of any such Claim, shall notify IRA or the Surviving Corporation
thereof but any failure to so notify IRA or the Surviving Corporation shall not
relieve IRA or the Surviving Corporation of their obligations under these
provisions of the Merger Agreement unless it has been actually prejudiced by
such lack of notice. The Indemnified Parties as a group may retain only one law
firm in each jurisdiction to represent them with respect to any such matter
unless there is, under applicable standards of professional conduct, a conflict
of interest on any significant issue between the positions of any two or more
Indemnified Parties. Any determination required to be made with respect to
whether an Indemnified Party's conduct complied with the standards set forth
under applicable law or the Bylaws of IRA or the Surviving Corporation shall be
made by independent counsel selected by such Indemnified Party and reasonably
satisfactory to IRA or the Surviving Corporation (which shall pay such counsel's
reasonable fees and expenses).
EMPLOYEE BENEFITS. The Merger Agreement provides that the Surviving
Corporation will honor and be bound by the terms and conditions of each
Compensation and Benefit Plan (as defined in the Merger Agreement) and each
employee or executive benefit plan, program or agreement of IRA or any of its
subsidiaries in effect prior to the date of the Merger Agreement. The Surviving
Corporation will also, or will cause its subsidiaries to, make available to each
person who is an employee of IRA and its subsidiaries immediately prior to the
Effective Time benefits that are either (a) the same as are made available to
the employees of IRA, on terms and conditions as are generally applicable to the
employees of IRA or (b) no less favorable than those provided under IRA's
benefit plans prior to the effectiveness of the Merger. Any employee benefit
plan or program in which any IRA employee participates after the Effective Time
will (x) waive any pre-existing condition limitation, (y) credit against any
deductible or co-payment requirement subject to a maximum out-of-pocket
limitation any costs incurred by such IRA employee during the comparable period
under the terms of the corresponding IRA plan, program or arrangement, and (z)
credit service
45
<PAGE>
with IRA or its subsidiaries prior to the Effective Time for purposes of meeting
any eligibility or vesting waiting periods.
TAKEOVER STATUTE. The Merger Agreement provides that if any takeover
statute is or may become applicable to the Merger, each of First Command and IRA
and their respective Board of Directors shall grant such approvals and take such
actions as are necessary so that such transactions may be consummated as
promptly as practicable and otherwise act to minimize the effects of such
statute or regulation.
CONDITIONS TO THE MERGER. The obligation of First Command to consummate
the Merger is subject to the satisfaction of a number of conditions, including,
among others (i) the performance and compliance of IRA in all material respects
with all agreements, obligations and conditions required by the Merger Agreement
to be performed or complied with by IRA on or prior to the Closing Date; (ii)
the holders of (A) two-thirds (2/3) of the outstanding shares of Class A Stock
and Class B Stock, voting as a single class, and (B) two-thirds (2/3) of the
outstanding shares of Class A Stock and Class B Stock, each voting separately as
a class, that are eligible to vote at the Special Meeting shall have voted for
approval and adoption of the Merger Agreement; (iii) the holders of two-thirds
(2/3) of the outstanding shares of First Command Common Stock shall have voted
for approval and adoption of the Merger Agreement; (iv) all approvals, consents,
authorizations and waivers from governmental and other regulatory agencies and
other third parties required to consummate the transactions contemplated by the
Merger Agreement, which either individually or in the aggregate, if not
obtained, would have a materially adverse effect on the financial condition,
results of operations or business of IRA or would prevent consummation of the
Merger and the other transactions contemplated by the Merger Agreement, shall
have been obtained; (v) on the Closing Date, there shall be no effective
injunction, writ, temporary restraining order or any order of any nature issued
by a court of competent jurisdiction or other governmental authority directing
that the transactions provided for in the Merger Agreement or any of them not be
consummated as so provided or imposing any conditions on the consummation of the
transactions contemplated by the Merger Agreement that First Command deems
unacceptable in its sole discretion; (vi) no suit, action, or other proceeding
seeking to restrain, prevent or change the transactions contemplated by the
Merger Agreement or otherwise questioning the validity or legality of such
transactions shall have been instituted and be pending; and (vii) the holders of
no more than 20% of either of the outstanding Class A Stock or the Class B Stock
shall have delivered notice of their intent to exercise their right to dissent
under the TBCA.
The obligation of IRA to consummate the Merger is subject to the
satisfaction of a number of conditions, including, among others (i) the
performance and compliance of First Command with all agreements, obligations and
conditions required by the Merger Agreement to be performed or complied with by
First Command on or prior to the Closing Date; (ii) IRA shall not have received
written notice from the Financial Advisor that it has withdrawn, revoked or
modified its opinion as to the fairness of the Merger to the IRA Shareholders,
from a financial point of view; (iii) the holders of (A) two-thirds (2/3) of the
outstanding shares of Class A Stock and Class B Stock, voting as a single class,
and (B) two-thirds (2/3) of the outstanding shares of Class A Stock and Class B
Stock, each voting separately as a class, that are eligible to vote at the
Special Meeting shall have voted for approval and adoption of the Merger
Agreement; (iv) the holders of two-thirds (2/3) of the outstanding shares of
First Command Common Stock shall have voted for approval and adoption of the
Merger Agreement; (v) all approvals, consents, authorizations and waivers from
governmental and other regulatory agencies and other third parties required to
consummate the transactions contemplated by the Merger Agreement, which either
individually or in the aggregate, if not obtained, would have a materially
adverse effect on the financial condition, results of operations or business of
IRA or would prevent consummation of the Merger and the other transactions
contemplated by the Merger Agreement, shall have been obtained; (vi) on the
Closing Date, there shall be no effective injunction, writ, temporary
restraining order or any order of any nature issued by a court of competent
jurisdiction or other governmental authority directing that the transactions
provided for in the Merger Agreement or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transactions
contemplated by the Merger Agreement that IRA deems unacceptable in its sole
discretion; (vii) no suit, action, or other proceeding seeking to restrain,
prevent or change the transactions contemplated by the Merger Agreement or
otherwise questioning the validity or legality of such transactions shall have
been instituted and be pending; and (viii) the holders of no more than 20% of
either of the
46
<PAGE>
outstanding Class A Stock or the Class B Stock shall have delivered notice of
their intent to exercise their right to dissent under the TBCA.
The conditions to each of the parties' obligations to consummate the Merger
are for the sole benefit of such party and may be waived by such party in whole
or in part to the extent permitted by applicable law. In the event a
modification or waiver by IRA or First Command is contemplated that requires
shareholder approval under applicable law, a supplement to this Proxy Statement
will be distributed to IRA Shareholders, and proxies will be resolicited. See
"SPECIAL MEETING OF IRA SHAREHOLDERS--Solicitation of Proxies." Neither First
Command nor IRA currently contemplates waiving or modifying any of the foregoing
conditions.
TERMINATION. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time: (i) by mutual consent of the
Boards of Directors of First Command and IRA; (ii) by either IRA or First
Command if at the Special Meeting, or any adjournment thereof, the shareholders
of IRA fail to adopt and approve the Merger; (iii) by either IRA or First
Command if the shareholders of First Command fail to adopt and approve the
Merger; and (iv) by either IRA or First Command if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other action, in each
case permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Merger Agreement, and such order, decree,
ruling or other action shall have become final and nonappealable.
In the event of termination of the Merger Agreement by either IRA or First
Command as described above, all information received by any party with respect
to the business of the other party (other than information which is a matter of
public knowledge or which has been or is published in any publication for public
distribution or filed as public information with any governmental authority)
shall not at any time be used for the advantage of, or disclosed to third
parties by, such party for any reason, and neither party shall have any
liability or further obligations to the other party, except as stated in the
preceding clause.
IRA CHARTER BUSINESS COMBINATION PROVISION
Under Article Ten of the Articles of Incorporation of IRA, any business
combination with an interested shareholder (as defined below) shall require the
affirmative vote of the holders of at least 95% of the then outstanding shares
of the capital stock of the Company, voting together as a single class, unless
(a) the IRA Board, by an 80% vote, (i) expressly approves in advance the
acquisition of shares that caused the interested shareholder to become an
interested shareholder or (ii) expressly approves the business combination, or
(b) the interested shareholder pays to the holders of the capital stock of the
Company not less than the fair price (as defined below) paid by such person in
acquiring any of its holdings of the Company's capital stock. Under Article Ten
of the Company's Articles of Incorporation, the following terms are defined as
follows:
(a) a "business combination" shall mean (1) any merger or
consolidation of the Company with an interested shareholder or any other
corporation which is, or after such merger or consolidation would be, an
affiliate of an interested shareholder; (2) a sale or other disposition to
or with an interested shareholder or affiliate of an interested shareholder
of substantially all of the assets of the Company; (3) the issuance or
transfer by the Company of the securities of the Company to an interested
shareholder in a transaction having a fair market value of $2,000,000 or
more; (4) the adoption of a plan or proposal for liquidation or dissolution
of the Company proposed by or on behalf of an interested shareholder or an
affiliate of an interested shareholder; and (5) any reclassification of
securities or recapitalization of the Company or any other transaction
which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity of the
Company which is directly or indirectly owned by an interested shareholder
or an affiliate of an interested shareholder;
47
<PAGE>
(b) an "interested shareholder" shall mean any person who is a
beneficial owner, directly or indirectly, of more than 10 percent of the
shares of any class of the outstanding capital Stock of the Company, or is
an assignee of or has otherwise succeeded to any shares of any class of the
capital Stock of the Company which were at any time within the two year
period immediately preceding the date in question beneficially owned by an
interested shareholder; and
(c) a "fair price" shall mean the amount determined by the majority
of the Board of Directors to be the highest per share equivalent price that
can be determined to have been paid at any time by the interested
shareholder for any share or shares of any class or series of the capital
stock of the Company, plus interest from the date the interested
shareholder became an interested shareholder through the date of the
business combination at the rate of 7 percent per annum, less the aggregate
amount of any dividends paid during such time period.
The above description of the Article 10 of the Articles of Incorporation of IRA
is a summary only, and is qualified in its entirety by reference to the Articles
of Incorporation of IRA.
To the extent that the Merger may constitute a "business combination," as
defined in the Articles of Incorporation of IRA, the Company believes that the
provisions of Article 10 of the Articles of Incorporation of IRA will not apply
to the Merger because the IRA Board has approved the Merger by a unanimous vote.
STATE ANTI-TAKEOVER STATUTES
Articles 13.01 through 13.03 of the TBCA (the "Business Combination Law")
prevents, under certain circumstances, an "Affiliated Shareholder" (generally
defined as a person beneficially owning 20% or more of an issuing corporation's
voting shares (as defined in Article 13.02 of the TBCA)) from engaging in a
"Business Combination" (as defined in Article 13.02 of the TBCA) for three years
following the date such person became an Affiliated Shareholder unless (i) the
business combination or the purchase or acquisition of shares made by the
Affiliated Shareholder on the Affiliated Shareholder's share acquisition date is
approved by the Board of Directors before the Affiliated Shareholder's share
acquisition date or (ii) the business combination is approved, by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
shares of the issuing public corporation not beneficially owned by the
Affiliated Shareholder or an affiliate or associate of the Affiliated
Shareholder. The "voting shares" are those shares of capital stock of the
corporation entitled to vote generally in the election of directors;
consequently, only Class A Stock is considered to be voting shares under the
TBCA. The Company believes that the Business Combination Law is inapplicable to
the Merger.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, shareholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In 1982, in EDGAR V. MITE CORP., the Supreme
Court of the United States invalidated on constitutional grounds the Illinois
Business Takeover Statute, which, as a matter of state securities law, made
takeovers of corporations meeting certain requirements more difficult. However,
in 1987, in CTS CORP. V. DYNAMICS CORP. OF AMERICA, the Supreme Court held that
the State of Indiana may, as a matter of corporate law, and, in particular, with
respect to those aspects of corporate law concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of a
target corporation without the prior approval of the remaining shareholders. The
state law before the Supreme Court was by its terms applicable only to
corporations that had a substantial number of shareholders in the state and were
incorporated there.
IRA conducts business, directly or through subsidiaries, in a number of
states throughout the United States, some of which have enacted takeover laws.
IRA does not know whether any of these laws will, by their terms, apply to the
Merger and has not complied with any such laws. Should any person seek to apply
any state takeover law, IRA will take such action as then appears desirable,
which may include challenging the validity or applicability of any such
48
<PAGE>
statute in appropriate court proceedings. In the event it is asserted that one
or more state takeover laws is applicable to the Merger, and an appropriate
court does not determine that it is inapplicable or invalid as applied to the
Merger and/or IRA might be required to file certain information with, or
receive approvals from, the relevant state authorities.
RIGHTS OF DISSENTING SHAREHOLDERS
If the Merger Agreement is approved by the required vote of the Company's
shareholders and is not abandoned or terminated, IRA Shareholders who did not
vote in favor of the Merger may, by complying with Articles 5.12 and 5.13 of the
TBCA, be entitled to dissenters' rights as described therein. If a shareholder
of the Company has a beneficial interest in shares of Class A Stock or Class B
Stock that are held of record in the name of another person, such as a broker or
nominee, and such shareholder desires to perfect whatever dissenters' rights
such beneficial shareholder may have, such beneficial shareholder must act
promptly to cause the holder of record timely and properly to follow the steps
summarized below.
A VOTE IN FAVOR OF THE MERGER BY AN IRA SHAREHOLDER WILL RESULT IN A WAIVER
OF THE SHAREHOLDER'S DISSENTERS' RIGHTS.
IN THE EVENT A FORM OF ELECTION IS DELIVERED TO THE PAYING AGENT ON BEHALF
OF A RECORD HOLDER OF CLASS B STOCK (AS DEFINED BELOW) WHO IS A CLASS A/B
SHAREHOLDER (AS DEFINED BELOW) PRIOR TO THE ELECTION DEADLINE AND NOT REVOKED
PRIOR TO SUCH DEADLINE, OR IF A FORM OF ELECTION IS DELIVERED TO THE PAYING
AGENT AFTER THE ELECTION DEADLINE, THE COMPANY OR THE SURVIVING CORPORATION, AS
THE CASE MAY BE, WILL DEEM SUCH DELIVERY A REVOCATION OF ANY OBJECTIONS TO THE
MERGER PREVIOUSLY FILED WITH THE COMPANY FOR PURPOSES OF EXERCISING DISSENTER'S
RIGHTS AND A WAIVER OF ANY FUTURE RIGHTS TO SUCH EXERCISE.
The Company's shareholders will have the right to dissent from the Merger
and to obtain an appraisal of their shares of Class A Stock or Class B Stock in
the event that the Merger Agreement is approved and is not abandoned or
terminated. Appraisal value will be determined as of the day immediately
preceding the Meeting.
The summary set forth below does not purport to be a complete statement
of the provisions of Texas law relating to shareholders' rights to dissent
and to obtain an appraisal of Class A Stock or Class B Stock in connection
with the Merger and is qualified in its entirety by reference to Articles
5.12 and 5.13 of the TBCA, which are attached hereto as Annex D, and the
other relevant provisions of the TBCA. The TBCA contains provisions that, in
the case of the merger of a corporation organized under the laws of Texas,
grant Dissenting Shareholders who comply with the procedures set forth in
Articles 5.12 and 5.13 the right to receive payment in cash equal to the
appraisal value of their shares. The principal provisions of Articles 5.12
and 5.13 as they apply to the Merger are summarized below.
To claim dissenters' rights, a shareholder must (i) prior to the
shareholder vote on the Merger, file a written objection to the Merger setting
out that the shareholder's right to dissent will be exercised if the Merger is
effective and giving such shareholder's address to which notice of the Merger
shall be mailed in the event it occurs; (ii) not vote such shareholder's Class A
Stock or Class B Stock in favor of approval of the Merger; (iii) if the Merger
is approved by the Company's shareholders and consummated, demand, in writing,
payment of the fair value of such shareholder's shares of Class A Stock or Class
B Stock from the Surviving Corporation (stating therein the number and class of
shares of Class A Stock or Class B Stock owned by such shareholder and an
estimate of the fair market value of such shares) within ten days after the date
the notice that the Merger has become effective is delivered or mailed to the
shareholder, which notice must be provided to all shareholders who complied with
(i) and (ii) above within ten days after the Effective Time of the Merger; and
(iv) within twenty days of filing such written demand for payment, submit to the
Surviving Corporation the certificate or certificates representing such
shareholder's shares of Class A Stock or Class B Stock for the purpose of having
a notation placed thereon to the effect that a demand for payment with respect
thereto has been made.
49
<PAGE>
Neither an abstention from voting on the Merger proposal nor a vote against
the Merger will be deemed to satisfy the requirement that a written objection be
filed with the Company before the vote on the Merger. However, a shareholder who
has filed a written objection to the Merger as provided above will not be deemed
to have waived such shareholder's dissenter's rights by abstaining from voting
on the Merger proposal or otherwise not voting; however, such a shareholder will
be deemed to have waived such shareholder's dissenters' rights if such
shareholder votes in favor of the Merger. A shareholder who fails to make the
written demand within the ten-day period described above will be bound by the
Merger as if such shareholder had voted in favor thereof. If a shareholder fails
to submit such shareholder's certificates within the twenty-day period described
above, such shareholder's rights to receive payment pursuant to dissenters'
rights shall terminate unless a court for good and sufficient cause determines
otherwise.
In the event that the Merger is approved by the Company's shareholders and
a shareholder elects to exercise such shareholder's dissenters' rights, the
Surviving Corporation shall, within twenty days of the date it receives such
shareholder's written demand for payment, deliver or mail to such shareholder a
written notice that either (i) provides that the Surviving Corporation accepts
the amount claimed by the Dissenting Shareholder as the fair value of such
shareholder's shares and that the Surviving Corporation agrees to pay such
amount within ninety days after the Effective Time of the Merger and upon
surrender of the certificates for such shareholder's shares duly endorsed; or
(ii) contains an estimate by the Surviving Corporation of the fair value of the
shares and an offer to pay such amount within ninety days after the Effective
Time of the Merger, but only if the Surviving Corporation receives from the
shareholder, within sixty days after such date, a notice from the shareholder
that such shareholder agrees to accept such amount upon surrender of such
shareholder's share certificate or certificates duly endorsed.
If the Dissenting Shareholder and the Surviving Corporation fail to agree
on a value within sixty days after the Effective Time of the Merger, either the
shareholder or the Surviving Corporation may, within sixty days after the
expiration of such sixty day period, file a petition in any court of competent
jurisdiction in Tarrant County, Texas for the purpose of obtaining a
determination of the fair value of the shares of the Dissenting Shareholder.
Then, if the court determines that the shareholder has complied with the
requirements for a Dissenting Shareholder under Articles 5.12 and 5.13 of the
TBCA, the court will appoint one or more appraisers to determine the value of
the shareholder's shares. All Dissenting Shareholders who do not reach agreement
with the Surviving Corporation as to the value of their shares within sixty days
of the Effective Time of the Merger will receive notice of such court
proceeding, and those who are found to have complied with Articles 5.12 and 5.13
of the TBCA will be bound by the final judgment of the court as to the value of
their shares.
A Dissenting Shareholder who makes a written demand for payment of such
shareholder's shares will not thereafter be entitled to vote or to exercise any
other rights of a shareholder, except the right to receive payment for such
shareholder's shares pursuant to the TBCA.
A Dissenting Shareholder may withdraw such shareholder's demand for payment
for such shareholder's shares at any time before such payment is made; however,
the demand may not be withdrawn after payment by the Surviving Corporation has
been made nor may the demand be withdrawn after a petition has been filed with a
court for such payment unless the Surviving Corporation consents to the
withdrawal of the demand.
In the absence of fraud in the transaction, the remedy provided by Article
5.12 of the TBCA is the exclusive remedy for the recovery of the value of shares
or money damages by a Dissenting Shareholder. If the Surviving Corporation
complies but a Dissenting Shareholder fails to comply with the requirements of
Articles 5.12 and 5.13 of the TBCA, such shareholder is not entitled to bring an
action for the recovery of the value of such shareholder's shares or for money
damages.
ANY SHAREHOLDER CONTEMPLATING THE EXERCISE OF THE RIGHTS SUMMARIZED ABOVE
IN CONNECTION WITH THE MERGER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN
COUNSEL. THE FAILURE BY A SHAREHOLDER TO FOLLOW PRECISELY ALL OF THE STEPS
REQUIRED BY ARTICLES 5.12 AND 5.13 OF THE TBCA WILL RESULT IN THE LOSS OF THOSE
RIGHTS.
50
<PAGE>
MARKET PRICE DATA, DISTRIBUTIONS AND
SECURITY OWNERSHIP OF IRA COMMON STOCK
There is presently no trading market for the Company's common stock, of
either class, and it is very unlikely that a market will develop in the future.
As an insurance agency incorporated in Texas, only insurance agents licensed in
Texas can, under Texas law, own the Company's stock. Therefore, the stock price
cannot be and is not determined by actions and considerations of any such
market.
NUMBER OF SECURITY HOLDERS
As of August 15, 1998, the Company had 14 shareholders of record of its
Class A Stock, and 504 shareholders of record of its Class B Stock.
DISTRIBUTION HISTORY
The following is a history of the distributions paid by the Company since
inception. Distributions have only been paid on Class B Stock.
<TABLE>
<CAPTION>
DATE OF RECORD PAYMENT DATE PER SHARE
- ------------------------ ---------------------- -------------
<C> <C> <C>
October 20, 1987 December 3, 1987 $ 8.00
September 30, 1988 November 30, 1988 2.10
September 30, 1989 November 30, 1989 2.65
September 30, 1990 November 28, 1990 3.00
September 30, 1991 November 30, 1991 4.00
September 30, 1992 December 1, 1992 6.59
September 30, 1993 December 1, 1993 7.31
September 30, 1994 December 1, 1994 4.88
September 30, 1995 December 1, 1995 4.50
September 30, 1996 December 2, 1996 7.63
September 30, 1997 December 1, 1997 7.73
</TABLE>
On October 31, 1988, the Company's shareholders approved an amendment to
the Company's Articles of Incorporation whereby Class B Stock would split on a
basis of five new shares for each one share then outstanding. The par value of
Class B Stock was correspondingly reduced from a par value of $0.10 per share to
a par value of $0.02 per share. The stock split became effective on November 1,
1988.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS OF IRA
COMMON STOCK
51
<PAGE>
The following table sets forth, as of August 15, 1998, the number of
shares of Class A Stock and Class B Stock and the percentage of outstanding
shares of each class owned of record by (i) each director of the Company;
(ii) each executive officer of the Company; (iii) all directors and officers
of the Company as a group; and (iv) each person who beneficially owns more
than five percent of a class of common stock. Members of the Management
Group are denoted with an *. Prior to the consummation of the Merger, First
Command does not beneficially own shares of Class A Stock or Class B Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS POSITION WITH TITLE NATURE OF PERCENT
OF BENEFICIAL OWNER THE COMPANY OF CLASS BENEFICIAL OWNERSHIP OF CLASS
- ------------------- ----------- -------- -------------------- --------
<S> <C> <C> <C> <C>
Lamar C. Smith (1)* Director, Chairman of Class A 2 shares 8.00
the Board and Chief Class B 40,000 shares 4.22
Executive Officer
James N. Lanier (1)* Director, President and Class A 2 shares 8.00
Chief Operating Officer Class B 18,000 shares 1.90
Howard M. Crump (1)* Director and Senior Vice Class A 2 shares 8.00
President and Director Class B 26,000 shares 2.74
of Marketing
Hal N. Craig (1)* Director and Vice Class A 1 share 4.00
President and Director Class B 5,600 shares (2)
of Insurance
Donaldson D. Frizzell (1)* Director and Vice Class A 1 share 4.00
President of Investments Class B 7,100 shares (2)
Jerry D. Gray* Director and Regional Class A 1 share 4.00
5705 Cameron Hall Place Agent Class B 20,000 shares 2.11
Atlanta, GA 30328
David P. Thoreson* Director and Regional Class A 1 share 4.00
2016 Empire Mine Circle Agent Class B 27,850 shares 2.94
Gold River, CA 95670
Carroll H. Payne II* Director Class A 3 shares 12.00
1814 8th Avenue Class B 46,977 shares 4.96
Suite A-3
Fort Worth, TX 76110
Naomi K. Payne* Director Class A 3 shares 12.00
11 Marion Terrace Class B 46,977 shares 4.96
Brookline, MA 02146
James J. Ellis Director Class A -- --
Regency Plaza, LB 72 Class B -- --
3710 Rawlings, Suite 1010
Dallas, TX 75219-4239
Logan Dickinson Director Class A -- --
314 Main Street Class B -- --
Suite 202
Fort Worth, TX 76102
Martin R. Durbin (1) Treasurer and Chief Class A -- --
Financial Officer Class B 1,725 shares (2)
Robert F. Watson (1) Director and Corporate Class A -- --
Counsel Class B -- --
52
<PAGE>
Freda J. Payne Class A 3 shares 12.00
6812 Riverdale Class B 46,977 shares 4.96
Fort Worth, TX 76132
Debra S. Payne Class A 3 shares 12.00
5910 N. Central Class B 46,528 shares 4.91
Expressway Suite 1000
Dallas, TX 75206
Richard E. Giles Class A 1 share 4.00
13003 Richards Class B 5,400 shares (2)
Overland Park, KS 66213
Margaret L. Galda Class A 1 share 4.00
2741 Mannerwood Trail Class B 4,500 shares (2)
Fort Worth, TX 76109
Edward T. Elmendorf Jr. Class A 1 share 4.00
6410 Southwest Blvd. Class B 17,550 shares 1.85
Suite 200
Fort Worth, TX 76109
All directors and executive Class A 16 shares 64.00
officers as a group Class B 240,229 shares 25.37
(13 persons)
</TABLE>
- ---------------
(1) The business address of this person is 4100 South Hulen, Fort Worth,
Texas 76113.
(2) Represents less than 1% of the class.
MARKET PRICE DATA, DISTRIBUTIONS AND SECURITY OWNERSHIP
OF FIRST COMMAND COMMON STOCK
There is presently no market for the First Command Common Stock. Upon
consummation of the Merger, the Surviving Corporation will be an insurance
agency incorporated in Texas, and only insurance agents licensed in Texas will
be permitted, under Texas law, to own the Surviving Corporation Common Stock.
Therefore, it is anticipated that no market will develop for the Surviving
Corporation Common Stock, and the stock price will not be determined by actions
and considerations of any such market.
53
<PAGE>
NUMBER OF SECURITY HOLDERS
As of August 15, 1998, First Command had five shareholders of record of its
Common Stock.
DISTRIBUTION HISTORY
To date, First Command has paid no distributions on its Common Stock.
After the Merger, pursuant to the Surviving Corporation Shareholders' Agreement,
the Surviving Corporation will pay distributions on the Surviving Corporation
Common Stock that are pro rata to all shareholders, to the extent that Surviving
Corporation Shareholders may be deemed to receive income as the result of
Surviving Corporation's status as an S corporation. Further, the IRA Board,
which will be the Board of the Surviving Corporation upon consummation of the
Merger, anticipates that the Surviving Corporation, subject to the fiduciary
duties of the Board of Directors of the Surviving Corporation and the ongoing
financial condition of the Surviving Corporation, will declare and pay
distributions that are pro rata to all shareholders on the Surviving Corporation
Common Stock that are intended to approximate the income that the Class A/B
Shareholder would have received from the competitive reinvestment of the Class B
Cash Consideration, taking into account income tax considerations. Further,
holders of MAP Units will be entitled to any distribution equivalents that the
Board of Directors of the Surviving Corporation may declare pursuant to the
Mission Accomplishment Plan.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS OF FIRST
COMMAND COMMON STOCK
The following table sets forth, as of August 15, 1998, the number of
shares of First Command Common Stock and the percentage of outstanding shares
of each class owned of record by (i) each director of First Command; (ii)
each executive officer of First Command; (iii) all directors and officers of
First Command as a group; and (iv) each person who beneficially owns more
than five percent of First Command Common Stock. Members of the Management
Group are denoted with an *.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS POSITION WITH NATURE OF PERCENT
OF BENEFICIAL OWNER FIRST COMMAND BENEFICIAL OWNERSHIP OF CLASS
- ------------------- ------------- -------------------- --------
<S> <C> <C> <C>
Lamar C. Smith (1)* Director, Chairman 250 shares 25.00
of the Board and
Chief Executive
Officer
James N. Lanier (1)* Director, President 250 shares 25.00
and Chief Operating
Officer
Howard M. Crump (1)* Director 250 shares 25.00
Carroll H. Payne II* Director 225 shares 22.50
1814 8th Avenue
Suite A-3
Fort Worth, TX 76110
Martin R. Durbin (1) Treasurer -- --
Robert F. Watson (1) Secretary -- --
Freda J. Payne 25 shares 2.50
6812 Riverdale
Fort Worth, TX 76132
All directors and
executive officers as
a group (6 persons) 975 shares 97.50
</TABLE>
- ---------------
(1) The business address of this person is 4100 South Hulen, Fort Worth,
Texas 76113.
Each of the First Command Shareholders, other than Freda J. Payne, is a
member of the executive committee of the IRA Board and a member of the
Management Group. On April 1, 1998, each of the First Command Shareholders,
other than Freda J. Payne, acquired 250 shares of First Command Common Stock
at a price of $1.00 per share. On June 26, 1998, Carroll H. Payne, II gifted
25 shares of First Command Common Stock to Freda J. Payne. See "CERTAIN
INFORMATION CONCERNING FIRST COMMAND."
Upon consummation of the Merger, all of the Surviving Corporation Common
Stock will be held by (i) the Class A Shareholders, (ii) the Class A/B
Shareholders who do not elect to receive Class B Cash Consideration and (iii)
the First Command Shareholders, to the extent that such shareholders do not
elect to seek appraisal rights.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF IRA
The following unaudited pro forma condensed consolidated income statements
(the "Pro Forma Condensed Consolidated Financial Statements") have been based on
the historical consolidated financial statements of the Company for the year
ended September 30, 1997 and the nine months ended June 30, 1998 as if the
Merger was consummated on October 1, 1996. The pro forma condensed consolidated
balance sheet gives effect to the Merger as if it was consummated on June 30,
1998. The pro forma adjustments are described more fully in the accompanying
notes.
The information contained in the Pro Forma Condensed Consolidated
Financial Statements assumes that all of the shares of Class B Stock held by
Class B Shareholders who do not own Class A Stock are repurchased and that no
Class A/B shareholder elects to receive the Class B Cash Consideration with
respect to his or shares of Class B Stock. See "THE PROPOSED
MERGER--Conversion of Shares." In event that any of the Class A/B
shareholders elects to receive the Class B Cash Consideration with respect to
his or shares of Class B Stock, although remote, the amount of Class B Cash
Consideration paid to such Class A/B shareholder would decrease shareholders'
equity and either decrease cash or increase long term liabilities by a
similar amount. In the event that all of the Class A/B Shareholders elect to
receive the Class B Cash Consideration with respect to their Class B Stock,
the total merger consideration would be approximately $27 million, which
would result in a further reduction in shareholders' equity and a
corresponding increase in long term liabilities.
The Pro Forma Condensed Consolidated Financial Statements are presented for
informational purposes only and do not purport to be indicative of the results
of operations that actually would have been achieved had such transactions been
consummated on the date or for the periods indicated and do not purport to be
indicative of the balance sheet data or results of operations as of any future
date or for any future period. The Pro Forma Condensed Consolidated Financial
Statements should be read in conjunction with the Company's historical
consolidated financial statements and notes thereto and other information
contained in the documents incorporated by reference herein.
54
<PAGE>
The pro forma adjustments were applied to the respective historical
statements to reflect and account for the Merger similar to a business
combination accounted for as a pooling of interests. Accordingly, the
historical basis of the Company's assets and liabilities has not been affected
by the Merger.
55
<PAGE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC. AND
FIRST COMMAND FINANCIAL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
First
Independent Command
Research Financial Pro Forma
Agency Corporation Adjustments Notes Combined
------------- ------------ ------------- ------ --------------
<S> <C> <C> <C> <C> <C>
Commission revenue . . . . . . . . . . . . . . . . $122,329,601 $ 0 $ 0 $ 122,329,601
First Command Bank operating income. . . . . . . . 58,458 58,458
Commissions, bonuses & agent expenses. . . . . . . (87,809,129) (12,955,382) (c) (100,764,511)
General & administrative expenses. . . . . . . . . (25,719,662) (25,719,662)
------------- ------------ ------------- --------------
Income (loss) from operations . . . . . . 8,859,268 0 (12,955,382) (4,096,114)
Other income, net. . . . . . . . . . . . . . . . . 5,216,114 (1,120,000) (a) 4,096,114
------------- ------------ ------------- --------------
Income before taxes . . . . . . . . . . . 14,075,382 0 (14,075,382) 0
Provision for income taxes . . . . . . . . . . . . (4,639,886) 4,639,886 (b) 0
------------- ------------ ------------- --------------
Net income. . . . . . . . . . . . . . . . $ 9,435,496 $ 0 $ (9,435,496) $ 0
------------- ------------ ------------- --------------
------------- ------------ ------------- --------------
Weighted average shares outstanding. . . . . . . . 937,502 0 (577,878) 359,624
Net income per share . . . . . . . . . . . . . . . $ 10.06 $ 0.00 (10.06) $ 0.00
</TABLE>
56
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(a) Interest expense at 7% on $16.0 million note payable used to repurchase
Class B Stock. The amount financed is based on cash available at June 30,
1998. The Merger is expected to be consummated on September 30, 1998. At
that time, substantially more cash should be available from operations
which would reduce the reliance on borrowed funds to support the repurchase
of the Class B Stock and result in a lower interest cost to the Merger.
(b) To eliminate federal income taxes payable at the corporate level as a
result of S corporation status.
(c) To accrue Mission Accomplishment Plan compensation. On July 22, 1998 the
Company issued 138,275 MAP Units to certain of its agents and employees.
These units have an exercise period of five to ten years, with the SAR
portion of each MAP Unit initially valued at $1. The value of the SARs is
to be determined by the IRA Board. The Company will record monthly accruals
for Mission Accomplishment Plan compensation based on its GAAP earnings as
SAR expense. The Company will record DER expense with a corresponding
adjustment to SAR expense at the time a dividend equivalent is declared by
the IRA Board.
(d) The pro forma condensed consolidated income statement does not include
anticipated one-time Merger costs of approximately $1.2 million or any
potential one-time adjustments related to changes in deferred taxes as a
result of conversion to S corporation federal income tax status.
57
<PAGE>
Unaudited Pro Forma Condensed Consolidated Income Statement
Nine Months Ended June 30, 1998
<TABLE>
<CAPTION>
First
Independent Command
Research Financial Pro Forma
Agency Corporation Adjustments Notes Combined
--------------- -------------- --------------- ----- ----------------
<S> <C> <C> <C> <C> <C>
Commission revenue . . . . . . . . . . . . $ 95,006,492 $ 0 $ 0 $ 85,006,492
First Command Bank operating income. . . . 1,087,339 1,087,339
Commissions, bonuses & agent expenses. . . (70,335,809) (10,154,076) (c) (80,488,885)
General & administrative expenses. . . . . (22,175,423) (22,175,423)
--------------- -------------- --------------- ----------------
Income (loss) from operations . . . . 3,582,599 0 (10,154,076) (6,571,477)
Other income, net. . . . . . . . . . . . . 7,416,922 (7,746) (837,699) (a) 6,571,477
--------------- -------------- --------------- ----------------
Income before taxes . . . . . . . . . 10,999,521 (7,746) (10,991,775) 0
Provision for income taxes . . . . . . . . (3,467,015) 3,467,015 (b) 0
--------------- -------------- --------------- ----------------
Net income. . . . . . . . . . . . . . $ 7,532,506 $ (7,746) $ (7,524,780) $ 0
--------------- -------------- --------------- ----------------
--------------- -------------- --------------- ----------------
Weighted average shares outstanding. . . . 986,144 25 (626,520) 359,624
Basic earnings . . . . . . . . . . . . . . $ 7.64 $ (309.84) $ (302.20) $ 0.00
</TABLE>
58
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
NINE MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(a) Interest expense at 7% on $16.0 million note payable used to repurchase
Class B Stock. The amount financed is based on cash available at June 30,
1998. The Merger is expected to be consummated on September 30, 1998. At
that time, substantially more cash should be available from operations
which would reduce the reliance on borrowed funds to support the repurchase
of the Class B Stock and result in a lower interest cost to the Merger.
(b) To eliminate federal income taxes payable at the corporate level as a
result of S corporation status.
(c) To accrue Mission Accomplishment Plan compensation. On July 22, 1998 the
Company issued 138,275 MAP Units to certain of its agents and employees.
These units have an exercise period of five to ten years, with the SAR
portion of each MAP Unit initially valued at $1. The value of the SARs is
to be determined by the IRA Board. The Company will record monthly accruals
for Mission Accomplishment Plan compensation based on its GAAP earnings as
SAR expense. The Company will record DER expense with a corresponding
adjustment to SAR expense at the time a dividend equivalent is declared by
the IRA Board.
(d) The pro forma condensed consolidated income statement does not include
$537,000 of the anticipated one-time Merger costs of approximately
$1.2 million or any potential one-time adjustments related to changes
in deferred taxes as a result of conversion to S corporation federal
income tax status. Merger costs of $663,000 have been expensed as
incurred through June 30, 1998.
59
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
Independent First Command
Research Financial
Agency Corporation Adjustments Notes Combined
------------- ------------ ------------- ----- -------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents . . . . . $ 10,420,754 $ 1,000 $ (605,798) (a)
(537,000) (b)
Other current assets. . . . . . . . 3,329,629 3,329,629
------------- ------------ ------------- -------------
Total current assets. . . . . . . 13,750,383 1,000 (1,142,798) 12,608,585
Property and equipment . . . . . . . . . 12,668,931 26,770 12,695,701
First Command Bank assets. . . . . . . . 59,685,034 59,685,034
Other assets . . . . . . . . . . . . . . 78,028,243 6,495 78,034,738
------------- ------------ ------------- -------------
Total assets. . . . . . . . . . . . $164,132,581 $ 34,265 $ (1,142,798) $163,024,058
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Current liabilities:
Loans from insurance companies. . . $ 17,176,789 $ 0 $ 17,176,789
Other current liabilities . . . . . 16,785,314 16,785,314
------------- ------------ ------------- -------------
Total current liabilities . . . . 33,982,103 0 0 33,962,103
Stock appreciation rights payable. . . . 0
Long term liabilities. . . . . . . . . . 27,613,452 41,011 16,000,000 (a)
(1,413,679) (c) 42,240,784
First Command Bank liabilities . . . . . 50,874,747 50,874,747
------------- ------------ ------------- -------------
Shareholders' equity:
Common stock - Class A. . . . . . . 10 10 (8) (d)
3,584 (d) 3,596
Common stock - Class B. . . . . . . 55,729 (48,539) (d)
(7,190) (d) 0
Additional paid-in capital. . . . . 1,798,308 990
(1,798,308) (a)
3,605 (d) 4,595
Retained Earnings . . . . . . . . . 32,551,010 (7,746) (14,795,729) (a)
1,413,679 (c)
(537,000) (b) 18,624,214
Unrealized holding gains. . . . . . 17,314,019 17,314,019
Treasury stock - Class A -
at par. . . . . . . . . . . . . . (8) 8 (d) 0
Treasury stock - Class B -
at par. . . . . . . . . . . . . . (36,779) (11,760) (a)
48,539 (d) 0
------------- ------------ ------------- -------------
Total Shareholders' equity. . . . 51,682,289 (6,746) (15,729,119) 35,946,424
------------- ------------ ------------- -------------
Total liabilities and equity. . . $164,132,591 $ 34,265 $ (1,142,798) $163,024,058
------------- ------------ ------------- -------------
Book value per share . . . . . . . . . . $ 54.55 $ (269.84) $ -- (e) $ 99.96
</TABLE>
60
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998
(UNAUDITED)
(a) Assumes excess cash of $605,798 is used in conjunction with a $16.0 million
note payable to buy back 588,024 shares of Class B Stock at $28.24 per
share. These amounts are based on cash available at June 30, 1998. The
Merger is expected to be consummated on September 30, 1998. At that
time, substantially more cash should be available from operations which
would reduce the reliance on borrowed funds to support the repurchase of
the Class B Stock. Also, these amounts exclude shares of Class B Stock
held by Class A/B Shareholders that, pursuant to the terms of the Merger,
will be converted into Surviving Corporation Nonvoting Stock. Additionally,
these amounts assume that no Class A/B Shareholders will elect to receive
the Class B Cash Consideration in lieu of receiving shares of Surviving
Corporation Nonvoting Stock. If any Class A/B shareholders do elect to
receive the Class B Cash Consideration for his or her Class B Stock,
shareholders' equity will be further reduced by $28.24 per share redeemed.
(b) Costs associated with the Merger are anticipated to be approximately
$1.2 million. Of this amount, $663,000 have been expensed as incurred
through June 30, 1998, with the remainder ($537,000) reflected in the pro
forma financial statements. A substantial portion of these expenses are
not expected to be tax deductible and thus have not been tax effected.
(c) Assumes deferred federal income tax payable related to the book versus
tax depreciation temporary differences are removed from liabilities and
credited to equity upon conversion to S corporation status. The deferred
tax asset related to the future tax deduction of the agent Deferred Career
Commission Plan expenses as well as the deferred tax liability related to
unrealized holding gains will remain on the books for a ten year period
until the built-in gain income tax provision expires. If during this
ten-year period the related assets or liabilities are sold or paid, the
tax impact will be recorded to the deferred tax accounts accordingly.
See "SPECIAL FACTORS--Accounting Treatment."
(d) Upon the effective date of the merger, the treasury stock account will
be closed to the common stock account as the treasury stock will be
canceled. In addition, the now reduced par value related to all
outstanding common shares will be reflected in the common stock account
with the remainder increasing paid-in capital.
(e) Pro forma book value per share does not include the anticipated charge
to equity to reflect the Mission Accomplishment Plan compensation that is
expected to be recorded for subsequent periods. See "CERTAIN INFORMATION
CONCERNING IRA--Mission Accomplishment Plan. Per the Pro Forma Condensed
Consolidated Income Statement, the charge to equity for the nine months
ending June 30, 1998 is expected to have been $10,154,076.
61
<PAGE>
DESCRIPTION OF IRA CAPITAL STOCK
GENERAL
The Company is authorized to issue two classes of shares which are
designated Class A Voting Common and Class B Nonvoting Common. The total number
of shares that the Company is authorized to issue is 1,000 shares of Class A
Stock, par value $0.10 per share, and 100,000,000 shares of Class B Common, par
value of $0.02 per share. The following is a summary of certain of the rights
and privileges pertaining to Class A Stock and Class B Stock.
The Merger and the Merger Agreement require for the approval thereof, of
(i) the holders of at least 66-2/3% of the outstanding shares of Class A Stock
and Class B Stock, voting together as a single class, and (ii) the holders of at
least 66-2/3% of the outstanding shares of Class A Stock and Class B Stock, each
voting separately as a class.
CLASS A STOCK
Holders of Class A Stock are entitled to cast one vote for each share held
of record in all matters presented to the shareholders, including election of
the IRA Board. As of August 15, 1998, there were 25 shares of Class A Stock
issued and outstanding. The holders of Class A Stock do not have cumulative
voting rights; therefore, the holders of more than 50% of the outstanding shares
of Class A Stock can elect all directors. Class A Stock is primarily held by
directors, executive officers and certain insurance agents of IRA and by certain
descendants of Carroll H. Payne, the founder of the Company.
Freda J. Payne, Debra S. Payne, Carroll H. Payne II and Naomi K. Payne (the
"Payne Family Members") are subject to a stock agreement, dated March 22, 1983
("Payne Family Stock Agreement"), between such family members and the Company
that provides, among other things, that in the event a Payne Family Member
desires to sell or otherwise dispose of all or any portion of his or her Class A
Stock, or in the event of the death of a Payne Family Member, the other Payne
Family Members shall have the option to purchase such shares, on a proportionate
basis, for a period of sixty (60) days. In addition, the Payne Family Stock
Agreement provides that, in the event a Payne Family Member desires to sell any
Class B Stock, the person to whom Class B Stock is offered must be a properly
licensed insurance agent under contract with the Company; further, such
recipient of Class B Stock must execute a stock agreement with the Company
limiting the ownership and transferability of Class B Stock, and such recipient,
after the transfer, must not own, along with members of his or her immediate
family, more than 5% of the outstanding shares of stock in the Company. The
Payne Family Stock Agreement also provides that in the event any Payne Family
Member ceases to be a licensed Texas life insurance agent, such Payne Family
Member shall be obligated to dispose of all Class A Stock and Class B Stock
owned by him or her. The Payne Family Stock Agreement further provides that
payment for Class B Stock offered by Payne Family Members to other Payne Family
Members or the Company shall be in cash within sixty days of the acceptance of
such offer.
The other holders of Class A Stock that are not Payne Family Members are
subject to a stock agreement with IRA (the "Class A Stock Agreement"), in
which, among other things, IRA will acquire such Class A Stock within a
period of ninety (90) days in the event such shareholder fails to continue as
a licensed insurance agent, ceases to be a duly authorized agent of IRA,
dies, or desires to sell his or her shares.
CLASS B STOCK
Holders of Class B Stock have no voting rights, except for certain voting
rights in the event of certain extraordinary transactions (such as the Merger)
as provided by the TBCA, or as otherwise provided by law. All holders of Class
B Stock are subject to either the Class B Stock Agreement (as defined below)
and/or the Payne Family Stock Agreement. Consequently, the primary voting
control of the Company is vested in the holders of Class
62
<PAGE>
A Stock. Because the voting rights are limited and significant restrictions
exist on the transfer of Class B Stock, Class B Stock is viewed primarily as
means to distribute distribution income to shareholders of the Company. As
of August 15, 1998, there were 946,883 shares of Class B Stock outstanding.
Shares of Class B Stock are held by agents and other employees of IRA; in
addition, all of the holders of Class A Stock hold shares of Class B Stock.
Class B Stock was issued by IRA through ten separate offerings. Three of such
offerings occurred in May 1995, September 1996 and June 1997 and were registered
with the Commission under the Securities Act, pursuant to three registration
statements on Form S-1.
Because the number of holders of Class B Stock was equal to or exceeded
500, on January 22, 1997, IRA registered Class B Stock under Section 12(g) of
the Exchange Act pursuant to a registration statement on Form 8-A. As a result
of the registration of Class B Stock under the Exchange Act, IRA is required to
furnish certain information to its Class B Shareholders and to the Commission.
As required by Texas law, only persons licensed as insurance agents by
the state of Texas are permitted to own shares in an insurance agency
incorporated in the state of Texas. Each holder of Class B Stock has
executed an agreement with IRA (the "Class B Stock Agreement"). Pursuant to
the Class B Stock Agreement, each Class B Shareholder agrees that, in
accordance with Texas law pertaining to incorporated insurance agencies, the
holder must be duly licensed as a Texas life insurance agent, and, in the
event the holder ceases to be so licensed, the holder and the Company agree
that the holder's shares will be repurchased by the Company. The shares will
also be repurchased by the Company (1) in the event that the holder ceases to
be a duly authorized agent of the Company, (2) in the event of the holder's
death, or (3) in the event that the holder desires to sell or otherwise
dispose of his/her shares. Upon the receipt of written notice of any such
event, the Company has ninety (90) days within which to close the repurchase
of such shares. Under the terms of the Class B Stock Agreement, the price at
which the Company will repurchase such shares is determined by the Company,
in its sole and absolute discretion, at least annually. The Company will
determine to pay the repurchase price in cash, by delivery of the Company's
unsecured promissory note containing such terms and provisions as Company
shall determine, or by a combination of cash and such a promissory note.
Under the Class B Stock Agreement, the holder agrees not to transfer, pledge,
assign, or otherwise in any manner encumber any such shares, except pursuant
to the terms of the Class B Stock Agreement.
While the Company may change its methodology or adjust the Class B Stock
price based on other factors at any time in the future, the price at which the
Company has purchased Class B Stock in the past has been determined from the per
share book value of the Class B Stock at the end of the Company's current fiscal
year, reduced by distributions declared for payment on the current year's
earnings. The resultant net increase in per share book value over the previous
year's similarly computed Class B Stock price is then added incrementally,
1/12th per month for the ensuing 12 months to the current September 30 Class B
Stock price (based upon the prior year's computation). For the purposes of
determining the purchase price of Class B Stock, the calculation of per share
book value does not include the effect of reporting the Company's investments at
market value as a result of the application by the Company of SFAS 115.
DISTRIBUTIONS; PREEMPTIVE RIGHTS; LIQUIDATION
All IRA Shareholders are entitled to receive distributions as may be
declared on the Class A Stock or the Class B Stock by the IRA Board from funds
legally available therefor. The Company has paid distributions on Class B Stock
in each of the years from 1987 through 1997. No distributions have been declared
on Class A Stock. See "MARKET PRICE DATA, DISTRIBUTIONS AND SECURITY OWNERSHIP
OF IRA COMMON STOCK."
IRA Shareholders do not have preemptive rights to subscribe to any
additional shares issued by the Company. In the event of liquidation, all IRA
Shareholders are entitled to share pro rata in any distribution of the Company's
assets after payment of liabilities.
63
<PAGE>
DESCRIPTION OF THE SURVIVING CORPORATION CAPITAL STOCK
GENERAL
The following is a summary of certain of the rights and privileges that,
after the Effective Time, will pertain to the stock of the Surviving
Corporation. For a full description of such stock, reference is made to, and
the following summary is qualified in its entirety by, the Articles of
Incorporation and the Bylaws of the Surviving Corporation, as proposed to be
amended, a copy of which are attached hereto as Annex E.
COMMON STOCK
Following the Merger, the Surviving Corporation will be authorized by its
Articles of Incorporation, as amended, to issue an aggregate of 10,000 shares of
Surviving Corporation Voting Stock and an aggregate of 10,000,000 shares of
Surviving Corporation Nonvoting Stock.
The Surviving Corporation Voting Stock will be entitled to one vote per
share on all matters submitted for action by the shareholders. Accordingly,
the holders of more than 50% of the shares of Surviving Corporation Voting
Stock will be able to elect all of the directors. In such event, the holders
of the remaining shares will not be able to elect any directors. Holders of
Surviving Corporation Nonvoting Stock have no voting rights, except for
certain voting rights in the event of certain extraordinary transactions as
provided by the TBCA, or as otherwise provided by law. There is no provision
for cumulative voting with respect to the election of directors.
All shares of Surviving Corporation Voting Stock will be entitled to share
proportionately in such distributions as the Board of Directors may from time to
time declare from sources legally available therefor.
Upon liquidation or dissolution of the Surviving Corporation, whether
voluntary or involuntary, all shares of Surviving Corporation Common Stock are
entitled to share equally in the assets available for distribution to
shareholders after payment of all prior obligations of the Surviving
Corporation, including all agent and employee compensation plan obligations.
RESTRICTIONS ON TRANSFER OF SHARES
Article Seven of the Articles of Incorporation of the Surviving
Corporation, as amended, provides for certain restrictions on the transfer of
Surviving Corporation Common Stock. Except as otherwise provided therein, the
Articles prohibit a shareholder from selling, assigning, donating, pledging,
encumbering or otherwise disposing of any shares of Surviving Corporation Common
Stock.
The Articles further provide that no shareholder may transfer or encumber,
and no person may acquire, the legal or beneficial ownership of any share of
Surviving Corporation Common Stock now or hereafter owned by him or her if that
transfer, encumbrance or acquisition would cause the S corporation status of the
Surviving Corporation to terminate. Specifically, no transfer may be made to,
and no acquisition may be made by, any person who would cause the Surviving
Corporation to have more than the maximum permitted number of shareholders under
the Code as then in effect or to any person that is not eligible to be a
shareholder of an S corporation under the provisions of the Code. However, the
Articles do permit, under certain circumstances, Surviving Corporation
Shareholders to pledge, mortgage, hypothecate or otherwise encumber his or her
Surviving Corporation Common Stock with the prior written consent of the
executive committee of the Surviving Corporation but subject to such terms,
conditions and restrictions as the executive committee determines to be
appropriate in the exercise of its sole discretion.
In addition, upon the occurrence of certain Operative Events (as defined
below) with respect to a shareholder, such shareholder (or spouse or estate, as
applicable) must tender all of his or her shares to the Surviving Corporation,
and the Surviving Corporation shall have the option, the term of which is 120
days, to purchase all shares of
64
<PAGE>
Surviving Corporation Common Stock owned by such shareholder. The purchase
price shall be the amount determined by the Surviving Corporation, which it
shall advise the shareholders in writing of at least annually. To facilitate
such purchases, the Surviving Corporation is permitted to obtain life
insurance policies concerning its shareholders. The purchase price for such
purchases by the Surviving Corporation is to be determined at least annually
by the Surviving Corporation and is to be proportionately adjusted for
subsequent changes in the number of issued and outstanding shares, stock
distributions or other increases or decreases in the number of shares
outstanding. The Surviving Corporation may pay the purchase price in full to
such shareholder or may pay 20% of such purchase price in cash and pay the
remainder in four equal annual installments at prime interest rates.
As used in the Articles of Incorporation, an Operative Event shall mean:
(i) any threatened or actual transfer or encumbrance of Surviving Corporation
Common Stock in any manner whatsoever by a shareholder; (ii) the death of a
shareholder; (iii) the termination of the marital relationship of a
shareholder by death or divorce if that shareholder does not succeed to his
or her spouse's community interest in the Surviving Corporation Common Stock
or the entering into of any property settlement arrangement or agreement in
connection therewith, pursuant to which that shareholder's interest in his or
her Surviving Corporation Common Stock is to be diluted, lessened, encumbered
or impaired; (iv) any threatened or actual (a) bankruptcy or insolvency of a
shareholder or (b) institution of legal proceedings because or by reason of
the bankruptcy or insolvency of a shareholder; (v) the termination of the
status of a shareholder as a duly licensed Texas life insurance agent; (vi)
the cessation of a shareholder as a duly authorized agent of the Surviving
Corporation pursuant to a current written agency agreement, except that with
respect to an involuntary termination as a duly authorized agent of the
Surviving Corporation, such termination shall require approval by 80% of the
Board of Directors; (vii) the change of status of a shareholder to a
"non-resident alien" as defined in the Code; or (viii) any threatened or
actual levy by a creditor or claimant upon the shares of Surviving
Corporation Common Stock held by a shareholder or any other seizure or sale
by legal process, if it is determined by legal counsel for the Surviving
Corporation that such levy is made in good faith and based upon a bona fide
claim.
SUBCHAPTER S PROVISIONS
Article Eight of the Articles of Incorporation of the Surviving Corporation
contains certain provisions with regard to the Surviving Corporation's status as
an S corporation. Each shareholder must provide to the Surviving Corporation,
immediately upon the Surviving Corporation's request, such properly signed
consents or other documents as, in the opinion of the Surviving Corporation, may
be necessary or useful to maintain the Surviving Corporation's status as an S
corporation, and each shareholder is obligated to refrain from any actions that
would interfere with the Surviving Corporation's maintenance of its status as an
S corporation. In addition, Article Eight contains provisions that address the
following matters related to the Surviving Corporation's status as an S
corporation.
REVOCATION OF ELECTION. In the event that the shareholders, by the
affirmative vote of at least 80% of the votes that all of the shareholders are
entitled to cast, determine to terminate the Surviving Corporation's status as
an S corporation, each shareholder, if requested, must execute a consent to such
revocation and deliver this consent to the secretary of the Surviving
Corporation within 60 days. In the event of a termination of the Surviving
Corporation's S status, the shareholders and the Surviving Corporation shall
elect, if applicable, to have Section 1362(e)(2) of the Code not apply, as
provided in Section 1362(e)(3) of the Code. Any person who was a shareholder
at any time during the S Short Year (as defined in the Code) or who is a
shareholder on the first day of the C Short Year (as defined in the Code) must
consent to such election.
INADVERTENT TERMINATION OF SUBCHAPTER S ELECTION. In the event of a
termination of the Surviving Corporation's status as an S corporation other than
as described in the immediately preceding paragraph, if the Surviving
Corporation desires that the Surviving Corporation's status as an S corporation
be continued, the Surviving Corporation and all shareholders as of and/or after
the terminating event must use their best efforts to obtain from the IRS a
waiver of the terminating event on the ground of inadvertency. The Surviving
Corporation and the shareholders must take such steps, and make such
adjustments, as may be required by the IRS pursuant to Section 1362(f)(3) and
(4) of the Code. If a shareholder caused the terminating event to occur, he or
she will bear the expense of obtaining the waiver and of making such adjustments
as may be required. If the inadvertent termination is not waived by the IRS and
the Surviving Corporation's S status is permanently terminated, the Surviving
Corporation and the
65
<PAGE>
shareholders will make the election under Section 1362(e)(3) of the Code
described in the immediately preceding paragraph.
PROVISION IN SHAREHOLDER WILLS. Each shareholder shall include in his or
her will a direction and authorization to his or her executor in substantially
the following form:
My Executor is hereby directed and authorized to hold stock of an
S Corporation, as defined in the Code (hereinafter "S Stock"), to make
an election to have any corporation treated as an S Corporation, to
enter into agreements with other shareholders or with the corporation
relating to a transfer (including, without limitation, a sale,
assignment, exchange, gift, donation, mortgage, hypothecation, or
other encumbrance or other disposition) (a "Transfer") of S Stock or
the management of the S Corporation, and to allocate amounts received
and the tax on undistributed income between income and principal.
During the administration of my estate, my Executor may allocate the
tax deductions and credits arising from ownership of S Stock between
income and principal. In making any such allocations, my Executor
shall consider that the beneficiary is to have enjoyment of the
property at least equal to that ordinarily associated with an income
interest and in all events shall provide the required beneficial
enjoyment to the beneficiary until such time as the S Stock is
distributed to him or her.
Any beneficiary of my estate who receives stock in an S
Corporation as part of his or her distribution shall, prior to such
distribution, enter into a written agreement with said S Corporation
(i) to consent to any election to qualify the S Corporation as such;
(ii) to do nothing to interfere with the S Corporation's maintenance
of its status as such; (iii) to not Transfer the S Stock to any
transferee who does not agree to execute a similar consent; (iv) to
not Transfer the S Stock in such manner as will cause the S
Corporation to lose its status as an S Corporation under the then
applicable federal and state income tax statutes and regulations; and
(v) if S status is inadvertently terminated, to join in any endeavor
to obtain a waiver of the terminating event on the grounds of
inadvertency from the Internal Revenue Service if the S Corporation or
any shareholder desires that the S status should continue.
Any S Stock distributed to a beneficiary shall bear an
appropriate legend on the stock certificate stating that the Transfer
of the stock is subject to and restricted to the extent set forth in
the subparagraph above.
DISTRIBUTIONS TO PAY TAX LIABILITIES. With respect to all taxable periods
of the Surviving Corporation during which it is an S Corporation, the Surviving
Corporation shall make the distributions described in this paragraph in a timely
manner to allow the tax (including, without limitation, estimated tax payments)
attributable to the income passed through the Surviving Corporation to the
shareholders to be paid when due. To satisfy this requirement, the Surviving
Corporation shall make distributions in an amount equal to the excess of (i)
the sum of the products of (A) the Surviving Corporation's negative taxable
income attributable to such shareholders during each of such taxable periods
multiplied by (B) the sum of the maximum federal individual income tax rates
in effect for each of such taxable periods (without regard to exemptions or
phase-outs of lower tax rates but with consideration of the deductibility of
state taxes for federal income tax purposes), over (ii) the sum of the
products of (A) the Surviving Corporation's positive taxable income
attributable to such shareholders during each of such taxable periods
multiplied by (B) the sum of the maximum federal individual income tax rate in
effect for each of such taxable periods (without regard to exemptions or
phase-outs of lower tax rates but with consideration of the deductibility of
state taxes for federal income tax purposes). The Surviving Corporation's
obligation to declare and pay such a distribution to the shareholders in such
an amount is subject to the restrictions governing distributions under the
Texas Business Corporation Act and such other pertinent governmental or
contractual restrictions as are now, or may hereafter become effective. If
the Surviving Corporation does not have sufficient funds available to permit
it lawfully to declare and pay such distribution, the shareholders and the
Surviving Corporation shall take such action, adopt such resolutions, and
cause such certificates and other
66
<PAGE>
documents to be filed as may be necessary to create sufficient funds to permit
the payment of such distribution, whereupon the Surviving Corporation shall
declare and pay such distribution.
The Articles of Incorporation provide that in no event may the total
distribution made with respect to any outstanding shares of stock of the
Surviving Corporation to differ from the amounts paid with respect to any other
outstanding shares of stock of the Surviving Corporation, and in no event shall
these provisions be construed to limit the ability of the Surviving Corporation
to declare and pay additional distributions to shareholders out of the assets of
the Surviving Corporation legally available for such payment at such time or
times as the Board of Directors may determine.
NONRECOGNITION OF CERTAIN TRANSFERS. The Surviving Corporation will not
recognize any transfers that could disqualify the Surviving Corporation as an S
corporation or that are made in violation of the terms of the Articles of
Incorporation.
LEGENDS ON SHARE CERTIFICATES. The following legend will be imprinted
conspicuously on the face of each certificate representing shares of Stock:
NOTICE IS HEREBY GIVEN THAT THE TRANSFER (INCLUDING, WITHOUT
LIMITATION, THE SALE, ASSIGNMENT, EXCHANGE, GIFT, DONATION, PLEDGE,
MORTGAGE, HYPOTHECATION OR OTHER ENCUMBRANCE OR OTHER DISPOSITION) OF THE
SHARES OF CAPITAL STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO AND
RESTRICTED BY THE PROVISIONS OF THE ARTICLES OF INCORPORATION OF THE
CORPORATION, AND ALL OF THE PROVISIONS OF THE ARTICLES OF INCORPORATION
ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE, SPECIFICALLY
INCLUDING BUT NOT LIMITED TO THOSE PROVISIONS OF THE ARTICLES OF
INCORPORATION RELATING TO THE CORPORATION'S TAX STATUS AS AN S
CORPORATION.
ELECTION TO CLOSE BOOKS. The Surviving Corporation, in the event the
executive committee of the Board of Directors of the Surviving Corporation so
determines, shall consent to close the books of the Surviving Corporation
pursuant to Section 1377(a)(2) of the Code whenever a shareholder sells all of
his Stock on a day other than the last day of the Surviving Corporation's
fiscal year if all "affected shareholders" (as defined in Section
1377(a)(2)(B) of the Code) shall consent thereto.
BUSINESS COMBINATION PROVISION
The Articles of Incorporation of the Surviving Corporation contain a
business combination provision identical to that of Article Ten of the Articles
of Incorporation of IRA, including the requirement that a "fair price" be paid
under certain circumstances. See "THE PROPOSED MERGER--IRA Charter Business
Combination Provision." This provision may have certain anti-takeover effects,
including making it more difficult for the Surviving Corporation to enter into
transactions with certain interested shareholders without the approval of the
Board of Directors of the Surviving Corporation.
CLASSIFIED BOARD
The Bylaws of the Surviving Corporation, like the Bylaws of IRA, provide
for a Board of Directors divided into three classes of directors serving
staggered three-year terms. The classification of directors has the effect of
making it more difficult for shareholders to change the composition of the Board
of Directors of the Surviving Corporation in a short period of time. At least
two annual meetings of shareholders, instead of one, will generally be required
to effect a change in a majority of the Board of Directors of the Surviving
Corporation.
67
<PAGE>
INDEPENDENT AUDITORS
The consolidated financial statements of IRA as of September 30, 1997 and
1996 and for the three years in the period ended September 30, 1997, 1996 and
1995, included in the IRA 10-K included and incorporated by reference in this
Proxy Statement, have been audited by Brantley, Frazier, Rogers & Company, P.C.,
independent auditors.
The balance sheet of First Command as of May 31, 1998, included herein,
has been audited by Ernst & Young LLP, independent auditors.
Representatives of Ernst & Young LLP, principal independent accountants
to IRA, will be present at the Special Meeting.
OTHER MATTERS
The IRA Board does not presently know of any matters to be presented for
consideration at the Special Meeting other than matters described in the Notice
of Special Meeting mailed together with this Proxy Statement, but if other
matters are presented, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment. The proxy confers discretionary authority to vote only with respect
to matters that the IRA Board did not know, within a reasonable time before the
mailing of these materials, were to be presented at the Special Meeting.
The Company has enclosed with this Proxy Statement as Annex D its Annual
Report on Form 10-K for the fiscal year ended September 30, 1997 and its
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998,
which are incorporated herein by reference.
68
<PAGE>
AVAILABLE INFORMATION
IRA is subject to the informational requirements of the Exchange Act, and
in accordance therewith files reports, proxy statements and other information
with the Commission. First Command is not subject to the informational
requirements of the Exchange Act. IRA and First Command have filed with the
Commission the Schedule 13E-3. As permitted by the rules and regulations of the
Commission, this Proxy Statement omits certain exhibits contained in the
Schedule 13E-3. Copies of the Schedule 13E-3 and the exhibits thereto, as well
as such reports, proxy statements and other information, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission also maintains a Web Site
at http://www.sec.gov which contains reports and other information regarding
registrants that file electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by IRA (File No. 000-
22021) pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement:
(1) Quarterly Report on Form 10-Q for the period ended June 30, 1998,
filed on August 14, 1998.
(2) Quarterly Report on Form 10-Q for the period ended March 31, 1998,
filed on May 12, 1998.
(3) Quarterly Report on Form 10-Q for the period ended December 31, 1997,
filed on February 17, 1998.
(4) Annual Report on Form 10-K for the fiscal year ended September 30,
1997, filed on December 29, 1997.
(5) Current Report on Form 8-K, filed on May 1, 1998.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document, which also is or is deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS RELATING TO THE
COMPANY THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(NOT INCLUDING EXHIBITS TO SUCH DOCUMENTS OTHER THAN EXHIBITS SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE TO
ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF CLASS A STOCK OR CLASS B STOCK, TO
WHOM THIS PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH
PERSON. REQUESTS FOR SUCH DOCUMENTS RELATING TO IRA SHOULD BE DIRECTED TO
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC., 4100 SOUTH HULEN STREET,
FORT WORTH, TEXAS 76109, ATTENTION: INVESTOR RELATIONS, TELEPHONE NUMBER (817)
731-8621. TO ASSURE TIMELY DELIVERY OF SUCH DOCUMENTS, REQUESTS FOR SUCH
DOCUMENTS SHOULD BE MADE NO LATER THAN _________________ , 1998.
69
<PAGE>
By Order of the Board of Directors,
/s/ Sandra T. Allen
Sandra T. Allen
Secretary
Fort Worth, Texas
_____________, 1998
70
<PAGE>
FIRST COMMAND FINANCIAL CORPORATION
INDEX TO BALANCE SHEETS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet as of May 31, 1998 . . . . . . . . . . . . . . . . . . . . . . F-3
Notes to Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Balance Sheet as of June 30, 1998 (unaudited). . . . . . . . . . . . . . . . F-6
Notes to Balance Sheet (unaudited) . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
First Command Financial Corporation
We have audited the balance sheet of First Command Financial Corporation as of
May 31, 1998. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
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 balance sheet is free of material misstatement. An
audit also includes examining, on a test basis, evidence supporting the amounts
and significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of First Command Financial Corporation
at May 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Dallas, Texas
June 18, 1998
F-2
<PAGE>
FIRST COMMAND FINANCIAL CORPORATION
BALANCE SHEET
MAY 31, 1998
<TABLE>
<S> <C>
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 893
Construction in progress . . . . . . . . . . . . . . . . . 12,310
-------
Total assets. . . . . . . . . . . . . . . . . . . . . $13,203
-------
-------
Liabilities:
Advance payable. . . . . . . . . . . . . . . . . . . . . . $12,310
-------
Total liabilities . . . . . . . . . . . . . . . . . . $12,310
Shareholders' equity:
Common stock (1,000 shares authorized, 1,000 shares
outstanding at $0.01 par value). . . . . . . . . . . 10
Paid in capital. . . . . . . . . . . . . . . . . . . . . . 883
-------
Shareholders' equity . . . . . . . . . . . . . . . . 893
-------
Total liabilities and shareholders' equity . . . $13,203
-------
-------
</TABLE>
See notes to balance sheet.
F-3
<PAGE>
NOTES TO BALANCE SHEET
MAY 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATION
First Command Financial Corporation ("FCFC") was chartered in Texas in April
1998. FCFC was incorporated for the purpose of entering into agreements for the
lease of real estate, the construction of a parking garage on that leased real
estate, the financing of said construction and the leasing of space in the
completed garage.
Four individuals, who are members of the executive committee of Independent
Research Agency for Life Insurance, Inc. ("IRA, Inc.") are the shareholders of
FCFC.
FEDERAL INCOME TAXES
In order to qualify for the flow-through benefits of an S-Corporation, FCFC must
have, among other things, only one class of stock and less than 75 shareholders.
Since FCFC meets these requirements, FCFC shareholders elected to be taxed as a
S-Corporation.
NOTE 2 - ADVANCE PAYABLE
At May 31, 1998 FCFC has received $12,310 in advances from IRA, Inc. This
advance will become subject to the IRA, Inc. borrowing agreement as discussed in
Note 3 below.
NOTE 3 - SUBSEQUENT EVENTS AND OTHER AGREEMENTS
On June 1, 1998, FCFC entered into an agreement with IRA, Inc. to lease land
from IRA, Inc. on which FCFC will construct an 801 space parking garage. The
agreement allows FCFC to lease the property for $1 each year from the date of
the agreement for the next 99 years.
On June 1, 1998, FCFC entered into a borrowing agreement with IRA, Inc. for
$8.5 million. Under the terms of the agreement, FCFC may borrow up to $7 million
during the next 18 months at an interest rate of 7%. Interest will accrue
monthly, and up to $1.5 million may be added to the outstanding balance of the
loan during the construction period. At the end of the construction period, the
total outstanding debt will be repaid through quarterly payments over the
following fifteen years.
On May 4, 1998, FCFC entered into an agreement with a third party construction
company to act as a general contractor for the purpose of constructing the
parking garage. The construction is expected to be completed in the summer of
1999 with the total costs approximating $6 million for the garage, plus
interest.
On June 1, 1998, FCFC entered into an agreement with IRA, Inc. for the leasing
of the to-be constructed parking garage. Under the terms of the agreement, IRA,
Inc. will lease the garage for $51,250 per month, plus operating expenses, for
fifteen years after the completion of the garage.
On June 1, 1998, FCFC entered into a management agreement with IRA, Inc. for
IRA, Inc. to provide FCFC specified administrative services, facilities,
equipment and supplies necessary to operate the business. FCFC is to pay IRA,
Inc. $2,030 per month in management fees. The agreement term ends May 31, 1999,
but automatically renews itself from year to year unless otherwise terminated as
provided in the agreement.
F-4
<PAGE>
On June 1, 1998, FCFC entered into an administrative agreement with IRA, Inc. to
manage the IRA building as specified in the agreement. IRA, Inc. is to pay
$2,080 per month to FCFC for these services. The agreement term ends May 31,
1999, but automatically renews itself from year to year unless otherwise
terminated as provided in the agreement.
NOTE 4 - IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the FCFC's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities.
FCFC, through its management agreement with IRA, is primarily reliant upon IRA
to utilize and appropriately modify its software so that the FCFC's data
processing will function properly with respect to dates in the Year 2000 and
thereafter. However, if such modifications are not successfully made, or are not
completed timely, the Year 2000 Issue could adversely impact the operations of
FCFC. IRA has formed a committee to review these areas and is studying the
impact of the new millennium on all areas of IRA. In addition, IRA plans to
engage a third party specialist to ensure its review and corrective actions are
appropriate.
F-5
<PAGE>
FIRST COMMAND FINANCIAL CORPORATION
BALANCE SHEET
JUNE 30, 1998
(unaudited)
<TABLE>
<S> <C>
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000
Construction in progress . . . . . . . . . . . . . . . . . 26,770
Other assets . . . . . . . . . . . . . . . . . . . . . . . 6,495
-------
Total assets. . . . . . . . . . . . . . . . . . . . . $34,265
-------
-------
Liabilities:
Advance payable. . . . . . . . . . . . . . . . . . . . . . $41,011
-------
Total liabilities . . . . . . . . . . . . . . . . . . $41,011
Shareholders' equity:
Common stock (1,000 shares authorized, 1,000 shares
outstanding at $0.01 par value). . . . . . . . . . . 10
Paid in capital. . . . . . . . . . . . . . . . . . . . . . 990
Current year earnings (loss) . . . . . . . . . . . . . . . (7,746)
-------
Shareholders' equity . . . . . . . . . . . . . . . . (6,746)
-------
Total liabilities and shareholders' equity . . . $34,265
-------
-------
</TABLE>
See notes to balance sheet.
F-6
<PAGE>
NOTES TO BALANCE SHEET
JUNE 30, 1998
(unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATION
First Command Financial Corporation ("FCFC") was chartered in Texas in April
1998. FCFC was incorporated for the purpose of entering into agreements for the
lease of real estate, the construction of a parking garage on that leased real
estate, the financing of said construction and the leasing of space in the
completed garage.
Four individuals, who are members of the executive committee of Independent
Research Agency for Life Insurance, Inc. ("IRA, Inc.") are the shareholders of
FCFC.
FEDERAL INCOME TAXES
In order to qualify for the flow-through benefits of an S-Corporation, FCFC must
have, among other things, only one class of stock and less than 75 shareholders.
Since FCFC meets these requirements, FCFC shareholders elected to be taxed as a
S-Corporation.
NOTE 2 - ADVANCE PAYABLE
At June 30, 1998 FCFC has received $41,011 in advances from IRA, Inc. This
advance will become subject to the IRA, Inc. borrowing agreement as discussed in
Note 3 below.
NOTE 3 - OTHER AGREEMENTS
On June 1, 1998, FCFC entered into an agreement with IRA, Inc. to lease land
from IRA, Inc. on which FCFC will construct an 801 space parking garage. The
agreement allows FCFC to lease the property for $1 each year from the date of
the agreement for the next 99 years.
On June 1, 1998, FCFC entered into a borrowing agreement with IRA, Inc. for
$8.5 million. Under the terms of the agreement, FCFC may borrow up to $7 million
during the next 18 months at an interest rate of 7%. Interest will accrue
monthly, and up to $1.5 million may be added to the outstanding balance of the
loan during the construction period. At the end of the construction period, the
total outstanding debt will be repaid through quarterly payments over the
following fifteen years.
On May 4, 1998, FCFC entered into an agreement with a third party construction
company to act as a general contractor for the purpose of constructing the
parking garage. The construction is expected to be completed in the summer of
1999 with the total costs approximating $6 million for the garage, plus
interest.
On June 1, 1998, FCFC entered into an agreement with IRA, Inc. for the leasing
of the to-be constructed parking garage. Under the terms of the agreement, IRA,
Inc. will lease the garage for $51,250 per month, plus operating expenses, for
fifteen years after the completion of the garage.
On June 1, 1998, FCFC entered into a management agreement with IRA, Inc. for
IRA, Inc. to provide FCFC specified administrative services, facilities,
equipment and supplies necessary to operate the business. FCFC is to pay IRA,
Inc. $2,030 per month in management fees. The agreement term ends May 31, 1999,
but automatically renews itself from year to year unless otherwise terminated as
provided in the agreement.
F-7
<PAGE>
On June 1, 1998, FCFC entered into an administrative agreement with IRA, Inc. to
manage the IRA building as specified in the agreement. IRA, Inc. is to pay
$2,080 per month to FCFC for these services. The agreement term ends May 31,
1999, but automatically renews itself from year to year unless otherwise
terminated as provided in the agreement.
NOTE 4 - IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the FCFC's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities.
FCFC, through its management agreement with IRA, is primarily reliant upon IRA
to utilize and appropriately modify its software so that the FCFC's data
processing will function properly with respect to dates in the Year 2000 and
thereafter. However, if such modifications are not successfully made, or are not
completed timely, the Year 2000 Issue could adversely impact the operations of
FCFC. IRA has formed a committee to review these areas and is studying the
impact of the new millennium on all areas of IRA. In addition, IRA plans to
engage a third party specialist to ensure its review and corrective actions are
appropriate.
F-8
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
FIRST COMMAND FINANCIAL CORPORATION
AND
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is dated as of July 1,
1998, and is by and between Independent Research Agency for Life Insurance,
Inc., a Texas corporation ("IRA"), and First Command Financial Corporation, a
Texas corporation ("First Command").
R E C I T A L S
The Boards of Directors of IRA and First Command have approved the merger
of IRA with and into First Command (the "Merger") upon the terms and subject to
the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above premises, the mutual promises
and covenants herein contained, and for other good and valuable consideration,
the full receipt and sufficiency of which are hereby expressly acknowledged by
the parties hereto, it is hereby agreed as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2 hereof),
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Texas Business Corporation Act (the "TBCA"), IRA
shall be merged with and into First Command, the separate existence of IRA shall
cease, and First Command shall be the surviving corporation (sometimes called
the "Surviving Corporation") and shall continue its corporate existence under
the laws of the State of Texas. The name of the Surviving Corporation shall be
"Independent Research Agency for Life Insurance, Inc."
1.2 EFFECTIVE TIME. The Merger shall be effected by the filing of the
Articles of Merger, in the form required by the TBCA and otherwise conforming to
the requirements of the TBCA, with the Secretary of State of the State of Texas.
The Merger shall become effective at 12:01 a.m. on October 1, 1998 (the
"Effective Time").
1.3 EFFECT OF THE MERGER. At the Effective Time, First Command, as the
surviving corporation in the Merger, shall possess all of the rights,
privileges, immunities, powers and franchises of each of First Command and IRA;
all of the property, real, personal and mixed, including subscription of shares,
choses in action and every other asset of each of First Command and IRA shall
vest in the Surviving
<PAGE>
Corporation without further act or deed; the Surviving Corporation shall assume
and be liable for all the liabilities and obligations of each of First Command
and IRA; and all other effects presumed in a merger including, without
limitation, those set forth in Section 5.06 of the TBCA, shall result from the
Merger.
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES
2.1 CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of First Command, IRA, or the holders of any
of the following securities:
2.1.1 Each share of Class A Voting Common Stock, par value $0.10 per
share, of IRA ("Class A Stock"), issued and outstanding immediately prior
to the Effective Time (other than shares of Class A Stock to be cancelled
pursuant to Section 2.1.4 below and other than the Dissenting Shares, as
defined in Section 2.2 below) shall be converted into five validly issued,
fully paid and nonassessable shares of Voting Common Stock, par value $0.01
per share ("Surviving Corporation Voting Stock"), of the Surviving
Corporation (the "Class A Consideration"). From and after the Effective
Time, each outstanding certificate that represented shares of Class A Stock
shall evidence ownership of and represent the number of shares of Surviving
Corporation Voting Stock into which such shares of Class A Stock shall have
been converted.
2.1.2 Each share of Class B Non-voting Common Stock, par value $0.02
per share, of IRA ("Class B Stock") that is held by a holder of Class B
Stock (a "Class B Shareholder") that is not a holder of Class A Stock
issued and outstanding immediately prior to the Effective Time (other than
the Dissenting Shares, as defined in Section 2.2 below) shall be converted
into the right to receive $28.24 in cash, without interest thereon ("Class
B Per Share Amount"), payable to the holders thereof upon surrender of the
certificates representing such shares.
2.1.3 Each share of Class B Stock that is held by a Class B
Shareholder that is also a holder of Class A Stock (a "Class A/B
Shareholder") issued and outstanding immediately prior to the Effective
Time (other than the Dissenting Shares, as defined in Section 2.2 below)
shall be converted into, at the election of the Class A/B Shareholder,
either (i) the right to receive one share of Nonvoting Common Stock, par
value $0.01 per share ("Surviving Corporation Nonvoting Stock"), of the
Surviving Corporation (the "Class B Nonvoting Stock Consideration") or (ii)
the Class B Per Share Amount (together with the Class
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B Nonvoting Stock Consideration, the "Class B Consideration"), payable to
the holders thereof upon surrender of the certificates representing such
shares; provided, however, that a Class A/B Shareholder may not elect to
receive a combination of the Class B Nonvoting Stock Consideration and the
Class B Cash Consideration with respect to shares of Class A Stock held by
such Class A/B Shareholder. The Class A Stock and Class B Stock are
hereafter sometimes collectively referred to as "IRA Common Stock," and the
Class A Consideration and the Class B Consideration are hereafter sometimes
collectively referred to as "Merger Consideration."
2.1.4 Each share of Class A Stock or Class B Stock held in treasury
by IRA immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof, and no payment shall be made
in respect thereof.
2.1.5 Each share of common stock, par value $0.01 per share, of First
Command ("First Command Common Stock"), issued and outstanding immediately
prior to the Effective Time (other than shares of First Command Common
Stock to be cancelled pursuant to Section 2.1.6 below and other than the
Dissenting Shares, as defined in Section 2.2 below) shall be converted into
0.04 validly issued, fully paid and nonassessable shares of Surviving
Corporation Nonvoting Stock (the "First Command Consideration"). From and
after the Effective Time, each outstanding certificate that represented
shares of First Command Common Stock shall evidence ownership of and
represent the number of shares of Surviving Corporation Nonvoting Stock
into which such shares of First Command Common Stock shall have been
converted.
2.1.6 Each share of First Command Common Stock held in treasury by
First Command immediately prior to the Effective Time shall be cancelled
and extinguished without any conversion thereof, and no payment shall be
made in respect thereof.
2.2 DISSENTING SHARES. To the extent required by applicable provisions of
the TBCA, shares of IRA Common Stock and shares of First Command Common Stock
that are issued and outstanding immediately prior to the Effective Time and are
held by holders of IRA Common Stock or holders of First Command Common Stock who
comply with all the provisions of the TBCA concerning the right of holders of
IRA Common Stock or holders of First Command Common Stock, as the case may be,
to dissent from the Merger and demand payment of the fair value of their shares
of IRA Common Stock or First Command Common Stock, as the case may be
("Dissenting Shareholders"), shall not be converted into the right to receive
the Merger Consideration but shall instead be converted into the right to
receive such consideration as may be determined to be due such Dissenting
Shareholders pursuant
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to the laws of the State of Texas (such shares being the "Dissenting Shares");
provided, however, if any Dissenting Shareholder fails to establish and perfect
his dissenter's rights as provided by applicable law, then such Dissenting
Shareholder shall forfeit all dissenter's rights including the right to obtain
payment of the fair value of the shares held by him, and such Dissenting
Shareholder shall be entitled to receive, as of the Effective Time, only the
Merger Consideration for each share of IRA Common Stock or share First Command
Common Stock, as the case may be, held by him, payable upon surrender of the
certificate representing such shares and such shares shall no longer be
Dissenting Shares. The Surviving Corporation shall comply with all of the
obligations pursuant to the TBCA of a surviving corporation after the
effectiveness of a merger with respect to dissenting shareholders, and the
Surviving Corporation shall direct all negotiations and proceedings with respect
to demands for payment of fair value under Texas law.
2.3 ELECTION PROCEDURES.
2.3.1 Subject to allocation, conversion and proration in accordance
with the provisions of this Section 2.3, each Class A/B Shareholder shall
be entitled, with respect to each share of Class B Stock held by such Class
A/B Shareholder immediately prior to the Effective Time, (a) to elect to
receive in respect of each such share of Class B Stock (i) the Class B
Nonvoting Stock Consideration (a "Stock Election") or (ii) the Class B Cash
Consideration (a "Cash Election") or (b) to indicate that such recordholder
has no preference as to the receipt of Cash Consideration or Stock
Consideration for such Class B Stock (a "Non-Election"). A Class A/B
Shareholder may not make a combination of a Stock Election and a Cash
Election with respect to shares of Class A Stock held by such Class A/B
Shareholder. Class B Stock in respect of which a Non-Election is made
(including shares in respect of which such an election is deemed to have
been made pursuant to this Agreement (collectively, "Non-Election Shares"))
shall be deemed Class B Stock in respect of which Stock Elections have been
made. Class B Stock in respect of which a Stock Election has been made,
together with Class B Stock in respect of which a Stock Election is deemed
to be made, is hereafter referred to as "Stock Election Shares," and Class
B Stock in respect of which a Cash Election has been made is hereafter
referred to as "Cash Election Shares."
2.3.2 Elections pursuant to Section 2.3.1 shall be made on a form and
with such other provisions to be reasonably agreed upon by IRA (a "Form of
Election"), to be provided to holders of record of Class B Stock, together
with appropriate transmittal materials, at the time of mailing to holders
of record of IRA Common Stock of the Proxy Statement (as defined in Section
4.4) in connection with the stockholders meeting referred to in Section
4.3. Elections shall be made by mailing to First Command Bank (the "Paying
Agent") a duly
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completed Form of Election. To be effective, a Form of Election must be (a)
properly completed, signed and submitted to the Paying Agent at its
designated office, by 5:00 p.m. Central Daylight time, on
_____________________, 1998 (the "Election Deadline"). The Company shall
use its best efforts, as promptly as practicable, to make a Form of
Election available to all persons who become holders of record of Class B
Stock between the date of mailing described in the first sentence of this
Section 2.3.2 and the Election Deadline. Neither IRA nor the Paying Agent
will be under any obligation to notify any person of any defect in a Form
of Election submitted to the Paying Agent. A holder of Class B Stock that
does not submit an effective Form of Election prior to the Election
Deadline shall be deemed to have made a Non-Election.
2.3.3 An election may be revoked or amended, but only by written
notice received by the Paying Agent prior to the Election Deadline. Upon
any such revocation, unless a duly completed Form of Election is thereafter
submitted in accordance with paragraph (b)(ii), such Shares shall be
Non-Election Shares.
2.3.4 All Cash Election Shares shall be converted into the right to
receive the Class B Cash Consideration, and all Stock Election Shares shall
be converted into the right to receive the Class B Nonvoting Stock
Consideration.
2.4 PAYMENT FOR SHARES; STOCK TRANSFER BOOKS.
2.4.1 On the first business day following the Effective Time, the
Surviving Corporation shall deposit in trust with the Paying Agent, the
following amounts and forms of Merger Consideration required for conversion
at the Effective Time of the Class A Stock and Class B Stock (such deposit
being the "Payment Fund"): (i) the number of shares of Surviving
Corporation Voting Stock equal to the number of shares of Class A Stock
issued and outstanding immediately prior to the Effective Time multiplied
by five; (ii) the funds equal to the Class B Per Share Amount times the
aggregate number of shares of Class B Stock issued and outstanding
immediately prior to the Effective Time held by Class B Shareholders who
are not Class A/B Shareholders; (iii) the number of shares of Surviving
Corporation Nonvoting Stock equal to the number of Stock Election Shares
issued and outstanding immediately prior to the Effective Time; (iv) the
funds equal to the Class B Per Share Amount times the aggregate number of
Cash Election Shares issued and outstanding immediately prior to the
Effective Time; and (v) the number of shares of Surviving Corporation
Nonvoting Stock equal to the number of shares of First Command Common Stock
issued and outstanding immediately prior to the Effective Time multiplied
by 0.04. The Paying Agent shall, pursuant to irrevocable instructions,
make the payments provided for in Section 2.1 out of the Payment Fund.
Pending such payments, the Paying Agent shall, as directed
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by the Surviving Corporation, invest cash portions of the cash portion of
the Payment Fund in short-term obligations of, or obligations fully
guaranteed by, the United States of America, or any agency of the United
States of America. Any earnings on the investment of the Payment Fund
shall be paid to the Surviving Corporation as and when requested by the
Surviving Corporation. If, at any time after the Effective Time a
Dissenting Shareholder ceases to be a Dissenting Shareholder by virtue of
failing to perfect dissenter's rights, and (i) such Dissenting Shareholder
is not a Class A/B Shareholder and holds Class B Stock or (ii) such
Dissenting Shareholder is a Class A/B Shareholder and has made a Cash
Election with respect the Class B Stock, upon such occurrence the Surviving
Corporation shall promptly deposit to the Payment Fund an amount of Merger
Consideration in cash required for the conversion of such Class B Stock at
the Effective Time.
2.4.2 Promptly after the Effective Time, the Paying Agent shall mail
and otherwise make available to each record holder who held at the
Effective Time an outstanding certificate or certificates that represented
shares of Class A Stock, Class B Stock and First Command Common Stock (the
"Certificates") a form of letter of transmittal and instructions for its
use in effecting the surrender of the Certificates for payment. Upon
surrender to the Paying Agent of a Certificate or Certificates, together
with a duly executed letter of transmittal, the holder of such Certificate
shall be entitled to receive (after taking into account all shares of
Class A Stock then held of record by such holder) in exchange (i) in the
case of a holder of Class A Stock, a certificate evidencing that number of
shares of Surviving Corporation Voting Stock that such holder has the right
to receive in respect of the shares of Class A Stock formerly evidenced by
such Certificate; (ii) in the case of a holder of Class B Stock that is not
a Class A/B Shareholder, Class B Cash Consideration in an amount equal to
the product of the number of shares of Class B Stock represented by such
Certificate multiplied by the Class B Per Share Amount; (iii) in the case
of a Class A/B Shareholder, with respect to the Class B Stock held by such
Class A/B Shareholder, (A) a certificate evidencing that number of shares
of Surviving Corporation Nonvoting Stock that such holder has the right to
receive in respect of the Stock Election Shares formerly evidenced by such
Certificate or (B) Class B Cash Consideration in an amount equal to the
product of the number of Cash Election Shares represented by such
Certificate multiplied by the Class B Per Share Amount; and (iv) in the
case of a holder of First Command Common Stock, a certificate evidencing
that number of shares of Surviving Corporation Nonvoting Stock that such
holder has the right to receive in respect of the shares of First Command
Common Stock formerly evidence by such Certificate. Thereafter, such
Certificates shall be cancelled. No interest will be paid or accrue on the
Merger Consideration payable in cash upon the surrender of the
Certificates. If payment is to be made to a person
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other than the person in whose name the surrendered Certificate is
registered, the Certificate must be properly endorsed or otherwise in
proper form for transfer and the person requesting such payment must agree
to pay any applicable transfer or other taxes or establish to the
satisfaction of the Paying Agent and the Surviving Corporation that such
tax has been paid or is not applicable. The Paying Agent shall pay the
Merger Consideration attributable to a Certificate which has been lost or
destroyed upon receipt of satisfactory evidence of ownership of the shares
of IRA Common Stock or First Command Common Stock and of appropriate
indemnification. After the Effective Time, until surrendered in accordance
with these provisions, each Certificate (other than Certificates
representing Dissenting Shares) shall represent only the right to receive
the Merger Consideration as set forth in this Agreement.
2.4.3 After the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of the shares of IRA
Common Stock or First Command Common Stock that were outstanding
immediately prior to the Effective Time. Certificates presented to the
Surviving Corporation after the Effective Time shall be cancelled.
2.4.4 Any portion of the Payment Fund that remains unclaimed by the
shareholders of IRA for six months after the Effective Time shall be repaid
to the Surviving Corporation, upon demand, and any shareholders of IRA who
have not complied with the herein provisions shall look as a general
creditor only to the Surviving Corporation for payment of their claims for
the Merger Consideration. Notwithstanding the foregoing, the Surviving
Corporation shall not be liable to a holder of shares of IRA Common Stock
or First Command Common Stock for any amounts delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
laws.
ARTICLE III
ARTICLES OF INCORPORATION;
BYLAWS; DIRECTORS AND OFFICERS
3.1 ARTICLES OF INCORPORATION. From and after the Effective Time, the
Articles of Incorporation of First Command, as in effect immediately prior to
the Effective Time, shall be and remain the Articles of Incorporation of the
Surviving Corporation until thereafter amended in accordance with the provisions
thereof or Texas law, provided that Article One of such Articles of
Incorporation shall be amended in its entirety to read as follows: "The name of
the Corporation is "Independent Research Agency for Life Insurance, Inc."
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3.2 BYLAWS. From and after the Effective Time, the Bylaws of First
Command, as in effect immediately prior to the Effective Time, shall be and
remain the Bylaws of the Surviving Corporation until thereafter amended in
accordance with the provisions thereof or Texas law.
3.2 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. From and after
the Effective Time, the directors of IRA serving immediately prior to the
Effective Time shall become the directors of the Surviving Corporation, each
such director to hold office, subject to the applicable provisions of the
Articles of Incorporation and Bylaws of the Surviving Corporation, until his
successor shall be duly elected or appointed and qualified. Pursuant to Section
3:6 of the Bylaws of the Surviving Corporation, the directors shall be divided
into the following classes and shall accordingly serve the term designated in
Section 3:6 of the Bylaws of the Surviving Corporation:
Class Director
----- --------
Class I Hal N. Craig
Howard M. Crump
Jerry D. Gray
James J. Ellis
Class II Logan Dickinson
Naomi K. Payne
Lamar C. Smith
Robert F. Watson
Class III Donaldson D. Frizzell
James N. Lanier
Carroll H. Payne II
David P. Thoreson
From and after the Effective Time, the officers of IRA serving immediately
prior to the Effective Time shall, subject to the applicable provisions of the
Articles of Incorporation and Bylaws of the Surviving Corporation, become the
officers of the Surviving Corporation until their respective successors shall be
duly elected or appointed and qualified.
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ARTICLE IV
CERTAIN OBLIGATIONS OF THE PARTIES
IRA covenants and agrees with First Command, and First Command covenants
and agrees with IRA, that between the date of this Agreement and the Closing
Date:
4.1 FULL ACCESS. IRA shall, upon reasonable request, afford to First
Command and its affiliates, counsel, accountants and other authorized
representatives full access during normal business hours to the properties,
books and records of IRA in order that First Command may have the opportunity to
make such reasonable investigations as it shall desire to make of the affairs of
IRA, and IRA will cause its officers and employees to furnish such additional
financial and operating data and other information as First Command shall from
time to time reasonably request. First Command shall, upon reasonable request,
provide IRA, its counsel, accountants and other authorized representatives with
such information concerning First Command as may be reasonably necessary for IRA
to ascertain the accuracy and completeness of the information supplied by First
Command for inclusion in the required proxy statement (or any amendment or
supplement to such materials). IRA shall, upon reasonable request, provide
First Command, its counsel, accountants and other authorized representatives
with such information concerning IRA as may be reasonably necessary for First
Command to ascertain the accuracy and completeness of the information supplied
by IRA for inclusion in the required Rule 13e-3 Transaction Statement on
Schedule 13E-3 (or any amendment thereto) (the "Schedule 13E-3").
4.2 CONFIDENTIALITY. Except as required by law, First Command and its
affiliates will, and will use its best efforts to cause its counsel, accountants
and other authorized representatives to, hold in strict confidence and not
disclose to others for any reason whatsoever, without the prior written consent
of IRA, any information received by them from IRA in connection with the
transactions contemplated by this Agreement. In the event this Agreement is
terminated, IRA and First Command each agrees to return promptly, if so
requested by the other party, every document furnished to any of them by the
other party or any subsidiary, division, associate or affiliate of such other
party, in connection with the transactions contemplated by this Agreement and
any copies of documents which may have been made and to cause their
representatives and others to whom such documents were furnished promptly to
return such documents and any copies, other than documents filed with the
Securities and Exchange Commission ("SEC") or otherwise publicly available.
4.3 SHAREHOLDERS' MEETING. IRA shall, in accordance with the provisions
of the TBCA and its Articles of Incorporation and Bylaws, cause a special
meeting of its shareholders (the "Shareholders' Meeting") to be duly called and
held as soon as reasonably practicable after the date of this Agreement for the
purpose of approving
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and adopting this Agreement. Subject to their fiduciary duties as advised by
counsel, the directors of IRA shall recommend approval and adoption of this
Agreement and that recommendation shall be contained in the Definitive Proxy
Statement (defined below).
4.4 PROXY STATEMENT; SCHEDULE 13E-3. IRA and First Command prepare and
file, and each will cooperate with the other in the preparation and filing of,
the Schedule 13E-3 with the SEC with respect to the transactions contemplated by
this Agreement. In connection with the Shareholders' Meeting, IRA will prepare
and file, and First Command will cooperate with IRA in the preparation and
filing of, a preliminary proxy statement relating to the transactions
contemplated by this Agreement (the "Preliminary Proxy Statement") with the SEC
and will use its best efforts to respond to the comments of the SEC and cause
the Definitive Proxy Statement (herein so called) to be mailed to IRA's
shareholders, all as soon as reasonably practicable. IRA shall prepare and file
with the SEC the Definitive Proxy Statement. Each party to this Agreement will
notify the others promptly of the receipt of the comments of the SEC, if any,
and of any request by the SEC for amendments or supplements to the Schedule
13E-3, the Preliminary Proxy Statement or the Definitive Proxy Statement or for
additional information, and will supply the others with copies of all
correspondence between such party or its representatives and the SEC or members
of its staff with respect to the Schedule 13E-3, the Preliminary Proxy
Statement, the Definitive Proxy Statement or the Merger. Whenever any event
occurs which should be set forth in an amendment of, or a supplement to, the
Definitive Proxy Statement, or an amendment to the Schedule 13E-3, IRA and First
Command will promptly notify the other party and will cooperate with each other
in the prompt preparation, filing, and mailing of such amendment of, or
supplement to, Definitive Proxy Statement, or the preparation and filing of such
amendment to the Schedule 13E-3.
4.5 WAIVERS, CONSENTS AND APPROVALS. Each of IRA and First Command will
use its reasonable best efforts to obtain any waivers, consents or approvals
under the terms of any agreement or commitment to which IRA or First Command is
a party that are necessary for the consummation of the Merger. In obtaining
such waivers, consents and approvals, IRA and First Command shall not, without
the consent of the other party hereto, agree to any amendment to or modification
of any such instrument.
4.6 PUBLICITY. IRA and First Command agree to consult with each other in
issuing any press release and with respect to the general content of other
public statements about the transactions contemplated by this Agreement, and
shall not issue any such press release prior to such consultation.
4.7 COOPERATION WITH RESPECT TO FILINGS. IRA shall use its reasonable
best efforts to obtain at the earliest practicable date, and, in any event,
prior to the Closing
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Date, all approvals, consents, authorizations and waivers as may be required
from governmental and other regulatory agencies and other third parties in
connection with the transactions contemplated by this Agreement which, either
individually or in the aggregate, if not obtained, would have a materially
adverse effect on the financial condition, results of operations or business of
IRA or would prevent consummation of the Merger and the other transactions
contemplated by this Agreement. First Command will, and will cause its
representatives and affiliates to, provide such information and cooperate fully
with IRA in making such applications, filings and other submissions which may be
required or reasonably necessary in order to obtain all approvals, consents,
authorizations and waivers as may be required from governmental and other
regulatory agencies and other third parties in connection with the transactions
contemplated by this Agreement; provided, however, that neither First Command
nor any of its affiliates shall be obligated to execute any guarantees or
undertakings or otherwise incur or assume any liability, other than as a result
of the Merger, in connection with obtaining any such approval, consent,
authorization or waiver. In the event of any action, suit, proceeding or
investigation of the nature specified in Section 5.5 of this Agreement is
commenced, the parties agree to cooperate and use their best efforts to defend
against such actions.
4.8 ACCURACY OF INFORMATION. The written information supplied or to be
supplied by IRA or First Command specifically for inclusion in the Definitive
Proxy Statement, the Schedule 13E-3 and any supplement or amendment to any one
of them, as the case may be, will not contain any untrue statement of a material
fact or omit any material fact necessary in order to make the statements made,
in light of the circumstances under which they are made, not misleading.
4.9 EMPLOYEE BENEFITS.
(a) From and after the Effective Time, the Surviving Corporation shall
honor and be bound by the terms and conditions of each Compensation and Benefit
Plan and each employee or executive benefit plan, program or agreement,
including, without limitation, severance agreements, sponsored or maintained by
IRA, or any subsidiary of IRA, or to which the IRA or any subsidiary of IRA is
party or which has been adopted by the board of directors of the IRA prior to
the date hereof (a "Company Benefit Arrangement"). Nothing in the immediately
preceding sentence shall be construed to limit the right of the Surviving
Corporation, following the Effective Time to amend, modify or terminate any such
Company Benefit Arrangement pursuant to the terms and conditions thereof as in
effect immediately prior to the Effective Time. A "Compensation and Benefit
Plan" shall mean each material bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership, stock
bonus, stock purchase, restricted stock, stock option, employment, termination,
severance, compensation, medical, health or other plan, agreement, policy or
arrangement that covers employees, directors, former employees or former
directors.
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(b) Without limiting the generality of the foregoing, from and after the
Effective Time, the Surviving Corporation shall make available to each person
who is an employee of IRA and its subsidiaries immediately prior to the
Effective Time (the "IRA Employees") employee benefit plans and programs which
are either (i) the same as are made available to the employees of IRA, on terms
and conditions generally applicable to the employees of IRA or (ii) no less
favorable to the IRA Employees than the terms and conditions of the Company
Benefit Arrangements in which they were participating immediately prior to the
Effective Time. Notwithstanding the foregoing, in no event shall any employee
receive duplicate benefits with respect to any period of service. To the extent
any employee benefit plan or program in which any IRA Employee participates
after the Effective Time (x) imposes any pre-existing condition limitation, such
condition shall be waived, (y) has a deductible or requires a co-payment by the
IRA Employee that is subject to a maximum out-of-pocket limitation, there shall
be credited against any such deductible or limitation any costs incurred by such
IRA Employee during the comparable period under the terms of the corresponding
Company Benefit Arrangement prior to the Effective Time or (z) imposes a waiting
period, for purposes of eligibility or vesting, the IRA Employees will receive
credit for service with IRA or its subsidiaries prior to the Effective Time.
4.10 TAKEOVER STATUTE. If any Takeover Statute (as defined below) is or
may become applicable to the Merger, each of IRA and First Command and their
respective Board of Directors shall grant such approvals and take such actions
as are necessary so that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement or by the Merger and
otherwise act to eliminate or minimize the effects of such statute or regulation
on such transactions. A "Takeover Statute" shall mean any "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover statute
or regulation, including, without limitation, Article 13 of the TBCA.
ARTICLE V
CONDITIONS TO FIRST COMMAND'S OBLIGATIONS
The obligations of First Command under this Agreement (to be performed on
or before the Closing Date) shall be subject to the satisfaction, on or before
the Closing Date, of each of the following conditions:
5.1 PERFORMANCE. IRA shall have performed and complied in all material
respects with all agreements, obligations and conditions required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date.
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5.2 ADOPTION BY IRA SHAREHOLDERS. The holders of (i) two-thirds (2/3) of
the outstanding shares of Class A Stock and Class B Stock, voting as a single
class and (ii) two-thirds (2/3) of the outstanding shares of Class A Stock and
Class B Stock, each voting separately as a class, that are eligible to vote at
the Shareholders' Meeting shall have voted for approval and adoption of this
Agreement.
5.3 ADOPTION BY FIRST COMMAND SHAREHOLDERS. The holders of two-thirds
(2/3) of the outstanding shares of First Command Common Stock shall have voted
for approval and adoption of this Agreement.
5.4 CONSENTS. All approvals, consents, authorizations and waivers from
governmental and other regulatory agencies and other third parties required to
consummate the transactions contemplated by this Agreement, which either
individually or in the aggregate, if not obtained, would have a materially
adverse effect on the financial condition, results of operations or business of
IRA or would prevent consummation of the Merger and the other transactions
contemplated by this Agreement, shall have been obtained.
5.5 NO INJUNCTION. On the Closing Date there shall be no effective
injunction, writ, temporary restraining order or any order of any nature issued
by a court of competent jurisdiction or other governmental authority directing
that the transactions provided for in this Agreement or any of them not be
consummated as so provided or imposing any conditions on the consummation of the
transactions contemplated by this Agreement that First Command deems
unacceptable in its sole discretion.
5.6 NO PROCEEDING OR LITIGATION. No suit, action, or other proceeding
seeking to restrain, prevent or change the transactions contemplated by this
Agreement or otherwise questioning the validity or legality of such transactions
shall have been instituted and be pending.
5.7 NOTICE OF DISSENT. The holders of no more than 20% of either of the
outstanding Class A Stock or the Class B Stock shall have delivered notice of
their intent to exercise their right to dissent under the TBCA.
ARTICLE VI
CONDITIONS TO IRA'S OBLIGATIONS
The obligations of IRA under this Agreement (to be performed on or before
the Closing Date) shall be subject to the satisfaction, on or before the Closing
Date, of each of the following conditions:
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6.1 PERFORMANCE. First Command shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
6.2 FAIRNESS OPINION. IRA shall not have received written notice from
Coopers & Lybrand, LLP that it has withdrawn, revoked or modified its opinion as
to the fairness of the Merger to the shareholders of IRA from a financial point
of view.
6.3 ADOPTION BY IRA SHAREHOLDERS. The conditions set forth in Section 5.2
shall have been satisfied.
6.4 ADOPTION BY FIRST COMMAND SHAREHOLDERS. The conditions set forth in
Section 5.3 shall have been satisfied.
6.5 CONSENTS. All approvals, consents, authorizations and waivers from
governmental and other regulatory agencies and other third parties required to
consummate the transactions contemplated by this Agreement, which either
individually or in the aggregate, if not obtained, would have a materially
adverse effect on the financial condition, results of operations or business of
IRA or would prevent consummation of the Merger and the other transactions
contemplated by this Agreement, shall have been obtained.
6.6 NO INJUNCTION. On the Closing Date, there shall be no effective
injunction, writ, temporary restraining order or any order of any nature issued
by a court of competent jurisdiction or other governmental agency directing that
the transactions provided for in this Agreement or any of them not be
consummated as so provided for in this Agreement or any of them not be
consummated as so provided or imposing any conditions on the consummation of the
transactions contemplated by this Agreement that IRA deems unacceptable in its
sole discretion.
6.7 NO PROCEEDING OR LITIGATION. No suit, action, or other proceeding
seeking to restrain, prevent or change the transactions contemplated by this
Agreement or otherwise questioning the validity or legality of such transactions
shall have been instituted and be pending.
6.8 NOTICE OF DISSENT. The holders of no more than 20% of either of the
outstanding Class A Stock or the Class B Stock shall have delivered notice of
their intent to exercise their right to dissent under the TBCA.
- 14 -
<PAGE>
ARTICLE VII
CLOSING
7.1 CLOSING. The Closing of the Merger (the "Closing") shall take
place at 4100 South Hulen Street, Fort Worth, Texas 76109, at __:00 a.m.,
local time, on the first date that all conditions contained in Articles VI
and VII of this Agreement have been satisfied or waived in accordance with
this Agreement, or such later date and time as the parties may agree in
writing. The date of the Closing as set forth in this Agreement shall be
called the "Closing Date."
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.1 METHODS OF TERMINATION. Notwithstanding approval by the shareholders
of IRA, this Agreement may be terminated and the Merger may be abandoned at any
time before the Effective Time:
(a) by mutual consent of the Boards of Directors of First Command
and IRA;
(b) by either IRA or First Command if at the Shareholders' Meeting,
or any adjournment thereof, the shareholders of IRA fail to adopt and
approve this Agreement;
(c) by either IRA or First Command if the shareholders of First
Command fail to adopt and approve the Agreement; or
(d) by either IRA or First Command if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action (which order, decree or ruling the parties hereto shall use their
best efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement, and
such order, decree, ruling or other action shall have become final and
nonappealable.
8.2 PROCEDURE UPON TERMINATION. In the event of termination and
abandonment by the Board of Directors of First Command or by the Board of
Directors of IRA pursuant to Section 8.1(b), (c) or (d) of this Agreement,
delivery of written notice from the terminating party to the other party shall
automatically terminate this
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<PAGE>
Agreement and shall cause it to be abandoned without further action by First
Command or IRA. If this Agreement is terminated as provided in this Agreement:
(a) All information received by any party with respect to the
business of the other party (other than information which is a matter of
public knowledge or which has been or is published in any publication for
public distribution or filed as public information with any governmental
authority) shall not at any time be used for the advantage of, or disclosed
to third parties by, such party for any reason; and
(b) Neither party shall have any liability or further obligations
to the other party, except as stated in this Section 8.2.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this Agreement
may be amended, modified or supplemented before or after the vote of the
shareholders of IRA by written agreement of the respective Boards of Directors
of First Command and IRA or their respective officers authorized by such Board
of Directors at anytime prior to the Closing Date with respect to any of the
terms contained in this Agreement.
9.2 EXTENSION; WAIVER. At any time prior to the Effective Time, any party
may by appropriate board action (i) extend the time for the performance of any
of the obligations or other acts of the other party or (ii) waive compliance
with any of the agreements or conditions contained in this Agreement. Any such
waiver or failure to insist upon strict compliance shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Any agreement
on the part of any party to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
9.3 FEES AND EXPENSES. IRA will pay all expenses incurred by the parties
in connection with the preparation, negotiation, execution, delivery and
consummation of this Agreement and the transactions contemplated by this
Agreement.
9.4 NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered by hand, mailed by certified or
registered mail with postage prepaid or by overnight mail (next day guaranteed
delivery), or if sent by cable, telegram, telex or telecopy (with receipt
confirmation) as follow:
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<PAGE>
(a) If to IRA, to:
Robert F. Watson
USPA&IRA
4100 South Hulen
Fort Worth, Texas 76109
Telephone: (817) 731-8621, ext. 2220
Fax: (800) 472-8772, ext. 2176
with a copy to:
Brian D. Barnard
Haynes and Boone, LLP
201 Main Street
Suite 2200
Fort Worth, Texas 76102
or to such other person or address as IRA shall furnish to First Command in
writing.
(b) If to First Command, to:
Robert F. Watson
First Command Financial Corporation
4100 South Hulen
Fort Worth, Texas 76109
Telephone: (817) 731-8621, ext. 2220
Fax: (800) 472-8772, ext. 2176
or to such other person or address as First Command shall furnish to IRA in
writing.
9.5 ASSIGNMENT. This Agreement and all of the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
either of the parties without the prior written consent of the other party;
provided, however, that this Section 9.5 is not intended to limit or restrict
the class of persons entitled to the benefits of Section 9.6 of this Agreement
or to limit or restrict any such person's standing or capacity to enforce the
provisions of Section 9.6.
9.6 INDEMNIFICATION AND INSURANCE.
(a) It is understood and agreed that IRA shall indemnify and hold
harmless, and, after the Effective Time, the Surviving Corporation shall
indemnify and hold
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<PAGE>
harmless, each present and former employee, agent, officer or director of IRA
or, after the Effective Time, First Command (the "Indemnified Parties") to the
fullest extent permitted under applicable law or under the Articles of
Incorporation and Bylaws of IRA and Surviving Corporation against any losses,
claims, damages, liabilities, costs, expenses, judgments and amounts paid in
settlement ("Damages") in connection with any threatened, pending or
contemplated claim, action, suit, proceeding or investigation arising out of or
pertaining to any action or omission occurring prior to or at the Effective Time
(including, without limitation, any claim, action, suit, proceeding or
investigation to which he is a party or is threatened to be made a party by
reason of such relationship with IRA and which arises out of or relates to the
transactions contemplated hereby) (a "Claim"). The Surviving Corporation agrees
that the provisions of the Surviving Corporation's Articles of Incorporation or
Bylaws as in effect at the Effective Time of the Merger with respect to
exculpation of liability and indemnification of officers, directors and
employees shall not be modified, changed or amended in any manner adverse to an
Indemnified Party except as required by law. These rights to indemnification
and the obligations set forth in this Section 9.6(a) shall survive the Merger.
Without limiting the foregoing, IRA and, after the Effective Time the Surviving
Corporation, to the fullest extent permitted under applicable law, will
periodically advance reasonable expenses as incurred with respect to any Claim
or potential claim provided that the person to whom expenses are advanced, if
required by applicable law, provides an undertaking to repay such advances if it
is ultimately determined by a court of competent jurisdiction that such person
is not entitled to indemnification pursuant to this Section 9.6.
(b) In the event any Claim is brought against any Indemnified Party
(whether before or after the Effective Time) in connection with which such
Indemnified Party asserts that he is entitled to be indemnified and held
harmless pursuant to Section 9.6(a) hereof, (i) the Indemnified Parties may
retain counsel which will be reasonably satisfactory to IRA (or the Surviving
Corporation after the Effective Time), (ii) IRA (or, after the Effective Time,
the Surviving Corporation) shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received, and (iii) IRA (or, after the Effective Time, the Surviving
Corporation) will use their reasonable best efforts to assist in the vigorous
defense of any such matter. Neither IRA nor the Surviving Corporation shall be
liable for any settlement effected without their written consent, which consent,
however, shall not be unreasonably withheld. Any Indemnified Party wishing to
claim indemnification under Section 9.6(a) hereof, upon learning of any such
Claim, shall notify IRA or the Surviving Corporation thereof but any failure to
so notify IRA or the Surviving Corporation shall not relieve IRA or the
Surviving Corporation of their obligations under this Section 9.6 unless it has
been actually prejudiced by such lack of notice. The Indemnified Parties as a
group may retain only one law firm in each jurisdiction to represent them with
respect to any such matter unless there is, under applicable standards of
professional conduct, a conflict of interest on any significant
- 18 -
<PAGE>
issue between the positions of any two or more Indemnified Parties. Any
determination required to be made with respect to whether an Indemnified Party's
conduct complied with the standards set forth under applicable law or the Bylaws
of IRA or the Surviving Corporation shall be made by independent counsel
selected by such Indemnified Party and reasonably satisfactory to IRA or the
Surviving Corporation (which shall pay such counsel's reasonable fees and
expenses).
(c) This Section 9.6 shall survive the closing of the transactions
contemplated hereby, is intended to benefit each of the Indemnified Parties
(each of whom shall be entitled to enforce this Section 9.6 against IRA (or the
Surviving Corporation, as the case may be) and shall be binding on all
successors and assigns of IRA and the Surviving Corporation. In the event IRA
or the Surviving Corporation or any of their successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers all or substantially all of its properties and assets to any
person, then, and in each case, proper provisions shall be made so that the
successors and assigns of IRA and the Surviving Corporation assume the
obligations set forth in this Section 9.6.
9.7 GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Texas.
9.8 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
9.9 HEADINGS. The headings in this Agreement are inserted for convenience
only and shall not constitute a part of this Agreement.
9.10 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties in respect of the subject matter contained in this
Agreement. There are no restrictions, promises, warranties, covenants or
undertakings, other than those set forth or referred to in this Agreement. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the subject matter hereof.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement on the date
first above written.
INDEPENDENT RESEARCH AGENCY FOR
LIFE INSURANCE, INC.
By: /s/ Lamar C. Smith
-----------------------------
Name: Lamar C. Smith
-----------------------------
Title: Chairman of the Board/C.E.O.
-----------------------------
FIRST COMMAND FINANCIAL CORPORATION
By: /s/ James N. Lanier
-----------------------------
Name: James N. Lanier
-----------------------------
Title: President
-----------------------------
- 20 -
<PAGE>
ANNEX B
OPINION OF THE FINANCIAL ADVISOR
B-1
<PAGE>
June xx, 1998
Special Committee of the Board of Directors
C/O Independent Research Agency for Life Insurance, Inc.
USPA&IRA Building
4100 South Hulen Street
P.O. Box 2387
Fort Worth, Texas 76113
Special Committee of the Board of Directors:
You have requested our opinion as to the fairness to the Class A and
Class B shareholders of Independent Research Agency for Life Insurance, Inc.
(the "Company"), from a financial point of view, of the transaction detailed in
the proposed Agreement and Plan of Merger, dated as of __________, 1998 the
("Merger Agreement"). The Merger Agreement provides for, among other things:
1) a merger of the Company into First Command Financial Corporation (the
"Merger"); 2) the simultaneous exchange of the voting stock of First Command
Financial Corporation for the Class A Voting Common Stock, par value $0.10 per
share ("Class A Stock"), of the Company; 3) the simultaneous exchange of cash
for the Class B Non-Voting Common Stock, par value $0.02 per share ("Class B
Stock"), of the Company held by Class B stockholders, and not by Class A
stockholders; 4) the simultaneous conversion of the Class B Stock held by the
Class A stockholders into cash or an equivalent amount of Surviving Corporation
Non-Voting Stock (as defined in the Company's proxy statement); and 5)
conversion of the Company's corporate status from C-Corporation to
S-Corporation. Hereafter the foregoing will be collectively referred to as the
Transaction. Prior to the Merger, the Company plans to create an incentive
compensation plan for agents and employees and make awards pursuant to said
plan. Subsequent to the Merger, the Surviving Corporation plans to make
additional awards pursuant to the incentive compensation plans to agents and
employees, including those Class B stockholders of the Company who are still
agents or employees at the time of such award.
In connection with our opinion, we have:
(a) considered the terms of the Merger Agreement;
(b) considered various incentive compensation plans contemplated by
the management of the Company as of the date of our analysis;
<PAGE>
Special Committee of the Board of Directors
June xx, 1998
Page 2
(c) considered the fact that the benefit of additional compensation
(in the form of future dividend equivalency rights and stock appreciation
rights) will be available to participants in the aforementioned incentive
compensation plans, and thus be unavailable to current stockholders;
(d) considered the financial and operating implications of the
Company's proposed conversion to S-Corporation status;
(e) considered management's ongoing commitment to the Company's
agents and the maintenance of the Company's mission and corporate culture;
(f) considered certain financial and other operating information
relating to the Company that was publicly available or furnished to us by the
Company, including cash flow analyses prepared by the Company's management;
(g) met with members of the Company's management to discuss the
business, operations, historical financial results and future prospects of the
Company, including the prospective implications of the Company's S-Corporation
election and post transaction incentive plan;
(h) considered certain financial and securities data of the Company
and compared that data with similar data for other companies in businesses
similar to those of the Company;
(i) considered the financial terms of certain recent acquisitions
of companies in businesses similar to those of the Company;
(j) performed a discounted cash flow analysis; and
(k) considered such other information, financial studies, tax
opinions, analyses and investigations and financial, economic and market
criteria as we deemed relevant and appropriate for purposes of this opinion.
The opinion expressed below is subject to the following qualifications
and limitations:
(i) In arriving at our opinion, we have relied upon and assumed,
without independent verification, the accuracy and completeness of all financial
and other information that was publicly available or furnished to us by the
Company. With respect to management's cash flow projections, we have assumed
that they have been reasonably prepared by management and we accept no
responsibility as to their accuracy.
<PAGE>
Special Committee of the Board of Directors
June xx, 1998
Page 3
(ii) We have not made an independent evaluation or appraisal of
specific tangible or intangible assets of the Company, nor have we been
furnished with any such appraisals. We have not been requested to, and did
not, solicit third party indications of interest in acquiring all or any part
of the Company. The Company has indicated that, as of the date of our
analysis, an acquisition of all or any part of the Company was contrary to
the Company's mission and extremely unlikely.
(iii) Our services with respect to the Transaction do not constitute,
nor should they be construed to constitute in any way, a review or audit of or
any other procedures with respect to any financial information nor should such
services be relied upon by any person to disclose weaknesses in internal
controls or financial statement errors or irregularities.
(iv) Our opinion does not address, and should not be construed to
address, either the underlying business decision to effect the Transaction or
whether the consideration to be received by the stockholders in the Transaction
represents the highest price obtainable.
(v) We express no view as to the federal, state or local tax
consequences of the Transaction.
(vi) Our opinion is based on business, economic, market and other
conditions as they exist as of the date hereof or as of the date of the
information provided to us.
(vii) This opinion is effective as of the date hereof. We have no
obligation to update the opinion unless requested by you in writing to do so and
expressly disclaim any responsibility to do so in the absence of any such
request.
Based upon and subject to the foregoing, it is our opinion that as of
the date hereof, the Transaction is fair to the Company's Class A and Class B
stockholders from a financial point of view.
We will receive a fee as compensation for our services in rendering
this opinion. Neither the employment to conduct this analysis, nor the
compensation for this engagement, is contingent upon conclusions ultimately
reported.
<PAGE>
Special Committee of the Board of Directors
June xx, 1998
Page 4
This letter is for the information of the Special Committee of the
Board of Directors, in their capacity as advisors to the Board of Directors of
the Company, and the Board of Directors, in connection with the Transaction
described herein. This opinion may not be quoted or referred to, in whole or in
part, filed with, or furnished or disclosed to any other party, or used for any
other purpose, without our prior written consent. Coopers & Lybrand L.L.P. has
agreed to permit the Company to include Coopers & Lybrand L.L.P.'s opinion, in
its entirety, in the proxy statement filed by the Company with the Securities
and Exchange Commission in connection with the Transaction.
Very truly yours,
COOPERS & LYBRAND L.L.P.
By
----------------------------
<PAGE>
ANNEX C
PROVISIONS OF THE TEXAS BUSINESS CORPORATION ACT
RELATING TO
RIGHTS OF DISSENTING SHAREHOLDERS
(ARTICLES 5.11 THROUGH 5.13)
Article 5.11. Rights of Dissenting Shareholders in the Event of Certain
Corporate Actions
A. Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and
the shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation if
special authorization of the shareholders is required by this Act and the
shareholders hold shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which the
shares of the corporation of the class or series held by the shareholder are to
be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in which
there is a single surviving or new domestic or foreign corporation, or from any
plan of exchange, if:
(1) the shares held by the shareholder are part of a class or series,
shares of which are on the record date fixed to determine the shareholders
entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation
system) or designated as a national market security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of
merger or plan of exchange to accept for the shareholder's shares any
consideration that is different than the consideration (other than cash in
lieu of fractional shares that the shareholder would otherwise be entitled
to receive) to be provided to any other holder of shares of the same class
or series of shares held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of
merger or the plan of exchange to accept for the shareholder's shares any
consideration other than:
(a) shares of a domestic or foreign corporation that,
immediately after the effective time of the merger or exchange, will
be part of a class or series, shares of which are:
C-1
<PAGE>
(i) listed, or authorized for listing upon official notice
of issuance, on a national securities exchange;
(ii) approved for quotation as a national market security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be
received; or
(c) any combination of the securities and cash described in
Subdivisions (a) and (b) of this subsection.
Article 5.12. Procedure for Dissent by Shareholders as to Said Corporate
Actions
A. Any shareholder of any domestic corporation who has the right to
dissent from any of the corporate actions referred to in Article 5.11 of this
Act may exercise that right to dissent only by complying with the following
procedures:
(1)(a) With respect to proposed corporate action that is submitted
to a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the
case of action other than a merger, and the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to each shareholder
of record as of the effective date of the action notice of the fact and
date of the action and that the shareholder may exercise the shareholder's
right to dissent from the action. The notice shall be accompanied by a copy
of this Article and any articles or documents filed by the corporation with
the Secretary of State to effect the action. If the shareholder shall not
have consented to the taking of the action, the shareholder may, within
twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares
C-2
<PAGE>
as estimated by the shareholder. Any shareholder failing to make demand
within the twenty (20) day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, of a demand for payment made by a dissenting shareholder in accordance
with Subsection (1) of this Section, the corporation (foreign or domestic)
or other entity shall deliver or mail to the shareholder a written notice
that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay
that amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of their value in the office of the clerk of the
court.
C-3
<PAGE>
Notice of the filing of the report shall be given by the clerk to the parties in
interest. The report shall be subject to exceptions to be heard before the court
both upon the law and the facts. The court shall by its judgment determine the
fair value of the shares of the shareholders entitled to payment for their
shares and shall direct the payment of that value by the existing, surviving, or
new corporation (foreign or domestic) or other entity, together with interest
thereon, beginning 91 days after the date on which the applicable corporate
action from which the shareholder elected to dissent was effected to the date of
such judgment, to the shareholders entitled to payment. The judgment shall be
payable to the holders of uncertificated shares immediately but to the holders
of shares represented by certificates only upon, and simultaneously with, the
surrender to the existing, surviving, or new corporation (foreign or domestic)
or other entity, as the case may be, of duly endorsed certificates for those
shares. Upon payment of the judgment, the dissenting shareholders shall cease to
have any interest in those shares or in the corporation. The court shall allow
the appraisers a reasonable fee as court costs, and all court costs shall be
allotted between the parties in the manner that the court determines to be fair
and equitable.
E. Shares acquired by the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be, pursuant to the
payment of the agreed value of the shares or pursuant to payment of the judgment
entered for the value of the shares, as in this Article provided, shall, in the
case of a merger, be treated as provided in the plan of merger and, in all other
cases, may be held and disposed of by the corporation as in the case of other
treasury shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by
this Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
Article 5.13. Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder,
the corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C-4
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C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 of 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholders shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
C-5
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ANNEX D
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
AND
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1998
D-1
<PAGE>
ANNEX E
ARTICLES OF INCORPORATION, AS PROPOSED TO BE AMENDED,
AND
BYLAWS, AS PROPOSED TO BE AMENDED,
OF SURVIVING CORPORATION
E-1
<PAGE>
RESTATED ARTICLES OF INCORPORATION
WITH AMENDMENT
OF
FIRST COMMAND FINANCIAL CORPORATION
FIRST COMMAND FINANCIAL CORPORATION, pursuant to the provisions of Article
4.07 of the Texas Business Corporation Act, hereby adopts Restated Articles of
Incorporation which accurately copy the Articles of Incorporation as amended by
such Restated Articles of Incorporation as hereinafter set forth and which
contain no other change in any provision thereof.
ARTICLE ONE
The Articles of Incorporation of the Corporation are amended by the
Restated Articles of Incorporation as follows:
1. Article 4 of the Articles of Incorporation is hereby amended in its
entirety to read as follows:
4. SHARES. The aggregate number of shares which the Corporation is
authorized to issue is ten million ten thousand (10,010,000) shares,
each having a par value of $.01. The shares are to be designated as
Common Stock and will have identical rights and privileges in every
respect, with the sole exception that ten thousand (10,000) of such
shares shall be designated as Voting Common Stock and shall possess
the right to vote on all matters that may come before the stockholders
of the Corporation, and ten million (10,000,000) of such shares shall
be designated as Nonvoting Common Stock and shall not possess the
right to vote on any matter except as specifically provided by the
Texas Business Corporation Act.
2. A new Article 7 is hereby added to the Articles of Incorporation which
shall read in its entirety as follows:
7. RESTRICTIONS ON TRANSFER OF SHARES. Except as otherwise
expressly provided and authorized herein, a Shareholder shall not
Transfer (as defined below) any shares of Stock that he or she now or
hereafter owns. The parties hereto understand that the Corporation
may refuse to Transfer the shares of Stock on its books and records
when that Transfer would not
<PAGE>
be in compliance with the terms hereof, and that any attempted
Transfer in violation hereof shall be null and void.
A. DEFINITIONS. As used herein:
(1) CODE. The term "CODE" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(2) DETERMINATION DATE. The term "DETERMINATION DATE"
shall mean the day upon which, in the case of a purchase of Stock
hereunder, the Disposition Notice referred to in Section 3.1 has been
received by the Corporation, except that with respect to a Disposition
Notice made in connection with the death of a Shareholder or the
termination of a Shareholder's marital relationship, "DETERMINATION
DATE" shall mean the date of that death or termination.
(3) DISPOSING SHAREHOLDER. The term "DISPOSING
SHAREHOLDER" shall mean that Shareholder (or the surviving spouse of
or estate of a deceased Shareholder in the case of a Shareholder's
death) required to tender shares of Stock to the Corporation upon the
occurrence of an Operative Event with respect to that Shareholder.
(4) DISPOSITION NOTICE. The term "DISPOSITION NOTICE"
shall mean the written notice required by paragraph C.(1) below to be
made by the Disposing Shareholder to the Corporation or allowed by
paragraph C.(1) to be made by the Corporation to the Disposing
Shareholder.
(5) OPERATIVE EVENT. The term "OPERATIVE EVENT" shall
mean, with respect to any Shareholder, any of the following events:
(a) Any threatened or actual Transfer of Stock in any
manner whatsoever by that Shareholder;
(b) The death of that Shareholder;
(c) The termination of the marital relationship of
that Shareholder by death or divorce if that Shareholder does not
succeed to his or her spouse's community interest in the Stock or the
entering into of any property settlement arrangement or agreement in
connection therewith, pursuant to which that Shareholder's interest in
his or her Stock is to be diluted, lessened, encumbered or impaired;
2
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(d) Any threatened or actual (i) bankruptcy or
insolvency of that Shareholder or (ii) institution of legal
proceedings because or by reason of the bankruptcy or insolvency of
that Shareholder;
(e) The termination of the status of that Shareholder
as a duly licensed Texas life insurance agent;
(f) The cessation of that Shareholder as a duly
authorized agent of the Corporation pursuant to a current written
agency agreement, except that with respect to an involuntary
termination as a duly authorized agent of the Corporation, such
termination shall require approval by a vote of eighty percent (80%)
of the Board of Directors of the Corporation;
(g) The change in status of that Shareholder to a
"non-resident alien" as defined in the Code; or
(h) Any threatened or actual levy by a creditor or
claimant upon the shares of Stock held by that Shareholder or any
other seizure or sale by legal process, if it is determined by legal
counsel for the Corporation that such levy is made in good faith and
based upon a bona fide claim.
It shall not be a requirement hereunder that the Executive Committee
of the Board of Directors of the Corporation (the "EXECUTIVE
COMMITTEE") make a determination in every instance that an Operative
Event has so occurred with respect to any Shareholder, but such
determination shall be made in those instances in which there may be
some question as to whether an Operative Event did in fact occur.
Upon such determination by the Executive Committee that an Operative
Event has in fact occurred, in order to inform the Shareholder of such
occurrence, the Corporation may deliver a written notice to the
Shareholder or his or her legal representative stating that (i) such
an Operative Event has occurred, (ii) the date thereof and (iii) the
reasons for the determination. The Shareholder affected or his or her
legal representative shall thereupon be required to tender to the
Corporation for sale his or her Stock to the Corporation upon the
terms and conditions as set forth in paragraph C. below.
(6) TRANSFER. The term "TRANSFER" shall mean, as a noun, a
transfer, sale, assignment, exchange, gift, donation, pledge,
mortgage, hypothecation or other encumbrance or other disposition, and
as a verb, to transfer, sell, assign, exchange, gift, donate, pledge,
mortgage, hypothecate or otherwise encumber or otherwise dispose.
3
<PAGE>
B. RESTRICTIONS ON TRANSFER OF SHARES.
Except as otherwise expressly provided and authorized in the
Articles of Incorporation, a Shareholder shall not Transfer any shares
of Stock that he or she now or hereafter owns. The Corporation may
refuse to Transfer the shares of Stock on its books and records when
that Transfer would not be in compliance with the terms of the
Articles of Incorporation, and any attempted Transfer in violation
hereof shall be null and void.
(1) RESTRICTIONS ON TRANSFER.
(a) No Shareholder may Transfer, and no person may
acquire, the legal or beneficial ownership of any share of Stock now
or hereafter owned by him or her if that Transfer or acquisition would
cause the S corporation status of the Corporation to terminate.
Specifically, no Transfer may be made to, and no acquisition may be
made by, any person who would cause the Corporation to have more than
the maximum permitted number of shareholders under the Code as then in
effect or to any person that is not eligible to be a shareholder of an
S corporation under the provisions of the Code.
(b) In addition to the requirements of paragraph
B.(1)(a) above, no Transfer of shares of Stock shall be permitted, and
no purported Transfer shall be effective, until the transferee has
followed all of the requirements of paragraph C. below.
(c) Notwithstanding B.(1)(a) and (b) above, with the
prior written consent of the Executive Committee, a Shareholder may
pledge, mortgage, hypothecate or otherwise encumber his or her Stock
subject to such terms, conditions and restrictions as the Executive
Committee shall determine to be appropriate in the exercise of its
sole discretion.
(2) EFFECT OF PURPORTED TRANSFER. Any purported Transfer
or acquisition of shares of Stock in violation of paragraph B.(1)
above shall be null and void. The purported transferee shall have no
interest in any of the shares of Stock purported to be transferred.
Any such purported Transfer or acquisition may and should be enjoined
by the Corporation in the event that the Executive Committee so
determines.
(3) BENEFICIAL OWNERSHIP. Any purported Transfer in
violation hereof will not affect the beneficial ownership of the
shares of Stock. Thus, the Shareholder making the purported transfer
will retain the right to vote and the right to receive distributions
and liquidation
4
<PAGE>
proceeds related to those shares. Additionally, a Shareholder making
the purported Transfer shall continue to report the portion of income
or loss allocated by the Corporation in accordance with the provisions
of the Code.
C. TENDER REQUIREMENT.
(1) TENDER FOR SALE. Upon the occurrence of any Operative
Event with respect to a Shareholder, the Disposing Shareholder, or his
or her legal representative, as the case may be, must tender for sale
all shares of Stock owned by the Disposing Shareholder. In the case
of an Operative Event, the Disposing Shareholder is required to mail a
Disposition Notice to the Corporation no less than one hundred twenty
(120) days prior to the date of the proposed Transfer. Alternatively,
upon an Operative Event of a Disposing Shareholder, the Corporation
may mail a Disposition Notice to that Disposing Shareholder. Upon its
receipt or its mailing of a Disposition Notice, the Corporation shall
have the exclusive right and option, exercisable at the sole
discretion of the Executive Committee, as described in paragraph C.(2)
to buy such shares of Stock, or any portion thereof, as provided
herein. The Disposition Notice shall be sent by certified mail, if to
the Corporation, to the attention of the president and the general
counsel of the Corporation at the principal address of the
Corporation, or if to the Disposing Shareholder at his or her last
known address. In the event that the Operative Event involves a
proposed Transfer pursuant to an offer to purchase or sell all or any
portion of a Shareholder's Stock received or made by such Shareholder
from or to a third party, the Disposition Notice shall set forth the
full details of such proposed Transfer including, among other things,
the name of the offeror or proposed purchaser or transferee, the
number of shares covered by the offer, the purchase price per share,
the terms of payment, whether for cash or credit (and if by credit,
the maturity and interest rate), any and all other consideration being
received or paid in connection with such proposed Transfer, and any
and all other terms, conditions and details of such offer.
(2) PURCHASE BY CORPORATION. Upon delivery of a valid
Disposition Notice, the Corporation shall have the exclusive right and
option, exercisable at any time within one hundred twenty (120) days
after the mailing of a Disposition Notice, to purchase all or part of
the Disposing Shareholder's shares of Stock at the Purchase Price and
on the terms and conditions set forth herein. If the Corporation
chooses to exercise the option (in whole or in part), it shall give
written notification (the "CORPORATE EXERCISE NOTICE") to that effect
to the Disposing Shareholder or his or her legal representative, as
the case may be, setting
5
<PAGE>
forth the number and type of shares being purchased and the price and
terms and conditions, in accordance with this Agreement, and such sale
and purchase shall be closed on the one hundred twentieth (120th) day
after the Corporate Exercise Notice is sent to the Disposing
Shareholder or to his or her legal representative (or, if such date is
not a business day, on the first business day thereafter).
(3) THIRD PARTY BOUND. If, in accordance with this
paragraph C., shares of Stock are Transferred to a third party, the
Disposing Shareholder shall require, as a condition of the sale to
such third party, that the purchaser or transferee of his or her
shares will become a party to this Agreement, but only if the
Corporation so desires and agrees to such purchaser becoming subject
to this Agreement in a written notice sent to the Disposing
Shareholder. All shares of Stock retained by the Disposing
Shareholder shall remain subject to all of the provisions of the
Articles of Incorporation.
D. INSURANCE. In order to facilitate the purchase of shares of
Stock upon the death of a Shareholder, the Corporation may, but is not
required to, apply for and obtain separate policies of insurance upon
the lives of each of the Shareholders payable to the Corporation;
provided, however, that the purchase price of the shares of Stock and
the manner and terms of payment therefor shall be governed in all
respect by paragraphs E and F below. The Corporation will pay the
premiums upon such policies and shall provide proof of payment of such
premiums to any Shareholder, upon his or her request. The Corporation
shall be the sole owner, and shall have the sole right to designate
the beneficiary or beneficiaries, of such policy or policies.
E. PURCHASE PRICE.
(1) PURCHASE PRICE. In the case of all Operative Events,
the purchase price per share of Stock to be paid by the Corporation
shall be the Purchase Price, as defined in paragraph (2) below.
(2) AGREED VALUE. The Corporation, at least annually,
shall advise the Shareholders in writing of the price per share of
Stock which the Corporation will pay to any and all Disposing
Shareholders for shares tendered pursuant hereto. Each such
determination of the "PURCHASE PRICE" shall become effective on the
date specified by the Corporation and shall remain effective until the
next determination of a new Purchase Price and shall be
proportionately adjusted for any subsequent increase or decrease of
the number of issued shares of Stock resulting from a subdivision or
consolidation of shares or other
6
<PAGE>
adjustment, or the payment of a stock dividend or other increase or
decrease in the number of shares of Stock outstanding, effective
without the receipt of consideration by the Corporation. It is
specifically agreed that this Purchase Price shall be the purchase
price paid by the Corporation hereunder to any Disposing Shareholder.
F. PAYMENT OF PURCHASE PRICE.
(1) TRANSFER AND DELIVERY OF STOCK. At the closing, or at
some other time or place designated by all of the parties, the
Disposing Shareholder or his or her legal representative shall deliver
to the Corporation in exchange for the concurrent payment of the
Purchase Price, the certificates of shares of the Stock being
purchased, free and clear of all liens, claims, security interests and
encumbrances, duly endorsed for transfer and bearing any necessary
documentary stamps, and such assignments, certificates of authority,
tax releases, consents to transfer by a fiduciary or representative of
the Disposing Shareholder, and any instruments in evidence of the
title of the Shareholder and of the parties' compliance with this
Agreement, the federal and state securities laws, and any other
agreements or regulations as may be recommended by counsel for the
Corporation.
(2) METHOD. The manner of payment of the Purchase Price
may be, at the option of the Corporation, either (i) the payment of
the entire Purchase Price, by cash or by certified, bank cashier, or
treasurer's check, of (ii) down payment of twenty percent (20%) of
such Purchase Price in cash at closing and delivery of a promissory
note or promissory notes for the balance, in non-negotiable form, to
the order of the Disposing Shareholder or his or her legal
representative, pursuant to which the Corporation agrees to pay the
balance in four (4) equal annual installments, with interest on the
unpaid balance at the lesser of (i) the rate of the prime rate
published in THE WALL STREET JOURNAL per annum on the date of the
closing or (ii) the highest non-usurious rate permitted by applicable
law, with each installment of principal and interest payable annually
on each anniversary date of the making of the promissory note, and
with the right of the Corporation to prepay at any time without
premium or penalty. The promissory note shall be secured by the
pledge of Stock purchased thereby, with executed security instruments
covering such pledged Stock, unless such pledge arrangement is waived
by the Disposing Shareholder or his or her legal representative, as
the case may be. Notwithstanding anything herein to the contrary, in
the event that the Disposing Shareholder dies, the down payment
provided for in clause (ii) above shall not be less than the proceeds
received by the Corporation under the insurance, if any, described in
paragraph D above.
7
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3. A new Article 8 is hereby added to the Articles of Incorporation which
shall read in its entirety as follows:
8. SUBCHAPTER S PROVISIONS.
A. SUBCHAPTER S REPRESENTATION. Each Shareholder acknowledges
that the Corporation has made a valid election to be treated, for
federal and state income tax purposes, as an S corporation. Each
Shareholder shall provide to the Corporation, immediately upon the
Corporation's request, such properly signed consents or other
documents as, in the opinion of the Corporation, may be necessary or
useful to maintain the Corporation's status as an S corporation, and
each Shareholder covenants that he or she will do nothing to interfere
with the Corporation's maintenance of its status as an S corporation.
B. REVOCATION OF ELECTION. In the event that the Shareholders,
by the affirmative vote of at least eighty percent (80%) of the votes
which all of the Shareholders are entitled to cast, determine to
terminate the Corporation's status as an S corporation, and thereafter
each Shareholder is provided with written notice of such
determination, within sixty (60) days after the delivery of such
notice, each Shareholder, if requested, will execute a consent to such
revocation in the form prescribed by the Internal Revenue Service or
any relevant state tax authority and shall deliver such consent to the
Secretary of the Corporation. If the Corporation's S status is
terminated under this paragraph B., in the event that the Executive
Committee so determines, the Shareholders and the Corporation shall
elect, if applicable, to have Section 1362(e)(2) of the Code not
apply, as provided in Section 1362(e)(3) of the Code. Any person who
was a Shareholder at any time during the S short year (as defined in
Section 1362(e)(1)(A) of the Code) or who is a Shareholder on the
first day of the C short year (as defined in Section 1362(e)(1)(B) of
the Code) shall consent to such election.
C. INADVERTENT TERMINATION OF SUBCHAPTER S ELECTION. In the
event of a termination of the Corporation's status as an S corporation
other than pursuant to paragraph B. above, if the Corporation and the
Shareholders remaining after such termination desire that the
Corporation's status as an S corporation be continued, the Corporation
and all Shareholders as of and/or after the terminating event shall
use their best efforts to obtain from the Internal Revenue Service a
waiver of the terminating event on the ground of inadvertency. The
Corporation and the Shareholders shall take such steps, and make such
adjustments, as may be required by the Internal Revenue Service
pursuant to Section 1362(f)(3) and (4) of the Code. If a Shareholder
caused the terminating event to occur, he or she shall bear the
expense of procuring the waiver, including the legal,
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accounting and tax costs of taking such steps, and of making such
adjustments as may be required. If the inadvertent termination is not
waived by the Internal Revenue Service and the Corporation's S status
is permanently terminated, in the event that the Executive Committee
so determines, the Corporation and the Shareholders shall make the
election under Section 1362(e)(3) of the Code contemplated by
paragraph B. above.
D. PROVISION IN SHAREHOLDER WILLS. Each Shareholder shall use
his or her best efforts to include in his or her will a direction and
authorization to his or her executor in substantially the following
form:
(a) My Executor is hereby directed and authorized to hold
stock of an S Corporation, as defined in the Code (hereinafter
"S Stock"), to make an election to have any corporation treated as an
S Corporation, to enter into agreements with other shareholders or
with the corporation relating to a transfer (including, without
limitation, a sale, assignment, exchange, gift, donation, mortgage,
hypothecation or other encumbrance or other disposition (a "TRANSFER")
of S Stock or the management of the S Corporation, and to allocate
amounts received and the tax on undistributed income between income
and principal. During the administration of my estate, my Executor
may allocate the tax deductions and credits arising from ownership of
S Stock between income and principal. In making any such allocations,
my Executor shall consider that the beneficiary is to have enjoyment
of the property at least equal to that ordinarily associated with an
income interest and in all events shall provide the required
beneficial enjoyment to the beneficiary until such time as the S Stock
is distributed to him or her.
(b) Any beneficiary of my estate who receives stock in an S
Corporation as part of his or her distribution shall, prior to such
distribution, enter into a written agreement with said S Corporation
(i) to consent to any election to qualify the S Corporation as such;
(ii) to do nothing to interfere with the S Corporation's maintenance
of its status as such; (iii) not to Transfer the S Stock to any
transferee who does not agree to execute a similar consent; (iv) not
to Transfer the S Stock in such manner as will cause the S Corporation
to lose its status as an S Corporation under the then applicable
federal and state income tax statutes and regulations; and (v) if S
status is inadvertently terminated, to join in any endeavor to obtain
a waiver of the terminating event on the grounds of inadvertency from
the Internal Revenue Service if the S Corporation desires that the S
status should continue.
(c) Any S Stock distributed to a beneficiary shall bear an
appropriate legend on the stock certificate stating that the Transfer
of
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the stock is subject to and restricted to the extent set forth in
subparagraph (b) above.
Notwithstanding the foregoing requirement, the failure of a
Shareholder so to direct his or her executor shall not affect the
validity of these Articles of Incorporation.
E. DISTRIBUTIONS TO PAY TAX LIABILITIES.
(a) For the period during which the Corporation is an S
Corporation (the "S CORP PERIOD"), the Corporation shall promptly
declare and make distributions during the S Corp Period to all
Shareholders in a timely manner to allow the federal income tax
(including, without limitation, estimated tax payments) attributable
to the Corporation's taxable income during the S Corp Period that is
passed through the Corporation to the Shareholders to be paid by such
Shareholders when due (each, a "DUE DATE"). To satisfy this
requirement, during the S Corp Period, the Corporation shall pay on or
before five (5) days prior to each Due Date, an amount so that the
cumulative amount of distributions during the S Corp. Period that have
been designated by the Corporation as "TAX DISTRIBUTIONS" are at least
equal to the excess of (i) the sum of the products of (A) the
Corporation's positive taxable income (as determined under Section
1366(a) of the Code) attributed to its Shareholders during each of its
taxable periods during the S Corp Period multiplied by (B) the sum of
the highest federal individual income tax rates in effect for each
such taxable period (without regard to exemptions or phase-outs of
lower tax rates, but with consideration of the character of any item
and the deductibility of state taxes for federal income tax purposes),
over (ii) the sum of the products of (A) the Corporation's negative
taxable income (as determined under Section 1366(a) of the Code)
attributable to its Shareholders during each of its taxable periods
during the S Corp Period multiplied by (B) the sum of the highest
federal income tax rates in effect for each such taxable period
(without regard to exemptions or phase-outs of lower tax rates, but
with consideration of the character of any item and the deductibility
of state taxes for federal income tax purposes). The Corporation's
obligation to declare and make any such distributions to the
Shareholders is subject to the restrictions governing dividends under
the Texas Business Corporation Act and such other pertinent
governmental or contractual restrictions as are now or may hereafter
become effective. If the Corporation does not have sufficient funds
available to permit it lawfully to declare and pay such distributions,
the Shareholders and the Corporation shall take such action, adopt
such resolutions, and cause such certificates and other documents to
be filed as may be necessary to create sufficient funds to
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permit the making of such distributions, whereupon the Corporation
shall declare and pay such distributions.
(b) No provision of this Article 8 shall cause the total
distributions made with respect to any outstanding shares of stock of
the Corporation to differ from the amounts paid with respect to any
other outstanding shares of stock of the Corporation.
(c) No provision of this Article 8 shall be construed to
limit the ability of the Corporation to declare and make additional
distributions to Shareholders out of the assets of the Corporation
legally available for such payment at such time or times as the
Executive Committee may determine.
(d) The Corporation's payment of taxes on behalf of any
Shareholder (by means of withholding or otherwise) shall be considered
a distribution for purposes hereof, and the amount of distributions
that the Shareholder is otherwise entitled to hereunder shall be
adjusted accordingly consistent with Regulations Section
1.1361-1(1)(2)(ii).
F. NONRECOGNITION OF CERTAIN TRANSFERS.
(a) The Corporation will not, nor will it be compelled to,
recognize any Transfer, or issue any certificate representing any
Stock to any person who has not delivered to the Corporation (i) a
written undertaking to be bound by the terms and conditions of this
Agreement, and (ii) for so long as the Corporation's status as an S
corporation continues, a written consent to the treatment of the
Corporation as an S corporation. The Corporation will not, nor will
it be compelled to, recognize any Transfer, or issue any certificate
representing any Stock to any person or entity the Transfer to whom or
to which in the opinion of the Corporation's counsel could disqualify
the Corporation as an S corporation or disqualify it from eligibility
for such status.
(b) The Corporation will not, nor be compelled to,
recognize any Transfer made other than in accordance with the terms of
the Articles of Incorporation, nor will it issue any certificate
representing the Stock to any person who has received such Stock in a
Transfer made other than in accordance with the terms of these
Articles of Incorporation.
G. LEGENDS ON SHARE CERTIFICATES. The following legend shall
be imprinted conspicuously on the face of each certificate
representing shares of Stock:
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NOTICE IS HEREBY GIVEN THAT THE TRANSFER (INCLUDING, WITHOUT
LIMITATION, THE SALE, ASSIGNMENT, EXCHANGE, GIFT, DONATION,
PLEDGE, MORTGAGE, HYPOTHECATION OR OTHER ENCUMBRANCE OR OTHER
DISPOSITION) OF THE SHARES OF CAPITAL STOCK REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO AND RESTRICTED BY THE PROVISIONS OF THE
ARTICLES OF INCORPORATION OF THE CORPORATION, AND ALL OF THE
PROVISIONS OF SUCH ARTICLES ARE INCORPORATED BY REFERENCE IN THIS
CERTIFICATE, SPECIFICALLY INCLUDING, BUT NOT LIMITED TO, THOSE
PROVISIONS OF THE ARTICLES RELATING TO THE CORPORATION'S TAX
STATUS AS AN S CORPORATION.
H. ELECTION TO CLOSE BOOKS. The Corporation, in the event the
Executive Committee so determines, shall consent to close the books of
the Corporation pursuant to Section 1377(a)(2) of the Code whenever a
Shareholder sells all of his or her Stock on a day other than the last
day of the Corporation's fiscal year if all "affected shareholders"
(as defined in Section 1377(a)(2)(B) of the Code) shall consent
thereto.
4. A new Article 10 is hereby added to the Articles of Incorporation
which shall read in its entirety as follows:
10. FAIR PRICE PROVISION. The stockholder vote required to approve
any Business Combination (as hereinafter defined) shall be as set
forth in this Article 10.
A. (1) Except as otherwise expressly provided in section B. of
this Article 10:
(i) any merger or consolidation of the corporation or
any Subsidiary (as hereinafter defined) with (a) any
Interested Shareholder (as hereinafter defined) or (b) any
other corporation (whether or not itself an Interested
Shareholder) which is, or after such merger of consolidation
would be, an Affiliate (as hereinafter defined) of any
Interested Shareholder;
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a
series
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of transactions) to or with any Interested Shareholder or
any Affiliate of any Interested Shareholder of all or
substantially all of the assets of the corporation or any
Subsidiary;
(iii) the issuance or transfer by the corporation or
any Subsidiary (in one transaction or a series of
transactions) of any securities of the corporation or any
Subsidiary to any Interested Shareholder or any Affiliate of
any Interested Shareholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $2,000,000 or more;
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed by or
on behalf of any Interested Shareholder or any Affiliate of
any Interested Shareholder; or
(v) any reclassification of securities (including
any reverse stock split), or recapitalization of the
corporation, or any merger or consolidation of the
corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise
involving any Interested Shareholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Shareholder or any Affiliate of any Interested Shareholder;
shall require the affirmative vote of the holders of at least
ninety-five percent (95%) of all of the then-outstanding shares
of the capital stock of the corporation, voting together as a
single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required or that a
lesser percentage may be specified by law.
(2) The term "Business Combination" as used in this Article
Ten shall mean any transaction which is referred to in any one or
more of subparagraphs (i) through (v) of paragraph (1) of this
section A.
B. The provisions of section A. of this Article Ten shall not
be applicable to any particular Business Combination, and such
Business
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Combination shall require only such affirmative vote as is required by
law or any other provision of the corporation's Articles of
Incorporation or Bylaws if the conditions specified below are met:
(1) the "Continuing Directors" (as hereinafter defined) of
the corporation by at least an eighty percent (80%) vote:
(i) have expressly approved in advance the
acquisition of the outstanding shares of capital stock of
the corporation that caused such Interested Person to become
an Interested Person, or
(ii) have expressly approved such Business
Combination either in advance of or subsequent to such
Interested Person's having become an Interested Person; or
(2) the cash or fair market value (as determined by at
least a majority of the Continuing Directors) of the property,
securities or "Other Consideration to the Received" (as
hereinafter defined) per share paid by the Interested Person to
holders of the capital stock of the corporation in the Business
Combination is not less than the "Fair Price" (as hereinafter
defined) paid by the Interested Person in acquiring any of its
holdings of the corporation's capital stock.
C. For the purposes of this Article 10:
(1) A "person' shall mean any individual, firm, corporation
or other entity.
(2) "Interested Shareholder" shall mean any person (other
than the corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or
indirectly, of more than ten percent (10%) of the shares of
any class of the outstanding capital stock of the
corporation;
(ii) is an Affiliate of the corporation and at any
time within the two-year period immediately prior to the
date in question was the beneficial owner, directly or
indirectly, of ten percent (10%) or more of the shares of
any class of the outstanding capital stock of the
corporation; or
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(iii) is an assignee of or has otherwise succeeded to
any shares of any class of the outstanding capital stock of
the corporation which were at any time within the two-year
period immediately prior to the date in question
beneficially owned by any Interested Shareholder, if such
assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act of
1933.
(3) A person shall be a "beneficial owner" of any capital
stock of the corporation:
(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns,
directly or indirectly;
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right
is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (b)
the right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which are beneficially owned, directly or
indirectly, by any other person with which such person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of such capital
stock.
(4) For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph (2) of this section
C., the number of shares of capital stock of the corporation
deemed to be outstanding shall include shares deemed owned
through application of paragraph (3) of this section C. but shall
not include any other shares of capital stock which may be
issuable pursuant to any agreement, arrangement or understanding,
or upon exercise of conversion rights, warrants or options, or
otherwise.
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(5) "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934.
(6) "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or indirectly,
by the corporation; provided, however, that for the purposes of
the definition of Interested Shareholder set forth in paragraph
(2) of this section C., the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security
is owned directly or indirectly, by the corporation.
(7) "Continuing Director" means any member of the Board of
Directors of the corporation (the "Board") who is unaffiliated
with the Interested Shareholder and was a member of the Board
prior to the time that the Interested Shareholder became an
Interested Shareholder, and any successor of a Continuing
Director who is unaffiliated with the Interested Shareholder and
is recommended to succeed a Continuing Director by a majority of
Continuing Directors then on the Board.
(8) "Fair Price" shall mean the following: If there is
only one class of capital stock of the corporation issued and
outstanding, the Fair Price shall mean the highest price that can
be determined by a majority of the Continuing Directors to have
been paid at any time by the Interested Person for any share or
shares of that class of capital stock. If there is more than one
class of capital stock of the corporation issued and outstanding,
the Fair Price shall mean with respect to each class and series
of capital stock of the corporation, the amount determined by a
majority of the Continuing Directors to be the highest per share
price equivalent of the highest price that can be determined to
have been paid at any time by the Interested Person for any share
or shares of any class or series of capital stock of the
corporation. In determining the Fair Price, all purchases by the
Interested Person shall be taken into account regardless of
whether the shares were purchased before or after the Interested
Person became an Interested Person. Also, the Fair Price shall
include any brokerage commissions, transfer taxes and soliciting
dealers' fees paid by the Interested Person with respect to the
shares of capital stock of the corporation acquired by the
Interested Person. In the case of any Business Combination with
an Interested Person, a majority of the Continuing Directors
shall determine the Fair Price for each class and series of the
Capital stock of the corporation.
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The Fair Price shall also include interest compounded annually
from the date an Interested Person became an Interested Person
through the date the Business Combination is consummated at the
rate of seven percent (7%) per annum less the aggregate amount of
any cash dividends paid, and the fair market value of any
dividends paid in other than cash, on each share of capital stock
in the same time period, in an amount up to but not exceeding the
amount of interest so payable per share of capital stock.
(9) "Other Consideration to be Received" shall include,
without limitation, Common Stock or other capital stock of the
corporation retained by its existing stockholders other than
Interested Persons or other parties to such Business Combination
in the event of a Business Combination in which the corporation
is the surviving corporation.
D. A majority of the Board of Directors of the corporation
shall have the power and duty to determine, on the basis of
information known to them after reasonable inquiry, whether a person
is an Interested Shareholder. Once the Board has made a determination
pursuant to the preceding sentence that a person is an Interested
Shareholder, a majority of the number of Directors who are Continuing
Directors shall have the power and duty to interpret all of the terms
and provisions of this Article Ten, and to determine on the basis of
information known to them after reasonable inquiry all facts
necessary to determine compliance with this Article Ten, including,
without limitation, (1) the number of shares of capital stock of the
corporation beneficially owned by any person, (2) whether a person is
an Affiliate or Associate of another, and (3) whether the applicable
conditions set forth in section B. have been met with respect to any
Business Combination.
E. Nothing contained in this Article Ten shall be construed to
relieve any Interested Shareholder from any fiduciary obligation
imposed by law.
F. Notwithstanding any other provisions of the corporation's
Articles of Incorporation or Bylaws or any provision of law which
might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series
of the capital stock of the corporation required by law, or by the
corporation's Articles of Incorporation or Bylaws, the affirmative
vote of the holders of at least ninety-five percent (95%) of the
then-outstanding shares of the capital stock of the corporation,
voting together as a single class, shall be required to alter, amend
or repeal this Article.
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5. Current Articles 7, 8 and 9 of the Articles of Incorporation shall be
renumbered Articles 9, 11 and 12, respectively, but shall otherwise remain
unchanged.
ARTICLE TWO
Each such amendment made by the Restated Articles of Incorporation has been
effected in conformity with the provisions of the Texas Business Corporation Act
and such Restated Articles of Incorporation and each such amendment made by the
Restated Articles of Incorporation were duly adopted by the shareholders of the
Corporation on the ____ day of ___________, 1998.
ARTICLE THREE
The number of shares outstanding was 1,000; the number of shares entitled
to vote on the Restated Articles of Incorporation as so amended was 1,000; the
number of shares voted for such Restated Articles as so amended was 1,000; and
the number of shares voted against such Restated Articles as so amended was -0-.
ARTICLE FOUR
The Articles of Incorporation and all amendments and additions thereto are
hereby superseded by the following Restated Articles of Incorporation which
accurately copy the entire text thereof and as amended as above set forth:
1. NAME. The name of the Corporation is FIRST COMMAND FINANCIAL
CORPORATION.
2. DURATION. The period of its duration is perpetual.
3. PURPOSES. The Corporation is being organized under the Texas
Business Corporation Act for the purpose of carrying out any lawful purposes.
4. SHARES. The aggregate number of shares which the Corporation is
authorized to issue is ten million ten thousand (10,010,000) shares, each having
a par value of $.01. The shares are to be designated as Common Stock and will
have identical rights and privileges in every respect, with the sole exception
that ten thousand (10,000) of such shares shall be designated as Voting Common
Stock and shall possess the right to vote on all matters that may come before
the stockholders of the Corporation, and ten million (10,000,000) of such shares
shall be designated as Nonvoting Common Stock and shall not possess the right to
vote on any matter except as specifically provided by the Texas Business
Corporation Act.
5. COMMENCEMENT OF BUSINESS. The Corporation will not commence
business until it has received for the issuance of its shares consideration
having a minimum value of One
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Thousand and No/100 Dollars ($1,000.00) and consisting only of labor done or
money or property actually received.
6. NO PREEMPTIVE RIGHTS. No holder of any shares of any class of
stock of the Corporation shall, as such holder, have any preemptive or
preferential right to receive, purchase or subscribe to additional, unissued or
treasury shares of any class of stock of the Corporation, or securities,
obligations or evidences of indebtedness of the Corporation convertible into or
carrying a right to subscribe to or purchase such shares, or any other
securities that may hereafter from time to time be issued or sold by the
Corporation.
7. RESTRICTIONS ON TRANSFER OF SHARES. Except as otherwise
expressly provided and authorized herein, a Shareholder shall not Transfer (as
defined below) any shares of Stock that he or she now or hereafter owns. The
parties hereto understand that the Corporation may refuse to Transfer the shares
of Stock on its books and records when that Transfer would not be in compliance
with the terms hereof, and that any attempted Transfer in violation hereof shall
be null and void.
A. DEFINITIONS. As used herein:
(1) CODE. The term "CODE" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(2) DETERMINATION DATE. The term "DETERMINATION DATE"
shall mean the day upon which, in the case of a purchase of Stock hereunder, the
Disposition Notice referred to in Section 3.1 has been received by the
Corporation, except that with respect to a Disposition Notice made in connection
with the death of a Shareholder or the termination of a Shareholder's marital
relationship, "DETERMINATION DATE" shall mean the date of that death or
termination.
(3) DISPOSING SHAREHOLDER. The term "DISPOSING
SHAREHOLDER" shall mean that Shareholder (or the surviving spouse of or estate
of a deceased Shareholder in the case of a Shareholder's death) required to
tender shares of Stock to the Corporation upon the occurrence of an Operative
Event with respect to that Shareholder.
(4) DISPOSITION NOTICE. The term "DISPOSITION NOTICE"
shall mean the written notice required by paragraph C.(1) below to be made by
the Disposing Shareholder to the Corporation or allowed by paragraph C.(1) to be
made by the Corporation to the Disposing Shareholder.
(5) OPERATIVE EVENT. The term "OPERATIVE EVENT" shall
mean, with respect to any Shareholder, any of the following events:
(a) Any threatened or actual Transfer of Stock in
any manner whatsoever by that Shareholder;
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(b) The death of that Shareholder;
(c) The termination of the marital relationship of
that Shareholder by death or divorce if that Shareholder does not succeed to his
or her spouse's community interest in the Stock or the entering into of any
property settlement arrangement or agreement in connection therewith, pursuant
to which that Shareholder's interest in his or her Stock is to be diluted,
lessened, encumbered or impaired;
(d) Any threatened or actual (i) bankruptcy or
insolvency of that Shareholder or (ii) institution of legal proceedings because
or by reason of the bankruptcy or insolvency of that Shareholder;
(e) The termination of the status of that
Shareholder as a duly licensed Texas life insurance agent;
(f) The cessation of that Shareholder as a duly
authorized agent of the Corporation pursuant to a current written agency
agreement, except that with respect to an involuntary termination as a duly
authorized agent of the Corporation, such termination shall require approval by
a vote of eighty percent (80%) of the Board of Directors of the Corporation;
(g) The change in status of that Shareholder to a
"non-resident alien" as defined in the Code; or
(h) Any threatened or actual levy by a creditor or
claimant upon the shares of Stock held by that Shareholder or any other seizure
or sale by legal process, if it is determined by legal counsel for the
Corporation that such levy is made in good faith and based upon a bona fide
claim.
It shall not be a requirement hereunder that the Executive Committee of the
Board of Directors of the Corporation (the "EXECUTIVE COMMITTEE") make a
determination in every instance that an Operative Event has so occurred with
respect to any Shareholder, but such determination shall be made in those
instances in which there may be some question as to whether an Operative Event
did in fact occur. Upon such determination by the Executive Committee that an
Operative Event has in fact occurred, in order to inform the Shareholder of such
occurrence, the Corporation may deliver a written notice to the Shareholder or
his or her legal representative stating that (i) such an Operative Event has
occurred, (ii) the date thereof and (iii) the reasons for the determination.
The Shareholder affected or his or her legal representative shall thereupon be
required to tender to the Corporation for sale his or her Stock to the
Corporation upon the terms and conditions as set forth in paragraph C. below.
(6) TRANSFER. The term "TRANSFER" shall mean, as a noun, a
transfer, sale, assignment, exchange, gift, donation, pledge, mortgage,
hypothecation or other
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encumbrance or other disposition, and as a verb, to transfer, sell, assign,
exchange, gift, donate, pledge, mortgage, hypothecate or otherwise encumber or
otherwise dispose.
B. RESTRICTIONS ON TRANSFER OF SHARES.
Except as otherwise expressly provided and authorized in the Articles of
Incorporation, a Shareholder shall not Transfer any shares of Stock that he or
she now or hereafter owns. The Corporation may refuse to Transfer the shares of
Stock on its books and records when that Transfer would not be in compliance
with the terms of the Articles of Incorporation, and any attempted Transfer in
violation hereof shall be null and void.
(1) RESTRICTIONS ON TRANSFER.
(a) No Shareholder may Transfer, and no person may
acquire, the legal or beneficial ownership of any share of Stock now or
hereafter owned by him or her if that Transfer or acquisition would cause the S
corporation status of the Corporation to terminate. Specifically, no Transfer
may be made to, and no acquisition may be made by, any person who would cause
the Corporation to have more than the maximum permitted number of shareholders
under the Code as then in effect or to any person that is not eligible to be a
shareholder of an S corporation under the provisions of the Code.
(b) In addition to the requirements of paragraph
B.(1)(a) above, no Transfer of shares of Stock shall be permitted, and no
purported Transfer shall be effective, until the transferee has followed all of
the requirements of paragraph C. below.
(c) Notwithstanding B.(1)(a) and (b) above, with
the prior written consent of the Executive Committee, a Shareholder may pledge,
mortgage, hypothecate or otherwise encumber his or her Stock subject to such
terms, conditions and restrictions as the Executive Committee shall determine to
be appropriate in the exercise of its sole discretion.
(2) EFFECT OF PURPORTED TRANSFER. Any purported Transfer
or acquisition of shares of Stock in violation of paragraph B.(1) above shall be
null and void. The purported transferee shall have no interest in any of the
shares of Stock purported to be transferred. Any such purported Transfer or
acquisition may and should be enjoined by the Corporation in the event that the
Executive Committee so determines.
(3) BENEFICIAL OWNERSHIP. Any purported Transfer in
violation hereof will not affect the beneficial ownership of the shares of
Stock. Thus, the Shareholder making the purported transfer will retain the
right to vote and the right to receive distributions and liquidation proceeds
related to those shares. Additionally, a Shareholder making the purported
Transfer shall continue to report the portion of income or loss allocated by the
Corporation in accordance with the provisions of the Code.
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C. TENDER REQUIREMENT.
(1) TENDER FOR SALE. Upon the occurrence of any Operative
Event with respect to a Shareholder, the Disposing Shareholder, or his or her
legal representative, as the case may be, must tender for sale all shares of
Stock owned by the Disposing Shareholder. In the case of an Operative Event,
the Disposing Shareholder is required to mail a Disposition Notice to the
Corporation no less than one hundred twenty (120) days prior to the date of the
proposed Transfer. Alternatively, upon an Operative Event of a Disposing
Shareholder, the Corporation may mail a Disposition Notice to that Disposing
Shareholder. Upon its receipt or its mailing of a Disposition Notice, the
Corporation shall have the exclusive right and option, exercisable at the sole
discretion of the Executive Committee, as described in paragraph C.(2) to buy
such shares of Stock, or any portion thereof, as provided herein. The
Disposition Notice shall be sent by certified mail, if to the Corporation, to
the attention of the president and the general counsel of the Corporation at the
principal address of the Corporation, or if to the Disposing Shareholder at his
or her last known address. In the event that the Operative Event involves a
proposed Transfer pursuant to an offer to purchase or sell all or any portion of
a Shareholder's Stock received or made by such Shareholder from or to a third
party, the Disposition Notice shall set forth the full details of such proposed
Transfer including, among other things, the name of the offeror or proposed
purchaser or transferee, the number of shares covered by the offer, the purchase
price per share, the terms of payment, whether for cash or credit (and if by
credit, the maturity and interest rate), any and all other consideration being
received or paid in connection with such proposed Transfer, and any and all
other terms, conditions and details of such offer.
(2) PURCHASE BY CORPORATION. Upon delivery of a valid
Disposition Notice, the Corporation shall have the exclusive right and option,
exercisable at any time within one hundred twenty (120) days after the mailing
of a Disposition Notice, to purchase all or part of the Disposing Shareholder's
shares of Stock at the Purchase Price and on the terms and conditions set forth
herein. If the Corporation chooses to exercise the option (in whole or in
part), it shall give written notification (the "CORPORATE EXERCISE NOTICE") to
that effect to the Disposing Shareholder or his or her legal representative, as
the case may be, setting forth the number and type of shares being purchased and
the price and terms and conditions, in accordance with this Agreement, and such
sale and purchase shall be closed on the one hundred twentieth (120th) day after
the Corporate Exercise Notice is sent to the Disposing Shareholder or to his or
her legal representative (or, if such date is not a business day, on the first
business day thereafter).
(3) THIRD PARTY BOUND. If, in accordance with this
paragraph C., shares of Stock are Transferred to a third party, the Disposing
Shareholder shall require, as a condition of the sale to such third party, that
the purchaser or transferee of his or her shares will become a party to this
Agreement, but only if the Corporation so desires and agrees to such purchaser
becoming subject to this Agreement in a written notice sent to the Disposing
Shareholder. All shares of Stock retained by the Disposing Shareholder shall
remain subject to all of the provisions of the Articles of Incorporation.
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D. INSURANCE. In order to facilitate the purchase of shares of
Stock upon the death of a Shareholder, the Corporation may, but is not required
to, apply for and obtain separate policies of insurance upon the lives of each
of the Shareholders payable to the Corporation; provided, however, that the
purchase price of the shares of Stock and the manner and terms of payment
therefor shall be governed in all respect by paragraphs E and F below. The
Corporation will pay the premiums upon such policies and shall provide proof of
payment of such premiums to any Shareholder, upon his or her request. The
Corporation shall be the sole owner, and shall have the sole right to designate
the beneficiary or beneficiaries, of such policy or policies.
E. PURCHASE PRICE.
(1) PURCHASE PRICE. In the case of all Operative Events,
the purchase price per share of Stock to be paid by the Corporation shall be the
Purchase Price, as defined in paragraph (2) below.
(2) AGREED VALUE. The Corporation, at least annually,
shall advise the Shareholders in writing of the price per share of Stock which
the Corporation will pay to any and all Disposing Shareholders for shares
tendered pursuant hereto. Each such determination of the "PURCHASE PRICE" shall
become effective on the date specified by the Corporation and shall remain
effective until the next determination of a new Purchase Price and shall be
proportionately adjusted for any subsequent increase or decrease of the number
of issued shares of Stock resulting from a subdivision or consolidation of
shares or other adjustment, or the payment of a stock dividend or other increase
or decrease in the number of shares of Stock outstanding, effective without the
receipt of consideration by the Corporation. It is specifically agreed that
this Purchase Price shall be the purchase price paid by the Corporation
hereunder to any Disposing Shareholder.
F. PAYMENT OF PURCHASE PRICE.
(1) TRANSFER AND DELIVERY OF STOCK. At the closing, or at
some other time or place designated by all of the parties, the Disposing
Shareholder or his or her legal representative shall deliver to the Corporation
in exchange for the concurrent payment of the Purchase Price, the certificates
of shares of the Stock being purchased, free and clear of all liens, claims,
security interests and encumbrances, duly endorsed for transfer and bearing any
necessary documentary stamps, and such assignments, certificates of authority,
tax releases, consents to transfer by a fiduciary or representative of the
Disposing Shareholder, and any instruments in evidence of the title of the
Shareholder and of the parties' compliance with this Agreement, the federal and
state securities laws, and any other agreements or regulations as may be
recommended by counsel for the Corporation.
(2) METHOD. The manner of payment of the Purchase Price
may be, at the option of the Corporation, either (i) the payment of the entire
Purchase Price, by cash or by certified, bank cashier, or treasurer's check, or
(ii) down payment of twenty percent (20%)
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of such Purchase Price in cash at closing and delivery of a promissory note or
promissory notes for the balance, in non-negotiable form, to the order of the
Disposing Shareholder or his or her legal representative, pursuant to which the
Corporation agrees to pay the balance in four (4) equal annual installments,
with interest on the unpaid balance at the lesser of (i) the rate of the prime
rate published in THE WALL STREET JOURNAL per annum on the date of the closing
or (ii) the highest non-usurious rate permitted by applicable law, with each
installment of principal and interest payable annually on each anniversary date
of the making of the promissory note, and with the right of the Corporation to
prepay at any time without premium or penalty. The promissory note shall be
secured by the pledge of Stock purchased thereby, with executed security
instruments covering such pledged Stock, unless such pledge arrangement is
waived by the Disposing Shareholder or his or her legal representative, as the
case may be. Notwithstanding anything herein to the contrary, in the event that
the Disposing Shareholder dies, the down payment provided for in clause (ii)
above shall not be less than the proceeds received by the Corporation under the
insurance, if any, described in paragraph D above.
8. SUBCHAPTER S PROVISIONS.
A. SUBCHAPTER S REPRESENTATION. Each Shareholder acknowledges
that the Corporation has made a valid election to be treated, for federal and
state income tax purposes, as an S corporation. Each Shareholder shall provide
to the Corporation, immediately upon the Corporation's request, such properly
signed consents or other documents as, in the opinion of the Corporation, may be
necessary or useful to maintain the Corporation's status as an S corporation,
and each Shareholder covenants that he or she will do nothing to interfere with
the Corporation's maintenance of its status as an S corporation.
B. REVOCATION OF ELECTION. In the event that the Shareholders,
by the affirmative vote of at least eighty percent (80%) of the votes which all
of the Shareholders are entitled to cast, determine to terminate the
Corporation's status as an S corporation, and thereafter each Shareholder is
provided with written notice of such determination, within sixty (60) days after
the delivery of such notice, each Shareholder, if requested, will execute a
consent to such revocation in the form prescribed by the Internal Revenue
Service or any relevant state tax authority and shall deliver such consent to
the Secretary of the Corporation. If the Corporation's S status is terminated
under this paragraph B., in the event that the Executive Committee so
determines, the Shareholders and the Corporation shall elect, if applicable, to
have Section 1362(e)(2) of the Code not apply, as provided in Section 1362(e)(3)
of the Code. Any person who was a Shareholder at any time during the S short
year (as defined in Section 1362(e)(1)(A) of the Code) or who is a Shareholder
on the first day of the C short year (as defined in Section 1362(e)(1)(B) of the
Code) shall consent to such election.
C. INADVERTENT TERMINATION OF SUBCHAPTER S ELECTION. In the
event of a termination of the Corporation's status as an S corporation other
than pursuant to paragraph B. above, if the Corporation and the Shareholders
remaining after such termination desire that the Corporation's status as an S
corporation be continued, the Corporation and all Shareholders as of and/or
after the terminating event shall use their best efforts to obtain from the
Internal
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Revenue Service a waiver of the terminating event on the ground of inadvertency.
The Corporation and the Shareholders shall take such steps, and make such
adjustments, as may be required by the Internal Revenue Service pursuant to
Section 1362(f)(3) and (4) of the Code. If a Shareholder caused the terminating
event to occur, he or she shall bear the expense of procuring the waiver,
including the legal, accounting and tax costs of taking such steps, and of
making such adjustments as may be required. If the inadvertent termination is
not waived by the Internal Revenue Service and the Corporation's S status is
permanently terminated, in the event that the Executive Committee so determines,
the Corporation and the Shareholders shall make the election under Section
1362(e)(3) of the Code contemplated by paragraph B. above.
D. PROVISION IN SHAREHOLDER WILLS. Each Shareholder shall use
his or her best efforts to include in his or her will a direction and
authorization to his or her executor in substantially the following form:
(a) My Executor is hereby directed and authorized to hold
stock of an S Corporation, as defined in the Code (hereinafter "S Stock"), to
make an election to have any corporation treated as an S Corporation, to enter
into agreements with other shareholders or with the corporation relating to a
transfer (including, without limitation, a sale, assignment, exchange, gift,
donation, mortgage, hypothecation or other encumbrance or other disposition (a
"TRANSFER") of S Stock or the management of the S Corporation, and to allocate
amounts received and the tax on undistributed income between income and
principal. During the administration of my estate, my Executor may allocate the
tax deductions and credits arising from ownership of S Stock between income and
principal. In making any such allocations, my Executor shall consider that the
beneficiary is to have enjoyment of the property at least equal to that
ordinarily associated with an income interest and in all events shall provide
the required beneficial enjoyment to the beneficiary until such time as the S
Stock is distributed to him or her.
(b) Any beneficiary of my estate who receives stock in an S
Corporation as part of his or her distribution shall, prior to such
distribution, enter into a written agreement with said S Corporation (i) to
consent to any election to qualify the S Corporation as such; (ii) to do nothing
to interfere with the S Corporation's maintenance of its status as such; (iii)
not to Transfer the S Stock to any transferee who does not agree to execute a
similar consent; (iv) not to Transfer the S Stock in such manner as will cause
the S Corporation to lose its status as an S Corporation under the then
applicable federal and state income tax statutes and regulations; and (v) if S
status is inadvertently terminated, to join in any endeavor to obtain a waiver
of the terminating event on the grounds of inadvertency from the Internal
Revenue Service if the S Corporation desires that the S status should continue.
(c) Any S Stock distributed to a beneficiary shall bear an
appropriate legend on the stock certificate stating that the Transfer of the
stock is subject to and restricted to the extent set forth in subparagraph (b)
above.
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Notwithstanding the foregoing requirement, the failure of a Shareholder so to
direct his or her executor shall not affect the validity of these Articles of
Incorporation.
E. DISTRIBUTIONS TO PAY TAX LIABILITIES.
(a) For the period during which the Corporation is an S
Corporation (the "S CORP PERIOD"), the Corporation shall promptly declare and
make distributions during the S Corp Period to all Shareholders in a timely
manner to allow the federal income tax (including, without limitation, estimated
tax payments) attributable to the Corporation's taxable income during the S Corp
Period that is passed through the Corporation to the Shareholders to be paid by
such Shareholders when due (each, a "DUE DATE"). To satisfy this requirement,
during the S Corp Period, the Corporation shall pay on or before five (5) days
prior to each Due Date, an amount so that the cumulative amount of distributions
during the S Corp. Period that have been designated by the Corporation as "TAX
DISTRIBUTIONS" are at least equal to the excess of (i) the sum of the products
of (A) the Corporation's positive taxable income (as determined under Section
1366(a) of the Code) attributed to its Shareholders during each of its taxable
periods during the S Corp Period multiplied by (B) the sum of the highest
federal individual income tax rates in effect for each such taxable period
(without regard to exemptions or phase-outs of lower tax rates, but with
consideration of the character of any item and the deductibility of state taxes
for federal income tax purposes), over (ii) the sum of the products of (A) the
Corporation's negative taxable income (as determined under Section 1366(a) of
the Code) attributable to its Shareholders during each of its taxable periods
during the S Corp Period multiplied by (B) the sum of the highest federal
income tax rates in effect for each such taxable period (without regard to
exemptions or phase-outs of lower tax rates, but with consideration of the
character of any item and the deductibility of state taxes for federal income
tax purposes). The Corporation's obligation to declare and make any such
distributions to the Shareholders is subject to the restrictions governing
dividends under the Texas Business Corporation Act and such other pertinent
governmental or contractual restrictions as are now or may hereafter become
effective. If the Corporation does not have sufficient funds available to
permit it lawfully to declare and pay such distributions, the Shareholders
and the Corporation shall take such action, adopt such resolutions, and cause
such certificates and other documents to be filed as may be necessary to
create sufficient funds to permit the making of such distributions, whereupon
the Corporation shall declare and pay such distributions.
(b) No provision of this Article 8 shall cause the total
distributions made with respect to any outstanding shares of stock of the
Corporation to differ from the amounts paid with respect to any other
outstanding shares of stock of the Corporation.
(c) No provision of this Article 8 shall be construed to
limit the ability of the Corporation to declare and make additional
distributions to Shareholders out of the assets of the Corporation legally
available for such payment at such time or times as the Executive Committee may
determine.
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(d) The Corporation's payment of taxes on behalf of any
Shareholder (by means of withholding or otherwise) shall be considered a
distribution for purposes hereof, and the amount of distributions that the
Shareholder is otherwise entitled to hereunder shall be adjusted accordingly
consistent with Regulations Section 1.1361-1(1)(2)(ii).
F. NONRECOGNITION OF CERTAIN TRANSFERS.
(a) The Corporation will not, nor will it be compelled to,
recognize any Transfer, or issue any certificate representing any Stock to any
person who has not delivered to the Corporation (i) a written undertaking to be
bound by the terms and conditions of this Agreement, and (ii) for so long as the
Corporation's status as an S corporation continues, a written consent to the
treatment of the Corporation as an S corporation. The Corporation will not, nor
will it be compelled to, recognize any Transfer, or issue any certificate
representing any Stock to any person or entity the Transfer to whom or to which
in the opinion of the Corporation's counsel could disqualify the Corporation as
an S corporation or disqualify it from eligibility for such status.
(b) The Corporation will not, nor be compelled to,
recognize any Transfer made other than in accordance with the terms of the
Articles of Incorporation, nor will it issue any certificate representing the
Stock to any person who has received such Stock in a Transfer made other than in
accordance with the terms of these Articles of Incorporation.
G. LEGENDS ON SHARE CERTIFICATES. The following legend shall
be imprinted conspicuously on the face of each certificate representing shares
of Stock:
NOTICE IS HEREBY GIVEN THAT THE TRANSFER (INCLUDING, WITHOUT
LIMITATION, THE SALE, ASSIGNMENT, EXCHANGE, GIFT, DONATION, PLEDGE,
MORTGAGE, HYPOTHECATION OR OTHER ENCUMBRANCE OR OTHER DISPOSITION) OF
THE SHARES OF CAPITAL STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO AND RESTRICTED BY THE PROVISIONS OF THE ARTICLES OF INCORPORATION
OF THE CORPORATION, AND ALL OF THE PROVISIONS OF SUCH ARTICLES ARE
INCORPORATED BY REFERENCE IN THIS CERTIFICATE, SPECIFICALLY INCLUDING,
BUT NOT LIMITED TO, THOSE PROVISIONS OF THE ARTICLES RELATING TO THE
CORPORATION'S TAX STATUS AS AN S CORPORATION.
H. ELECTION TO CLOSE BOOKS. The Corporation, in the event the
Executive Committee so determines, shall consent to close the books of the
Corporation pursuant to Section 1377(a)(2) of the Code whenever a Shareholder
sells all of his or her Stock on a day other
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than the last day of the Corporation's fiscal year if all "affected
shareholders" (as defined in Section 1377(a)(2)(B) of the Code) shall consent
thereto.
9. SPECIAL PROVISIONS PERMITTED TO BE SET FORTH IN ARTICLES OF
INCORPORATION:
A. INTERESTED DIRECTORS AND OFFICERS.
(1) If paragraph (2) below is satisfied, no contract or
transaction between the Corporation and any of its directors or officers (or any
other corporation, partnership, association or other organization in which any
of them directly or indirectly have a financial interest) shall be void or
voidable solely because of this relationship or because of the presence or
participation of such director or officer at the meeting of the Board or
committee authorizing such contract or transaction, or because such person's
votes are counted for such purpose.
(2) Paragraph (1) above will apply only if:
(a) The contract or transaction is fair to the
Corporation as of the time it is authorized or ratified by the Board of
Directors, a committee of the Board, or the shareholders; or
(b) The material facts as to the relationship or
interest of each such director or officer as to the contract or transaction are
known or disclosed: (i) to the shareholders entitled to vote thereon and they
nevertheless in good faith authorize or ratify the contract or transaction by a
majority of the shares present, each such interested person to be counted for
quorum and voting purposes; or (ii) to the Board of Directors or the committee,
and the Board or committee nevertheless in good faith authorizes or ratifies the
contract or transaction by a majority of the disinterested directors present,
each such interested director to be counted in determining whether a quorum is
present but not in calculating the majority necessary to carry the vote.
B. LIMITATION OF LIABILITY. No Director of the Corporation
shall be personally liable to the Corporation or its shareholders for monetary
damages for any act or omission in the Director's capacity as a director, except
to the extent otherwise expressly provided by statute of the State of Texas.
Any repeal or modification of this Article shall be prospective only, and shall
not adversely affect any limitation of the personal liability of a Director of
the Corporation existing at the time of the repeal or modification.
C. INDEMNIFICATION. The Corporation shall, to the maximum
extent permitted from time to time under the laws of the State of Texas,
indemnify and upon request shall advance expenses to any person who is or was a
party to any threatened, pending, or completed action, suit, proceeding, or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that he or she is or was or has agreed to be a trustee, director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a trustee,
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director, officer, partner, venturer or proprietor of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees and expenses), judgments, fines, penalties and
amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of any such action, suit, proceeding or claim.
Such indemnification shall not be exclusive of any other indemnification rights
arising under any bylaw, agreement, vote of Directors or shareholders or
otherwise and shall inure to the benefit of the heirs and legal representations
of such person. Any repeal or modification of this Article shall be prospective
only, and shall not adversely affect any rights to indemnification of any such
person existing at the time of the repeal or modification.
D. INSURANCE. The Corporation may purchase and maintain
insurance on any person who is or was a trustee, director or officer of the
Corporation or is or was serving at the request of the Corporation as a trustee,
director, officer, partner, venturer or proprietor of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
incurred by him in any such position arising out of his status as such, whether
or not the Corporation would have the power to indemnify him against such
liability under Article 9.C. above.
E. BYLAWS. The power to alter, amend, repeal, or adopt the
Bylaws is hereby vested in the Board of Directors, subject to repeal or change
by action of the Shareholders.
F. NON-CUMULATIVE VOTING. At each election for Directors,
every shareholder entitled to vote at such election shall have the right to vote
in person or by proxy the number of shares owned by him for as many persons as
there are Directors to be elected for whose election he has a right to vote. No
shareholder shall have the right to cumulate his votes in any election of
Directors.
G. SHAREHOLDER CONSENT. It is hereby provided that, in
accordance with Article 9.10.A of the Texas Business Corporation Act, any action
required to be taken at any annual or special meeting of shareholders, or any
action which may be taken at any annual or special meeting of shareholders, may
be taken without a meeting, without prior notice, and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holder or holders of shares having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which the holders of all shares entitled to vote on the action were present and
voted.
10. FAIR PRICE PROVISION. The stockholder vote required to approve
any Business Combination (as hereinafter defined) shall be as set forth in this
Article 10.
A. (1) Except as otherwise expressly provided in section B. of
this Article 10:
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(i) any merger or consolidation of the corporation
or any Subsidiary (as hereinafter defined) with (a) any Interested Shareholder
(as hereinafter defined) or (b) any other corporation (whether or not itself an
Interested Shareholder) which is, or after such merger of consolidation would
be, an Affiliate (as hereinafter defined) of any Interested Shareholder;
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of transactions)
to or with any Interested Shareholder or any Affiliate of any Interested
Shareholder of all or substantially all of the assets of the corporation or any
Subsidiary;
(iii) the issuance or transfer by the corporation or
any Subsidiary (in one transaction or a series of transactions) of any
securities of the corporation or any Subsidiary to any Interested Shareholder or
any Affiliate of any Interested Shareholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate fair market value
of $2,000,000 or more;
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed by or on behalf of any
Interested Shareholder or any Affiliate of any Interested Shareholder; or
(v) any reclassification of securities (including
any reverse stock split), or recapitalization of the corporation, or any merger
or consolidation of the corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving any Interested
Shareholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the corporation or any Subsidiary which is directly or
indirectly owned by any Interested Shareholder or any Affiliate of any
Interested Shareholder;
shall require the affirmative vote of the holders of at least ninety-five
percent (95%) of all of the then-outstanding shares of the capital stock of the
corporation, voting together as a single class. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required or that a lesser
percentage may be specified by law.
(2) The term "Business Combination" as used in this Article
Ten shall mean any transaction which is referred to in any one or more of
subparagraphs (i) through (v) of paragraph (1) of this section A.
B. The provisions of section A. of this Article Ten shall not
be applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by law or
any other provision of the corporation's Articles of Incorporation or Bylaws if
the conditions specified below are met:
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(1) the "Continuing Directors" (as hereinafter defined) of
the corporation by at least an eighty percent (80%) vote:
(i) have expressly approved in advance the
acquisition of the outstanding shares of capital stock of the corporation that
caused such Interested Person to become an Interested Person, or
(ii) have expressly approved such Business
Combination either in advance of or subsequent to such Interested Person's
having become an Interested Person; or
(2) the cash or fair market value (as determined by at
least a majority of the Continuing Directors) of the property, securities or
"Other Consideration to the Received" (as hereinafter defined) per share paid by
the Interested Person to holders of the capital stock of the corporation in the
Business Combination is not less than the "Fair Price" (as hereinafter defined)
paid by the Interested Person in acquiring any of its holdings of the
corporation's capital stock.
C. For the purposes of this Article 10:
(1) A "person' shall mean any individual, firm, corporation
or other entity.
(2) "Interested Shareholder" shall mean any person (other
than the corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or
indirectly, of more than ten percent (10%) of the shares of any class of the
outstanding capital stock of the corporation;
(ii) is an Affiliate of the corporation and at any
time within the two-year period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of ten percent (10%) or more of
the shares of any class of the outstanding capital stock of the corporation; or
(iii) is an assignee of or has otherwise succeeded to
any shares of any class of the outstanding capital stock of the corporation
which were at any time within the two-year period immediately prior to the date
in question beneficially owned by any Interested Shareholder, if such assignment
or succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
(3) A person shall be a "beneficial owner" of any capital
stock of the corporation:
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(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns, directly or indirectly;
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (b) the right to vote pursuant to
any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of its Affiliates
or Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of such capital stock.
(4) For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph (2) of this section C., the number
of shares of capital stock of the corporation deemed to be outstanding shall
include shares deemed owned through application of paragraph (3) of this section
C. but shall not include any other shares of capital stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(5) "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934.
(6) "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or indirectly, by the
corporation; provided, however, that for the purposes of the definition of
Interested Shareholder set forth in paragraph (2) of this section C., the term
"Subsidiary" shall mean only a corporation of which a majority of each class of
equity security is owned directly or indirectly, by the corporation.
(7) "Continuing Director" means any member of the Board of
Directors of the corporation (the "Board") who is unaffiliated with the
Interested Shareholder and was a member of the Board prior to the time that the
Interested Shareholder became an Interested Shareholder, and any successor of a
Continuing Director who is unaffiliated with the Interested Shareholder and is
recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board.
(8) "Fair Price" shall mean the following: If there is
only one class of capital stock of the corporation issued and outstanding, the
Fair Price shall mean the highest price that can be determined by a majority of
the Continuing Directors to have been paid at any time by the Interested Person
for any share or shares of that class of capital stock. If there is more than
one class of capital stock of the corporation issued and outstanding, the Fair
Price shall mean with respect to each class and series of capital stock of the
corporation, the
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amount determined by a majority of the Continuing Directors to be the highest
per share price equivalent of the highest price that can be determined to have
been paid at any time by the Interested Person for any share or shares of any
class or series of capital stock of the corporation. In determining the Fair
Price, all purchases by the Interested Person shall be taken into account
regardless of whether the shares were purchased before or after the Interested
Person became an Interested Person. Also, the Fair Price shall include any
brokerage commissions, transfer taxes and soliciting dealers' fees paid by the
Interested Person with respect to the shares of capital stock of the corporation
acquired by the Interested Person. In the case of any Business Combination with
an Interested Person, a majority of the Continuing Directors shall determine the
Fair Price for each class and series of the Capital stock of the corporation.
The Fair Price shall also include interest compounded annually from the date an
Interested Person became an Interested Person through the date the Business
Combination is consummated at the rate of seven percent (7%) per annum less the
aggregate amount of any cash dividends paid, and the fair market value of any
dividends paid in other than cash, on each share of capital stock in the same
time period, in an amount up to but not exceeding the amount of interest so
payable per share of capital stock.
(9) "Other Consideration to be Received" shall include,
without limitation, Common Stock or other capital stock of the corporation
retained by its existing stockholders other than Interested Persons or other
parties to such Business Combination in the event of a Business Combination in
which the corporation is the surviving corporation.
D. A majority of the Board of Directors of the corporation
shall have the power and duty to determine, on the basis of information known to
them after reasonable inquiry, whether a person is an Interested Shareholder.
Once the Board has made a determination pursuant to the preceding sentence that
a person is an Interested Shareholder, a majority of the number of Directors
who are Continuing Directors shall have the power and duty to interpret all of
the terms and provisions of this Article Ten, and to determine on the basis of
information known to them after reasonable inquiry all facts necessary to
determine compliance with this Article Ten, including, without limitation, (1)
the number of shares of capital stock of the corporation beneficially owned by
any person, (2) whether a person is an Affiliate or Associate of another, and
(3) whether the applicable conditions set forth in section B. have been met with
respect to any Business Combination.
E. Nothing contained in this Article Ten shall be construed to
relieve any Interested Shareholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of the corporation's
Articles of Incorporation or Bylaws or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holders of any particular class or series of the capital stock of
the corporation required by law, or by the corporation's Articles of
Incorporation or Bylaws, the affirmative vote of the holders of at least
ninety-five percent (95%) of the then-outstanding shares of the capital stock of
the corporation, voting together as a single class, shall be required to alter,
amend or repeal this Article.
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11. REGISTERED OFFICE AND AGENT. The street address of the
Corporation's initial registered office and the name of its initial registered
agent at such address are as follows:
REGISTERED AGENT REGISTERED ADDRESS
Lamar C. Smith 4100 South Hulen Street
Fort Worth, Texas 76109
12. INITIAL DIRECTORS. The number of directors constituting the
initial board of director(s) is four (4), and the names and addresses of the
persons who will serve as directors until the first annual meeting of the
shareholders and until their successors have been elected and qualified are:
NAME ADDRESS
Lamar C. Smith 4100 South Hulen Street
Fort Worth, Texas 76109
James N. Lanier 4100 South Hulen Street
Fort Worth, Texas 76109
Howard M. Crump 4100 South Hulen Street
Fort Worth, Texas 76109
Carroll H. Payne II 4100 South Hulen Street
Fort Worth, Texas 76109
This instrument is dated and signed effective the _____ day of
________, 1998.
FIRST COMMAND FINANCIAL CORPORATION
By:
-----------------------------------------
LAMAR C. SMITH, Chairman of the Board and
Chief Executive Officer
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AS AMENDED ________, 1998
BYLAWS
OF
FIRST COMMAND FINANCIAL CORPORATION
(A TEXAS CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I: OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Sec. 1:1. Registered Office and Agent. . . . . . . . . . . . . . . 1
Sec. 1:2. Other Offices. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II: SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . 1
Sec. 2:1. Place of Meetings. . . . . . . . . . . . . . . . . . . . 1
Sec. 2:2. Annual Meetings. . . . . . . . . . . . . . . . . . . . . 2
Sec. 2:3. Special Meetings . . . . . . . . . . . . . . . . . . . . 2
Sec. 2:4. Notice . . . . . . . . . . . . . . . . . . . . . . . . . 2
Sec. 2:5. Order of Business at Meetings. . . . . . . . . . . . . . 2
Sec. 2:6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 3
Sec. 2:7. Majority Vote; Withdrawal of Quorum. . . . . . . . . . . 3
Sec. 2:8. Method of Voting . . . . . . . . . . . . . . . . . . . . 4
Sec. 2:9. Election of Directors. . . . . . . . . . . . . . . . . . 4
Sec. 2:10. Voting List. . . . . . . . . . . . . . . . . . . . . . . 4
Sec. 2:11. Record Date; Closing Transfer Books. . . . . . . . . . . 5
Sec. 2:12. Action Without Meeting . . . . . . . . . . . . . . . . . 6
ARTICLE III: DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Sec. 3:1. Management . . . . . . . . . . . . . . . . . . . . . . . 6
Sec. 3:2. Place of Meetings. . . . . . . . . . . . . . . . . . . . 7
Sec. 3:3. Regular Meetings; Notice . . . . . . . . . . . . . . . . 7
Sec. 3:4. Special Meetings; Notice . . . . . . . . . . . . . . . . 7
Sec. 3:5. Quorum; Majority Vote. . . . . . . . . . . . . . . . . . 7
Sec. 3:6. Number; Qualification; Election; Term. . . . . . . . . . 8
Sec. 3:7. Removal and Vacancies of Directors . . . . . . . . . . . 9
Sec. 3:8. Advisory Director. . . . . . . . . . . . . . . . . . . . 9
Sec. 3:9. Amendment of this Article III. . . . . . . . . . . . . . 10
Sec. 3:10. Procedure. . . . . . . . . . . . . . . . . . . . . . . . 10
Sec. 3:11. Compensation . . . . . . . . . . . . . . . . . . . . . . 10
Sec. 3:12. Action Without Meeting . . . . . . . . . . . . . . . . . 11
ARTICLE IV: OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Sec. 4:1. Number and Qualification . . . . . . . . . . . . . . . . 11
Sec. 4:2. Term and Compensation. . . . . . . . . . . . . . . . . . 12
Sec. 4:3. Removal; Vacancies . . . . . . . . . . . . . . . . . . . 12
Sec. 4:4. Authority. . . . . . . . . . . . . . . . . . . . . . . . 12
Sec. 4:5. Chairman of the Board. . . . . . . . . . . . . . . . . . 13
Sec. 4:6. President. . . . . . . . . . . . . . . . . . . . . . . . 13
Sec. 4:7. Vice President/Senior or Executive Vice President. . . . 13
</TABLE>
ii
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<TABLE>
<CAPTION>
<S> <C> <C>
Sec. 4:8. Secretary. . . . . . . . . . . . . . . . . . . . . . . . 13
Sec. 4:9. Treasurer. . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V: CERTIFICATES OF STOCK. . . . . . . . . . . . . . . . . . . . . 14
Sec. 5:1. Certificates . . . . . . . . . . . . . . . . . . . . . . 14
Sec. 5:2. Issuance . . . . . . . . . . . . . . . . . . . . . . . . 15
Sec. 5:3. Payment for Shares . . . . . . . . . . . . . . . . . . . 15
Sec. 5:4. No Preemptive Rights . . . . . . . . . . . . . . . . . . 15
Sec. 5:5. Lien . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Sec. 5:6. Lost, Stolen, or Destroyed Certificates. . . . . . . . . 16
Sec. 5:7. Registered Owner . . . . . . . . . . . . . . . . . . . . 16
Sec. 5:8. Registration of Transfer . . . . . . . . . . . . . . . . 17
ARTICLE VI: EXECUTIVE COMMITTEE . . . . . . . . . . . . . . . . . . . . . 17
Sec. 6:1. Designation; Authority; Responsibility . . . . . . . . . 17
Sec. 6:2. Procedure; Removal; Vacancies. . . . . . . . . . . . . . 18
Sec. 6:3. Meetings; Quorum; Majority Vote. . . . . . . . . . . . . 18
Sec. 6:4. Action Without Meeting . . . . . . . . . . . . . . . . . 19
ARTICLE VII: MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . 19
Sec. 7:1. Notice . . . . . . . . . . . . . . . . . . . . . . . . . 19
Sec. 7:2. Fiscal Year and Seal . . . . . . . . . . . . . . . . . . 20
Sec. 7:3. Checks and Notes; Books and Records. . . . . . . . . . . 20
Sec. 7:4. Resignation. . . . . . . . . . . . . . . . . . . . . . . 21
Sec. 7:5. Interested Directors, Officers, Shareholders . . . . . . 21
Sec. 7:6. Limitation of Liability. . . . . . . . . . . . . . . . . 22
Sec. 7:7. Indemnification. . . . . . . . . . . . . . . . . . . . . 22
Sec. 7:8. Dividends and Reserves . . . . . . . . . . . . . . . . . 23
Sec. 7:9. Purchase Own Shares. . . . . . . . . . . . . . . . . . . 23
Sec. 7:10. Annual Statement . . . . . . . . . . . . . . . . . . . . 24
Sec. 7:11. Construction . . . . . . . . . . . . . . . . . . . . . . 24
Sec. 7:12. Amendment of Bylaws. . . . . . . . . . . . . . . . . . . 24
</TABLE>
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BYLAWS
OF
FIRST COMMAND FINANCIAL CORPORATION
(A TEXAS CORPORATION)
ARTICLE I
OFFICES
SEC. 1:1. REGISTERED OFFICE AND AGENT. The registered office of
First Command Financial Corporation (the "Corporation") is 4100 South Hulen,
Fort Worth, Texas 76109.
SEC. 1:2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
SEC. 2:1. PLACE OF MEETINGS. All meetings of the shareholders for
the election of directors are to be held at such time and place, within or
without the State of Texas, as is stated in the notice of the meeting or in a
duly executed waiver of notice thereof. Except as specifically provided by the
Texas Business Corporation Act, only holders of Voting Common Stock shall be
entitled to vote at meetings of the shareholders of the Corporation.
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SEC. 2:2. ANNUAL MEETINGS. An annual meeting of the shareholders
is to be held on the first business day following the 5th of December of each
year unless amended by notice duly given. At the meeting, the shareholders
shall elect directors and transact such other business as may properly be
brought before the meeting.
SEC. 2:3. SPECIAL MEETINGS. Special meetings of the shareholders
for any purpose or purposes, unless otherwise prescribed by statute, by the
Articles of Incorporation, or by these Bylaws, may be called by the President or
the Board of Directors. Business transacted at a special meeting is to be
confined to the objects stated in the notice of meeting.
SEC. 2:4. NOTICE. Written or printed notice stating the place,
day, and hour of the meeting, and in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice will be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid
addressed to the shareholder at such shareholder's address as it appears on the
stock transfer books of the Corporation.
SEC. 2:5. ORDER OF BUSINESS AT MEETINGS. The order of business at
annual meetings and so far as practicable at other meetings of shareholders will
be as follows unless changed by the Board of Directors:
(A) Call to order
(B) Proof of due notice of meeting
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(C) Determination of quorum and examination of proxies
(D) Announcement of distribution of annual statement
(E) Reading and disposing of minutes of last meeting of shareholders
(F) Reports of officers and committees
(G) Unfinished business
(H) New business
(I) Election of directors
(J) Other business
(K) Adjournment
SEC. 2:6. QUORUM. The holders of a majority of the shares entitled
to vote, represented at the meeting in person or by proxy, shall constitute a
quorum at a meeting of shareholders. If a quorum is not represented in person
or by proxy at a meeting of the shareholders, the shareholders entitled to vote
thereat, represented in person or by proxy, may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
represented in person or by proxy. At such adjourned meeting at which a quorum
is represented in person or by proxy, any business may be transacted which might
have been transacted at the meeting as originally notified.
SEC. 2:7. MAJORITY VOTE; WITHDRAWAL OF QUORUM. When a quorum is
present at any meeting, the vote of the holders of a majority of the shares
having voting power, present in person or represented by proxy, will decide any
question brought before such meeting; unless the question is one upon which, by
express provisions of the statutes, of the Articles of Incorporation, or of
these Bylaws, a different vote is required in which case such express provisions
will govern and control the decision of such question. The shareholders present
at a duly organized meeting may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
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SEC. 2:8. METHOD OF VOTING. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the Articles of
Incorporation and except as otherwise provided in the Texas Business Corporation
Act. A shareholder may vote either in person or by proxy executed in writing by
the shareholder or by such shareholder's duly authorized attorney-in-fact. No
proxy will be valid after eleven months from the date of its execution unless
otherwise provided in the proxy. A proxy will be revocable unless expressly
provided therein to be irrevocable and unless otherwise made irrevocable by law.
Each proxy is to be filed with the Secretary of the Corporation prior to or at
the time of the meeting. Any vote may be taken orally or by show of hands
unless someone entitled to vote objects in which case written ballots are to be
used.
SEC. 2:9. ELECTION OF DIRECTORS. Directors are to be elected by
plurality vote. Cumulative voting is not permitted.
SEC. 2:10. VOTING LIST. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least ten (10)
days before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of each and the number of voting shares
held by each, which list, for a period of ten (10) days prior to such meeting,
is to be kept on file at the registered office of the Corporation and is to be
subject to inspection by any shareholder at any time during usual business
hours. Such list
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is to be produced and kept open at the time and place of the meeting and will be
subject to the inspection of any shareholder during the whole time of the
meeting.
SEC. 2:11. RECORD DATE; CLOSING TRANSFER BOOKS. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the Corporation may provide that the
stock transfer books will be closed for a stated period not to exceed sixty
days. If the stock transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books are to be closed for at least ten (10) days immediately preceding such
meeting. In lieu of closing the stock transfer books, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than sixty days and, in case
of a meeting of shareholders, not less than ten (10) days prior to the date on
which the particular action, requiring such determination of shareholders, is to
be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or the determination of shareholders entitled to
receive payment of a dividend, the date on which notice of the meeting is mailed
or the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, will be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided herein, such
determination will apply to any adjournment thereof except when the
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determination has been made through the closing of stock transfer books, and the
stated period of closing has expired.
SEC. 2:12. ACTION WITHOUT MEETING. Any action required by the Texas
Business Corporation Act to be taken at any annual or special meeting of
shareholders, or any action which may be taken at any annual or special meeting
of shareholders, may be taken without a meeting, without prior notice, and
without a vote, if a consent or consents in writing setting forth the actions so
taken, are signed by the holder or holders of shares having not less than the
minimum number of votes that would be necessary to take such action at a meeting
at which the holders of all shares entitled to vote on the action were present
and voting. Further, but subject to the provisions required or permitted for
notice of meetings, the shareholders may participate in and hold a meeting of
such shareholders by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE III
DIRECTORS
SEC. 3:1. MANAGEMENT. The business and affairs of the Corporation
are to be managed by the Board of Directors who may exercise all such powers of
the Corporation and do all such lawful acts and things as are not (by statute or
by the Articles
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of Incorporation or by these Bylaws) directed or required to be exercised by, or
done or reserved to, the shareholders.
SEC. 3:2. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Texas.
SEC. 3:3. REGULAR MEETINGS; NOTICE. Regular meetings of the Board
of Directors are to be held without notice immediately following the annual
meeting of shareholders and at the same place unless (by unanimous consent of
the directors then elected and serving) such time or place shall be changed.
SEC. 3:4. SPECIAL MEETINGS; NOTICE. Special meetings of the Board
of Directors may be called by the President on twenty-four (24) hours notice to
each director, either personally or by mail or telegram. Special meetings shall
be called by the President or Secretary in like manner and on like notice in
response to the written request of any two directors. Neither the business to
be transacted at, nor the purpose of, any special meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting
unless required by these Bylaws. Attendance of a director at a meeting will
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
SEC. 3:5. QUORUM; MAJORITY VOTE. A majority of the number of
directors fixed by these Bylaws shall constitute a quorum for the transaction of
business. The act of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors, unless the
act of a greater number is required by the Articles
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<PAGE>
of Incorporation or these Bylaws. If a quorum is not present at a meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, unless
a quorum is present.
SEC. 3:6. NUMBER; QUALIFICATION; ELECTION; TERM. The Board of
Directors shall consist of not less than three (3) nor more than fifteen (15)
directors. The number of directors may be increased or decreased by the
affirmative vote of the holders of not less than eighty percent (80%) of the
outstanding shares of Voting Common Stock of the corporation at any annual
meeting or at any special meeting called for that purpose, provided, however,
the number of directors shall in no event be less than three (3) nor more than
fifteen (15). The Board shall be divided into three (3) classes, Class I, Class
II, and Class III. The number of directors in each class shall be the whole
number contained in the quotient arrived at by dividing the authorized number of
directors by three and if a fraction is also contained in such quotient, then if
such fraction is one-third (1/3) the extra director shall be a member of Class
III and if the fraction is two-thirds (2/3) one of the directors shall be a
member of Class III and the other shall be a member of Class II. Each director
shall serve for a term ending on the third annual meeting following the annual
meeting at which such director was elected; provided, however, that the
directors first elected to Class I shall serve for a term ending on the annual
meeting next ensuing, the directors first elected to Class II shall serve for a
term ending on the second annual meeting following the meeting at which such
directors were first elected, and the directors first elected to Class III shall
serve a full term as hereinabove provided. The foregoing notwithstanding, each
director shall serve until his successor shall have been duly elected and
qualified unless he shall die,
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resign, become disqualified, disabled or shall otherwise be removed. At each
annual election, the directors chosen to succeed those whose terms then expire
shall be identified as being of the same class as the directors they succeed.
If for any reason the number of directors in the various classes shall not
conform with the formula set forth in the preceding paragraph, the Board of
Directors may redesignate any director into a different class in order that the
balance of directors in such classes shall conform thereto.
SEC. 3:7. REMOVAL AND VACANCIES OF DIRECTORS. Any director of the
Corporation may be removed from the Board, with or without cause, only by a vote
of the holders of not less than eighty percent (80%) of the outstanding shares
of Voting Common Stock entitled to vote thereon. Vacancies in the Board of
Directors by reason of death, resignation, an increase in the number of
directors, removal or other cause shall be filled by the vote of a majority of
the remaining directors although less than a quorum. A director so selected by
the remaining directors to fill a vacancy shall serve for the unexpired term of
and in the same class as the director whose position is vacated, unless the
person is selected to fill a vacancy created by an increase in the number of
directors, in which event the remaining directors shall fill such vacancy
consistent with the formula for classes of directors set forth in Section 3:6
above.
SEC. 3:8. ADVISORY DIRECTOR. The Board of Directors may appoint such
number of advisory directors as it shall from time to time determine. Each
advisory director appointed shall hold office for the term for which he is
elected or until his earlier death, resignation, retirement or removal by the
Board of Directors. The advisory directors may attend and be present at the
meetings of the Board of Directors, although a meeting of the
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Board of Directors may be held without notice to the advisory directors and the
advisory directors shall not be considered in determining whether a quorum of
the Board of Directors is present. The advisory directors shall advise and
counsel the Board of Directors on the business and operations of the Corporation
as requested by the Board of Directors; however, the advisory directors shall
not be entitled to vote on any matter presented to the Board of Directors.
SEC. 3:9. AMENDMENT OF THIS ARTICLE III. Notwithstanding the
provisions of Section 7:12 of these Bylaws with respect to amendment of the
Bylaws, Article III of the Bylaws of the Corporation relating to a Classified
Board, may not be amended, altered, changed or repealed in any respect unless
such action is approved by the affirmative vote of the holders of not less than
eighty percent (80%) of the outstanding shares of Voting Common Stock.
SEC. 3:10. PROCEDURE. The Board of Directors shall keep regular
minutes of its proceedings. The minutes are to be placed in the minute book of
the Corporation.
SEC. 3:11. COMPENSATION. By resolution of the Board of Directors,
the directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as a director. No such
payment will preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of the executive
committee or of special or standing committees may, by resolution of the Board
of Directors, be allowed like compensation for attending committee meetings.
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SEC. 3:12. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Articles of Incorporation or these Bylaws, any action required or permitted
to be taken at a meeting of the Board of Directors may be taken without a
meeting if a consent in writing, setting forth the action so taken, is signed by
all the members of the Board of Directors. Such consent will have the same
force and effect as a unanimous vote at a meeting. Any such signed consent, or
a signed copy thereof, is to be placed in the minute book of the Corporation.
Further, but subject to the provisions required or permitted for notice of
meetings, the directors may participate in and hold a meeting of such directors
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision will constitute presence
in person at such meeting except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE IV
OFFICERS
SEC. 4:1. NUMBER AND QUALIFICATION. The officers of the
Corporation shall consist of a Chairman of the Board, Chief Executive Officer,
President, a Secretary, and a Treasurer, each of whom shall be elected by the
Board of Directors on the expiration of an officer's term or whenever a vacancy
exists. The Corporation may also have such other officers (including
Vice-Presidents, Assistant Secretaries and Assistant Treasurers) and assistant
officers and agents as the Board of Directors may deem necessary, each of whom
may be elected by the Board at any meeting. Any two or more offices may be held
by the
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same person. No officer shall execute, acknowledge, verify or countersign any
instrument on behalf of the Corporation in more than one capacity, if such
instrument is required by law, by these Bylaws, or by any act of the Corporation
to be executed, acknowledged, verified or countersigned by two or more officers.
No officer or agent need be a director, and no officer or agent need be a
shareholder, or a resident of the State of Texas.
SEC. 4:2. TERM AND COMPENSATION. Unless otherwise specified by the
Board at the time of election or appointment or in an employment contract
approved by the Board, each officer's and agent's term is to end at the first
meeting of directors held after the next annual meeting of the shareholders.
Such officer or agent shall serve until the end of such person's term or, if
earlier, such person's death, resignation, or removal. The compensation of
officers and agents is to be fixed from time to time by the Board of Directors.
SEC. 4:3. REMOVAL; VACANCIES. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board of Directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal will be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
will not of itself create contract rights. Any vacancy occurring in any office
of the Corporation (by death, resignation, removal, or otherwise) may be filled
by the Board of Directors.
SEC. 4:4. AUTHORITY. All officers and agents of the Corporation,
as between themselves and the Corporation, will have such authority and perform
such duties
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in the management of the Corporation as may be provided in these Bylaws or as
may be determined by resolution of the Board of Directors not inconsistent with
these Bylaws.
SEC. 4:5. CHAIRMAN OF THE BOARD. The Board of Directors may elect a
Chairman of the Board. The Chairman of the Board shall preside at all meetings
of the directors and shareholders. When designated as such by the Board, the
Chairman of the Board shall be the Corporation's Chief Executive Officer.
SEC. 4:6. PRESIDENT. The President shall have general charge over
the affairs of the Corporation. When the Chairman of the Board is designated as
Chief Executive Officer, the President shall be subject to the direction of the
Chairman of the Board. If the Chairman is not designated as Chief Executive
Officer, then the President shall be Chief Executive Officer, subject only to
the direction of the Board of Directors. The President shall, in any case, be
the Chief Operating Officer of the Corporation.
SEC. 4:7. VICE PRESIDENT/SENIOR OR EXECUTIVE VICE PRESIDENT. Each
Vice President shall perform such duties as may be assigned to him by the
Chairman or the President. A Senior or Executive Vice President may be
designated as such based upon tenure or responsibility.
SEC. 4:8. SECRETARY. The Secretary shall be ex-officio Secretary
of the Board of Directors, shall give or cause to be given all required meeting
notices to the shareholders and directors, shall record all proceedings of the
meetings of the shareholders and directors in a book to be kept for that
purpose; and shall perform such other duties as may be assigned to him by the
Board of Directors; he shall have custody of the seal of the Corporation and
shall affix the same to any instrument when duly authorized to do so and
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attest the same, and he shall be sworn to the faithful discharge of his duties.
This office may be combined with the office of Treasurer.
SEC. 4:9. TREASURER. The Treasurer shall keep account of all
monies of the Corporation received or disbursed, and shall deposit all monies
and valuables in the name and to the credit of the Corporation in such banks and
depositories as the Board of Directors shall designate. This office may be
combined with any other office of the Corporation.
ARTICLE V
CERTIFICATES OF STOCK
SEC. 5:1. CERTIFICATES. The Corporation shall deliver certificates
representing all shares to which shareholders are entitled; and such
certificates shall be signed by the President and by the Secretary, or such
other officers as the Directors of the Corporation may prescribe, and may be
sealed with the seal of the Corporation or a facsimile thereof. The signatures
of such officer or officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar,
either of which is other than the Corporation itself or an employee of the
Corporation. In case any officer who has signed or whose facsimile signature
has been placed upon such certificate ceases to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer at the date of its issuance. Each
certificate representing shares is to state upon the face thereof: (A) that the
Corporation is organized under the laws of the State of Texas; (B) the name of
the person to whom issued; (C) the number and class of shares and the
designation of the
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series, if any, which such certificate represents; and (D) the par value of each
share represented by such certificate or a statement that the shares are without
par value.
SEC. 5:2. ISSUANCE. Shares (both treasury and authorized but
unissued) may be issued for such consideration (not less than par value) and to
such persons as the Board of Directors may from time to time determine. Shares
may not be issued until the full amount of the consideration, fixed as provided
by law, has been paid.
SEC. 5:3. PAYMENT FOR SHARES. The consideration paid for the
issuance of shares is to consist of any tangible or intangible benefit to the
Corporation, including cash, promissory notes, services performed, contracts for
services to be performed, or property (tangible or intangible) actually
received. In the absence of fraud in the transaction, the judgment of the Board
of Directors as to the value of the consideration received for shares will be
conclusive. When such consideration has been paid to the Corporation, the
shares will be deemed to have been issued, the shareholder entitled to receive
such issue will be a shareholder with respect to such shares, and the shares
will be considered fully paid and nonassessable. The consideration received for
shares will be allocated by the Board of Directors in accordance with law
between stated capital and capital surplus accounts.
SEC. 5:4. NO PREEMPTIVE RIGHTS. No shareholder or other person may
have any preemptive rights whatsoever to acquire additional, unissued, or
treasury shares of the Corporation, or securities of the Corporation convertible
into or carrying a right to subscribe to or acquire shares, or any other
securities or property whatsoever.
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SEC. 5:5. LIEN. For any indebtedness of a shareholder to the
Corporation, the Corporation will have a first and prior lien on all shares of
its stock owned by such shareholder and on all dividends or other distributions
declared thereon.
SEC. 5:6. LOST, STOLEN, OR DESTROYED CERTIFICATES. The Corporation
shall issue a new certificate in place of any certificate for shares previously
issued if the registered owner of the certificate: (A) makes proof in affidavit
form that it has been lost, destroyed, or wrongfully taken; (B) requests the
issuance of a new certificate before the Corporation has notice that the
certificate has been acquired by a purchaser for value in good faith and without
notice of an adverse claim; (C) gives a bond in such form, and with such surety
or sureties, with fixed or open penalty as the Corporation may direct, to
indemnify the Corporation (and its transfer agent and registrar, if any) against
any claim that may be made on account of the alleged loss, destruction, or theft
of the certificate; and (D) satisfies any other reasonable requirements imposed
by the Corporation. When a certificate has been lost, apparently destroyed, or
wrongfully taken, and the holder of record fails to notify the Corporation
within a reasonable time after such holder has notice of it, and the Corporation
registers a transfer of the shares represented by the certificate before
receiving such notification, the holder of record is precluded from making any
claim against the Corporation for the transfer or for a new certificate.
SEC. 5:7. REGISTERED OWNER. Prior to due presentment for
registration of transfer of a certificate for shares, the Corporation may treat
the registered owner as the person exclusively entitled to vote, to receive
notices, and otherwise to exercise all the rights and powers of a shareholder.
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SEC. 5:8. REGISTRATION OF TRANSFER. The Corporation shall register
the transfer of a certificate for shares presented to it for transfer if: (A)
the certificate is properly endorsed by the registered owner or by such owner's
duly authorized attorney; (B) the signature of such person has been guaranteed
by a national banking association or member of a national stock exchange, and
reasonable assurance is given that such endorsements are effective; (C) the
Corporation has no notice of an adverse claim or has discharged any duty to
inquire into such a claim; and (D) any applicable law relating to the collection
of taxes has been complied with.
ARTICLE VI
EXECUTIVE COMMITTEE
SEC. 6:1. DESIGNATION; AUTHORITY; RESPONSIBILITY. The Board of
Directors may, by resolution adopted by a majority of the full Board of
Directors fixed by the Bylaws, designate from among its members an executive
committee and one or more other committees, each of which shall be comprised of
one or more members and, to the extent provided in such resolution will have and
may exercise all of the authority of the Board of Directors, except that no such
committee may have the authority of the Board of Directors to amend the Articles
of Incorporation, approve a plan of merger or consolidation, recommend to the
shareholders the sale, lease, or exchange of all or substantially all of the
property and assets of the Corporation otherwise than in the usual and regular
course of its business, recommend to the shareholders a voluntary dissolution of
the Corporation or a revocation thereof, amend, alter, or repeal the Bylaws of
the Corporation or adopt new Bylaws for the Corporation, fill vacancies in or
remove members of the Board of Directors
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of any such committee, fix the compensation of any member of such committee, or
alter or repeal any resolution of the Board of Directors which by its terms
provides that it is not so amendable or repealable; and, unless such resolution,
the Articles of Incorporation, or these Bylaws of the Corporation expressly so
provide, no such committee may declare a dividend or authorize the issuance of
shares of the Corporation. The designation of such committee and the delegation
thereto of authority will not operate to relieve the Board of Directors or any
member thereof of any responsibility imposed by law.
SEC. 6:2. PROCEDURE; REMOVAL; VACANCIES. The executive committee
shall keep regular minutes of its proceedings and report the same to the Board
of Directors when required. The minutes of the proceedings of the executive
committee are to be placed in the minute book of the Corporation. Any member of
the executive committee elected or appointed by the Board of Directors may be
removed by the Board of Directors whenever in its judgment the best interests of
the Corporation will be served thereby. A vacancy occurring in the executive
committee (by death, resignation, removal, or otherwise) may be filled by the
Board of Directors in the manner provided above for original designation.
SEC. 6:3. MEETINGS; QUORUM; MAJORITY VOTE. The time, place, and
notice (if any) of executive committee meetings shall be determined by the
executive committee. At meetings of the executive committee, a majority of the
number of members designated by the Board of Directors will constitute a quorum
for the transaction of business. The act of a majority of the members present
at any meeting at which a quorum is present will be the act of the executive
committee except as otherwise specifically provided by statute or by the
Articles of Incorporation or by these Bylaws. If a quorum is not present at a
meeting
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of the executive committee, the members present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum is present.
SEC. 6:4. ACTION WITHOUT MEETING. Any action required or permitted
to be taken at a meeting of the executive committee may be taken without a
meeting if a consent in writing, setting forth the action so taken, is signed by
all the members of the executive committee. Any such signed consent, or a
signed copy thereof, is to be placed in the minute book of the Corporation.
Further, but subject to the provisions required or permitted for notice of
meetings, the members of the executive committee may participate in and hold a
meeting of such members of the executive committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this provision will constitute presence in person at such meeting
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SEC. 7:1. NOTICE. Whenever by statute, the Articles of
Incorporation, or these Bylaws notice is required to be given to a director or
shareholder, and no provision is made as to how the notice is to be given, it is
not to be construed to mean personal notice, but any notice may be given (A) in
writing, by mail, sufficient postage prepaid, addressed to the director or
shareholder at the address appearing on the books of the
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Corporation, or (B) in any other method permitted by law. Any notice required
or permitted to be given by mail will be deemed given at the time when the same
is deposited in the United States mail. Whenever any notice is required to be
given to a shareholder or director of the Corporation under the provisions of
the Texas Business Corporation Act or under the provisions of the Articles of
Incorporation or these Bylaws, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, will be equivalent to the giving of such notice.
SEC. 7:2. FISCAL YEAR AND SEAL. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors. The corporate seal (of
which there may be one or more exemplars) shall contain the name of the
Corporation and the name of the state of incorporation. The seal may be used by
impressing it or reproducing a facsimile of it or otherwise.
SEC. 7:3. CHECKS AND NOTES; BOOKS AND RECORDS. All checks or
demands for money and notes of the Corporation are to be signed by such officer
or officers or such other person or persons as the Board of Directors may from
time to time designate. The Corporation shall keep correct and complete books
and records of account, shall keep minutes of the proceedings of its
shareholders and Board of Directors, and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders giving the names and addresses of all
shareholders and the number and class of the shares held by each. Any books,
records, and minutes may be in written form or in any other form capable of
being converted into written form within a reasonable time.
20
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SEC. 7:4. RESIGNATION. Any director, officer, or agent may resign
by giving written notice to the President or the Secretary. Any such
resignation will become effective at the time specified therein or immediately
if no time is specified therein. Unless otherwise so specified, the acceptance
of such resignation will not be necessary to make it effective.
SEC. 7:5. INTERESTED DIRECTORS, OFFICERS, SHAREHOLDERS.
(A) If paragraph (B) below is satisfied, no contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other Corporation, partnership,
association or other organization in which one or more of the Corporation's
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for this reason, solely because the director or
officer is present at or participates in the meeting of the Board of Directors
or committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose.
(B) Paragraph (A) above will apply only if:
(1) The contract or transaction is fair to the
Corporation as of the time it is authorized, approved, or ratified by the Board
of Directors, a committee of the board, or the shareholders; or
(2) The material facts as to the relationship or
interest of the director or officer and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
or committee in good faith authorizes
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the contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(3) The material facts as to the relationship or
interest of the director or officer and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by a vote of the
shareholders.
(C) For purposes of paragraphs (A) and (B) above, common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
SEC. 7:6. LIMITATION OF LIABILITY. No Director of the Corporation
shall be personally liable to the Corporation or its shareholders for monetary
damages for any act or omission in the Director's capacity as a director, except
to the extent otherwise expressly provided by statute of the State of Texas.
Any repeal or modification of this Article shall be prospective only, and shall
not adversely affect any limitation of the personal liability of a Director of
the Corporation existing at the time of the repeal or modification.
SEC. 7:7. INDEMNIFICATION. The Corporation shall, to the maximum
extent permitted from time to time under the laws of the State of Texas,
indemnify and upon request shall advance expenses to any person who is or was a
party to any threatened, pending, or completed action, suit, proceeding, or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that he or she is or was or has agreed to be a trustee, director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a trustee, director, officer, partner, venturer or proprietor of
another
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corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees and expenses), judgments, fines, penalties
and amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of any such action, suit, proceeding or claim.
Such indemnification shall not be exclusive of any other indemnification rights
arising under any bylaw,
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agreement, vote of Directors or shareholders or otherwise and shall inure to
the benefit of the heirs and legal representations of such person. Any
repeal or modification of this Section shall be prospective only, and shall
not adversely affect any rights to indemnification of any such person
existing at the time of the repeal or modification.
SEC. 7:8. DIVIDENDS AND RESERVES. Subject to statute and the
Articles of Incorporation, dividends may be declared by the Board of
Directors at any regular or special meeting and may be paid in cash, in
property, or in shares of the Corporation. The declaration and payment will
be at the discretion of the Board of Directors. By resolution the Board of
Directors may create such reserve or reserves out of the earned surplus of
the Corporation as the directors from time to time in their discretion think
proper to provide for contingencies, to equalize dividends, to repair or
maintain any property of the Corporation, or for any other purpose they
believe to be beneficial to the Corporation. The directors may modify or
abolish any such reserve in the manner in which it was created.
SEC. 7:9. PURCHASE OWN SHARES. The Corporation may, directly or
indirectly, purchase its own shares to the extent of the aggregate of
unrestricted capital surplus available therefor and unrestricted reduction
surplus available therefor.
24
<PAGE>
SEC. 7:10. ANNUAL STATEMENT. At least ten (10) days before each
annual meeting, the Board of Directors shall mail to each shareholder of record
a full and clear statement of the business and condition of the Corporation
including a reasonably detailed balance sheet, income statement, and surplus
statement, all prepared in conformity with generally accepted accounting
principles applied on a consistent basis.
SEC. 7:11. CONSTRUCTION. Whenever the context so requires, the
masculine will include the feminine and neuter, and the singular will include
the plural, and conversely. If any portion of these Bylaws is determined
invalid or inoperative, then, so far as is reasonable and possible, the
remainder of these Bylaws is to be considered valid and operative, and effect is
to be given to the intent manifested by the portion held invalid or inoperative.
The table of contents and headings used in these Bylaws have been inserted for
convenience only and do not constitute matters to be construed in
interpretation.
SEC. 7:12. AMENDMENT OF BYLAWS. These Bylaws may be altered,
amended, or repealed at any meeting of the Board of Directors at which a quorum
is present by the affirmative vote of a majority of the directors present at
such meeting, provided notice of the proposed alteration, amendment, or repeal
is contained in the notice of such meeting.
- END OF BYLAWS -
25
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I, the undersigned, being the Secretary of the Corporation DO HEREBY
CERTIFY THAT the foregoing, consisting of 25 pages total, are the Bylaws of
First Command Financial Corporation, as adopted by the unanimous written consent
of the Board of Directors of said Corporation effective April 3, 1998, and as
amended by the unanimous written consent of the Board of Directors of said
Corporation effective _____________, 1998.
-----------------------------------
Robert F. Watson, Secretary
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ANNEX F
TAX OPINION OF ERNST & YOUNG LLP
F-1
<PAGE>
e r Mergers & Acquisitions r Southwest Area/Dallas
July 6, 1998
Board of Directors
Independent Research Agency for Life Insurance, Inc.
USPA & IRA Building
4100 South Hulen Street
P.O. Box 2387
Fort Worth, TX 76113
Gentlemen:
Pursuant to your request, we submit this memorandum setting forth our opinion
with respect to certain U.S. federal income tax consequences that should
arise from the (i) proposed merger (the "Proposed Merger") of Independent
Research Agency for Life Insurance, Inc. ("IRA") with and into First Command
Financial Corporation ("First Command") pursuant to the Agreement and Plan of
Merger, dated July 1, 1998, and (ii) implementation by IRA prior to and
separate from Proposed Merger, of the proposed deferred compensation plan, as
described below.
In rendering the opinions expressed below, we have relied upon the completeness,
truth and accuracy, at all relevant times, of the following documents
(collectively, the "Documents"):
1. The Agreement and Plan of Merger, dated July 1, 1998, by and between IRA
and First Command;
2. The Preliminary Proxy Statement, dated July 6, 1998, to be furnished to the
shareholders of IRA in connection with the special meeting of shareholders;
3. The Statement of Facts and Representations, dated July 1, 1998, issued by
authorized representatives of IRA and First Command to Ernst & Young LLP;
4. Form of Shareholders' Agreement;
5. Form of Restated Articles of Incorporation, as proposed to be amended;
6. The Mission Accomplishment Plan for a Select Group of Management of
Independent Research Agency for Life Insurance, Inc., the Mission
Accomplishment Plan for Agents of Independent Research Agency for Life
Insurance, Inc., the Mission Accomplishment Plan for a Select Group of
Highly Compensated Employees of Independent Research Agency for Life
Insurance, Inc., and the Mission Accomplishment Plan for a Select Group of
Key Employees of Independent Research Agency for Life Insurance, Inc.
(collectively, the "MAP");
7. The IRA MAP Board Grant Declaration and Administrative Policies; and
<PAGE>
Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 2
8. The MAP Award Agreement entered into by and between participating
individuals and IRA, and the accompanying MAP Certificate and Plan Summary.
Additionally, in rendering the opinions expressed below, you have represented to
us and we are relying upon, without any independent investigation or review
thereof, that the following are true:
1. The authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as
copies, and the authenticity of the originals of such documents; and
2. The genuineness of all signatures, the due authorization, execution, and
delivery of all relevant documents by all parties thereto, and the due
authority of all persons executing such documents.
Authorized representatives of IRA and First Command have represented to us that
the Documents provide a complete and accurate description of the facts and
circumstances surrounding the Proposed Merger. We have made no independent
investigation of such facts and circumstances, and any change or modification to
such facts and circumstances or to the Documents may materially affect the
opinions expressed herein.
STATEMENT OF BUSINESS PURPOSE
Authorized representatives of IRA and First Command have represented to us that
the primary business purpose for the Proposed Merger is to de-register the Class
B stock under the Securities Exchange Act of 1934 (the "Exchange Act"), which
will allow IRA to avoid the reporting requirements of the Exchange Act. IRA
currently incurs significant costs related to its status as a public reporting
corporation under the federal securities laws, including indirect costs arising
from, among other things, the time and effort expended by executives of the
company preparing and reviewing public filings, furnishing information to
shareholders, and attending to various other shareholder matters. IRA
anticipates that the termination of its registration under the Exchange Act will
eliminate such significant costs and expenses (both direct and indirect) arising
from various regulatory and reporting requirements imposed by federal securities
laws.
An additional business purpose for the Proposed Merger is to achieve
administrative simplicity and reduce the compliance responsibilities that
would be present if both IRA and First Command operated as separate S
corporations going forward.
<PAGE>
Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 3
STATEMENT OF FACTS AS REPRESENTED BY IRA
BACKGROUND
IRA, a Texas corporation, was formed in December, 1980, as a Texas insurance
agency. IRA began operations in March, 1981, upon the receipt of all the assets
and liabilities of Independent Research Agency for Life Insurance, a Texas
general partnership. Included in the transfer of the assets and liabilities
from the general partnership to IRA was all the outstanding stock of Independent
Research Agency for Life Insurance, Inc., a Hawaii corporation.
In March, 1981, IRA acquired all the outstanding stock of United States Planning
Association, Inc. ("USPA"), a Texas corporation. IRA subsequently organized
several operating subsidiaries which currently operate in Wyoming, Montana, New
York, Nevada, and Alabama. All IRA subsidiaries (the "IRA Subsidiaries") except
USPA and First Command Bank ("FCB") were formed and are being maintained to
permit IRA to do business in those states in which the entities are registered
to do business. Neither IRA nor any IRA Subsidiary is, or at any relevant time
has been, a life insurance company within the meaning of Treas. Reg. Section
1.801-3.
IRA and the IRA Subsidiaries (excluding USPA and FCB) are engaged in the sale of
insurance products to United States active duty and former commissioned, warrant
and noncommissioned military personnel. IRA and the IRA Subsidiaries (excluding
USPA and FCB) conduct their business through independent contractors (typically
referred to as "agents") located in approximately 149 cities throughout the
United States, in one U.S. territory, and in three foreign countries. All IRA
Subsidiaries are, and at all relevant times have been, wholly-owned by IRA.
USPA acts as a broker/dealer of several widely-owned mutual funds pursuant to
written agreements with certain investment companies. Such agreements give USPA
the non-exclusive right to sell shares of such mutual funds through USPA agents
and/or the agents of IRA. USPA is, and its selling agents are, registered with
the Securities and Exchange Commission ("SEC") and the National Association of
Securities Dealers, Inc.
In November of 1996, IRA received approval from the Office of Thrift Supervision
to organize and operate a federal savings bank. In March of 1997, IRA formed
FCB as a wholly-owned first-tier subsidiary. FCB commenced banking operations
on April 21, 1997. FCB makes commercial and consumer loans and receives
deposits primarily from clients of IRA and the IRA Subsidiaries. FCB is a bank
as defined in Section 581 of the Internal Revenue Code of 1986, as amended (the
"IRC").
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Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 4
IRA and the IRA Subsidiaries share common employees, sales agents and
representatives, and office facilities. The home offices of IRA and the IRA
Subsidiaries are located in Fort Worth, Texas.
STOCKHOLDER'S EQUITY
IRA has, and at all relevant times has had, two classes of common stock
outstanding - Class A and Class B. IRA does not currently have, nor at any
relevant time has it had, any preferred stock issued and outstanding. IRA does
not currently have, nor at any relevant time has it had, any outstanding
options, warrants, or convertible debt instruments.
Class A common stock is VOTING common stock. There are currently 25 shares of
Class A voting common stock issued and outstanding, all of which are owned by 14
individuals. Carroll Payne, II, the son of IRA's founder, and persons related
to Carroll Payne, II own 12 shares (48% of the vote and value) of the Class A
common stock.(1) Members of the Board of Directors of IRA (unrelated to Carroll
Payne, II) own 10 shares (40% of the vote and value) of the Class A common
stock. The remaining three shares are owned by other unrelated individuals.
All owners of Class A common stock have owned their respective shares for at
least two years except one Class A shareholder who purchased her one share of
Class A stock in December of 1997 from a retiring Class A shareholder, and one
Class A shareholder who purchased his one share of Class A stock in March of
1998. As of June 15, 1998, the individuals owning Class A common stock also own
approximately 38% of the Class B common stock.
The Class B common stock is NONVOTING common stock. As of September 30, 1997,
there were approximately 1,053,357 shares of Class B common stock issued and
outstanding, which were owned by approximately 549 individuals. The Class B
shares are registered with the SEC pursuant to Section 12(g) of the Exchange
Act. A majority of the Class B shareholders are independent insurance agents
through which IRA sells its products. IRA has historically paid a substantial
portion of its annual operating profits to its stockholders in the form of an
annual dividend. Substantially all the owners of Class B common stock have
owned their respective shares for at least two years.
All shares of issued and outstanding IRA common stock are subject to varying
degrees of limited transferability, and, according to IRA legal counsel, cannot
be owned by persons other than insurance agents licensed in the State of Texas.
The stock owned by the Payne family members described in footnote 1, supra (the
"Payne Family Members"), are subject to a stock agreement, dated March 22, 1983
(the
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(1) Carroll Payne, II currently owns three shares of the Class A common stock.
Naomi Payne and Debra Payne, Carroll's sisters, each own three shares of the
Class A common stock, and Freda Payne, Carroll's stepmother, owns an additional
three shares of such stock.
<PAGE>
Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 5
"Payne Family Stock Agreement"), between such family members and IRA that
provides (among other things) that in the event a Payne Family Member desires to
sell or otherwise dispose of all or any portion of his or her Class A common
stock, or in the event of the death of a Payne Family Member, the other Payne
Family Members shall have the option to purchase such shares, on a proportionate
basis, for a period of sixty (60) days. If the other Payne Family Members
choose not to exercise their right of first refusal with respect to the Class A
stock, the Payne Family Stock Agreement provides that IRA shall purchase such
stock. With respect to the Class B stock, the Payne Family Stock Agreement
provides that, in the event a Payne Family Member desires to sell any Class B
common stock, IRA has a right of first refusal with respect to such stock and if
it fails to exercise such right, the person to whom Class B common stock is
offered must be a properly licensed insurance agent under contract with IRA and
must execute a stock agreement with IRA limiting his or her ownership and
transferability rights.
The owners of Class A common stock who are not Payne Family Members are subject
to a stock agreement (the "Class A Stock Agreement") pursuant to which (among
other things) IRA has the right to acquire the Class A stock within a period of
ninety (90) days in the event the shareholder (i) fails to continue as a
licensed insurance agent, (ii) ceases to be a duly authorized agent of IRA,
(iii) dies, or (iv) desires to sell his or her shares. The terms of the Class A
Stock Agreement provide that IRA, in its sole discretion, shall annually
determine the price at which IRA will repurchase any Class A shares.
The owners of Class B common stock who are not Payne Family Members are subject
to a stock agreement (the "Class B Stock Agreement") pursuant to which the Class
B stock will be repurchased by IRA, within ninety (90) days, if the shareholder
(i) fails to continue as a licensed insurance agent, (ii) ceases to be a duly
authorized agent of IRA, (iii) dies, or (iv) desires to sell or dispose of his
or her shares. The terms of the Class B Stock Agreement provide that IRA, in
its sole discretion, shall annually determine the price at which IRA will
repurchase any Class B shares.(2)
SAR AND DER PLAN
On June 27, 1998, IRA's Board of Directors approved and adopted the MAP. The
primary purpose of the MAP is to provide agents and a select group of key
employees and independent contractors of IRA (and its affiliates) an opportunity
to participate in the success of IRA. Under the MAP, IRA will award "stock
appreciation rights" ("SARs") along with "dividend equivalent rights" ("DERs")
to agents and employees for services rendered. A SAR is the right to
participate in the undistributed earnings of IRA.
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(2) The Class B common stock has an expected redemption price as of September
30, 1998, as determined by the Board of Directors in accordance with the
Class B Stock Agreement, of $28.24 per share. The Class A common stock has
an expected redemption price as of September 30, 1998, as determined by the
Board of Directors in accordance with the Class A Stock Agreement, of five
times that of the Class B stock.
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Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 6
A DER is the right to participate when the Board of Directors declares a
dividend equivalent based upon the earnings of IRA. The number of SAR/DER units
that are awarded will vary from time to time as determined by IRA in its sole
discretion. Participation in the MAP is limited to agents, a select group of
management employees, and certain other key employees of IRA ("Participants") as
determined from time to time by the Board of Directors in its sole discretion
for services rendered.
There are two types of MAP awards: (1) a SAR which increases in value as
determined by IRA, and (2) a DER that participates in an annual cash dividend
equivalent declared by the Board. The Board will grant a Participant one or
more MAP Units for services rendered, each of which refers collectively to a
single SAR unit and a single DER unit. IRA will determine annually the number
of MAP Units to grant based on IRA's Future Incentive Commission needs, Profit
Sharing Plan needs, and other factors. The value of each SAR will be
established no less frequently than annually.
At the end of the exercise period or following separation of service, SAR
holders are entitled to exercise their rights to receive a cash payment equal to
the difference between (1) the per SAR unit value determined by IRA as of the
last day of the calendar quarter during which the participant provides the Plan
Administrator with a written request for a cash payment on an approved form,
less (2) the per SAR unit value as of the date of grant. A DER unit is
exercised when the Board declares a cash dividend equivalent to be paid before
the end of the plan year.
SARs and DERs may not be transferred, pledged, assigned, or otherwise encumbered
in any manner except as specified in the MAP Agreement. There will be no
separate account, fund, trust, insurance policy, or other source of funding
related to the grant of SARs or DERs under the MAP. Payment of SAR awards will
be made in cash from the general assets of IRA. IRA may maintain and transfer
property to satisfy obligations arising under a DER. The Board, in its sole and
absolute discretion, has the power to interpret and administer the MAP
including, but not limited to, setting MAP policy, determining award amounts,
and determining valuation methods.
FIRST COMMAND FINANCIAL CORPORATION
IRA currently owns land adjacent to its current headquarters on which IRA
intended to construct a parking garage (the "Facilities"). In April, 1998, Lamar
Smith, Jim Lanier, Howard Crump and Carroll Payne, II formed First Command with
the intention that First Command would construct the Facilities.(3) In June of
1998, Carroll Payne gifted 25 shares of First Command stock to Freda Payne. It
was anticipated that First Command would rent parking spaces to current and
future tenants leasing space in IRA's building, and that
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(3) The individuals who formed First Command were (and are) members of the
Executive Committee of IRA and currently hold both Class A and Class B common
stock of IRA.
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Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 7
the remaining parking spaces would be rented to IRA employees. The Board of
Directors of IRA believed it prudent (and continue to believe it prudent) to
utilize a separate legal entity to design, construct and operate the Facilities
in an effort to minimize IRA's legal liability risk with respect to such
activities.
First Command currently employs two full-time employees, has its own officers
and directors separate and distinct from IRA,(4) and, according to First Command
legal counsel, has complied with all corporate formalities necessary to be
respected as a separate legal entity for Texas law purposes. Authorized
representatives of First Command have entered into executory legal contracts for
the design and construction of the Facilities, and have executed a 99-year
ground lease with IRA with respect to the property upon which the Facilities
will be constructed. Construction of the Facilities began on June 20, 1998.
First Command anticipates hiring additional employees in the near future as
construction of the Facilities progresses and operations expand.
First Command has made a timely election under IRC Section 1362 to be treated as
an S corporation for federal income tax purposes.
PROPOSED ACTION STEPS
For the business purposes stated above, the Board of Directors of IRA and the
Board of Directors of First Command have decided to consolidate the operations
of IRA and First Command by effecting the Proposed Merger pursuant to the
following steps:
1. The operating assets and liabilities of First Command will be contributed
to a wholly-owned subsidiary of First Command prior to the Proposed Merger
in an effort to continue to segregate potential liabilities arising from
the parking garage from the assets of IRA. The subsidiary will be either a
single member limited liability company or will be a corporation that
elects under IRC Section 1361(b)(3) to be a qualified subchapter S
subsidiary.
2. First Command will obtain the financing (approximately $18 million) from
IRA necessary to effect the Proposed Merger. IRA will obtain financing
from an unrelated third-party lender (approximately $15 million).(5) In
the Proposed Merger, First Command will assume IRA's obligation to the
third-party lender.
3. IRA will merge (pursuant to Texas law) with and into First Command, with
First Command as the surviving corporation, in exchange for (i) First
Command voting
- --------------------------
(4) First Command's Board Members own stock of IRA and currently serve on either
IRA's Board of Directors or Executive Committee. Not all members of IRA's Board
of Directors and/or Executive Committee serve on First Command's Board. The
meetings of the Board of Directors of First Command and IRA are held at separate
times and are evidenced by separate minutes.
(5) Such financing will likely be supplied by Norwest Bank, N.A.
<PAGE>
Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 8
common stock, (ii) First Command nonvoting common stock, and (iii)
approximately $18 million. As part of the Proposed Merger, (i) IRA's
Class A shareholders will exchange their IRA Class A stock solely for First
Command voting common stock (except to the extent any Class A shareholders
exercise dissenters rights and receive solely cash for their stock), (ii)
IRA's Class B shareholders who also own IRA Class A stock will exchange
their IRA Class B stock solely for First Command nonvoting common stock
(except to the extent such shareholders choose the cash option or
dissenters rights and receive cash for their stock), and (iii) IRA's
Class B shareholders who do not own IRA Class A stock will exchange their
IRA Class B stock solely for cash of approximately $28.24 per share
(without interest). The voting and nonvoting stock to be issued by First
Command will carry shareholder rights identical in all respects except for
the right to vote. The First Command shareholders immediately before
the Proposed Merger will continue to own their equity in First Command
after the Proposed Merger.
4. First Command will change its name to IRA.
5. First Command will make a timely election under IRC Section 1361(b)(3)
causing IRA Subsidiaries to be qualified subchapter S subsidiaries for
federal income tax purposes.
NEW SHAREHOLDERS' AGREEMENT
Authorized representatives of IRA have represented that in connection with the
Proposed Merger, the existing shareholder agreements will be terminated and a
new Shareholders' Agreement will be entered into by and between First Command
(which will have changed its name to IRA) and its shareholders. The new
Shareholders' Agreement will provide for, among other things, (i) restrictions
on the transfer of First Command stock that could cause First Command to exceed
the maximum number of shareholders permitted for an S corporation under the IRC,
(ii) a right of first refusal of First Command to purchase its stock from its
shareholders in the event of a sale or other disposition of such stock, the
death of a shareholder, any termination of marriage by death or divorce, any
threatened or actual bankruptcy of a shareholder for the purpose of protecting
the First Command's S election, the termination of a shareholder as a Texas life
insurance agent, or any threatened or actual levy by a creditor or claimant upon
First Command stock held by a shareholder, and (iii) certain provisions with
respect to the S corporation status of First Command. The new Shareholders'
Agreement will also provide that all First Command stock (voting and nonvoting)
will carry identical distribution and transfer rights, and that annual
distributions will be paid to shareholders to enable shareholders to pay federal
and state income tax resulting from the corporate income passed through to such
shareholders. Additionally, the new Shareholders' Agreement provides that no
binding agreement has been, or will be entered into altering a shareholder's
right to distribution or liquidation proceeds.
STATEMENT OF REPRESENTATIONS
<PAGE>
Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 9
The following representations have been made by authorized representatives of
IRA and First Command, as reflected in the Statement of Facts and
Representations, dated July 1, 1998, with respect to the Proposed Merger:
a) The Proposed Merger will qualify as a statutory merger pursuant to
applicable provisions of the Texas Business Corporation Act.
b) The value of First Command stock and other consideration received by each
IRA shareholder will be approximately equal to the value of the IRA stock
surrendered in the exchange.
c) To the best knowledge and belief of the management of IRA, there is no plan
or intention on the part of the shareholders of IRA to sell, exchange, or
otherwise dispose of, reduce the risk of loss (by short sale or otherwise)
of the holding of, enter into any contract or other arrangement with
respect to, or consent to the sale or other disposition of (each of the
foregoing, a "disposition") a number of shares of First Command stock
received in the Proposed Merger that would reduce the IRA shareholders'
ownership of First Command stock to a number of shares having a value, as
of the date of the Proposed Merger, of less than 50% of the value of the
formerly outstanding IRA stock as of the same date. In addition, (i) there
has been no "disposition" of shares of IRA stock in anticipation of the
Proposed Merger and (ii) there is no plan or intention on the part of any
shareholders of IRA to effect a "disposition" of shares of IRA stock in
anticipation of the Proposed Merger. Moreover, (i) there has been no
distribution of property by IRA to a shareholder of IRA with respect to its
stock in anticipation of the Proposed Merger and (ii) there is no plan or
intention on the part of IRA to effect a distribution of property to a
shareholder of IRA with respect to its stock in anticipation of the
Proposed Merger. For purposes of this representation, IRA stock exchanged
for cash or other property, surrendered by dissenters, or exchanged for
cash in lieu of fractional shares of First Command stock have been treated
as outstanding IRA stock on the date of the Proposed Merger.
d) First Command has no plan or intention to reacquire any of its stock issued
in the Proposed Merger, other than pursuant to the right of first refusal
in Article III of the new Shareholders' Agreement.
e) There is no plan or intention to liquidate First Command; to merge First
Command with or into another corporation; or to cause First Command to sell
or otherwise dispose of any of the assets of IRA acquired in the Proposed
Merger, except for dispositions made in the ordinary course of business.
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Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 10
f) The liabilities of IRA to be assumed by First Command and the liabilities
to which the assets of IRA are subject were incurred by IRA in the ordinary
course of business and are associated with the assets to be transferred.
g) Following the Proposed Merger, First Command will continue the historic
business of IRA or will use a significant portion of IRA's historic
business assets in a business.
h) There is no intercorporate indebtedness existing between IRA and First
Command which was acquired, or will be settled, at a discount.
i) Neither IRA nor First Command is an "investment company" as that term is
defined in IRC Section 368(a)(2)(F)(iii), or if either IRA or First Command
is an "investment company" pursuant to IRC Section 368(a)(2)(F)(iii),
neither is a company in which (i) more than 25% of the value of the
company's total assets is invested in the stock or securities of any one
issuer, nor in which (ii) more than 50% of the value of the company's
total assets is invested in the stock or securities of five or fewer
issuers, disregarding each company's ownership of its 50% or more owned
subsidiaries and deeming each company to own its ratable share of the
assets of each of such subsidiaries. For purposes of this representation,
the term "total assets" is defined in IRC Section 368(a)(2)(F)(iv).
j) The Class B nonvoting common stock of IRA constitutes stock for federal
income tax purposes.
k) IRA is not under the jurisdiction of a court in a Title 11 or similar case
within the meaning of IRC Section 368(a)(3)(A).
l) The total adjusted basis AND the fair market value of the assets of IRA to
be transferred by IRA to First Command will equal or exceed the sum of the
liabilities to be assumed by First Command plus the amount of the
liabilities to which the assets to be transferred are subject.
m) No options will be issued by IRA pursuant to any compensation plan prior to
or in connection with the Proposed Merger.
n) First Command will have a valid S election in effect at the time of the
Proposed Merger.
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Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 11
o) IRA is not a financial institution eligible to use the reserve method of
accounting for bad debts as described in IRC Section 585.
p) At no relevant time has IRA been a life insurance company pursuant to
Subchapter L of the IRC.
q) At no relevant time has IRA had in effect an election pursuant to IRC
Section 936 (Puerto Rico and possession tax credit).
r) At no relevant time has IRA been a domestic international sales
corporation as defined in IRC Section 992(a).
s) All shareholders of IRA receiving stock in First Command pursuant to the
Proposed Merger are eligible S corporation shareholders with the meaning of
IRC Section 1361(b)(1).
t) The First Command nonvoting common stock issued in connection with the
Proposed Merger will have shareholder rights (in particular, rights to
distribution and liquidation proceeds) identical in all respects to the
shareholder rights of the First Command voting stock except for the right
to vote. No binding agreement has been, or will be entered into altering a
shareholder's right to distribution or liquidation proceeds.
u) The new Shareholder Agreement and the restrictions on the transfer of First
Command common stock reflected therein and in the Articles of Incorporation
(to which restrictions all First Command stock will be subject) do not have
as a principal purpose the avoidance of the "one class of stock"
requirement in IRC Section 1361(b)(1)(D).
v) At the time of the Proposed Merger or pursuant to the Proposed Merger,
neither IRA nor First Command will have issued a call option, warrant,
convertible debt or similar instrument, that is substantially certain to be
exercised by the holder and has a strike price substantially below the fair
market value of the underlying stock (other than the SARs or DERs issued
pursuant to the MAP).
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Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 12
w) Compensation paid to any shareholder-employee of IRA (or any affiliate of
IRA) prior to or subsequent to the Proposed Merger will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
x) Awards made under the MAP will be unfunded and unsecured obligations of IRA
and will not confer voting rights to participating individuals.
y) All MAP Participants who will receive awards under the MAP prior to or
pursuant to the Proposed Merger will either be employees or independent
contractors of IRA and will receive such awards in connection with the
performance of services to IRA or its subsidiaries. Subsequent to the
Proposed Merger, all MAP Participants will receive such awards in
connection with the performance of services to First Command or its
subsidiaries.
z) All compensation to be paid or accrued in connection with the MAP Units
will, after considering all other compensation to be paid or accrued,
constitute "reasonable compensation" as that term is defined in Treas. Reg.
Section 1.162-7 (and case law thereunder).
FEDERAL INCOME TAX CONSEQUENCES
Based on the foregoing statements of fact, business purpose and representations,
and based on the information set forth in the Documents, but subject to the
limitations and qualifications set forth in the Scope section below, it is our
opinion that:
1. The Proposed Merger should constitute a reorganization within the meaning
of IRC Section 368(a).
2. IRA and First Command should both be parties to the reorganization within
the meaning of IRC Section 368(b).
3. No gain or loss should be recognized by IRA upon the transfer of its assets
to First Command in exchange for First Command common stock, cash
(including cash in lieu of fractional shares and cash for dissenters, if
any), and the assumption by First Command of the liabilities of IRA (IRC
Section 361; IRC Section 357(a)).
4. No gain or loss should be recognized by First Command upon the issuance of
its common stock as partial consideration for the assets of IRA (IRC
Section 1032(a)).
5. The basis of the assets of IRA in the hands of First Command should be the
same as the basis of such assets in the hands of IRA immediately prior to
the Proposed Merger (IRC Section 362(b)).
6. The holding period of the assets of IRA in the hands of First Command
should include the holding period of such assets in the hands of IRA
immediately prior to the Proposed Merger (IRC Section 1223(2)).
7. No gain or loss should be recognized by an IRA shareholder upon the
exchange of his or her IRA stock solely for First Command stock (IRC
Section 354(a)).
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Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 13
8. Provided that he or she is not related, under the constructive ownership
rules of IRC Section 318, to any First Command shareholder after the
Proposed Merger, an IRA shareholder who exchanges his or her IRA stock
solely for cash should recognize capital gain (or capital loss) to the
extent the cash received exceeds (or is exceeded by) the basis in his or
her IRA shares (IRC Section 302(b)).
9. The basis of First Command common stock received by an IRA shareholder
should be the same as his or her basis in the IRA stock surrendered in the
exchange, decreased by the amount of cash or the fair market value of boot
received, if any, and increased by any gain recognized on the exchange (IRC
Section 358(a)).
10. The holding period of First Command stock received by an IRA shareholder
should include the period during which the IRA shareholder held the IRA
stock surrendered in the exchange (provided the IRA stock was a capital
asset in the hands of such shareholder on the date of the exchange (IRC
Section 1223(1)).
11. The Proposed Merger should not constitute a reorganization under IRC
Section 368(a)(1)(F).
12. The conversion of SARs and DERs of IRA into SARs and DERs of First Command
should not constitute boot in the Proposed Merger. Consequently, those
individuals owning IRA SARs and DERs immediately prior to the Proposed
Merger should not recognize gain or loss on the exchange of such SARs and
DERs for First Command SARs and DERs.
13. The S election currently in effect for First Command should remain in
effect during the Proposed Merger, and the combined IRA/First Command
entity should be an S corporation immediately after the Proposed Merger.
14. The new Shareholder Agreement should not cause First Command to be
considered to have more than a single class of stock for purposes of IRC
Section 1361(b)(1)(D).
15. The grant or holding of an SAR and/or DER should not result in the
individual plan participant being treated as a shareholder for purposes of
subchapter S.
16. First Command will be subject to the built-in gains tax provisions of IRC
Section 1374 to the extent any asset received pursuant to the Proposed
Merger has an unrealized built-in gain at the time of the Proposed Merger
and such asset is disposed of by First Command during the recognition
period (as defined in IRC Section 1374(d)(7)) after the
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Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 14
Proposed Merger. If an asset received in the Proposed Merger is disposed
of after the recognition period, IRC Section 1374 should not apply.
Based on the foregoing statement of fact and representations, and based on
the information set forth in the Documents, but subject to the limitations
and qualifications set forth in the Scope section below, it is our opinion as
to the issues related to IRA's reporting and withholding requirements under
the IRC in conjunction with the implementation of the MAP that:
1. The grant or holding of a SAR should not trigger the constructive receipt
of income to the individual plan participant under IRC Section 451.
2. The grant or holding of a DER should not trigger the constructive receipt
of income to the individual plan participant under IRC Section 451.
3. The payment made by IRA under the MAP should be deductible by IRA in the
year, and in the amount, included in each individual participant's taxable
income.
4. The benefits under the MAP should be subject to Federal Insurance
Contributions Act ("FICA") taxes and Self Employment Contributions Act
("SECA") taxes in the year the individual participant actually or
constructively receives payment.
5. Under the current design and drafting of the MAP, the MAP benefits should
not be subject to IRC Section 280G "excess parachute payment" penalties.
SCOPE OF OPINION
The scope of this opinion is expressly limited to the federal income tax issues
specifically addressed above in the section entitled "Federal Income Tax
Consequences." Specifically, our opinion has not been requested and none is
expressed with regard to any foreign, state, or local income tax consequences
for IRA, First Command or any of their shareholders. Our opinion has not been
requested and none is expressed with regard to the federal, state, or local bank
regulatory consequences for IRA, FCB, and First Command or with regard to
federal, state or local insurance agency regulatory laws. We have made no
determination nor expressed any opinion as to any limitations, including those
which may be imposed under IRC Section 382, on the availability of net operating
loss carryovers (or built-in gains or losses), if any, after the Proposed
Merger, nor on the application (if any) of the alternative minimum tax to this
transaction. We have not expressed any opinion on any issues relating to the
IRA Subsidiaries nor on the application of any consolidated return rules. We
have not expressed an opinion on employee benefit issues, unless expressly
stated above. Further, we have made no determination as to whether IRA's
dividend distributions have been sufficient to eliminate any undistributed
personal holding company tax liability, if applicable. We
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Independent Research Agency for Life Insurance, Inc.
First Command Financial Corporation Page 15
have made no determination nor expressed any opinion as to the fair market value
of the (i) SARs, (ii) DERs, (iii) MAP benefits, (iv) any assets to be
transferred in connection with the Proposed Merger, and/or (v) any stock
exchanged or canceled in connection with the Proposed Merger.
Our opinion, as stated in this letter, is based upon the analysis of the IRC,
the Regulations thereunder, current case law, and published rulings as of the
date of this letter (the "Authorities"), as well as the Statement of Facts and
Representations provided us by the managements of IRA and First Command (and
their representatives). The foregoing Authorities are subject to change, and
such change may be retroactively effective. If so, our views, as set forth
above, may be affected and may not be relied upon. Further, any variation or
differences in the facts or representations recited herein, for any reason,
might affect our conclusions, perhaps in an adverse manner, and make them
inapplicable. In addition, we have undertaken no obligation to update, and
therefore will not be updating, this opinion for changes in facts or law
occurring subsequent to the date hereof.
This opinion is being rendered only to the addressees in connection with the
Proposed Merger, and is solely for their benefit and solely for the purpose set
forth above. This opinion may not be relied upon by any other person or
persons, or used for any other purposes, including, but not necessarily limited
to, filings with governmental agencies without our prior written consent.
However, we do consent to have this opinion included in a preliminary proxy
filing with the SEC and the Office of Thrift Supervision on or around July 6,
1998.
This letter is an opinion of our firm as to the interpretation of existing law
and, as such, is not binding on the Internal Revenue Service or the courts.
This letter may be used by IRA and First Command in responding to inquiries from
the Internal Revenue Service regarding the Proposed Merger.
Very truly yours,
/s/ Ernst & Young LLP
<PAGE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
___________________, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Robert F. Watson and Martin R. Durbin, as
Proxies, each with the power to appoint his or her substitute, and hereby
authorizes them to represent and to vote, as designated below, all the shares of
(i) Class A Voting Common Stock, $0.10 par value per share and (ii) Class B
Non-Voting Common Stock, $0.02 par value per share, of INDEPENDENT RESEARCH
AGENCY FOR LIFE INSURANCE, INC. (the "Company"), that the undersigned is
entitled to vote at the Special Meeting of Shareholders of the Company to be
held on ___________________, 1998, at ____ a.m., Fort Worth, Texas time, and at
any adjournment or postponement thereof, on all matters set forth in the Notice
of Special Meeting and Proxy Statement dated ________________, 1998, a copy of
which has been received by the undersigned, as follows:
SEE REVERSE SIDE
<PAGE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
THIS PROXY, WHEN PROPERLY EXECUTED AND DELIVERED, WILL BE VOTED AS SPECIFIED
BELOW. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE
PROPOSALS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU PROPERLY SIGN AND
RETURN THIS CARD.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR EACH OF THE
PROPOSALS. PLEASE REVIEW CAREFULLY THE PROXY STATEMENT DELIVERED WITH THIS
PROXY.
- --------------------------------------------------------------------------------
1. Approval and adoption of the Agreement and Plan of Merger, dated as of July
1, 1998, by and among the Company and First Command Financial Corporation.
/ / FOR / / AGAINST / / ABSTAIN
2. The Proxies are authorized to vote upon such matters as may properly come
before the meeting or any adjournment or postponement thereof as they
determine to be in the best interests of the Company.
The undersigned hereby revokes all proxies heretofore given by the undersigned
to vote at said meeting or any adjournment or postponement thereof.
------------------------------------------
Signature
Dated: , 1998
------------ --- ------------------------------------------
Signature, if held jointly
IMPORTANT: Please mark, sign, date and return this Proxy in the enclosed
envelope. No postage is required if mailed in the United States. Please date
this Proxy and sign your name exactly as it appears hereon. Where there is more
than one owner, each should sign. When signing as an attorney, administrator,
executor, guardian or trustee, please add your title as such. If executed by a
corporation, the Proxy should be signed by a duly authorized officer and state
the full name of the corporation.
Notwithstanding shareholder approval of the proposal, the Company reserves the
right to terminate the Merger Agreement and abandon the Merger, upon the terms
and subject to the conditions set forth in the Merger Agreement.
2
<PAGE>
FORM OF ELECTION OF
CLASS A/B SHAREHOLDERS OF
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC. ("COMPANY")
This Form of Election, when properly submitted by a holder of Class B
Non-Voting Common Stock of the Company, par value $0.02 per Share ("Class B
Stock"), who is also a holder of Class A Voting Common Stock of the Company,
par value $0.10 per Share (a "Class A/B Shareholder"), will permit such Class
A/B Shareholder to elect to receive either (i) one share of Nonvoting Common
Stock, par value $0.01 per share ("Surviving Corporation Nonvoting Stock"),
of First Command Financial Corporation, a Texas corporation (the "Class B
Nonvoting Stock Consideration"), for each share of Class B Stock held by such
Class A/B Shareholder or (ii) $28.24 in cash (the "Class B Cash
Consideration") for each share of Class B Stock held by such Class A/B
Shareholder, in connection with the merger (the "Merger") of the Company with
and into
FIRST COMMAND FINANCIAL CORPORATION ("FIRST COMMAND").
-----------------------------------
A CLASS A/B SHAREHOLDER MAY NOT ELECT TO RECEIVE BOTH THE CLASS B NONVOTING
STOCK CONSIDERATION AND THE CLASS B CASH CONSIDERATION.
-----------------------------------
-----------------------------------
BY HAND DELIVERY FACSIMILE BY
OR OVERNIGHT: TRANSMISSION: MAIL:
First Command Bank (888) 763-7600 First Command Bank
4100 South Hulen Street or 4100 South Hulen Street
Fort Worth, Texas 76109 (817) 763-0557 Fort Worth, Texas 76109
Attention: Paying Agent Attention: Paying Agent
CONFIRM BY TELEPHONE:
-----------------------------------
-----------------------------------
First Command Bank is the Paying Agent.
FOR INFORMATION, CALL (888) 763-7600 OR (817) 763-0000
-------------------------
-------------------------
<PAGE>
PLEASE READ THE INSTRUCTIONS IN THIS FORM OF ELECTION CAREFULLY BEFORE
COMPLETING THIS FORM OF ELECTION.
ELECTION OF CLASS B STOCK
(Attach additional sheets if necessary).
See "Election" and Instruction 6.
MARK ONLY ONE BOX.
Number of Shares of Class B Stock
held by the Class A/B Shareholder:
Name and Address of Registered Holder(s)
(Please fill in, if blank, exactly as
name(s) appear(s) on certificate(s))
Class B Nonvoting Stock Election:
/ /
Class B Cash Election:
/ /
/ / Check this box if this election represents a revocation of any earlier
election.
________________________, 1998, IS THE ELECTION DEADLINE BY WHICH DATE A
COMPLETED FORM OF ELECTION MUST BE RECEIVED BY THE PAYING AGENT IN ORDER FOR ANY
CLASS B NONVOTING STOCK ELECTION OR CLASS B CASH ELECTION (AS SUCH TERMS ARE
DEFINED BELOW) CONTAINED HEREIN TO BE VALID. ANY FORM OF ELECTION RECEIVED BY
THE PAYING AGENT AFTER THE ELECTION DEADLINE SHALL BE DEEMED TO INDICATE A
NON-ELECTION (AS DEFINED BELOW).
IN THE EVENT A FORM OF ELECTION IS DELIVERED TO THE PAYING AGENT ON
BEHALF OF A CLASS A/B SHAREHOLDER PRIOR TO THE ELECTION DEADLINE AND NOT
REVOKED PRIOR TO SUCH DEADLINE, OR IF A FORM OF ELECTION IS DELIVERED TO THE
PAYING AGENT AFTER THE ELECTION DEADLINE, THE COMPANY OR THE SURVIVING
CORPORATION, AS THE CASE MAY BE, WILL DEEM SUCH DELIVERY A REVOCATION OF ANY
OBJECTIONS TO THE MERGER PREVIOUSLY FILED WITH THE COMPANY FOR PURPOSES OF
EXERCISING DISSENTER'S RIGHTS AND A WAIVER OF ANY FUTURE RIGHTS TO SUCH
EXERCISE.
Information as to the federal income tax consequences of receiving Class B
Nonvoting Stock Consideration or Class B Cash Consideration in exchange for your
Class B Stock is set forth under the caption "SPECIAL FACTORS--Certain Federal
Income Tax Consequences of the Merger" in the Proxy Statement furnished to you
concurrently herewith. You are urged, in addition, to consult with your tax
advisor.
TO FIRST COMMAND BANK:
In connection with the Merger, and pursuant to an Agreement and Plan of
Merger, dated as of July 1, 1998, (the "Merger Agreement"), between the
Company and First Command, the undersigned hereby makes the election set
forth herein concerning the Class B Stock held by the undersigned, who is a
Class A/B Shareholder. Pursuant to such election set forth herein, the
undersigned elects that each share of Class B Stock held by the undersigned
issued and outstanding immediately prior to the effective time of the Merger,
subject to and upon the terms and conditions of the Merger Agreement, will be
converted into (i) the right to receive the Class B Nonvoting Stock
Consideration (a "Class B Nonvoting Stock Election"), (ii) the Class B Cash
Consideration (the "Class B Cash Election") or (iii) the right to make no
election
2
<PAGE>
(a "Non-Election"), in which case the undersigned will receive the Class B
Nonvoting Stock Consideration. See "THE PROPOSED MERGER--Shareholder
Elections." Except as expressly provided herein, capitalized terms shall have
the meanings ascribed to them in the Proxy Statement.
The undersigned understands that the elections referred to above are
subject to certain terms, conditions and limitations that are set forth in
the Merger Agreement, the Instructions below and the Proxy Statement with
respect to the Merger (including all documents incorporated therein, and as
it may be amended from time to time, the "Proxy Statement") delivered prior
hereto. The Merger Agreement is included as Annex A to the Proxy Statement.
Extra copies of this Form of Election and the Proxy Statement may be
requested from the Paying Agent, at the addresses or phone numbers shown
above. The filing of this Form of Election with the Paying Agent is
acknowledgment of the receipt of the Proxy Statement. The undersigned
understands and acknowledges that all questions as to the validity, form and
eligibility of any election shall be reasonably determined by the Paying
Agent, and such determination shall be final and binding.
ELECTION
The appropriate election(s) must be made in the box above in order to
make a Class B Nonvoting Stock Election, a Cash Election or Non-Election with
respect to all the shares of Class B Stock held of record by such Class A/B
Shareholder.
ALL CLASS A/B SHAREHOLDERS WISHING TO MAKE A CLASS B NONVOTING STOCK
ELECTION OR A CLASS B CASH ELECTION MUST ENSURE THAT THE PAYING AGENT RECEIVES A
PROPERLY COMPLETED FORM OF ELECTION PRIOR TO THE ELECTION DEADLINE. ALL CLASS
A/B SHAREHOLDERS SUBMITTING ELECTION FORMS AFTER SUCH TIME WILL BE DEEMED TO
HAVE MADE A NON-ELECTION REGARDLESS OF THE ELECTION SPECIFIED ON SUCH FORM.
THE PAYING AGENT RESERVES THE RIGHT TO DEEM THAT YOU HAVE MADE A
NON-ELECTION IF:
A. NO ELECTION CHOICE IS INDICATED IN THE BOX ABOVE;
B. YOU FAIL TO FOLLOW THE INSTRUCTIONS ON THIS FORM OF ELECTION OR
OTHERWISE FAIL TO PROPERLY MAKE AN ELECTION;
C. A COMPLETED FORM OF ELECTION IS NOT ACTUALLY RECEIVED BY THE ELECTION
DEADLINE; OR
D. YOU MARK BOTH THE "CLASS B NONVOTING STOCK ELECTION" BOX AND THE
"CLASS B CASH ELECTION" BOX.
CONSUMMATION OF THE MERGER IS SUBJECT TO THE SATISFACTION OF CERTAIN
CONDITIONS. NO PAYMENTS WILL BE MADE PRIOR TO THE EFFECTIVE TIME OF THE MERGER.
INSTRUCTIONS
This Form of Election is to be completed and submitted to the Paying Agent
prior to the Election Deadline by those Class A/B Shareholders desiring to make
a Class B Nonvoting Stock Election or Class B Cash Election.
Your election is subject to certain terms, conditions and limitations
that have been set out in the Merger Agreement and the Proxy Statement. The
Merger Agreement is included as Annex A to the Proxy Statement. Extra copies
of the Proxy Statement may be requested from the Paying Agent at the
addresses or phone numbers shown above. The filing of this Form of Election
with the Paying Agent is acknowledgment of the receipt of the Proxy Statement.
1. ELECTION DEADLINE. For any Class B Nonvoting Stock Election or Class B
Cash Election contained herein to be considered, this Form of Election, properly
completed, must be received by the Paying Agent at one of the addresses shown
above on this Form of Election no later than 5:00 p.m. Central Daylight Time on
the Election Deadline.
3
<PAGE>
2. REVOCATION OR AMENDMENT OF FORM OF ELECTION. An election may be
revoked or amended, but only by written notice received by the Paying Agent
prior to the Election Deadline. Upon any such revocation, unless a duly
completed Form of Election is thereafter submitted in accordance with the
procedures set forth in the Proxy Statement, such shareholder will be deemed to
have made a Non-Election.
3. DELIVERY OF FORM OF ELECTION. This Form of Election, properly
completed and duly executed, should be delivered to the Paying Agent at one of
the addresses set forth above.
4. INADEQUATE SPACE. If the space provided herein is inadequate, the
number of shares of Class B Stock held by the Class A/B Shareholder should be
listed on additional sheets and attached hereto.
5. SIGNATURES ON ELECTION FORM.
(a) All signatures must correspond exactly with the name written on the
face of the certificate(s) representing the Class B Stock, without alteration,
variation or any change whatsoever.
(b) If the certificate(s) representing the Class B Stock is (are) held
of record by two or more joint owners, all such owners must sign this Form of
Election.
(c) If the shares of Class B Stock held by a Class A/B Shareholder are
registered in different names on several certificates, it will be necessary to
complete, sign and submit as many separate Forms of Election as there are
different registrations of certificates.
6. ELECTIONS. Each Class A/B Shareholder is entitled to make a Class
B Nonvoting Stock Election and/or a Class B Cash Election with respect to his
or her Class B Stock, provided the Form of Election for any holder making
such election(s) is properly completed and received by the Paying Agent prior
to the Election Deadline. To properly complete the box, the number of shares
of Class B Stock held by each Class B Shareholder must be written in the
column under the heading "Number of Shares of Class B Stock," and either the
"Class B Nonvoting Stock Election" box or the "Class B Cash Election" box
should be marked. MARK ONLY ONE BOX. A Class A/B Shareholder submitting a
Form of Election may not elect to receive both the Class B Nonvoting Stock
Consideration and the Class B Cash Consideration.
7. MISCELLANEOUS. Neither the Company nor the Paying Agent is under any
duty to give notification of defects in any Form of Election. The Company and
the Paying Agent shall not incur any liability for failure to give such
notification, and each of the Company and the Paying Agent has the absolute
right to reject any and all Forms of Election not in proper form or to waive any
irregularities in any Form of Election.
8. INFORMATION AND ADDITIONAL COPIES. Information and additional copies
of this Form of Election may be obtained by telephoning toll-free (888)
763-7600, or, in Fort Worth, (817) 763-0000.
4
<PAGE>
GROUND LEASE
This Ground Lease (this "LEASE") is entered into to be effective for all
purposes as of June 1, 1998, by INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE,
INC., a Texas corporation ("LESSOR"), and FIRST COMMAND FINANCIAL CORPORATION, a
Texas corporation ("LESSEE").
ARTICLE I.
DEFINITIONS
Sec. 1:1. DEFINITIONS. The following terms, as used in this Lease, shall
have the following meanings unless the context indicates otherwise:
A. COMMENCEMENT DATE. June 1, 1998.
B. LEASE. This Ground Lease and all amendments thereto hereafter
entered into.
C. LEASE TERM. The primary term hereafter stated plus all renewal
and extension periods, if any, which validly go into effect at the end of such
primary term.
D. LEASE YEAR. Each period within the Lease Term commencing on
June 1 and ending on the next succeeding May 31. The first Lease Year will
commence on the Commencement Date and end on May 31, 1999.
E. LEASED PREMISES. That portion of the real estate located in Fort
Worth, Tarrant County, Texas, which is identified as "Parking Garage" on the
site plan attached hereto as EXHIBIT A, together with all improvements now or
hereafter located upon such real estate. The Leased Premises are part of a
tract of land described in EXHIBIT B attached hereto. Within sixty (60) days
after the date of this Lease, Lessor shall, at Lessor's expense, cause to be
prepared and furnished to Lessee a current plat of survey (the "SURVEY") of the
Leased Premises prepared by a duly licensed Texas land surveyor. The metes and
bounds description of the Leased Premises as reflected on the Survey shall be
substituted for the site plan set forth in EXHIBIT A attached hereto.
F. PERMITTED USE. The construction, operation, and lease of a
parking garage and related facilities.
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ARTICLE II.
GRANT OF LEASE
Sec. 2:1. GRANT TO LESSEE. In consideration of the mutual covenants and
agreements contained in this Lease and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties
hereto, Lessor hereby Leases to Lessee and Lessee hereby Leases from Lessor the
Leased Premises upon the terms, provisions, and conditions set forth herein.
Sec. 2:2. TITLE AND CONDITION. The Leased Premises are leased subject to
the existing state of the title thereof as of the date of this Lease; to all
encroachments thereon or over any street or adjoining property; to any state of
facts which an accurate survey or physical inspection thereof might show; to all
zoning regulations, restrictions, rules, and ordinances, and all building
restrictions and other laws and regulations now in effect or hereafter adopted
by any governmental authority having or acquiring jurisdiction; to the revocable
nature of the right, if any, to maintain vaults, vault spaces, basement and
subbasement spaces, areas, or signs beyond the building lines; and, as regards
improvements, to their present state and condition and without representation or
warranty of any kind by Lessor. Lessee represents and warrants that Lessee has
examined and become fully familiar with the state of title to the Leased
Premises immediately prior to the execution of this Lease and the title
examination made for Lessor in connection with its acquisition of title, and
Lessee has found such title to be satisfactory. Lessor makes no representations
or warranties, express or implied, to Lessee with respect to the suitability of
the Leased Premises for any particular purpose or use or with respect to the
physical condition (including, but not limited to, surface and subsurface soil
conditions) of the Leased Premises or whether the Leased Premises are located in
a flood plain or other area subject to the hazard of flooding, and Lessee
represents that it has made its own independent and full investigation in this
regard.
Sec. 2:3. COVENANT OF QUIET ENJOYMENT. So long as Lessee complies with
all of the provisions of this Lease, Lessor covenants that Lessor will not
interfere with the peaceful and quiet occupation and enjoyment of the Leased
Premises by Lessee. If Lessor fails to comply with this covenant, Lessee may
seek appropriate injunctive relief but Lessee may not terminate this Lease or
abate or offset against any rent or other payments owing to Lessor under this
Lease. In the event Lessor assigns or mortgages Lessor's interest in the Leased
Premises, it is understood and agreed that Lessor may not be held liable for any
breach of this covenant of quiet enjoyment occasioned by acts or omissions of
any assignee or successor to the interest of Lessor.
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ARTICLE III.
TERM
Sec. 3:1. PRIMARY TERM. Subject to Lessee's compliance with all of the
provisions of this Lease and except as otherwise provided herein, Lessor agrees
to Lease the Leased Premises to Lessee for a primary term of ninety-nine (99)
years beginning on the Commencement Date and continuing until May 31, 2097
(unless sooner terminated as herein provided). Any occupancy of the Leased
Premises by Lessee prior to the Commencement Date shall be subject to all of the
terms and provisions of this Lease except only those requiring the payment of
rent.
ARTICLE IV.
PAYMENT OBLIGATIONS
Sec. 4:1. BASIC RENT. From and after the Commencement Date and continuing
throughout the balance of the Lease Term, Lessee shall pay to Lessor at Lessor's
address in Tarrant County, Texas, shown at the end of this Lease (or at such
other address as may be specified by written notice from Lessor to Lessee) a
minimum guaranteed rental ("BASIC RENT") of $1.00 per Lease Year without prior
notice or demand and without any deduction, offset, or defense, payable as
follows: Rent for the first Lease Year of the Lease Term shall be due and
payable on or before the Commencement Date and a like annual installment shall
be due and payable on or before the first day of each succeeding Lease Year
during the Lease Term.
Sec. 4:2. ADDITIONAL RENT. Other provisions of this Lease require Lessee,
under certain circumstances, to pay additional sums of money to Lessor or
others. For all purposes of this Lease, such sums of money will be deemed to be
Additional Rent (herein so called) owing by Lessee to Lessor, and in the event
of Lessee's failure to pay such sums when due, Lessor may exercise all rights,
powers, and remedies provided herein or by law or equity or otherwise in the
case of Lessee's failure to pay the Basic Rent.
Sec. 4:3. PAYMENT OF RENT. All sums payable by Lessee to Lessor as rent
(either as Basic Rent or as Additional Rent) are to be made by check payable to
the order of Lessor. Lessor may change the party to the order of whom any such
checks are to be made payable, or the address to which such checks are to be
mailed, by giving written notice to such effect to Lessee at least ten (10) days
prior to the effective date of such change.
Sec. 4:9. UTILITIES. During the Lease Term, Lessee shall be solely
responsible for and shall pay as they become due all charges for water, sewer
usage, gas, electricity, power, heat, telephone or other communication service,
garbage disposal, and all other utility or similar services used, rendered,
supplied, or consumed in, upon, or in connection with the Leased Premises.
Lessee shall, at Lessee's sole expense and risk, arrange for installation or
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construction of, repair and maintain, and secure all necessary permits,
licenses, or other authorizations required for the pipes, conduits, tubes,
wires, and other appliances or equipment necessary to furnish the utilities and
services now or hereafter provided to the Leased Premises. Lessor shall have no
duty or responsibility to Lessee for the stoppage or interruption of such
utilities or services.
Sec. 4:5. TAXES. Lessee shall pay as they become due all taxes, charges,
levies, and assessments at any time levied or assessed against the Leased
Premises (including, without limitation, any improvements located on the Leased
Premises) by any governmental taxing authority. During the Lease Term, Lessee
shall also pay as they become due all taxes, charges, levies, and assessments
levied or assessed by any governmental authority against any leasehold interest
or personal property of Lessee placed in, on, or about the Leased Premises, and
Lessee shall further pay as they become due all taxes, charges, assessments, and
levies (including without limitation franchise, sales, excise, and use taxes) in
any way stemming from or connected with Lessee's business operations upon the
Leased Premises. Lessee shall provide Lessor with paid tax receipts no later
than ten (10) days prior to the date on which the taxes become delinquent. Such
taxes, charges, levies, and assessments shall be prorated on a calendar year,
per diem basis between Lessor and Lessee for the year in which this Lease
commences and the year in which this Lease terminates. Lessee may, at Lessee's
sole cost and expense, if Lessee in good faith believes that any tax, charge,
levy, or assessment payable by it shall be invalid, excessive, or unenforceable
in whole or in part, protest against and contest the validity, amount, or
enforceability of any such tax, charge, levy, or assessment. In such case,
Lessee shall comply with all requirements of law as to conditions precedent in
making any contest, and Lessee covenants to protect Lessor and the Leased
Premises against foreclosure of any lien resulting from the imposition of any
such tax, charge, levy, or assessment which Lessee may contest.
Sec. 4:6. INSURANCE; INDEMNIFICATION.
A. LIABILITY INSURANCE. During the Lease Term, Lessee shall, at
Lessee's sole expense, carry and maintain comprehensive broad form general
public liability insurance covering the Leased Premises and the business
operations conducted upon the Leased Premises (including business operations
conducted by Lessee's licensees, concessionaires, and permitted sublessees)
providing coverage in the minimum amount of $1,000,000.00 against liability for
injury to or the death of any number of persons arising out of any one accident
or occurrence, and property damage insurance in the minimum amount of
$100,000.00.
B. CASUALTY INSURANCE. Throughout the Lease Term, Lessee, at its
sole cost and expense, shall keep or cause to be kept insured for the mutual
benefit of Lessor and Lessee, all improvements now or hereafter located on,
under, or appurtenant to the Leased Premises against loss or damage by fire and
such other risks as are now or hereafter included in an extended coverage
endorsement in common use in the locality where the Leased Premises are
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located for projects of similar size and quality, including, without
limitation, hail, lightning, windstorm, vandalism, boiler, explosion, and
malicious mischief coverage. Such improvements shall include, without
limitation, all buildings at any time located on, under, or appurtenant to
the Leased Premises. The amount of such insurance coverage shall be
sufficient to prevent either Lessor or Lessee from becoming a co-insurer
under the provisions of the policy(ies), but in no event shall the amount be
less than 100% of the full replacement cost of all improvements (excluding,
however, the cost of replacing excavations and foundations but without
deduction for depreciation), hereinafter referred to as the "FULL INSURABLE
VALUE". If any dispute as to whether the amount of insurance complies with
the above cannot be resolved by agreement between Lessor and Lessee, Lessor
may not more than every year during the Lease Term request either the carrier
of the insurance then in force or a mutually acceptable insurance consultant
to determine the Full Insurable Value and the resulting determination shall
be conclusive between the parties for the purposes of this paragraph. On
Lessor's notice of demand, Lessee shall include the holder of any mortgage or
deed of trust on the Leased Premises as a loss payee as its interest may
appear. All polices of fire and extended coverage insurance required by this
paragraph shall provide that the proceeds be paid to Lessee, and such
proceeds shall be deemed to be held in trust by Lessee to be applied towards
the repair, restoration, and/or reconstruction of improvements.
C. BUILDER'S RISK INSURANCE. Before commencement of construction of
any improvements to be placed on the Leased Premises, Lessee shall procure and
shall maintain in full force until completion and acceptance of the completed
improvements, "all risks" builder's risk insurance including vandalism and
malicious mischief, in form and with a company reasonably acceptable to Lessor,
covering improvements in place and all material and equipment at the job site
furnished under contract, but excluding contractor's and subcontractors' tools
and equipment and property owned by the contractor's or subcontractors'
employees.
D. OTHER INSURANCE. Lessee shall also keep or cause to be kept in
force such other insurance and in such amount as may from time to time be
reasonably required by Lessor against other insurable hazards which at the time
are commonly insured against in the case of premises similarly situated, due
regard being or to be given to the size and type of any improvements, their
construction, and the use and occupancy of the Leased Premises.
E. GENERAL PROVISIONS APPLICABLE TO INSURANCE. Lessee shall furnish
Lessor with the policies evidencing that the insurance required by this Lease is
in full force and effect and stating the terms thereof. However, Lessee may, in
lieu of original policies of insurance, deliver to Lessor certificates of
insurance evidencing all such coverage or copies of all original insurance
policies or endorsements duly authenticated by the issuing company. All
insurance coverage shall be placed in companies reasonably acceptable to Lessor
and authorized to do business in the State in which the Leased Premises are
located and shall name as insured Lessor, Lessee, and such other persons as may
be designated by Lessor, as their interests may appear. All such policies shall
be nonassessable and shall contain language, to the extent obtainable, to
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the effect that (1) any loss shall be payable notwithstanding any act or
negligence of Lessor or Lessee that might otherwise result in a forfeiture of
the insurance, (2) the policies are primary and non-contributing with any
insurance that may be carried by Lessor, and (3) the policies cannot be
cancelled or materially changed except after thirty (30) days prior written
notice by the insurer to Lessor.
F. WAIVER OF SUBROGATION. For the purpose of waiver of subrogation,
anything in this Lease to the contrary notwithstanding, Lessor, for itself and
its agents, employees, successors, and assigns, releases and waives unto Lessee,
its personal representatives, agents, employees, successors, and assigns, and
Lessee, for Lessee and Lessee's personal representatives, agents, employees,
successors, and assigns, releases and waives unto Lessor, its agents, employees,
successors, and assigns, all right to claim damages for any injury, loss, cost,
or damage to persons or to the Leased Premises or to any building, buildings, or
other improvements, or the contents and property located therein or thereon,
which is occasioned by fire, explosion, accident, occurrence, or condition in,
on, or about the Leased Premises or any other casualty, the amount of which
injury, loss, cost, or damage has been paid either to Lessor, Lessee, or to any
other person or entity under the terms of any fire, extended coverage, public
liability, or other policy of insurance, to the extent such releases and waivers
are permitted under applicable law. All policies of insurance obtained under
this Lease shall contain or be endorsed to contain a provision whereby the
insurer thereunder waives all rights of subrogation against Lessor and Lessee.
However, in the event that as a result of the foregoing it becomes impossible
for Lessee, after endeavoring to do so with due diligence, to procure fire
insurance with extended coverage provisions customarily included in fire
insurance policies with provisions for waiver of subrogation against Lessor,
then the foregoing provision for waiver of subrogation will be deemed
inoperative except as follows. In the event that such policies are procurable
but Lessee will be required to pay an additional premium by reason of such
waiver of subrogation, then Lessee agrees to pay such excess premium cost. In
the event Lessee is unable to procure insurance with a waiver of subrogation,
Lessor may attempt to procure such insurance for Lessee at Lessee's cost.
G. EXCULPATORY CLAUSE. Lessor and Lessor's agents and employees
will not be liable for, and Lessee waives all claims for, damage to person or
property sustained by Lessee or any person claiming through Lessee resulting
from any accident or occurrence in or upon the Leased Premises, including
without limitation such claims for damage resulting from: (1) any equipment or
appurtenances functioning improperly; (2) Lessor's failure to keep the Leased
Premises in repair; (3) injury done or occasioned by wind, rain, snow, ice, or
other elements; (4) any defect in or failure of plumbing, heating, or air
conditioning equipment, electric wiring, or installation thereof, gas, water,
steam pipes, stairs, porches, railings, or walks; (5) broken glass; the backing
up of any sewer pipe or downspout; the bursting, leaking or running of any tank,
tub, washstand, toilet, waste pipe, drain, or any other pipe or tank in, upon,
or about the Leased Premises; the escape of steam or hot water; (6) water, snow,
or ice being upon or coming through the roof, skylight, trapdoor, stairs, walks,
or any other place
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upon or near any building or premises or otherwise; (7) the falling of any
fixture, plaster, or stucco; and (8) any act, omission, or negligence of
co-tenants or of other persons or occupants of the Leased Premises or of
adjoining or contiguous buildings or of owners of adjacent or contiguous
property or of Lessor or Lessor's agents, employees or invitees. Lessee
hereby covenants and agrees to indemnify and hold Lessor harmless from and
against all claims, demands, actions, damages, costs, expenses, and
attorneys' fees in connection with the loss of life, personal injury, and/or
damage to property in any way connected with the Leased Premises or the use
or condition or occupancy thereof, or occasioned wholly or in part by any act
or omission of Lessee or any other person, excluding only any injury, loss,
or damage due to the gross negligence or willful misconduct of Lessor. In
the event Lessor, without fault on Lessor's part, is made a party to any
litigation commenced by or against Lessee or any other person in connection
with any of the matters covered herein, then Lessee shall and must protect
and hold Lessor harmless and shall pay all costs, expenses, and reasonable
attorneys' fees incurred by Lessor in connection therewith.
ARTICLE V.
USE AND MAINTENANCE OBLIGATIONS
Sec. 5:1. USE OF LEASED PREMISES.
A. PERMITTED USE. The Leased Premises are Leased by Lessor to
Lessee, and Lessee must use the Leased Premises, only for the Permitted Use and
for no other purposes or uses whatsoever without the prior written consent of
Lessor. Lessor hereby agrees to accept the Leased Premises as completely
suitable for such purposes. Lessee shall cause to be fully constructed on the
Leased Premises, at Lessee's sole cost and expense and within eighteen (18)
months after the Commencement Date, a four (4) story parking garage (the
"PROJECT"), all in accordance with applicable zoning ordinances, any applicable
restrictive covenants and the plans for the Project prepared by Lessee and
approved in writing by Lessor. Lessor shall have the right to approve the
location of all such improvements including, without limitation, all buildings,
signs, and driveways. Lessee represents that the Leased Premises are properly
zoned for its intended purpose under the applicable zoning ordinance (the
"ZONING ORDINANCE") and Lessee represents to Lessor that Lessee has conducted
its own independent investigation of the requirements of the Zoning Ordinance
and any applicable restrictive covenants, as same relate to the Leased Premises,
and Lessee's development, use, operation, and occupancy thereof, and Lessee has
satisfied itself and represents to Lessor that the contemplated development,
use, operation, and occupancy of the Leased Premises will not violate the Zoning
Ordinance or any applicable laws, ordinances, regulations, or restrictive
covenants. Except as otherwise specifically provided herein, Lessee shall use
the Leased Premises solely for conducting the Permitted Use, and will not use or
permit or suffer the use of, the Leased Premises for any other business or
purpose without the prior written consent of Lessor.
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B. USE IN COMPLIANCE WITH LAWS. Lessee shall, at Lessee's sole cost
and expense, comply with all applicable laws, ordinances, rules, requirements,
and regulations of all duly constituted public or semi-public authorities now or
hereafter in any manner affecting the Leased Premises whether or not any such
laws, ordinances, rules, requirements, and regulations which may be hereafter
enacted involve a change of policy on the part of the enacting authority.
Lessee may not: (1) permit any unlawful or immoral practice to be carried on or
committed on the Leased Premises; (2) make any use of or allow the Leased
Premises to be used for any purpose that might invalidate or increase the rate
of insurance thereof; (3) keep or use or permit to be kept or used on the Leased
Premises any inflammable fluids (other than properly stored cleaning fluids and
solvents) or explosives without Lessor's prior written consent; (4) use the
Leased Premises for any purpose whatsoever which might create a nuisance or
injure the reputation of the Leased Premises; (5) deface or injure any
improvements now or hereafter located on the Leased Premises; (6) commit or
suffer any waste; nor (7) cause or permit any noxious, disturbing, or offensive
odors, fumes or gases, or any smoke, dust, steam or vapors or any loud or
disturbing noise or vibration to originate in or to be emitted from the Leased
Premises. Furthermore, Lessee shall make at its own expense all alterations of
the Leased Premises required by any authority, agency or governmental unit and
shall save Lessor harmless from penalties, fines, costs, expenses, or damages
resulting from failure to do so. Without limiting the generality of the
foregoing, Lessee shall make such arrangements for the storage and timely
disposition of all garbage and refuse generated by the Leased Premises as may be
required in order to keep the Leased Premises and all surrounding areas in a
neat and orderly condition and reasonably clean and free from rubbish, dirt,
snow, and ice. Lessee shall indemnify Lessor for any liabilities (including
court costs and attorneys' fees) incurred by Lessor as a result of Lessee's
violation of any of the provisions contained in this paragraph. Lessee may, at
Lessee's own expense, contest the validity of any law, ordinance, rule,
requirement, or regulation of the nature herein referred to, and if by the terms
of any such law, ordinance, rule, requirement, or regulation, compliance
therewith may be legally held in abeyance without the incurrence of any lien,
charge, or liability of any kind against the fee of the Leased Premises or
against the Leasehold interest of Lessee in and to the Leased Premises and
without subjecting Lessee or Lessor to any liability of any nature for failure
so to comply, Lessee may postpone compliance therewith until a final
determination in any such proceedings but only if all such proceedings are
prosecuted by Lessee with all due diligence and dispatch and at the sole cost,
expense, and risk of Lessee.
Sec. 5:2. MAINTENANCE AND ALTERATION OF LEASED PREMISES.
A. MAINTENANCE BY LESSEE. Lessee agrees to accept possession of the
Leased Premises in their present condition and to allow for such changes in
condition as may normally be expected to occur through reasonable deterioration
between the date of this Agreement and the date Lessee actually takes possession
of the Leased Presses. Lessee shall, at Lessee's sole expense, maintain the
Leased Premises throughout the Lease Term and Lessee shall, at Lessee's sole
expense, make all repairs and replacements which may be necessary to maintain in
good
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condition the Leased Premises and the improvements located on the Leased
Premises. If Lessee fails to make the repairs or replacements required by
this Lease, Lessor is authorized to complete such repairs and replacements on
behalf of Lessee, and in such event Lessor may under no circumstances be held
liable to Lessee for any damages that Lessee might suffer as a result of such
action on the part of Lessor. Upon the termination of this Lease, Lessee
shall surrender the Leased Premises to Lessor in good order and repair,
except for reasonable wear and tear between the last necessary repair and/or
replacement by Lessee pursuant to Lessee's obligations hereunder. However,
Lessee will be liable at the time of termination of this Lease for all
repairs and replacements which have become necessary or desirable as a result
of any act of negligence of Lessee (or Lessee's employees, agents, or
invitees).
B. ALTERATIONS. Except as otherwise provided herein, Lessee
shall not make any alterations, additions, or other changes to the Leased
Premises without Lessor's prior written consent. However, Lessee may,
without obtaining Lessor's prior written consent, make minor alterations,
additions, and changes to the improvements required by SEC. 5:1.A hereof to
be constructed by Lessee on the Leased Premises but only if: (1) such
alterations, additions, and changes are accomplished in a good and
workmanlike manner at Lessee's sole expense and in accordance with all
applicable federal, state, and local laws, regulations, ordinances, and other
promulgations; and (2) such alterations, additions, and changes do not impair
the value, structural integrity, or soundness of such improvements. However,
notwithstanding anything contained herein to the contrary, Lessee shall not
have the right to demolish or remove any improvements at any time located on
the Leased Premises without first obtaining the prior written consent of
Lessor. Title to such alterations, additions, and changes will immediately
vest in Lessor at the end of the final day of the Lease Term or sooner
termination of this Lease and will remain as part of the Leased Premises.
Lessee shall not, however, remove any alterations, additions, or changes from
the Leased Premises nor waste, destroy, or modify any alterations, additions,
or changes on the Leased Premises once completed. The parties covenant for
themselves and all persons claiming under them that the alterations,
additions, and changes made by Lessee are real property. All alterations,
additions, and changes on the Leased Premises at the expiration of the Lease
Term or sooner termination of this Lease shall, without compensation to
Lessee, then become Lessor's property free and clear of all claims to or
against them by Lessee or any third person, and Lessee shall defend and
indemnify Lessor against all liabilities and loss resulting from such claims
or from Lessor's exercise of the rights conferred by this paragraph.
However, Lessor may elect to have Lessee remove any or all of such
alterations, additions, and changes in which event such alterations,
additions, and changes are to be completely removed by Lessee (without damage
to the Leased Premises) by the end of the Lease Term. Lessee shall promptly
pay for all work done or materials furnished in connection with the making of
any such alterations, additions, or other changes to the Leased Premises.
C. MECHANIC'S LIENS. Lessee will not permit any mechanic's lien or
liens to be placed upon the Leased Premises or improvements thereon during the
Lease Term caused by or resulting from any work performed, materials furnished
or obligation incurred by or at the
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request of Lessee. Should any mechanic's liens or other liens or affidavits
claiming liens be filed against the Leased Premises or any portion thereof or
interest therein for any reason whatsoever incident to the acts or omissions
of Lessee or any contractor of Lessee or any such contractor's subcontractor
or any laborer performing labor or materialman furnishing materials at or for
the Leased Premises or by reason of any specially fabricated materials
whether or not placed at the Leased Premises, Lessee shall cause the same to
be cancelled and discharged of record by payment, bonding (in an amount
satisfactory to Lessor) or otherwise within fifteen (15) days after notice by
Lessor, or at such earlier time as is necessary to prevent the foreclosure
thereof. If Lessee shall fail or refuse to cause any such lien or affidavit
to be cancelled and discharged as herein required, Lessor, without waiving
such default by Lessee, shall have the right and privilege at Lessor's option
of paying the same or any portion thereof without inquiry as to the validity
thereof, and any amounts so paid, including expenses and interest, shall be
so much additional rent hereunder due from Lessee to Lessor and shall be
repaid to Lessor immediately upon demand, together with interest on the
amount so paid at the highest lawful rate until repaid. Lessor's consent to
the making of any such alterations, additions, or other changes may not be
construed to make Lessee an agent of Lessor with authority to subject
Lessor's interest in the Leased Premises to any such lien or other claim.
Sec. 5:3. ACCESS BY LESSOR. Lessee agrees to allow Lessor and Lessor's
agents, employees, and representatives to enter into and upon the Leased
Premises during normal business hours for the purpose of inspecting the Leased
Premises and for exercising any of Lessor's rights under this Lease. Lessor may
under no circumstances be held liable for inconvenience, annoyance, disturbance,
or loss of business caused to Lessee or Lessee's guests, employees, or
subLessees by any such entry.
Sec. 5:4. SIGNS. Lessee shall not, without Lessor's prior written
consent, install outside the interior surface of the perimeter walls of any
building located on the Leased Premises any signs, window or door lettering,
placards, decorations, credit card or other decals, or any other advertising
media of any type. The design and location of all exterior signs shall be
approved in writing by Lessor. Prior to installing any signs, Lessee shall
submit to Lessor working drawings of any and all proposed signs. No sign shall
be installed unless and until Lessor's written approval of such sign and its
location has been obtained by Lessee. Lessee, at Lessee's sole cost and
expense, shall maintain all such signs installed by Lessee in good condition and
in proper operating order at all times and shall pay for all electricity used in
the operation of any signs. Lessee, at Lessee's sole cost and expense, shall
repair or cause to be repaired all damage done to any part of the Leased
Premises in connection with the installation, maintenance, repair or removal of
any of Lessee's signs.
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ARTICLE VI.
SPECIAL PROVISIONS
Sec. 6:1. ASSIGNMENTS AND SUBLEASES.
A. BY LESSEE. Lessee may not assign this Lease or any of Lessee's
rights under this Lease or sublease any part or all of the Leased Premises or
grant any license to use any portion of the Leased Premises without Lessor's
prior written consent. Consent by Lessor to one assignment, sublease or license
may not be construed as meaning consent to further assignments, subleases or
licenses. Regardless of any such assignment, sublease or license, Lessee will
remain liable to Lessor for the full performance of all of the provisions of
this Lease. As an additional condition precedent to any assignment, sublease or
license, Lessee shall furnish Lessor, among other things, reasonable notice of
the proposed assignment, sublease or license with appropriate documentation
respecting the identity, reputation, financial condition, and creditworthiness
of the proposed assignee, sublessee or licensee, and the proposed assignee,
sublessee or licensee shall, in recordable form, expressly assume all covenants
and conditions of this Lease on the part of Lessee to observe, comply with, or
perform. Any assignment, subletting or license shall be subject to and
conditioned upon, among other things, Lessee paying to Lessor an amount equal to
the attorneys' fees and administrative costs incurred by Lessor in connection
with such assignment, subletting or license.
B. BY LESSOR. Lessor may at any time convey, assign, or encumber
the Leased Premises and/or Lessor's rights under this Lease. In the event of
any such conveyance or assignment (other than a conveyance or assignment as
collateral security for an indebtedness), Lessor will be completely relieved
from all obligations placed on Lessor by this Lease effective the date of such
conveyance or assignment. However, Lessor will be so relieved only if (and
when) Lessee is furnished with an instrument in writing signed by such grantee
or assignee and providing for the assumption by such grantee or assignee of all
of the provisions of this Lease.
Sec. 6:2. FORCE MAJEURE. In the event that Lessor or Lessee is delayed or
hindered in or prevented from the performance of any of their respective
obligations anywhere herein contained by reason of: (1) the destruction, in
whole or in part, of any improvements forming a part of the Leased Premises; (2)
strikes; (3) lockouts; (4) labor troubles; (5) war, whether declared or
undeclared; (6) riot; (7) Act of God; (8) embargoes; (9) delays in
transportation; (10) inability to procure materials and/or labor; (11) failure
of power; (12) restrictive governmental laws or regulations (whether valid or
not); (13) insurrection; or (14) any other reason (other than financial) beyond
the reasonable control of such party, and not the fault of the party so delayed
or hindered in or prevented from performing work or doing acts otherwise
required under this Lease, then performance of such work or doing of such acts
will be excused for the period of the delay, and the period for the performance
of such work or doing such acts will be extended for a period equivalent to the
period of such delay; provided, however, that the
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provisions of this Section may not operate so as to excuse or release Lessee
from the prompt payment of rentals or other sums required to be paid by
Lessee to Lessor or to other payees anywhere hereunder.
Sec. 6:3. ESTOPPEL CERTIFICATE. Within ten days after written request
therefor by Lessor, Lessee shall deliver to Lessor (or Lessor's nominee) in
recordable form an Estoppel Certificate (herein so called) certifying (if such
be the case) that this Lease is unmodified and in full force and effect and the
dates to which the Basic Rent, Additional Rent, and other charges have been
paid, and stating whether or not to the knowledge of the signer of such
certificate Lessor is in default in the performance of any provision contained
in this Lease, and, if so, specifying each such default of which the signer may
have knowledge. Lessee hereby irrevocably appoints Lessor Lessee's attorney in
fact with full power and authority to execute, acknowledge, and deliver any such
Estoppel Certificates in the name and on behalf of Lessee in the event Lessee
for any reason fails to do so upon request.
Sec. 6:4. SUBORDINATION OF LEASE. If Lessor is required by the holder of
any note secured by a mortgage, deed of trust, or other lien now or hereafter
given by Lessor covering the Leased Premises to subordinate this Lease to such
mortgage, deed of trust, or other lien (and to all advances hereafter made in
connection therewith), Lessee shall, within ten (10) days after written request
therefor, execute and deliver such instruments as may be necessary to effect
such subordination, but only if: (a) the holder of such note agrees in writing
to recognize this Lease and Lessee's rights under this Lease; and (b)
foreclosure of the lien securing such note will not operate to terminate this
Lease or adversely affect Lessee's rights or obligations. Lessee hereby
irrevocably appoints Lessor Lessee's attorney in fact with full power and
authority to execute, acknowledge, and deliver any such instruments in the name
and on behalf of Lessee in the event Lessee for any reason fails to do so upon
request.
Sec. 6:5. MORTGAGE OF LESSEE'S LEASEHOLD ESTATE. Lessee may mortgage
Lessee's leasehold estate in the Leased Premises as security for any bona fide
indebtedness of Lessee, but no such mortgage may under any circumstances impair
or affect Lessor's interest in the Leased Premises or under this Lease, and any
such mortgage will at all times remain subordinate and inferior to Lessor's
interest in the Leased Premises and under this Lease. If Lessor receives notice
in writing of the name and mailing address of any such mortgagee of Lessee,
Lessor agrees to furnish such mortgagee with notice of the occurrence of any
Event of Default hereunder, and such mortgagee may (but will not be obligated
to), in the name and on behalf of Lessee, cure any such Event of Default within
the time and in the manner herein required of Lessee. In the event such
mortgagee forecloses such mortgagee's interest in the Leased Premises in any
manner provided by law and such mortgagee or other person or entity ("NEW
OWNER") becomes the legal owner of the Leasehold estate, such New Owner shall be
substituted for the Lessee under this Lease and will be obligated to perform all
of the obligations herein placed on Lessee. This substitution will be automatic
and will not require any written instrument of assumption in order to take
effect.
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Sec. 6:6. RECORDING OF LEASE. Lessee may not record this Lease without
Lessor's prior written consent. However, if requested in writing by Lessee,
Lessor agrees to execute and deliver to Lessee a Memorandum of Lease for
recording purposes which is in form and substance satisfactory to Lessor.
Lessee shall pay all recording costs.
ARTICLE VII.
DAMAGE AND CONDEMNATION
Sec. 7:1. DAMAGE TO LEASED PREMISES. Lessee shall promptly and diligently
repair, restore, and replace all damage to or destruction of any and all
improvements at any time located on the Leased Premises and otherwise remedy all
damage to or destruction of all or any part of the improvements, resulting
wholly or in part from any cause required by this Lease to be covered by fire or
extended coverage insurance. The completed work of repair, restoration, or
replacement shall be at least equal in value, quality and use to the condition
of the improvements immediately before the event giving rise to the work.
Lessor shall not be required to furnish any services or facilities or to make
any repairs, alterations, or replacements of any kind in or on the Leased
Premises, all such matters being the sole duty and responsibility of Lessee. In
the event Lessor elects to perform any obligation of Lessee after Lessee's
failure or refusal to do so, such performance shall not constitute a waiver of
any right or remedy for Lessee's default, and Lessee shall promptly reimburse,
defend, and indemnify Lessor against all liability, loss, cost, and expense
arising from such performance by Lessor. No deprivation, impairment, or
limitation of use resulting from any event or work contemplated by this
paragraph shall entitle Lessee to any offset, abatement, or reduction in rent
nor to any termination or extension of the Lease Term.
Sec. 7:2. CONDEMNATION OF LEASED PREMISES.
A. TOTAL CONDEMNATION. If the whole of the Leased Premises shall be
taken by any public or quasi-public authority under the power of eminent domain,
condemnation or expropriation or in the event of a conveyance in lieu thereof,
then this Lease shall terminate on the date when Lessee is required to yield
possession thereof, and all rentals shall be paid up to that date, and Lessee
shall have no claim against Lessor or the condemning authority for the value of
the unexpired term of this Lease.
B. PARTIAL CONDEMNATION. If part of the Leased Premises shall be so
taken or conveyed and the consequent reduction in the area of the Leased
Premises be such that the conduct of Lessee's business on the Leased Premises
would be substantially and materially prevented or impaired, then the term of
this Lease shall cease and terminate as of the date on which possession of the
Leased Premises is required to be surrendered to the condemning authority, and
all rentals shall be paid up to that date. Lessee shall have no claim against
Lessor or the condemning authority for the value of any unexpired term of this
Lease. Should,
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however, only a portion of the Leased Premises be so condemned or taken and
the subsequent reduction of the area of the Leased Premises be not such that
the conduct of Lessee's business on the Leased Premises would be
substantially and materially prevented or impaired, then this Lease shall
continue in full force and effect. If this Lease is not terminated following
a partial condemnation, Lessee shall, at Lessee's sole cost and expense, make
all necessary repairs or alterations to any improvements damaged or removed
by such taking which are necessary to restore the Leased Premises to
substantially the condition in which the same existed immediately prior to
such taking. Notwithstanding anything to the contrary in this Lease, Lessor
shall not be obligated to pay any portion of the cost of any work to be
performed by Lessee as a result of any such partial condemnation. No partial
taking shall be deemed to constitute an eviction or disturbance of Lessee's
use and possession of the Leased Premises or a breach by Lessor of any of its
obligations hereunder or render Lessor liable for damages or entitle Lessee
to be relieved from any of its obligations hereunder or grant Lessee any
right of off-set or recoupment.
C. DAMAGES. The taking or condemnation of the whole or any part of
the Leased Premises by any legally constituted authority for any public or any
quasi-public use or purpose shall be without prejudice to the rights of either
Lessor or Lessee to recover compensation and damages caused by such taking or
condemnation from the taker or condemnor. In the event of a taking, the rights
of the parties with respect to the award for such taking shall be as the parties
then agree to be just and equitable under all the circumstances, having in mind
the rights of any mortgagee, the economics of operating any remaining portion of
the Leased Premises and improvements, the cost of restoration, and the balance
of the Lease Term remaining, among other relevant considerations. If Lessor and
Lessee do not agree within ninety (90) days after the amount of the award is
finally determined, the undecided questions shall be resolved by arbitration.
Arbitration shall be by a panel of three (3) arbitrators, one appointed by each
of the parties hereto and a third appointed by the two so selected. Such
arbitration shall be conducted in accordance with the laws of the State in which
the Leased Premises are located. Notwithstanding anything contained herein or
decided by any arbitrators to the contrary, Lessee shall not be entitled to any
part of the award which is attributable to the taking of any land, and Lessor
shall be entitled to receive the full amount of such award.
D. DEED IN LIEU OF CONDEMNATION. In the event that any authority
having the power of eminent domain requests that Lessor convey to such authority
all or any portion of the Leased Premises, Lessor shall have the right to make a
voluntary conveyance to such authority of all or any portion of the Leased
Premises notwithstanding that proceedings have not been filed by such authority;
and in the event of any such voluntary conveyance, it shall nevertheless for all
purposes hereunder be deemed that there has been a taking by such authority of
the property voluntarily conveyed by Lessor. Accordingly, all of the provisions
of SEC. 7:2 shall be applicable notwithstanding such voluntary conveyance.
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ARTICLE VIII.
DEFAULT
Sec. 8:1. EVENTS OF DEFAULT. An "Event of Default" will be deemed to have
occurred upon the happening of any of the following events or conditions:
A. Lessee fails to timely pay when due any installment of rent
(whether Basic Rent, Additional Rent, or other charges) hereby reserved and such
failure shall continue for more than ten (10) days after written notice from
Lessor to Lessee specifying the failure; provided, however, after Lessor has
given Lessee written notice pursuant to this clause A on three (3) separate
occasions during any calendar year, Lessor shall not be required to give Lessee
any further notice under this clause A.
B. Lessee fails to comply with any term, provision or covenant of
this Lease, other than the payment of rent, and such failure shall continue for
more than thirty (30) days after written notice from Lessor to Lessee specifying
the failure; provided, however, if such failure cannot reasonably be cured
within thirty (30) days, no Event of Default shall exist as a result of such
failure unless Lessee fails to commence curing such failure within such thirty
(30) day period, fails to diligently proceed to cure such failure, or fails to
completely cure such failure within ninety (90) days after such notice.
C. Lessee or any guarantor of Lessee's obligations under this Lease
becomes insolvent, makes a transfer in fraud of creditors, or shall make an
assignment for the benefit of creditors.
D. Lessee or any guarantor of Lessee's obligations under this Lease
files a petition under any section or chapter of the Bankruptcy Code, as
amended, or under any similar law or statute of the United States or any state
thereof; or Lessee or such guarantor is adjudged bankrupt or insolvent in
proceedings filed against Lessee or such guarantor thereunder.
E. A receiver or trustee is appointed for the Leased Premises or for
all or substantially all of the assets of Lessee or any guarantor of Lessee's
obligations under this Lease.
F. Lessee does or permits to be done anything which creates a lien
upon the Leased Premises.
G. Lessee assigns or in any manner transfers this Lease or any
estate or interest therein, or assigns or in any manner transfers any of
Lessee's rights under this Lease, or sublets the Leased Premises or any part
thereof, or grants any license, concession or other right or occupancy of any
portion of the Leased Premises without the prior written consent of Lessor.
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H. Lessee defaults under the terms and conditions of any loan or
other financing secured by a mortgage, deed of trust or other security agreement
constituting a lien on any of the improvements constructed on the Leased
Premises or Lessee's leasehold interest in the Leased Premises and such default
is not cured within any applicable cure period.
Sec. 8:2. REMEDIES. Upon the occurrence of an Event of Default, Lessor
shall have the option, in addition to any other right or remedy given hereunder
or by law or equity, to pursue any one or more of the following remedies without
any notice or demand whatsoever:
A. Terminate this Lease, in which event Lessee shall immediately
surrender the Leased Premises to Lessor, and if Lessee fails to do so, Lessor
may, without prejudice to any other remedy which Lessor may have for possession
or arrearages in rent, immediately enter upon and take possession of the Leased
Premises and expel or remove Lessee and any other person who may be occupying
the Leased Premises or any part thereof and any property found within the Leased
Premises, by force if necessary, without being liable for prosecution or any
claim of damages therefor. If and to the extent permitted by applicable law,
Lessor also will have the right to lock the Leased Premises and bar Lessee from
entering the Leased Premises. The right of re-entry of Lessor and the right of
Lessor to remove all persons and property from the Leased Premises may be
accomplished by Lessor without any notice given to Lessee. Lessor may
accomplish all of this without resort to legal process and without being deemed
guilty of trespass or becoming liable to Lessee or others for any resulting loss
or damage. Lessee agrees to pay to Lessor on demand the amount of all loss and
damage which Lessor may suffer by reason of such termination, whether through
inability to relet the Leased Premises on satisfactory terms or otherwise. If
Lessor elects to terminate this Lease, all of Lessee's rights under this Lease
shall immediately cease. Notwithstanding the fact that all of the Lessee's
rights under this Lease shall cease upon termination of this Lease, the
termination of this Lease by Lessor on account of default by Lessee does not in
any way affect Lessee's liability for past due rental or damages as set forth
below on account of such breach. Upon termination of this Lease by Lessor,
Lessee shall pay to Lessor all past due rentals and, as liquidated damages, a
sum of money determined as set out below as rental for the balance of the Lease
term. If this sum is not paid within ten (10) days after Lessor has sent Lessee
notice of the amount due, interest shall accrue on such sum at the rate of
twelve percent (12%) per annum from the date of termination of this Lease until
such sum is paid in full.
B. Enter upon and take possession of the Leased Premises and expel
or remove Lessee and any other person who may be occupying the Leased Premises
or any part thereof, together with any property that may be found within the
Leased Premises, by force if necessary, without being liable for prosecution or
any claim for damages therefor, and, if Lessor so elects, perform such
alterations and repairs as Lessor deems advisable and relet the Leased Premises
on such terms as Lessor may deem advisable and receive the rent therefor. Upon
such reletting, Lessee shall immediately be liable to Lessor, in addition to any
indebtedness other than rent due hereunder, for the cost and expenses of such
reletting and of such alterations and
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repairs incurred by Lessor. At the option of Lessor, rents received by
Lessor by such reletting shall be applied as follows:
1. First, to the payment of any indebtedness, other than rent, due
hereunder from Lessee to Lessor;
2. Second, to the payment of any of the cost or expense of the reletting
and of such alterations and repairs;
3. Third, to the payment of all past due rental;
4. Fourth, to the payment of the future Basic Rent, Additional Rent and
other charges, as the same may become due and payable hereunder.
If the rent received by Lessor by such reletting for any Lease Year shall be
less than that owing by Lessee under this Lease for such Lease Year, Lessee
shall pay the deficiency to Lessor within ten days after Lessor has sent Lessee
written demand therefor. If Lessee fails to timely pay this sum, interest shall
accrue on such amount at the rate of twelve percent (12%) per annum from the
date of such written demand until such sum is paid in full. If the rent
received by Lessor for such reletting is more than that owing by Lessee under
this Lease for such Lease Year, Lessor shall be entitled to retain the excess.
No re-entry or taking possession of the Leased Premises by Lessor shall be
construed as an election on Lessor's part to terminate this Lease unless Lessor
has elected to terminate this Lease. Notwithstanding any reletting without
termination, Lessor may at any time thereafter elect to terminate this Lease for
such previous breach.
C. Enter upon the Leased Premises, by force if necessary, without
being liable for prosecution or any claim for damages therefor, and do whatever
Lessee is obligated to do under the terms of this Lease; and Lessee agrees to
reimburse Lessor on demand for any expenses which Lessor may incur in thus
effecting compliance with Lessee's obligations under this Lease, and Lessee
further agrees that Lessor shall not be liable for any damages resulting to
Lessee from such action, whether caused by the negligence of Lessor or
otherwise.
D. If and to the extent permitted by applicable law, alter any and
all locks and other security devices at the Leased Premises.
Sec. 8:3. EFFECT OF EXERCISE OF REMEDIES. Exercise by Lessor of any one
or more remedies hereunder granted or otherwise available shall not be deemed to
be an acceptance of surrender of the Leased Premises by Lessee, whether by
agreement or by operation of law, it being understood that such surrender can be
effected only by the written agreement of Lessor and Lessee. No such alteration
of locks or other security devices and no removal or other exercise of dominion
by Lessor over the property of Lessee or others at the Leased Premises
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shall be deemed unauthorized or constitute a conversion, Lessee hereby
consenting, after any Event of Default, to the exercise by Lessor of dominion
over Lessee's property within the Leased Premises. All claims for damages by
reason of re-entry and/or repossession and/or alteration of locks or other
security devices are hereby waived, as are all claims for damages by reason
of any distress warrant, forcible detainer proceedings, sequestration
proceedings or other legal process. Lessee agrees that any re-entry by
Lessor may be pursuant to judgment obtained in forcible detainer proceedings
or other legal proceedings or without the necessity for any legal
proceedings, as Lessor may elect, and Lessor shall not be liable in trespass
or otherwise. Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies herein provided or any other remedies
provided by law, nor shall pursuit of any remedy herein provided constitute a
forfeiture or waiver of any rent due to Lessor hereunder or of any damages
accruing to Lessor by reason of the violation of any of the terms, provisions
or covenants herein contained. Forbearance by Lessor to enforce one or more
of the remedies herein provided upon an event of default shall not be deemed
or construed to constitute a waiver of such default. To the extent permitted
by law, Lessee waives notice of re-entry, or institution of legal proceedings
to that end, and any right of redemption, re-entry or repossession. No
waiver by Lessor of any violation or breach of any of the terms, provisions,
and covenants herein contained shall be deemed or construed to constitute a
waiver of any other violation or breach of any of the terms, provisions, and
covenants herein contained. Lessor's acceptance of the payment of rental or
other payments hereunder after the occurrence of an Event of Default shall
not be construed as a waiver of such default, unless Lessor so notifies
Lessee in writing. Forbearance by Lessor to enforce one or more of the
remedies herein provided upon an Event of Default shall not be deemed or
construed to constitute a waiver of such Event of Default.
Sec. 8:4. DAMAGES. Notwithstanding re-entry and termination pursuant
to SEC. 8:2.A or re-entry without termination pursuant to SEC. 8:2.B, Lessee
shall remain liable for any rent and damages which may be due or which may be
incurred prior thereto and all reasonable costs and all professional fees and
expenses incurred by Lessor in leasing the Leased Premises to another tenant.
Lessee shall also be liable for damages to be calculated in the following
manner: Lessee shall pay an amount of money equal to the total rent
(including Basic Rent, Additional Rent and other charges) which but for
termination would have become payable during the remainder of the Lease term,
less the amount of rent, if any, which Lessor actually receives during such
period from others to whom the Leased Premises may be rented on such terms
and conditions and at such rentals as Lessor, in its sole discretion, shall
deem proper. Such damage shall be payable in annual installments, in
arrears, on the first day of each Lease Year following such termination and
continuing until the date originally fixed herein for the expiration of the
then current term, and any suit or action brought to collect the amount of
any deficiency for any Lease Year shall not in any manner prejudice the right
of Lessor to collect any deficiency for any subsequent Lease Year by a
similar proceeding. In no event shall Lessee be entitled to any excess of
any rent obtained by reletting the Leased Premises for an amount over and
above the rent herein reserved. In case of an Event of Default, Lessee shall
also be liable for and shall pay to Lessor, in addition to any sum provided
to be paid above, broker's fees incurred by
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Lessor in connection with reletting the whole or any part of the Leased
Premises, the costs of removing and storing Lessee's or other occupant's
property, the costs of repairing, altering, remodeling or otherwise putting
the Leased Premises into condition acceptable to a new tenant or tenants, and
all reasonable expenses incurred by Lessor in enforcing Lessor's remedies,
including reasonable attorneys' fees.
Sec. 8:5. ATTORNEYS' FEES. In the event Lessee defaults in the
performance of any of the terms, covenants, or conditions contained in this
Lease and Lessor places the enforcement of this Lease, or any part thereof, or
the collection of any rental due or to become due hereunder, or the recovery of
possession of the Leased Premises in the hands of an attorney, or files suit
upon the same, Lessee agrees to pay to Lessor all cost of suit and cost of
enforcement of Lessor's rights hereunder, including reasonable attorneys' fees;
and the payment of the sums and amounts specified in this paragraph shall be
secured in like manner as is herein provided as to security for rent.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
Sec. 9:1. NOTICES. All notices allowed or required to be given hereunder
must be in writing and either personally delivered or dispatched by United
States certified mail, return receipt requested, to the respective addresses of
the parties set forth at the end of this Lease. Either party hereto may change
the address to which any such notice is to be addressed by giving notice in
writing to the other party of such change. Any time limitation provided for in
this Lease will commence with the date that the party actually receives such
written notice, and the date of postmark of any return receipt indicating the
date of delivery of such notice to the addressee will be conclusive evidence of
such receipt. Any notice or document required or permitted to be delivered by
this Lease shall be deemed to be received (whether or not actually received)
when deposited in the United States mail, postage prepaid, certified mail,
return receipt requested, addressed to the party to be notified at the address
set forth at the end of this Lease.
Sec. 9:2. WAIVER. The waiver by either Lessor or Lessee of any provision
of this Lease may not be deemed to be a waiver of any other provision. The
subsequent acceptance of Basic Rent or Additional Rent by Lessor from Lessee may
under no circumstances be deemed to be a waiver of any preceding breach by
Lessee of any provision hereof other than the failure of Lessee to pay the rent
so accepted regardless of Lessor's knowledge of such preceding breach at the
time of the acceptance of such rent. No provision of this Lease may under any
circumstances be deemed to have been waived by any party hereto unless such
waiver is in writing and signed by the party charged with such waiver.
Acceptance by Lessor of any payment in an amount less than that portion then
owing under this Lease will be deemed an
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acceptance on account only and not a waiver; and the failure to pay the
entire amount then due will continue to constitute an Event of Default.
Sec. 9:3. ENTIRE AGREEMENT AND AMENDMENTS. This Lease constitutes the
entire agreement between Lessor and Lessee, and there are no other covenants,
agreements, promises, terms, provisions, conditions, undertakings, or
understandings, either oral or written, between them concerning the Leased
Premises other than those herein set forth. No subsequent alteration,
amendment, change, deletion or addition to this Lease will be binding upon
Lessor or Lessee unless in writing and signed by both Lessor and Lessee.
Sec. 9:4. NO JOINT VENTURE. Nothing herein contained will be deemed to
constitute Lessor a partner of Lessee in the conduct of Lessee's business or a
joint venturer or a member of a joint enterprise or partnership with Lessee.
Sec. 9:5. PARTIAL INVALIDITY. If any provision of this Lease, or the
application thereof to any person or circumstances, is determined to any extent
to be invalid or unenforceable, the remainder of this Lease, or the application
of such affected provision to persons or circumstances other than those to which
it is held invalid or unenforceable, will not be affected thereby, and each
provision of this Lease will be valid and may be enforced to the fullest extent
permitted by law. It is further the intention of Lessor and Lessee that if any
provision of this Lease is capable of two constructions, one of which would
render the provision void and other of which would render the provisions valid,
then the construction having the meaning which renders it valid will be deemed
to be the only proper construction of such provision.
Sec. 9:6. BROKER'S COMMISSION. Lessor and Lessee each represent and
warrant to the other that there are no claims for brokerage commissions or
finder's fees in connection with the execution and delivery of this Lease, and
each agrees to indemnify the other against and hold such party harmless from all
liabilities arising from any such claims including without limitation attorneys'
fees and related court costs.
Sec. 9:7. HEADINGS; CAPTIONS. The headings, captions, and numbering
system are inserted only as a matter of convenience and may under no
circumstances be considered in interpreting the provisions of this Lease.
Sec. 9:8. NO SETOFF. Lessee may under no circumstances have any right of
setoff or deduction against any payments payable by Lessee to Lessor under any
of the terms, provisions, conditions and covenants of this Lease, but instead
Lessee may register a protest in connection with any payments being made.
Sec. 9:9. HOLDING OVER. Any holding over of the Leased Premises, or any
part thereof, by Lessee after the termination of this Lease (for whatever reason
such termination may occur)
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is to be construed only as a tenancy from day to day, terminable at the will
of Lessor, at a daily rental equal to $1.00 per day.
Sec. 9:10. GOVERNING LAW; PLACE OF PERFORMANCE. THIS LEASE SHALL BE
GOVERNED BY AND CONSTRUED UNDER AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS. All of the duties and obligations herein contained are performable in
Tarrant County, Texas. Venue of any action brought under this Lease shall be in
Tarrant County, Texas.
Sec. 9:11. COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which will for all purposes be deemed to be an original,
and all of which are identical.
Sec. 9:12. GENDER; SINGULAR AND PLURAL. As used herein, the neuter gender
includes the feminine and masculine, the masculine includes the feminine and
neuter, and the feminine includes the masculine and neuter and each includes a
corporation, partnership, or other legal entity when the context so requires.
The singular number includes the plural, and VICE VERSA, whenever the context so
requires.
Sec. 9:13. BINDING EFFECT. This Lease shall be binding upon and shall
inure to the benefit of the parties thereto and their respective successors and
assigns except as otherwise provided herein.
Sec. 9:14. AUTHORITY TO EXECUTE. Lessee represents and warrants to Lessor
that Lessee is fully authorized to enter into this Lease without the joinder of
any other person or entity, and the person executing this Lease on behalf of
Lessee has full authority to do so and that any and all corporate action
required has been taken. Lessor represents and warrants to Lessee that Lessor
is fully authorized to enter into this Lease without the joinder of any other
person or entity, and the person executing this Lease on behalf of Lessor has
full authority to do so and that any and all corporate action required has been
taken.
ARTICLE X
SPECIAL PROVISIONS PERTAINING TO ENVIRONMENTAL MATTERS
Sec. 10:1. Representations, Covenants and Warranties. Lessee hereby
represents, covenants and warrants to Lessor and its successors and assigns, as
follows:
A. The location and construction, occupancy, operation and use of
all improvements now or hereafter attached to or placed, erected, constructed or
developed on, in, or under the Leased Premises or as a portion of the Leased
Premises (the "IMPROVEMENTS") will not violate any applicable law, statute,
ordinance, rule, regulation, policy, order or determination of any federal,
state, local or other governmental authority ("GOVERNMENTAL AUTHORITY") or any
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board of fire underwriters (or other body exercising similar functions), or any
restrictive covenant or deed restriction affecting any portion of the Leased
Premises, including without limitation, any applicable zoning ordinances and
building codes, flood disaster laws and health and environmental laws, rules and
regulations (hereinafter collectively called the "APPLICABLE LAWS").
B. Lessee will obtain, at Lessee's sole cost and expense, all
permits, licenses, and authorizations required to construct, occupy, operate,
and/or use any portion of the Leased Premises by reason of any Applicable Laws
pertaining to health or the environment (the "APPLICABLE ENVIRONMENTAL LAWS")
including, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA") and the Resource
Conservation and Recovery Act of 1987, as amended ("RCRA").
C. The use which Lessee makes and intends to make of the Leased
Premises will not result in the disposal or release of any hazardous substance,
solid waste or other substance known or suspected to pose a threat to health or
the environment (collectively, "HAZARDS" and individually, "HAZARD") on, in,
under or to the Leased Premises. The terms "hazardous substance" and "release"
shall each have the meanings specified in CERCLA, and the terms "solid waste"
and "disposal" (or "disposed") shall each have the meanings specified in RCRA;
provided, however, that in the event either that CERCLA or RCRA is amended so as
to broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment; and provided further
that, to the extent that the laws of the State of Texas establish a meaning for
"hazardous substance," "release," "solid waste," or "disposal" which is broader
than that specified in either CERCLA or RCRA, such broader definition shall
apply.
D. Lessee shall not cause any violation of any Applicable
Environmental Laws, nor permit any subtenant, concessionaire or licensee of any
portion of the Leased Premises to cause such a violation, nor permit any
environmental liens to be placed on any portion of the Leased Premises.
All of the foregoing representations, warranties and covenants shall be
continuing and shall be true and correct for the period from the date hereof
through the end of the Lease Term with the same force and effect as if made each
day throughout such period, and all of such representations and warranties shall
survive the expiration or termination of this Lease.
Sec. 10:2. COVENANT TO CLEAN UP AND NOTIFY. Lessee shall conduct and
complete all investigations, studies, sampling, and testing and all remedial,
removal, and other actions necessary to clean up and remove hazardous
substances, solid wastes or Hazards on, in, under, from or affecting any portion
of the Leased Premises (a) in accordance with all Applicable Laws, (b) to the
satisfaction of Lessor, and (c) in accordance with the orders and directives of
all Governmental Authorities. Lessee shall (a) give notice to Lessor
immediately upon (i)
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Lessee's receipt of any notice from any Governmental Authority of a violation
of any Applicable Laws or acquiring knowledge of the receipt of any such
notice by any subtenant, concessionaire or licensee of any portion of the
Leased Premises and (ii) acquiring knowledge of the presence of any hazardous
substances, solid wastes or Hazards on, in or under the Leased Premises in a
condition that is resulting or could reasonably be expected to result in any
adverse environmental impact, with a full description thereof; (b) promptly
comply with all Applicable Environmental Laws requiring the notice, removal,
treatment, or disposal of such hazardous substances, solid wastes or Hazards
and provide Lessor with satisfactory evidence of such compliance; and (c)
provide Lessor, within thirty (30) days after demand by Lessor, with a bond,
letter of credit, or similar financial assurance evidencing to Lessor's
satisfaction that sufficient funds are available to pay the cost of removing,
treating, and disposing of such hazardous substances, solid wastes or Hazards
and discharging any assessments that may be established on the Leased
Premises as a result thereof.
Sec. 10:3. SITE ASSESSMENT. If Lessor shall ever have reason to
believe that there are hazardous substances, solid wastes or Hazards
affecting any part of the Leased Premises, Lessor (by its officers, employees
and agents) at any time and from time to time, either prior to or after the
occurrence of an Event of Default, may contract for the services of persons
(the "SITE REVIEWERS") to perform environmental site assessments ("SITE
ASSESSMENTS") on the Leased Premises for the purpose of determining whether
there exists on the Leased Premises any environmental condition that could
result in any liability, cost, or expense to the owner, occupier, or operator
of the Leased Premises arising under any Applicable Environmental Laws. The
Site Assessments may be performed at any time or times, upon reasonable
notice, and under reasonable conditions established by Lessee that do not
impede the performance of the Site Assessments. The Site Reviewers are
hereby authorized to enter upon the Leased Premises for such purposes. The
Site Reviewers are further authorized to perform both above and below the
ground testing for environmental damage or the presence of hazardous
substances, solid wastes and Hazards on the Leased Premises and such other
tests on the Leased Premises as may be necessary to conduct the Site
Assessments in the reasonable opinion of the Site Reviewers. Lessee will
supply to the Site Reviewers such historical and operational information
regarding the Leased Premises as may be reasonably requested by the Site
Reviewers to facilitate the Site Assessments and will make available for
meetings with the Site Reviewers appropriate personnel having knowledge of
such matters. On request, Lessor shall make the results of such Site
Assessments fully available to Lessee, which (prior to an Event of Default)
may, at Lessee's election, participate under reasonable procedures in the
direction of such Site Assessments and the description of tasks of the Site
Reviewers. The cost of performing such Site Assessments shall be paid by
Lessee upon demand of Lessor.
Sec. 10:4. INDEMNITY AND HOLD HARMLESS. Lessee hereby defends,
indemnifies and holds harmless Lessor, its employees, agents, shareholders,
officers and directors (collectively, the "INDEMNIFIED PARTIES"), from and
against any claims, demands, obligations, penalties, fines, suits, liabilities,
settlements, damages, losses, costs or expenses (including, without limitation,
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attorney and consultant fees and expenses, investigation and laboratory fees and
expenses, cleanup costs, and court costs and other litigation expenses) of
whatever kind or nature, known or unknown, contingent or otherwise, arising out
of or in any way related to (i) the presence, disposal, release, threatened
release, removal or production of any hazardous substances, solid wastes or
Hazards which are on, in, under, from or affecting any portion of the Leased
Premises at any time during the Lease Term or thereafter during any occupancy of
the Leased Premises by Lessee; (ii) any personal injury (including wrongful
death) or property damage (real or personal) arising out of or related to such
hazardous substances, solid wastes or Hazards; (iii) any lawsuit brought or
threatened, settlement reached, or order by Governmental Authority relating to
such hazardous substances, solid wastes or Hazards, and/or (iv) any violation of
any Applicable laws, or demands of Governmental Authorities, or violation of any
policies or requirements of Lessor, which are based upon or in any way related
to such hazardous substances, solid wastes or Hazards, regardless of whether or
not any of the conditions described under any of the foregoing subsections (i)
through (iv), inclusive, was or is caused by or within the control of Lessee.
Lessee agrees, upon notice and request by an Indemnified Party, to contest and
defend any demand, claim, suit, proceeding, or action with respect to which
Lessee has hereinabove indemnified and held the Indemnified Parties harmless and
to bear all costs and expenses of such contest and defense. Lessee further
agrees to reimburse any Indemnified Party upon demand for any costs or expenses
incurred by any Indemnified Party in connection with any matters with respect to
which Lessee has hereinabove indemnified and held the Indemnified Parties
harmless. The provisions of this paragraph shall be in addition to any other
obligations and liabilities Lessee may have to Lessor at common law, in equity
or under this Lease, and shall survive the termination of this Lease.
Sec. 10:5. LESSOR'S RIGHT TO REMOVE HAZARDOUS MATERIALS. Lessor shall
have the right, but not the obligation, without in any way limiting Lessor's
other rights and remedies under this Lease, to enter onto the Leased Premises
or to take such other actions as it deems necessary or advisable to clean up,
remove, resolve, or minimize the impact of, or otherwise deal with, any
hazardous substances, solid wastes or Hazards on, in, under, or affecting the
Leased Premises following receipt of any notice from any person or entity
asserting the existence of any hazardous substances, solid wastes or Hazards
pertaining to the Leased Premises or any part thereof that, if true, could
result in an order, notice, suit, imposition of a lien on the Leased
Premises, or other action or that, in Lessor's sole opinion, could jeopardize
Lessor. All reasonable costs and expenses paid or incurred by Lessor In the
exercise of any such rights shall be payable by Lessee upon demand.
Sec. 10:6. RELIANCE AND BINDING NATURE. Lessee acknowledges that
Lessor has and will rely upon the representations, covenants, warranties and
agreements herein set forth in entering into this Lease and leasing the
Leased Premises to Lessee. The representations, covenants, warranties and
agreements herein contained shall be binding upon Lessee, its successors,
assigns and legal representatives and shall inure to the benefit of Lessor,
its successors, assigns and legal representatives.
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EXECUTED to be effective for all purposes as of the date first above
written.
LESSOR:
Lessor's Address for notice: INDEPENDENT RESEARCH AGENCY FOR LIFE
INSURANCE, INC.
Independent Research Agency
for Life Insurance, Inc.
P. O. Box 2387 By: /s/ Martin R. Durbin
Fort Worth, Texas 76113 ------------------------------------
Attn: Chief Financial Officer Name: MARTIN R. DURBIN
----------------------------
Title: CHIEF FINANCIAL OFFICER
----------------------------
LESSEE:
FIRST COMMAND FINANCIAL
Lessee's Address for notice: CORPORATION
First Command Financial Corporation
4100 South Hulen By: /s/ Lamar C. Smith
Fort Worth, Texas 76109 -----------------------------------
Attn: Chief Executive Officer Name: LAMAR C. SMITH
---------------------------
Title: CHIEF EXECUTIVE OFFICER
---------------------------
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EXHIBIT A
BEING a 43750 square foot tract of land situated in the B.B.B. & C.R.R.
Survey, Abstract Number 217, and the J. Howard Survey, Abstract Number 693,
City of Fort Worth, Tarrant County, Texas, being part of Lot 2-R, Block C of
OVERTON WEST ADDITION described by plat recorded in Volume 388-173, Page 10,
Plat Records of Tarrant County, Texas (PRTCT), and being part of a called
17.000 acre tract of land described by deed as "TRACT FOUR" to Cassco Land
Co., Inc., recorded in Volume 6494, Page 389, Deed Records of Tarrant County,
Texas (DRTCT), said 43750 square foot tract of land being more particularly
described by metes and bounds as follows:
Commencing at a 1/2-inch iron rod found at the intersection of the north
right-of-way line of Overton Plaza (an 80-foot right-of-way) and the west
right-of-way line of South Hulen Street (a 120-foot right-of-way);
THENCE along said west right-of-way line the following:
North 00DEG.09'00" East, a distance of 281.00 feet to a 1/2-inch iron
rod found for the beginning of a curve to the left having a central angle
of 09DEG.31'21" and a radius of 1287.60 feet;
Along said curve to the left an arc distance of 214.00 feet and a chord
bearing and distance of North 04DEG.36'41" West 213.75 feet to a
1/2-inch iron rod found for the southeast corner of Lot 1, Block C of
OVERTON WEST ADDITION described by plat recorded in Volume 388-74, Page
2 PRTCT;
THENCE South 84DEG.46'00" West, a distance of 327.42 feet along the south
line of said Lot 1 to a point;
THENCE South 05DEG.14'00" East, a distance of 59.71 feet to a point for
corner, said point being the POINT OF BEGINNING;
THENCE South 04DEG.23'44" East, a distance of 125.00 feet to a point for
corner;
THENCE South 85DEG.36'16" West, a distance of 350.00 feet to a point for
corner;
THENCE North 04DEG.23'44" West, a distance of 125.00 feet to a point for
corner;
THENCE North 85DEG.36'16" East, a distance of 350.00 feet to the POINT OF
BEGINNING;
CONTAINING a computed area of 43750 square feet of land.
<PAGE>
EXHIBIT B
Being a 14.278 acre tract of land situated in the B.B.B. & C.R.R.
Survey, Abstract No. 217, and the J. Howard Survey, Abstract No. 693, City of
Fort Worth, Tarrant County, Texas, being all of LOT 2-R, BLOCK C of OVERTON
WEST ADDITION described by plat recorded in Volume 388-173, Page 10, Plat
Records of Tarrant County, Texas (PRTCT), being the remainder of LOT 4 BLOCK
C of OVERTON WEST ADDITION described by plat recorded in Volume 388-124, Page
27, PRTCT, being part of a called 19.23 acre tract of land described by deed
to Cassco Land Co., Inc., recorded in Volume 5190, Page 800, Deed Records of
Tarrant County, Texas (DRTCT), and being part of a called 17.000 acre tract
of land described by deed as "TRACT FOUR" to Cassco Land Co., Inc., recorded
in Volume 6494, Page 389, DRTCT, said 14.278 acre tract of land being more
particularly described as follows:
BEGINNING at a 1/2-inch iron rod set at the intersection of the north
right-of-way line of Overton Plaza (an 80-foot right-of-way) and the west
right-of-way line of South Hulen Street (a 120-foot right-of-way);
THENCE along said north right-of-way line the following:
North 89DEG.51'00" West, a distance of 48.27 feet to a 1/2-inch iron
rod set for the beginning of a curve to the left having a central angle of
11DEG.50'55" and a radius of 762.79 feet;
Along said curve of the left an arc distance of 157.74 feet and a chord
bearing and distance of South 84DEG.13'32" West 157.46 feet to a 1/2-inch
iron rod set for the point of tangency;
South 78DEG.18'00" West, a distance of 416.34 feet to 1/2-inch iron rod
set for the beginning of a curve to the right having a central angle of
18DEG.54'30" and a radius of 1128.51 feet;
Along said curve to the right an arc distance of 372.42 feet and a chord
bearing and distance of South 87DEG.45'15" West 370.73 feet to a
1/2-inch iron rod set for the beginning of a compound curve to the right
having a central angle of 22DEG.21'07" and a radial bearing and
distance of North 07DEG.05'18" East 634.45 feet;
Along said compound curve to the right an arc distance 247.51 feet and a
chord bearing and distance of North 71DEG.44'09" West 245.94 feet to a
1/2-inch iron set for the southeast corner of LOT 5, BLOCK C of OVERTON
WEST ADDITION described by plat recorded in Volume 388-140, Page 19,
PRTCT;
THENCE along the southeast and northeast lines of said LOT 5 the following:
Page 1 of 2
<PAGE>
North 30DEG.04'00" East, a distance of 295.00 feet to a 1/2-inch iron
rod found for corner;
North 48DEG.30'00" West, a distance of 205.00 feet to a 1/2-inch iron
rod set for the north corner of said LOT 5, said corner being in the
southeast right-of-way line of Kingsridge Road (a 60-foot right-of-way)
and in a non-tangent curve to the left having a central angle of
16DEG.32'57" and a radial bearing and distance of North 47DEG.39'34"
East 830.00 feet;
THENCE along said southeast right-of-way line and said curve to the left an
arc distance of 239.74 feet and a chord bearing and distance of North 34DEG.
03'57" East 238.90 feet to a 1/2-inch iron rod found for the southwest corner
of LOT 1, BLOCK C of OVERTON WEST ADDITION described by plat recorded in
Volume 388-74, Page 2, PRTCT;
THENCE along the south lines of said LOT 1 the following:
South 64DEG.32'00" East, a distance of 303.48 feet to a 1/2-inch iron
rod found for corner;
North 84DEG.46'00" East, a distance of 801.45 feet to a 1/2-inch iron
rod set for corner in the west right-of-way line of the aforementioned
South Hulen Street, said corner being in a non-tangent curve to the right
having a central angle of 09DEG.31'21" and a radial bearing and distance
of South 80DEG.37'39" West 1287.60 feet;
THENCE along said west right-of-way line the following:
Along said curve to the right an arc distance of 214.00 feet and a chord
bearing and distance of South 04DEG.26'59" East 303.48 feet to a 1/2-inch
iron rod set for the point of tangency;
South 00DEG.09'00" West, a distance of 281.00 feet to the POINT OF
BEGINNING;
CONTAINING a computed area of 621,931 square feet or 14.278 acres of land.
Page 2 of 2
<PAGE>
MEMORANDUM OF GROUND LEASE
THE STATE OF TEXAS Section
Section
COUNTY OF TARRANT Section
This Memorandum of Ground Lease (this "MEMORANDUM") is made and
entered into to be effective for all purposes as of June 1, 1998 by and
between INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC., a Texas
corporation ("LESSOR"), and FIRST COMMAND FINANCIAL CORPORATION, a Texas
corporation ("LESSEE"), as follows:
1. Lessor and Lessee have executed that certain Ground Lease (the
"LEASE") dated June 1, 1998, whereby Lessor has leased to Lessee the property
located in Fort Worth, Tarrant County, Texas that is described in EXHIBIT A
attached hereto and incorporated fully herein by reference (the "PROPERTY").
2. The Lease sets forth the above names of Lessor and Lessee.
3. Lessor's address is P. O. Box 2387, Fort Worth, Texas 76113,
Attention: Chief Financial Officer.
4. Lessee's address is 4100 South Hulen, Fort Worth, Texas 76109,
Attention: Chief Executive Offier.
5. The term of the Lease is for ninety-nine (99) years beginning
June 1, 1998, and ending at midnight on May 31, 2097.
7. In addition to those terms referred to above, the Lease
contains numerous other terms, covenants, and conditions which affect the
Property, and notice is hereby given that reference should be had to the
Lease directly with respect to the details of such terms, covenants, and
conditions. Copies of the Lease are maintained at the offices of Lessor and
of Lessee as set forth above.
7. This Memorandum does not alter, amend, modify, or change the
Lease or the exhibits or schedules thereto in any respect. This Memorandum
is executed by the parties solely for the purpose of recordation in the
Records of Tarrant County, Texas, and it is the intent of the parties that it
shall be so recorded and shall give notice of and confirm the Lease and
exhibits and schedules thereto and all of its terms to the same extent as if
all of the provisions of the Lease and exhibits and schedules thereto were
fully set forth herein. The Lease and exhibits and schedules thereto are
hereby incorporated by reference in this
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<PAGE>
Memorandum, and the parties hereby ratify and confirm the Lease as if the
Lease were being re-executed by them and recorded. In the event of any
conflict between the provisions of this Memorandum and the Lease, the
provisions of the Lease shall control.
Lessor and Lessee have executed this Memorandum to be effective as
of the date first above written.
LESSOR:
INDEPENDENT RESEARCH AGENCY FOR
LIFE INSURANCE, INC.
By: /s/ Martin R. Durbin
------------------------------------
Name: Martin R. Durbin
-----------------------------
Title: Chief Financial Officer
-----------------------------
LESSEE:
FIRST COMMAND FINANCIAL CORPORATION
By: /s/ Lamar C. Smith
------------------------------------
Name: Lamar C. Smith
-----------------------------
Title: Chief Executive Officer
-----------------------------
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<PAGE>
THE STATE OF TEXAS Section
Section
COUNTY OF TARRANT Section
The foregoing instrument was acknowledged before me on the 11th day
of June, 1998, by Martin R. Durbin, ____________________________ of
Independent Research Agency for Life Insurance, Inc., a Texas corporation, on
behalf of said corporation.
/s/ Sandra T. Allen
--------------------------------
Notary Public, State of Texas
My Commission Expires: Printed Name of Notary:
03-26-01 Sandra T. Allen
- ---------------------- --------------------------------
THE STATE OF TEXAS Section
Section
COUNTY OF TARRANT Section
The foregoing instrument was acknowledged before me on the 11th day
of June, 1998, by Lamar C. Smith, ___________________________ of First
Command Financial Corporation, a Texas corporation, on behalf of said
corporation.
/s/ Sandra T. Allen
--------------------------------
Notary Public, State of Texas
My Commission Expires: Printed Name of Notary:
03-26-01 Sandra T. Allen
- ---------------------- --------------------------------
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<PAGE>
EXHIBIT A
BEING a 43750 square foot tract of land situated in the B.B.B. & C.R.R.
Survey, Abstract Number 217, and the J. Howard Survey, Abstract Number 693,
City of Forth Worth, Tarrant County, Texas, being part of Lot 2-R, Block C of
OVERTON WEST ADDITION described by plat recorded in Volume 388-173, Page 10,
Plat Records of Tarrant County, Texas (PRTCT), and being part of a called
17.000 acre tract of land described by deed as "TRACT FOUR" to Cassco Land
Co., Inc., recorded in Volume 6494, Page 389, Deed Records to Tarrant County,
Texas (DRTCT), said 43750 square foot tract of land being more particularly
described by metes and bounds as follows:
Commercing at a 1/2-inch iron rod found at the intersection of the north
right-of-way line of Overton Plaza (an 80-foot right-of-way) and the west
right-of-way line of South Hulen Street (a 120-foot right-of-way);
THENCE along said west right-of-way line the following:
North 00DEG.09'00" East, a distance of 281.00 feet to a 1/2-inch iron
rod found for the beginning of a curve to the left having a central
angle of 09DEG.31'21" and a radius of 1287.60 feet;
Along said curve to the left an arc distance of 214.00 feet and a chord
bearing and distance of North 04DEG.36'41" West 213.75 feet to a
1/2-inch iron rod found for the southeast corner of Lot 1, Block C of
OVERTON WEST ADDITION described by plat recorded in Volume 388-74, Page
2, PRTCT;
THENCE South 84DEG.46'00" West, a distance of 327.42 feet along the south
line of said Lot 1 to a point;
THENCE South 05DEG.14'00" East, a distance of 59.71 feet to a point for
corner, said point being the POINT OF BEGINNING;
THENCE South 04DEG.23'44" East, a distance of 125.00 feet to a point for
corner;
THENCE South 85DEG.36'16" West, a distance of 350.00 feet to a point for
corner;
THENCE North 04DEG.23'44" West, a distance of 125.00 feet to a point for
corner;
THENCE North 85DEG.36'16" East, a distance of 350.00 feet to the POINT OF
BEGINNING;
CONTAINING a computed area of 43750 square feet of land.
Page 4
<PAGE>
LEASE AGREEMENT
This Lease Agreement (this "Lease") is entered into as of June 1, 1998, by
and between FIRST COMMAND FINANCIAL CORPORATION, a Texas corporation
("LANDLORD"), and INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC., a Texas
corporation ("TENANT").
1. DEFINITIONS. The following terms, as used in this Lease, shall have the
following meanings unless the context indicates otherwise:
(a) ADDITIONAL RENT: The money and other charges provided for to be
paid in SECTION 4.02 hereof.
(b) BASE RENT: $615,000.00 per year ($51,250.00 per month).
(c) BUILDINGS: All buildings and improvements now or hereafter
located upon the Land, together with all fixtures permanently attached
thereto.
(d) COMMENCEMENT DATE: The date which is the earlier of (i) the
tenth (10th) day immediately following the later of (A) the date on which
the architect supervising construction of the building and other
improvements to be constructed by Landlord as described in SECTION 23.01
shall certify in writing to Landlord and Tenant that such building and all
other improvements and facilities are substantially complete and ready for
occupancy and use or (B) the date of the issuance by the appropriate
governmental authority of a temporary or permanent certificate of occupancy
for the Leased Premises and all buildings and other improvements to be
constructed by Landlord as described in SECTION 23.01; or (ii) the date on
which Tenant commences business at the Leased Premises. After the
Commencement Date has been determined, and upon the request of either
Landlord or Tenant, Landlord and Tenant will execute a written instrument
setting forth the Commencement Date and the expiration date of the Lease
Term.
(e) DEFAULT RATE: The lesser of twelve percent (12%) per annum or
the highest lawful rate.
(f) FORCE MAJEURE: The occurrence of a theft, fire, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, or order of governmental body or authority, or the occurrence
of any other event which hinders, prevents or delays the performance by
Landlord or Tenant, as the case may be, of any of its obligations hereunder
and which is beyond the reasonable control of the party so obligated to
perform.
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<PAGE>
(g) GROUND LEASE: That certain Ground Lease dated June 1, 1998,
executed by Tenant, as ground lessor, and Landlord, as ground lessee,
whereby Tenant has leased to Landlord, and Landlord has leased from Tenant,
the Land.
(h) LAND: That portion of the real property located in Fort Worth,
Tarrant County, Texas, which is identified as "Parking Garage" on the site
plan attached hereto as EXHIBIT A, together with all improvements now or
hereafter located upon such real estate. The Land is part of a tract of
land described in EXHIBIT B attached hereto. Within sixty (60) days after
the date of this Lease, Tenant shall, at Tenant's expense, cause to be
prepared and furnished to Landlord a current plat of survey (the "SURVEY")
of the Land prepared by a duly licensed Texas land surveyor. The metes and
bounds description of the Land as reflected on the survey shall be
substituted for the site plan set forth in EXHIBIT A attached hereto.
(i) LANDLORD: First Command Financial Corporation, a Texas
corporation.
(j) LEASED PREMISES: The Land and the Buildings.
(k) LEASE TERM: A period commencing on the Commencement Date and
continuing until December 1, 2014, unless earlier terminated or extended in
accordance with the terms of this Lease.
(l) LEGAL REQUIREMENTS: Any and all statutes, laws, regulations,
ordinances, judicial decisions, orders, injunctions, or other directives of
any governmental authority applicable to the Leased Premises.
(m) MORTGAGE: Any deed of trust, mortgage, security agreement,
ground lease or transfer instrument, including all renewals, extensions and
rearrangements thereof.
(n) MORTGAGEE: The beneficiary of any deed of trust, the mortgagee
of any mortgage, the secured party of any security interest, the ground
lessor of any ground lease, and the transferee of any other instrument of
transfer now or hereafter in existence on all or any portion of the Leased
Premises, and their respective successors, assigns, and purchasers.
(o) PERMITTED USE: Operation of a parking garage and any other
lawful use.
(p) RENT: Base Rent, Additional Rent, and all other amounts owing by
Tenant to Landlord under any provision of this Lease.
Page 2
<PAGE>
(q) TAKING OR TAKEN: The actual or constructive condemnation, or the
actual or constructive acquisition by or under threat of condemnation,
eminent domain or similar proceeding, by or at the direction of any
governmental authority or agency.
(r) TAXES: All real estate, personal property, rental, water, sewer,
transit, use, occupancy and other taxes, assessments, charges, excises and
levies, general and special, ordinary and extraordinary, of any kind and
nature whatsoever which are assessed, levied, charged or imposed upon or
with respect to the Leased Premises or any portion thereof or interest
therein, excluding only income taxes measured by the income of Landlord.
(s) TENANT: Independent Research Agency for Life Insurance, Inc., a
Texas corporation.
2. LEASED PREMISES. Subject to and upon the terms set forth in this Lease,
Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Premises.
3. LEASE TERM. This Lease shall continue in force during a period beginning
on the Commencement Date and continuing until the expiration of the Lease Term;
provided, however, that this Lease shall sooner terminate on the sooner
termination for any cause whatsoever of the Ground Lease. Notwithstanding that
the Lease Term does not commence until the Commencement Date, this Lease
evidences a binding contract between Landlord and Tenant effective as of the
date hereof.
4. RENT.
4.01. BASE RENT. Tenant shall pay the Base Rent to Landlord in the manner
as set forth in SECTION 4.03.
4.02. ADDITIONAL RENT. Tenant shall pay as Additional Rent any money or
other charges required to be paid by Tenant under this Lease, whether or not the
same be designated "Additional Rent." If such amounts or charges are not paid
at the time provided in this Lease, they shall nevertheless, if not paid when
due, be collectible as Additional Rent with the next installment of Rent
thereafter falling due hereunder, but nothing herein contained shall be deemed
to suspend or delay the payment of any amount of money or charge at the time the
same becomes due and payable hereunder, or limit any other remedy of Landlord.
4.03. PAYMENT OF RENT. Except as otherwise provided in this Lease, Base
Rent shall be due and payable in advance monthly installments on the first day
of each calendar month during the Lease Term. Rent shall be paid to Landlord at
its address shown on the signature page of this Lease or to such other person or
at such other address as Landlord may from time to time designate in writing.
Rent shall be paid without any notice or demand whatsoever in legal tender
Page 3
<PAGE>
of the United States of America. If the Lease Term commences or ends on other
than the first or the last day of a calendar month, the Base Rent for the
partial month shall be prorated on the basis of the number of days during the
month for which the Lease Term was in effect.
4.04. LATE PAYMENTS. All installments of Rent not paid when due and
payable shall bear interest at the Default Rate.
5. USE; LEGAL REQUIREMENTS; GROUND LEASE.
5.01. PERMITTED USE. Tenant will occupy and use the Leased Premises
solely for the Permitted Use. The Leased Premises shall not be used for any
other purpose without the prior written consent of Landlord, which consent shall
not be unreasonably withheld, conditioned or delayed. Tenant will obtain and
maintain throughout the Lease Term at Tenant's expense any permits and licenses
required for the transaction of business in the Leased Premises.
5.02. SPECIFICALLY PROHIBITED USES. Tenant will not (a) use or occupy the
Leased Premises in any manner which is dangerous to life or property or a public
or private nuisance; (b) keep any substance in or conduct any operation from the
Leased Premises which emits offensive odors or conditions, or makes undue noise
or creates undue vibrations; (c) commit any waste to the Leased Premises; (d)
install any improvements to the Leased Premises which exceed the structural
loads of floors or walls of the Buildings, or adversely affect the mechanical,
plumbing or electrical systems of the Buildings or adversely affect the
structural integrity of the Buildings; or (e) commit any action or circumstance
in or about the Leased Premises which would justify any insurance carrier in
canceling or increasing the premium on any insurance policy maintained by
Landlord on the Leased Premises.
5.03. LEGAL REQUIREMENTS. Except as provided in the immediately following
sentence and except with respect to the duties and obligations specifically
imposed upon Tenant by the terms of this Lease, Landlord shall, at its expense,
comply with or cause to be complied with all Legal Requirements which shall
impose any duty upon Landlord or Tenant with respect to the Leased Premises.
Commencing on the Commencement Date, Tenant, at its expense, shall comply with
all Legal Requirements relating to the physical condition of the Leased Premises
if required solely by reason of Tenant's specific business, as opposed to Legal
Requirements relating to parking garages in general, which shall be Landlord's
responsibility pursuant to the immediately preceding sentence. The party
responsible for compliance pursuant to this Section shall have the right to
contest the validity of any Legal Requirement at the expense of the party
responsible for compliance, unless such contest would result in any criminal
liability imposed upon the other party.
5.04. GROUND LEASE. Landlord shall, at its expense, properly and timely
observe, perform, and comply with all of the duties, obligations, covenants, and
agreements of the lessee or tenant under the Ground Lease.
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6. SERVICES TO LEASED PREMISES.
6.01. GENERAL. Landlord shall not be obligated to furnish or cause to be
furnished any services to the Leased Premises, including, without limitation,
any electrical, water, gas, sewer, or other utility service or any trash or
waste removal or disposal service. Tenant shall pay all charges for
electricity, water, gas, sewer, and other utility services and for trash or
waste removal or disposal service in connection with the Leased Premises
throughout the Lease Term. Neither the interruption or cessation of any such
services nor the failure to restore any such services shall render Landlord
liable in any respect for injury or damages to person or property, or be
construed as an eviction of Tenant, or work an abatement of Rent or relieve
Tenant from fulfilling any of its other obligations hereunder unless such
interruption or cessation of services is caused by Landlord or any of its
agents, employees, or contractors.
6.02. KEYS. Landlord shall furnish Tenant, at Landlord's expense, with
two keys, and at Tenant's expense with such additional keys as Tenant may
request, to unlock each door entering the Buildings. Upon the expiration or
termination of the Lease Term, Tenant shall surrender all such keys to Landlord.
7. IMPROVEMENTS AND ALTERATIONS.
7.01. BY LANDLORD. Except as otherwise provided in this Lease, all
installations and improvements hereafter placed on the Leased Premises shall be
for Tenant's account and at Tenant's expense. Notwithstanding the foregoing,
Landlord shall complete, prior to the Commencement Date and at Landlord's
expense, the improvements and alterations described in ARTICLE 23 of this Lease.
In addition, Landlord shall make, at Landlord's expense, all improvement and
alterations necessary in order to make the Leased Premises comply with all Legal
Requirements. Except as otherwise provided in this Lease (including, without
limitation, ARTICLE 23 of this Lease), Landlord shall have no other obligation
to make any other additions, alterations, repairs, or improvements to the Leased
Premises.
7.02. BY TENANT. Except as otherwise provided herein, Tenant will not
make, or permit to be made, any alteration, improvement or addition to the
Leased Premises without the prior written consent of Landlord, which consent
shall not be unreasonably withheld, conditioned, or delayed. However, Tenant
may make non-structural alterations to the interior of the Buildings without
Landlord's consent. All such alterations, improvements and additions shall
become the property of Landlord and shall be surrendered with the Leased
Premises as part thereof at the termination or expiration of the Lease Term,
without any payment, reimbursement or compensation therefor. So long as no
Event of Default exists, Tenant may remove Tenant's fixtures, equipment and
other personal property from the Leased Premises. Tenant shall promptly repair
all damage caused by such removal.
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7.03. NO LIENS. Tenant shall not permit any lien to be placed on the
Leased Premises resulting from any work performed, materials furnished, or
obligation incurred by or at the request of Tenant. If any lien or claim
against any interest in the Leased Premises is filed as a result of any work
performed, materials furnished, or obligation incurred by or at the request of
Tenant, then Tenant shall cause the same to be discharged of record or bonded
around within thirty (30) days after the filing date. If Tenant shall fail to
discharge the lien or claim within such period, then, in addition to any other
right or remedy of Landlord, Landlord may, but shall not be obligated to, upon
at least five (5) days prior written notice to Tenant, discharge the lien or
claim by paying the amount claimed to be due. Any amount paid by Landlord for
the satisfaction of a lien or claim shall be paid by Tenant to Landlord on
demand, with interest from the date paid by Landlord until reimbursed by Tenant
at the Default Rate.
7.04. SIGNS. Tenant, at Tenant's expense, may erect signs on the Leased
Premises to evidence Tenant's operation of the Leased Premises. The location,
size, color, lighting, and design of all exterior signs must be approved by
Landlord prior to installation. Tenant, at Tenant's expense, shall maintain all
such signs.
8. REPAIR AND MAINTENANCE.
8.01. BY TENANT. Except as otherwise provided in this Lease, Tenant shall
not be required to maintain any portion of or make any repairs to the Leased
Premises.
8.02. BY LANDLORD. Landlord shall maintain the Leased Premises in a
clean, safe, operable condition, and in accordance with all Legal Requirements.
Landlord will not commit or allow to remain any waste or damage to any portion
of the Leased Premises. Except for repairs or replacements required by this
Lease to be made by Tenant, Landlord shall promptly repair or replace any and
all damage to the Leased Premises regardless of how or by whom caused. If
Landlord fails to make such repairs or replacements, Tenant may, upon at least
five (5) days prior written notice to Landlord, make such repairs or
replacements at Landlord's cost, which shall be payable to Tenant by Landlord on
demand.
9. TAXES.
9.01. REAL ESTATE TAXES. Tenant shall be liable for and shall pay, prior
to their becoming delinquent, all Taxes levied against the Land and the
Buildings (the "REAL ESTATE TAXES"). Landlord shall deliver to Tenant copies of
all tax statements received by Landlord within ten (10) days after Landlord's
receipt thereof. Tenant may withhold payments of any Taxes described in this
Section so long as Tenant contests its obligation to pay in accordance with
applicable law and the non-payment thereof does not pose a threat of loss or
seizure of the Leased Premises or any interest of Landlord therein.
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9.02. PERSONAL PROPERTY TAXES. Tenant shall be liable for and shall pay,
prior to their becoming delinquent, all Taxes levied against any personal
property placed by Tenant in the Leased Premises. Tenant may withhold payments
of any Taxes described in this Section so long as Tenant contests its obligation
to pay in accordance with applicable law and the non-payment thereof does not
pose a threat of loss or seizure of the Leased Premises or any interest of
Landlord therein.
10. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this Lease or any
interest therein or sublease the Leased Premises or any part thereof (other than
to any affiliate of Tenant) without Landlord's prior written consent, which
consent shall not be unreasonably withheld, conditioned, or delayed. Consent by
Landlord to one or more assignments or sublettings shall not operate as a waiver
of Landlord's rights as to any subsequent assignment or subletting. In the
event any assignment of this Lease is made with Landlord's consent, Tenant shall
require any assignee to execute and deliver to Landlord an assumption of
liability agreement in form reasonably satisfactory to Landlord, including an
assumption by the assignee of all of the obligations of Tenant and the
assignee's ratification of and agreement to be bound by all of the provisions of
this Lease. In the event that Landlord shall agree to any transfer of Tenant's
interest in this Lease, then the term "Tenant" shall thereafter be deemed to
include, without further reference, the party to whom such interest is
transferred, which is, for example, but without limiting the generality thereof,
any subtenant, assignee, concessionaire or licensee.
11. ACCESS BY LANDLORD. Landlord shall have the right to enter the Leased
Premises during Tenant's normal business hours upon at least three (3) days
notice to Tenant (provided that no notice will be required in the case of an
emergency) to (a) inspect, clean, maintain, repair, replace or alter the Leased
Premises or the Buildings; (b) show the Leased Premises to prospective
purchasers (or, during the last three (3) months of the Lease Term, to
prospective tenants); or (c) determine whether Tenant is performing its
obligations hereunder and, if it is not, to perform same at Landlord's option
and Tenant's expense. Landlord agrees to use its best efforts to exercise the
rights granted to Landlord in this section in such a way as to minimize to the
extent reasonably possible the interference with the operation of Tenant's
business.
12. CONDEMNATION. If all of the Leased Premises is Taken, or if so much of the
Leased Premises is Taken that, in Landlord's good faith opinion, substantial
structural alteration or reconstruction is necessary, Landlord may, at its
election, exercisable by the giving of written notice to Tenant within sixty
(60) days after the date of the Taking, terminate this Lease as of the date of
the Taking. If this Lease is not terminated as result of a Taking, Landlord
shall restore the Leased Premises remaining after the Taking to as nearly as
practicable its precondemnation condition. After the date of the Taking, if
this Lease is not terminated as a result of such Taking, Base Rent shall be
equitably abated. Except for awards, proceeds, compensation, and other payments
for the value of the unexpired term of this Lease, all awards, proceeds,
compensation or other payments from or with respect to any Taking of the Leased
Premises or any portion thereof shall belong to Landlord, Tenant hereby
assigning to Landlord
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all of its right, title, interest and claim to same. Tenant shall have the
right to assert a claim for and recover from the condemning authority such
compensation as may be awarded on account of Tenant's loss of business, "good
will", costs incurred by Tenant in removing any furniture, trade fixtures,
trade equipment, merchandise or personal property of Tenant, and the value of
the unexpired term of this Lease.
13. CASUALTY. Tenant shall give prompt notice to Landlord of any casualty to
the Leased Premises. If the Leased Premises is totally destroyed, or if the
Leased Premises is partially destroyed so that the loss or damage to the Leased
Premises amounts to more than fifty percent (50%) of the total replacement cost
at the time of the damage then Landlord may, at its election exercisable by the
giving of written notice to Tenant within thirty (30) days after the casualty,
terminate this Lease as of the date of the casualty. If this Lease is not
terminated as a result of a casualty, Landlord shall restore the Leased Premises
to its pre-existing condition. During the period of restoration, Base Rent
shall be equitably abated to the extent the Leased Premises are rendered
untenantable.
14. INSURANCE.
14.01. TENANT'S INSURANCE. Tenant shall obtain and maintain throughout
the Lease Term comprehensive general and contractual liability insurance against
claims for personal injury, death and property damage occurring in or about the
Leased Premises, such insurance to afford protection to the limits of (i) not
less than $1,000,000.00 in respect of injury to or death of any number of
persons arising out of any one occurrence; and (ii) $100,000.00 in respect of
any instance of property damage. Tenant shall deliver to Landlord, on or before
the Commencement Date, certificates of such insurance and shall, at all times
during the Lease Term, deliver to Landlord upon request true and correct copies
of said insurance policies. The policies described above shall (i) name
Landlord and all Mortgagees as additional insureds; (ii) provide that they will
not be canceled or reduced in coverage without at least ten (10) days' prior
written notice to Landlord; (iii) insure performance of the indemnities of
Tenant contained in SECTION 15 of this Lease; and (iv) be primary coverage, so
that any insurance coverage obtained by Landlord shall be in excess thereto.
14.02. LANDLORD'S INSURANCE. Landlord shall obtain and maintain
throughout the Lease Term fire and extended coverage insurance, with vandalism,
and malicious mischief endorsements, on the Buildings in an amount equal to at
least eighty percent (80%) of the replacement cost thereof.
14.03. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives all
claims, rights of recovery and causes of action against the other party or
against any of the other party's officers, directors, shareholders, partners or
employees for any loss or damage that may occur to the Leased Premises, the
Buildings or any personal property therein by reason of fire or other casualty,
or by reason of any other cause (including the negligence of a party hereto or
its
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officers, directors, shareholders, partners or employees), that could have been
insured against under the terms of the fire and extended coverage insurance
policy required to be obtained and maintained under SECTION 14.02; provided,
however, that the waiver set forth in this Section shall not apply to any
deductibles on insurance policies carried by Landlord or Tenant or to any
coinsurance penalty which Landlord or Tenant might sustain. Landlord and
Tenant hereby agree to request that an endorsement be issued to their
respective insurance policies recognizing this waiver of subrogation.
15. TENANT'S INDEMNITY. Tenant hereby assumes liability for, and agrees to
defend, indemnify and hold harmless Landlord from and against, all liabilities,
obligations, losses, damages, penalties, claims, actions, suits, costs, expenses
and disbursements (including court costs and reasonable attorneys' fees)
resulting from (a) any injuries to or death of any person or damage to any
property occurring during the Lease Term in or about the Leased Premises (unless
caused by Landlord or any of Landlord's officers, directors, shareholders,
agents, employees, or contractors); (b) any act, omission, or neglect of Tenant
or its agents, servants, employees, or invitees; or (c) the use of the Leased
Premises by Tenant and the conduct of its business.
16. SUBORDINATION AND ATTORNMENT. If at the execution of this Lease there are
any existing Mortgages against the Leased Premises, Landlord shall promptly
cause each Mortgagee to execute a non-disturbance agreement providing that,
among other things, (a) the use and occupancy by Tenant of the Leased Premises
shall not be disturbed and all of Tenant's other rights under this Lease shall
be recognized unless and until Tenant shall breach any provision hereof and this
Lease or Tenant's right to possession hereunder shall have been terminated in
accordance with the provisions of this Lease; (b) in the event of any
foreclosure or other suit, public or private sale, or in the event of a sale in
lieu of foreclosure, the Mortgagee will hold or offer and sell the property
covered thereby subject to all of the terms and conditions of this Lease; and
(c) fire insurance proceeds and condemnation awards will be applied towards
restoration of the Leased Premises. Before Landlord shall have the right to
subject and subordinate this Lease to the lien of any Mortgage hereafter upon
Landlord's interest in the Leased Premises, Landlord shall have first secured
for Tenant's benefit a written non-disturbance agreement, in the form acceptable
to Tenant, and Tenant will then execute and deliver an instrument subjecting
this Lease to the lien of any such Mortgage. If the holder of any Mortgage
covering the Leased Premises or if the purchaser at any foreclosure or at any
sale under a power of sale contained in any Mortgage shall so request, Tenant
shall attorn to such Mortgagee or purchaser and shall recognize such Mortgagee
or purchaser as the landlord under this Lease for the balance then remaining of
the term of this Lease, subject to all terms of this Lease; provided, however,
that Tenant shall not be required to attorn to such Mortgagee or purchaser
unless and until Tenant and such Mortgagee or purchaser shall have entered into
a mutually satisfactory non-disturbance agreement. If Landlord defaults in
making payment under any Mortgage, or if Landlord is in breach or in default of
any Mortgage in any respect, and any Mortgagee makes demand upon Tenant that
Tenant pay Rent to such Mortgagee, Tenant shall
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have the right, but not the duty, to make all Rent payments thereafter becoming
due under this Lease to the Mortgagee in lieu of Landlord, and payments so made
shall discharge the obligation of Tenant hereunder respecting the payment of
Rent.
17. ACTS OF FORCE MAJEURE. Neither Landlord nor Tenant shall have any
responsibility or liability to the other, or to the other's officers, directors,
shareholders, partners, employees, agents, contractors or invitees, for bodily
injury, death, property damage, business interruption, loss of profits, or other
direct or consequential damages occasioned by Force Majeure. If an event of
Force Majeure occurs, the time for performance or completion of an act required
in this Lease (other than any obligation of Tenant to pay any portion of the
Rent) shall be extended for one (1) day for each day of delay caused by the
event of Force Majeure.
18. QUIET ENJOYMENT; LANDLORD'S WARRANTIES.
18.01. QUIET ENJOYMENT. Tenant, on timely paying the Rent and performing
all of Tenant's other obligations contained herein, shall and may peaceably and
quietly have, hold, occupy, use and enjoy the Leased Premises during the Lease
Term subject to the provisions of this Lease. Landlord agrees to warrant and
forever defend Tenant's right to occupancy of the Leased Premises against the
claims of any and all persons, subject to the provisions of this Lease.
18.02. LANDLORD'S WARRANTIES. Landlord represents and warrants to Tenant
that (a) Landlord owns the Improvements and is the owner and holder of the
leasehold estate in and to the Land; (b) the Leased Premises are not subject to
the lien of any Mortgage (except such Mortgage where the Mortgagee has entered
into an agreement in favor of Tenant as described in SECTION 16); (c) Landlord
has the full power, right and authority to make this Lease for the Lease Term;
(d) Landlord will put Tenant into complete and exclusive possession of the
Leased Premises free from all orders, restrictions, covenants, agreements,
leases, easements, laws, codes, ordinances, regulations and decrees which would
or could, in any way, prevent or inhibit the use of the Leased Premises for the
uses thereof by Tenant as contemplated by this Lease or prevent or limit ingress
and egress to public thoroughfares; (e) the Land is properly zoned for the
operation and maintenance of a parking garage and all necessary governmental
consents, permits and approvals for such use have been obtained by Landlord at
its expense; and (f) the Leased Premises comply with all Legal Requirements.
18.03. FAILURE OF WARRANTIES. Notwithstanding any other provisions of
this Lease, at Tenant's option, the Lease Term shall not commence and Rent and
other charges payable under this Lease shall not commence to accrue until the
representations and warranties of Landlord set forth in this Lease shall have
been fulfilled. In addition, if Landlord fails to fulfill or cause to be
fulfilled, within sixty (60) days after the Commencement Date, any of the
representations and warranties set forth in SECTION 18.02 or any other
representation or warranty of Landlord, the failure of which might adversely
affect Tenant's position or rights under this Lease, then, in
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addition to any other rights or remedies available to Tenant, Tenant shall have
the right either to fulfill such representations and warranties at Landlord's
expense or to terminate this Lease by notice to Landlord.
19. DEFAULT BY TENANT.
19.01. EVENTS OF DEFAULT. Each of the following occurrences shall
constitute an "Event of Default":
(a) Tenant fails to pay any installment of Rent as and when due
hereunder and such failure continues for more than ten (10) days after
written notice from Landlord to Tenant specifying the failure; provided,
however, after Landlord has given Tenant written notice pursuant to this
clause (a) on three (3) separate occasions during any calendar year,
Landlord shall not be required to give Tenant any further notice under this
clause (a);
(b) Tenant fails to perform, comply with or observe any other
agreement, obligation or undertaking of Tenant, or any other term,
condition or provision, in this Lease, and such failure continues for more
than thirty (30) days after written notice from Landlord to Tenant
specifying the failure; provided, however, if such failure cannot
reasonably be cured within thirty (30) days, no Event of Default shall
exist as a result of such failure unless Tenant fails to commence curing
such failure within such thirty (30) day period, fails to diligently
proceed to cure such failure, or fails to completely cure such failure
within ninety (90) days after such notice;
(c) A petition is filed by or against Tenant (i) in any bankruptcy or
other insolvency proceeding; (ii) seeking any relief under the Bankruptcy
Code or any similar debtor relief law; (iii) for the appointment of a
liquidator or receiver for all or substantially all of the property of
Tenant or for Tenant's interest in this Lease; or (iv) to reorganize or
modify the capital structure of Tenant; and any such petition filed against
Tenant is not dismissed within sixty (60) days of the filing thereof; or
(d) Tenant admits in writing that it cannot meet its obligations as
they become due or the making by Tenant of a general assignment for the
benefit of its creditors.
19.02. REMEDIES OF LANDLORD. If any Event of Default occurs and is
continuing, Landlord may, at Landlord's option and in addition to all other
rights, remedies and recourses afforded Landlord hereunder or by law or equity,
do any one or more of the following:
(a) Terminate this Lease by the giving of written notice to Tenant,
in which event Tenant shall pay to Landlord the sum of (i) all Rent and
other amounts accrued hereunder to the date of termination, (ii) all
amounts due under SECTION 19.03 and (iii)
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liquidated damages in an amount equal to (A) the total Rent that Tenant
would have been required to pay for the remainder of the Lease Term
discounted to present value at the prime lending rate (or equivalent rate,
however denominated) in effect on the date of termination at the largest
national bank with a banking office located in Tarrant County, Texas
MINUS (B) the then present fair rental value of the Leased Premises for
such period, similarly discounted.
(b) Terminate Tenant's right to possession of the Leased Premises
without terminating this Lease by the giving of written notice to Tenant,
in which event Tenant shall pay to Landlord (i) all Rent and other amounts
accrued hereunder to the date of termination of possession, (ii) all
amounts due from time to time under SECTION 19.03 and (iii) all Rent and
other sums required hereunder to be paid by Tenant during the remainder of
the Lease Term, diminished by any net sums thereafter received by Landlord
through reletting the Leased Premises during said period. Reentry by
Landlord in the Leased Premises will not affect the obligations of Tenant
hereunder for the unexpired Lease Term. Landlord may bring action against
Tenant to collect amounts due by Tenant on one or more occasions, without
the necessity of Landlord's waiting until expiration of the Lease Term. If
Landlord elects to proceed under this subsection (b), it may at any time
elect to terminate this Lease pursuant to subsection (a).
19.03. PAYMENT BY TENANT. Upon the occurrence of any Event of Default,
Tenant shall also pay to Landlord all reasonable costs and expenses incurred by
Landlord, including court costs and reasonable attorney's fees, in (a) retaking
or otherwise obtaining possession of the Leased Premises, (b) removing and
storing Tenant's or any other occupant's property, (c) repairing and restoring
the Leased Premises, (d) reletting all or any part of the Leased Premises, and
(e) paying or performing the underlying obligation which Tenant failed to pay or
perform.
19.04. RELETTING. Upon termination of this Lease or upon termination of
Tenant's right to possession of the Leased Premises, Landlord shall attempt to
relet the Leased Premises. Landlord may relet the Leased Premises for such
period, to such tenant, and for such use and purpose as Landlord, in the
exercise of its sole discretion, may choose. Tenant shall not be entitled to
the excess of any rent obtained by reletting over the Rent herein reserved.
19.05. LANDLORD'S RIGHT TO PAY OR PERFORM. Upon the occurrence of an
Event of Default, Landlord may, but without obligation to do so and without
thereby waiving or curing such Event of Default, upon at least five (5) days
prior written notice to Tenant, pay or perform the underlying obligation for the
account of Tenant, and enter the Leased Premises for such purpose.
19.06. INJUNCTIVE RELIEF; REMEDIES CUMULATIVE. Landlord may restrain or
enjoin any Event of Default or threatened or potential Event of Default without
the necessity of proving the inadequacy of any legal remedy or irreparable harm.
The rights, remedies and recourses of
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Landlord for an Event of Default shall be cumulative and no right, remedy or
recourse of Landlord, whether exercised by Landlord or not, shall be deemed to
be in exclusion of any other.
19.07. NO WAIVER; NO IMPLIED SURRENDER. Provisions of this Lease may not
be waived orally or impliedly, but only by the party entitled to the benefit of
the provision evidencing the waiver in writing. Thus, neither the acceptance of
Rent by Landlord following an Event of Default (whether known to Landlord or
not), nor any other custom or practice followed in connection with this Lease,
shall constitute a waiver by Landlord of such Event of Default or any other
Event of Default. Further, the failure by a party to complain of any action or
inaction by the other party, or to assert that any action or inaction by the
other party constitutes (or would constitute, with the giving of notice or the
passage of time or both) an Event of Default or a default by Landlord,
regardless of how long such failure continues, shall not extinguish, waive or in
any way diminish the rights, remedies or recourses of Landlord or Tenant with
respect to such action or inaction. No waiver by a party of any provision of
this Lease or of any breach by the other party of any obligation of the other
party hereunder shall be deemed to be a waiver of any other provision hereof, or
of any subsequent breach by the other party of the same or any other provision
hereof. Landlord's consent to any act by Tenant requiring Landlord's consent
shall not be deemed to render unnecessary the obtaining of Landlord's consent to
any subsequent act of Tenant.
20. DEFAULTS BY LANDLORD. Landlord shall be in default under this Lease in the
event Landlord has not begun and pursued with reasonable diligence the cure of
any failure of Landlord to meet its obligations hereunder within thirty (30)
days after Tenant has given Landlord written notice thereof specifying the
nature of Landlord's failure. If Landlord defaults under this Lease, Tenant
shall be entitled to pursue any and all remedies available to Tenant under
applicable law. The foregoing shall not limit any right that Tenant might have
to obtain specific performance of Landlord's obligations hereunder.
21. RIGHT OF REENTRY. Upon the expiration or termination of the Lease Term for
whatever cause, or upon the exercise by Landlord of its right to re-enter the
Leased Premises without terminating this Lease, Tenant shall promptly surrender
to Landlord possession of the Leased Premises in good order, condition and
repair, except only for ordinary wear and tear and damage covered by insurance
maintained by Landlord or Tenant. If Tenant fails to surrender possession as
herein required, Landlord may initiate any and all legal action as Landlord may
elect to dispossess Tenant and all of its property, and all persons or firms
claiming by, through or under Tenant and all of their property from the Leased
Premises, and may remove from the Leased Premises and store any such property at
Tenant's expense. For so long as Tenant remains in possession of the Leased
Premises after such expiration, termination or exercise by Landlord of its re-
entry right, unless Landlord and Tenant otherwise agree in writing, Tenant shall
be deemed to be occupying the Leased Premises as a tenant-at-sufferance, subject
to all of the obligations of Tenant under this Lease, except that the daily Rent
shall be 110% of the per
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day Rent in effect immediately prior to such expiration, termination or
exercise by Landlord. No such holding over shall extend the Lease Term.
22. MISCELLANEOUS.
22.01. APPLICABLE LAW. THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS. All monetary and
other obligations of Landlord and Tenant are performable in Tarrant County,
Texas. Landlord and Tenant hereby consent that venue of any action brought
under this Lease shall be in Tarrant County, Texas.
22.02. ESTOPPEL CERTIFICATES. From time to time at the request of
Landlord or any Mortgagee, Tenant will promptly execute, have acknowledged and
deliver a certificate stating (a) the Commencement Date and the date of
expiration of the Lease Term; (b) the rights (if any) of Tenant to extend the
Lease Term; (c) the Rent (or any components of the Rent) currently payable
hereunder; (d) whether this Lease has been amended in any respect and, if so,
submitting copies of or otherwise identifying the amendments; (e) whether,
within the knowledge of Tenant, there are any existing breaches or defaults by
Landlord hereunder and, if so, stating the defaults with reasonable
particularity; and (f) such other information pertaining to this Lease as
Landlord or any Mortgagee may reasonably request.
22.03. NOTICES. All notices and other communications given pursuant to
this Lease shall be in writing and shall either be mailed by first class United
States mail, postage prepaid, registered or certified with return receipt
requested, and addressed as set forth in this Section, or delivered in person to
the intended addressee. Notice mailed in the aforesaid manner shall become
effective two (2) business days after deposit; notice given in any other manner
shall be effective only upon receipt by the intended addressee. For the
purposes of notice, the address of each of the parties shall be the address
recited on the signature page hereof. Each party shall have the continuing
right to change its address for notice hereunder by the giving of fifteen (15)
days' prior written notice to the other party in accordance with this Section.
22.04. ENTIRE AGREEMENT, AMENDMENT AND BINDING EFFECT. This Lease
constitutes the entire agreement between Landlord and Tenant relating to the
subject matter hereof and all prior agreements relative hereto which are not
contained herein are terminated. This Lease may be amended only by a written
document duly executed by Landlord and Tenant, and any alleged amendment which
is not so documented shall not be effective as to either party. The provisions
of this Lease shall be binding upon and inure to the benefit of the parties
hereto and their heirs, executors, administrators, successors and assigns;
provided, however, that this Section shall not negate, diminish or alter the
restrictions on assignment or subletting applicable to Tenant set forth
elsewhere in this Lease.
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22.05. SEVERABILITY. This Lease is intended to be performed in
accordance with and only to the extent permitted by all Legal Requirements. If
any provision of this Lease or the application thereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, but the extent of the invalidity or unenforceability does not
destroy the basis of the bargain between the parties as contained herein, the
remainder of this Lease and the application of such provision to other persons
or circumstances shall not be affected thereby, but rather shall be enforced to
the greatest extent permitted by law.
22.06. NUMBER AND GENDER, CAPTIONS AND REFERENCES. As the context of this
Lease may require, pronouns shall include natural persons and legal entities of
every kind and character, the singular number shall include the plural and the
neuter shall include the masculine and the feminine gender. Section headings in
this Lease are for convenience of reference only and are not intended, to any
extent and for any purpose, to limit or define any section hereof. Whenever the
terms "hereof", "hereby", "herein", "hereunder" or words of similar import are
used in this Lease, they shall be construed as referring to this Lease in its
entirety rather than to a particular section or provision, unless the context
specifically indicates to the contrary. Any reference to a particular "Section"
shall be construed as referring to the indicated section of this Lease.
22.07. ATTORNEYS' FEES. In the event either party defaults in the
performance of any of the terms of this Lease and the other party employs an
attorney in connection therewith, the non-prevailing party agrees to pay the
prevailing party's reasonable attorneys' fees.
22.08. BROKERS. Each party warrants that it has had no dealings with any
broker or agent in connection with the negotiation or execution of this Lease,
and each party agrees to indemnify the other party and hold the other party
harmless from and against any and all costs, expenses or liability for
commissions or other compensation or charges claimed by any broker or agent with
respect to this Lease.
22.09. AUTHORITY. The person executing this Lease on behalf of Tenant
personally warrants and represents unto Landlord that (a) Tenant is a duly
organized and existing legal entity, in good standing in the State of Texas; (b)
Tenant has full right and authority to execute, deliver and perform this Lease;
(c) the person executing this Lease on behalf of Tenant was authorized to do so;
and (d) upon request of Landlord, such person will deliver to Landlord
satisfactory evidence of his or her authority to execute this Lease on behalf of
Tenant. The person executing this Lease on behalf of Landlord personally
warrants and represents unto Tenant that (w) Landlord is a duly organized and
existing legal entity, in good standing in the State of Texas; (x) Landlord has
full right and authority to execute, deliver and perform this Lease; (y) the
person executing this Lease on behalf of Landlord was authorized to do so; and
(z) upon request of Tenant, such person will deliver to Tenant satisfactory
evidence of his or her authority to execute this Lease on behalf of Landlord.
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22.10. INCORPORATION BY REFERENCE. All Exhibits and written addenda
hereto are incorporated herein for any and all purposes.
22.11. MULTIPLE COUNTERPARTS. This Lease may be executed in two or more
counterparts, each of which shall be an original, but all of which shall
constitute but one instrument.
22.12. NO PARTNERSHIP. Nothing herein contained shall be deemed or
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent, or of partnership or of joint venture
between the parties hereto, it being understood and agreed that neither the
method of computation of rent, nor any other provision contained herein, nor any
acts of the parties hereto, shall be deemed to create any relationship between
the parties hereto other than the relationship of landlord and tenant.
22.13. ACCORD AND SATISFACTION. No payment by Tenant or receipt by
Landlord of a lesser amount than any payment of Rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated Rent then due and
payable, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as Rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or pursue any other remedy provided in
this Lease, at law or in equity.
22.14. RIGHT OF FIRST REFUSAL. If at any time Landlord shall receive a
bona fide offer (the "OFFER") from any prospective buyer to purchase all or any
part of the Leased Premises or the real property on which the Leased Premises
are located (the "PROPERTY") and Landlord desires to accept the Offer, Landlord
shall send to Tenant a copy of the proposed contract (the "CONTRACT") in which
the Offer is set forth together with copies of all other documents and
correspondence related to the Offer and shall at the same time notify Tenant of
Landlord's intention to accept the Offer to purchase as set forth in the
Contract. Tenant shall have the right within thirty (30) days after receipt of
the Contract and related documents and correspondence to accept the terms of the
Contract in writing as herein provided and within ninety (90) days thereafter to
purchase the Leased Premises and/or the Property (or so much thereof as may be
covered by the Contract) in its own name or in the name of a nominee or
assignee, for an amount equal to the gross purchase price for the Leased
Premises and/or the Property (or portion thereof) as is set forth in the
Contract and otherwise on the terms specified in the Contract except that the
closing date shall be within ninety (90) days
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after the date of acceptance by Tenant of the terms of the Contract. If Tenant
desires to accept the terms of the Contract and purchase the Leased Premises
and/or the Property (or so much thereof as may be covered by the Contract) in
its own name or in the name of a nominee or assignee as herein provided, Tenant
shall, within thirty (30) days after the receipt of the Contract and related
documents and correspondence, indicate its acceptance by executing and
delivering to Landlord a contract of sale in its name (or in the name of its
nominee or assignee) as purchaser and upon the same terms and conditions of the
Contract except that the closing date shall be within ninety (90) days after
the date of acceptance by Tenant of the terms of the Contract. If Tenant shall
not so elect within such period of thirty (30) days to purchase the Leased
Premises and/or the Property (or so much thereof as may be covered by the
Contract), Landlord may then sell that portion of the Leased Premises and/or
the Property covered by the Contract to the purchaser named in the Contract
provided that such sale is on the same terms and conditions and for the same
price as is set forth in the Contract and such sale is closed within ninety
(90) days after the date of the Contract. Notwithstanding anything contained
herein to the contrary, any such sale shall be made subject to this Lease and
to all of Tenant's rights under this Lease. Should Landlord enter into any
sale, transfer, or conveyance in conflict with this Lease, such sale, transfer,
or conveyance shall be null, void, and of no force or effect, and Tenant may,
at its option, in legal proceedings seek to have a court of competent
jurisdiction declare this Lease breached and decree an order that such sale,
transfer, or conveyance is null, void, and of no force or effect. Nothing
contained herein shall be construed to prevent specific performance of this
Lease or any term herein by Tenant. The right of first refusal set forth in
this Lease shall terminate upon the consummation of any sale to a third party
of all of the Leased Premises and all of the Property after full compliance
with all of the terms of this Lease, provided any such sale is on the terms and
conditions and for the purchase price set forth in the Contract sent to Tenant
as herein provided; however, if such sale and assignment is not consummated,
the right of first refusal set forth in this Lease shall remain in effect.
23. CONSTRUCTION OF IMPROVEMENTS.
23.01. CONSTRUCTION. Landlord, at Landlord's sole cost and expense, shall
erect on the Land a four (4) story parking garage containing approximately 801
parking places together with driveways and related improvements. The building
and other improvements to be constructed on the Land by Landlord shall be
constructed in accordance with the preliminary specifications set forth in
EXHIBIT B attached hereto and in accordance with the detailed plans and
specifications to be prepared by Landlord and approved by Landlord and Tenant in
writing. Landlord will construct and erect the building and other improvements
in compliance with all applicable federal, state, and municipal laws and the
rules and regulations of the departments and bureaus having jurisdiction
thereof. Landlord will furnish Tenant satisfactory evidence of such compliance
in the form of a certificate of occupancy issued by the appropriate municipal
department having jurisdiction over the Leased Premises.
23.02. PERMITS. Immediately upon written approval by Landlord and Tenant
of plans and specifications for the building, driveways, and other improvements,
Landlord will apply to all municipal, state, federal, and other governmental
agencies having jurisdiction for permission to erect a building and to make all
the improvements required by this Lease, and Landlord shall proceed diligently
with such applications for such permits. Tenant shall cooperate with Landlord
and furnish Landlord with all necessary information and data in its possession
required in connection with such applications.
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23.03. TENANT ACCESS. During the course of such construction Tenant, its
employees, agents, and contractors, may enter upon the Leased Premises at all
reasonable times for the purpose of inspection and, as soon as possible after
such construction is substantially completed, may enter upon the Leased Premises
for the purpose of installing improvements, fixtures, and equipment, upon the
condition that Tenant, its employees, agents, and contractors, will not
unreasonably interfere with Landlord's employees, agents, or contractors in the
pursuit of Landlord's construction.
23.04. REMOVAL OF MATERIALS. Landlord shall remove or cause its
contractors to remove all tools, scaffolding, unused and discarded building
materials, waste, debris, and rubbish of any sort in, on, or about the Leased
Premises prior to the Commencement Date.
23.05. COMPLETION. Landlord shall proceed with diligence to complete the
construction of the building and the other improvements to be erected by
Landlord. Possession of the Leased Premises shall be delivered, completed in
accordance with the detailed plans and specifications, not later than November
30, 1999, unless construction shall be delayed for causes beyond Landlord's
control, in which event the time fixed to complete and deliver such building and
other improvements shall be extended for a period equivalent to the time lost by
reason of such delay, but in no event shall such grace period be extended for
more than ninety (90) days. If the Commencement Date shall not occur on or
before November 30, 1999, Tenant shall have the option at any time thereafter so
long as the construction of the building and other improvements have not been
completed, to (a) terminate this Lease by giving Landlord thirty (30) days'
notice, and thereupon Tenant shall be relieved and released of all its
obligations hereunder as if this Lease had never been executed; or (b) extend
Landlord's time for completion thereof and delivery of possession to Tenant. In
the event of such termination, Landlord shall return to Tenant any sums which
Tenant may have paid to Landlord. If the Lease is terminated pursuant to this
section, Landlord shall not be obligated to make any payments to Tenant other
than those specified in this section.
EXECUTED to be effective as of the date shown above.
LANDLORD:
Landlord's Address for payment FIRST COMMAND FINANCIAL
and notice: CORPORATION
First Command Financial
Corporation
4100 South Hulen By: /s/ Lamar C. Smith
Fort Worth, Texas 76109 -------------------
Attn: Chief Executive Officer Name: Lamar C. Smith
-------------------------
Title: Chief Executive Officer
-------------------------
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TENANT:
Tenant's Address for notice: INDEPENDENT RESEARCH AGENCY
FOR LIFE INSURANCE, INC.
Independent Research Agency
for Life Insurance, Inc.
P. O. Box 2387 By: /s/ Martin R. Durbin
Fort Worth, Texas 76113 ---------------------
Attn: Chief Financial Officer Name: Martin R. Durbin
-------------------------
Title: Chief Financial Officer
-------------------------
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EXHIBIT A
BEING a 43750 square foot tract of land situated in the B.B.B. & C.R.R.
Survey, Abstract Number 217, and the J. Howard Survey, Abstract Number 693,
City of Fort Worth, Tarrant County, Texas, being part of Lot 2-R, Block C of
OVERTON WEST ADDITION described by plat recorded in Volume 388-173, Page 10,
Plat Records of Tarrant County, Texas (PRTCT), and being part of a called
17.000 acre tract of land described by deed as "TRACT FOUR" to Cassco Land
Co., Inc., recorded in Volume 6494, Page 389, Deed Records of Tarrant County,
Texas (DRTCT), said 43750 square foot tract of land being more particularly
described by metes and bounds as follows:
Commencing at a 1/2-inch iron rod found at the intersection of the north
right-of-way line of Overton Plaza (an 80-foot right-of-way) and the west
right-of-way line of South Hulen Street (a 120-foot right-of-way);
THENCE along said west right-of-way line the following:
North 00DEG.09'00" East, a distance of 281.00 feet to a 1/2-inch iron
rod found for the beginning of a curve to the left having a central angle
of 09DEG.31'21" and a radius of 1287.60 feet;
Along said curve to the left an arc distance of 214.00 feet and a chord
bearing and distance of North 04DEG.36'41" West 213.75 feet to a
1/2-inch iron rod found for the southeast corner of Lot 1, Block C of
OVERTON WEST ADDITION described by plat recorded in Volume 388-74, Page
2 PRTCT;
THENCE South 84DEG.46'00" West, a distance of 327.42 feet along the south
line of said Lot 1 to a point;
THENCE South 05DEG.14'00" East, a distance of 59.71 feet to a point for
corner, said point being the POINT OF BEGINNING;
THENCE South 04DEG.23'44" East, a distance of 125.00 feet to a point for
corner;
THENCE South 85DEG.36'16" West, a distance of 350.00 feet to a point for
corner;
THENCE North 04DEG.23'44" West, a distance of 125.00 feet to a point for
corner;
THENCE North 85DEG.36'16" East, a distance of 350.00 feet to the POINT OF
BEGINNING;
CONTAINING a computed area of 43750 square feet of land.
<PAGE>
EXHIBIT B
Being a 14.278 acre tract of land situated in the B.B.B. & C.R.R.
Survey, Abstract No. 217, and the J. Howard Survey, Abstract No. 693, City of
Fort Worth, Tarrant County, Texas, being all of LOT 2-R, BLOCK C of OVERTON
WEST ADDITION described by plat recorded in Volume 388-173, Page 10, Plat
Records of Tarrant County, Texas (PRTCT), being the remainder of LOT 4 BLOCK
C of OVERTON WEST ADDITION described by plat recorded in Volume 388-124, Page
27, PRTCT, being part of a called 19.23 acre tract of land described by deed
to Cassco Land Co., Inc., recorded in Volume 5190, Page 800, Deed Records of
Tarrant County, Texas (DRTCT), and being part of a called 17.000 acre tract
of land described by deed as "TRACT FOUR" to Cassco Land Co., Inc., recorded
in Volume 6494, Page 389, DRTCT, said 14.278 acre tract of land being more
particularly described as follows:
BEGINNING at a 1/2-inch iron rod set at the intersection of the north
right-of-way line of Overton Plaza (an 80-foot right-of-way) and the west
right-of-way line of South Hulen Street (a 120-foot right-of-way);
THENCE along said north right-of-way line the following:
North 89DEG.51'00" West, a distance of 48.27 feet to a 1/2-inch iron
rod set for the beginning of a curve to the left having a central angle of
11DEG.50'55" and a radius of 762.79 feet;
Along said curve of the left an arc distance of 157.74 feet and a chord
bearing and distance of South 84DEG.13'32" West 157.46 feet to a 1/2-inch
iron rod set for the point of tangency;
South 78DEG.18'00" West, a distance of 416.34 feet to 1/2-inch iron rod
set for the beginning of a curve to the right having a central angle of
18DEG.54'30" and a radius of 1128.51 feet;
Along said curve to the right an arc distance of 372.42 feet and a chord
bearing and distance of South 87DEG.45'15" West 370.73 feet to a
1/2-inch iron rod set for the beginning of a compound curve to the right
having a central angle of 22DEG.21'07" and a radial bearing and
distance of North 07DEG.05'18" East 634.45 feet;
Along said compound curve to the right an arc distance 247.51 feet and a
chord bearing and distance of North 71DEG.44'09" West 245.94 feet to a
1/2-inch iron set for the southeast corner of LOT 5, BLOCK C of OVERTON
WEST ADDITION described by plat recorded in Volume 388-140, Page 19,
PRTCT;
THENCE along the southeast and northeast lines of said LOT 5 the following:
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<PAGE>
North 30DEG.04'00" East, a distance of 295.00 feet to a 1/2-inch iron
rod found for corner;
North 48DEG.30'00" West, a distance of 205.00 feet to a 1/2-inch iron
rod set for the north corner of said LOT 5, said corner being in the
southeast right-of-way line of Kingsridge Road (a 60-foot right-of-way)
and in a non-tangent curve to the left having a central angle of 16DEG.
32'57" and a radial bearing and distance of North 47DEG.39'34" East
830.00 feet;
THENCE along said southeast right-of-way line and said curve to the left an
arc distance of 239.74 feet and a chord bearing and distance of North 34DEG.
03'57" East 238.90 feet to a 1/2-inch iron rod found for the southwest corner
of LOT 1, BLOCK C of OVERTON WEST ADDITION described by plat recorded in
Volume 388-74, Page 2, PRTCT;
THENCE along the south lines of said LOT 1 the following:
South 64DEG.32'00" East, a distance of 303.48 feet to a 1/2-inch iron
rod found for corner;
North 84DEG.46'00" East, a distance of 801.45 feet to a 1/2-inch iron
rod set for corner in the west right-of-way line of the aforementioned
South Hulen Street, said corner being in a non-tangent curve to the right
having a central angle of 09DEG.31'21" and a radial bearing and distance
of South 80DEG.37'39" West 1287.60 feet;
THENCE along said west right-of-way line the following:
Along said curve to the right an arc distance of 214.00 feet and a chord
bearing and distance of South 04DEG.26'59" East 303.48 feet to a 1/2-inch
iron rod set for the point of tangency;
South 00DEG.09'00" West, a distance of 281.00 feet to the POINT OF
BEGINNING;
CONTAINING a computed area of 621,931 square feet or 14.278 acres of land.
Page 2 of 2
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MANAGEMENT AGREEMENT
This Management Agreement (this "AGREEMENT") is made and entered into to
be effective for all purposes as of June 1, 1998, by and between INDEPENDENT
RESEARCH AGENCY FOR LIFE INSURANCE, INC., a Texas corporation ("IRA"), and
FIRST COMMAND FINANCIAL CORPORATION, a Texas corporation ("FCFC").
RECITALS
A. FCFC is in the business of building, operating, and leasing a
parking garage to be located in Fort Worth, Texas.
B. FCFC desires to obtain various services, facilities, equipment, and
supplies necessary in order to operate its business, and FCFC has requested
IRA to provide certain of those services and facilities and certain equipment
and supplies needed by FCFC.
C. IRA is willing to provide certain services, facilities, equipment,
and supplies to FCFC on the terms and conditions set forth in this Agreement.
AGREEMENT
In consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
IRA and FCFC hereby agree as follows:
1. SERVICES. FCFC agrees to retain IRA as an independent contractor,
and IRA agrees to be retained by FCFC as an independent contractor, to
provide to FCFC various services on the terms and conditions set forth in
this Agreement. As such, IRA shall, for the term of this Agreement, make
representatives of IRA available to FCFC to render, and IRA shall render, the
following services (collectively, the "SERVICES") relating to or affecting
the operation of FCFC's business:
(a) Preparation and processing of payroll and payroll records for
FCFC's business, including the annual filing of the FUTA return, the
quarterly FUTA deposit, the filing of the Federal Reconciliation, the
deposits related to employment taxes, the filing of the annual 941 return
with the IRS and the depositing and filing of state unemployment insurance.
(b) Processing of accounts payable for FCFC's business, including
the control and disbursement of FCFC funds to vendors and reconciliation of
related bank accounts.
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(c) Administration of employee benefits for employees of FCFC,
including the collection and disbursement of premiums related to various
group insurance policies as well as the administration of any fringe benefits
or bonus plans adopted by FCFC.
2. FACILITIES. During the term of this Agreement, IRA will, at IRA's
expense, furnish to FCFC such facilities as are reasonably necessary for the
operation of FCFC's business. IRA and FCFC will by mutual agreement
determine the size and location of all such facilities consistent with FCFC's
needs for facilities. Such facilities may be located within buildings owned
or leased by IRA, all as determined by the mutual agreement of IRA and FCFC.
IRA will pay all costs (including acquisition costs, rents, repair costs,
maintenance costs, and utilities costs) incurred in connection with
furnishing such facilities to FCFC.
3. EQUIPMENT. During the term of this Agreement, IRA will, at IRA's
expense, furnish to FCFC two (2) automobiles and such equipment and
furnishings as are reasonably necessary for the operation of FCFC's business.
Such equipment and furnishings will include telephones, computers, printers,
photocopy machines, facsimile machines, office furniture, and other equipment
normally utilized in a business office. IRA will select and acquire (by
purchase or lease) all such automobiles, equipment, and furnishings. No such
automobiles, equipment, or furnishings supplied by IRA will be or become the
property of FCFC. IRA will pay all costs (including acquisition costs, lease
expenses, insurance, maintenance costs, and repair costs) incurred in
connection with furnishing such automobiles, equipment, and furnishings to
FCFC.
4. SUPPLIES. During the term of this Agreement, IRA will, at IRA's
expense, furnish to FCFC such supplies as are reasonably necessary in order
for IRA to provide the Services.
5. MANAGEMENT FEE. In consideration for the Services to be rendered
by IRA to FCFC under this Agreement, the facilities, equipment, and supplies
to be furnished by IRA to FCFC under this Agreement and all other duties and
obligations of IRA under this Agreement, and as compensation for the
Services, the facilities, equipment, and supplies to be furnished by IRA to
FCFC under this Agreement and all other duties and obligations of IRA under
this Agreement, FCFC agrees to pay to IRA a MANAGEMENT FEE (herein so called)
in the amount of $2,030.00 per month. The Management Fee shall be due and
payable in monthly installments in advance on the first day of each calendar
month during the term of this Agreement. The Management Fee shall be payable
by FCFC to IRA at the address for IRA set forth in this Agreement or at such
other place as may be designated in writing by IRA to FCFC. If the term of
this Agreement commences on other than the first day of a calendar month or
ends on other than the last day of a calendar month, the Management Fee for
the partial month shall be prorated on the basis of the number of days during
the month for which this Agreement was in effect. If any payment of the
Management Fee remains unpaid for more than ten (10) days after IRA has given
FCFC written notice that such payment was not paid when due, such payment
shall bear interest at the rate of twelve percent (12%) per annum from the
date such payment was due until the date such payment is paid.
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<PAGE>
6. TERM. Unless this Agreement is sooner terminated as otherwise
provided in this Agreement and except as otherwise provided herein, this
Agreement initially shall be in effect for a period of one (1) year beginning
on the date of this Agreement and ending on May 31, 1999. Thereafter, this
Agreement shall automatically renew itself from year to year unless otherwise
terminated as provided in this Agreement.
7. PLACE OF SERVICES. It is understood that the Services and the
other duties and obligations of IRA under this Agreement will be rendered or
performed primarily at IRA's office located at 4100 South Hulen, Fort Worth,
Texas or at such other place or places mutually agreed upon by IRA and FCFC.
8. TIME DEVOTED TO SERVICES; PERSONNEL. In the performance of the
Services and the other duties and obligations of IRA under this Agreement,
the hours IRA is required to work on any given day and the personnel provided
by IRA to perform such work will be within IRA's control, and FCFC will rely
upon IRA to devote such time and to provide such personnel as is reasonably
necessary to fulfill the spirit and purpose of this Agreement. However, IRA
will coordinate with FCFC on scheduling the performance of the Services and
the other duties and obligations of IRA under this Agreement, and the
Services and such other duties and obligations will be performed at such
times as are mutually agreeable to FCFC and IRA.
9. PERSONNEL, MATERIALS, FACILITIES AND EQUIPMENT. IRA shall furnish,
at IRA's own expense, all personnel, materials, facilities, equipment,
supplies and other things necessary to carry out IRA's obligations under this
Agreement.
10. EXPENSES OF IRA. Except as otherwise provided in this Agreement,
IRA shall pay all of IRA's own expenses in connection with the performance of
the Services and of IRA's other duties and obligations under this Agreement
and in furnishing the facilities, equipment, and supplies to be provided by
IRA under this Agreement.
11. INSURANCE. At all times during the term of this Agreement, FCFC
will obtain and maintain, at FCFC's expense, a policy of general liability
insurance in such amounts as may be mutually agreeable to FCFC and IRA. IRA
shall be named as an additional insured in each such policy.
12. RELATIONSHIP OF THE PARTIES. The parties to this Agreement agree
that IRA is an independent corporation and that the relationship created by
this Agreement is that of client and independent contractor. IRA may perform
services for itself and for others at the same time that IRA is performing
the Services for FCFC pursuant to this Agreement. FCFC may, during the term
of this Agreement, engage employees and other independent contractors to
perform other services on behalf of FCFC.
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13. ASSIGNMENT. Neither IRA nor FCFC may assign this Agreement or any
of IRA's or FCFC's rights or obligations under this Agreement without the
prior written consent of the other party; provided, however, that IRA may,
without FCFC's consent, assign IRA's rights and obligations under this
Agreement to any affiliate of IRA that assumes in writing the obligations of
IRA under this Agreement.
14. EVENTS OF DEFAULT BY FCFC. FCFC shall be in default under this
Agreement upon the occurrence of any of the following events or conditions,
and the term "FCFC EVENT OF DEFAULT" as used in this Agreement shall mean the
occurrence of any one or more of the following events or conditions:
(a) The failure or refusal of FCFC to pay any Management Fee when
due and such failure or refusal continues for more than ten (10) days after
IRA has given FCFC written notice thereof.
(b) The failure or refusal of FCFC to properly and timely perform,
observe, and comply with any other covenant or agreement contained in this
Agreement on the part of FCFC to be performed, observed, or complied with
and such failure or refusal continues for more than thirty (30) days after
IRA has given FCFC written notice thereof.
(c) Any statement, representation, or warranty made in this
Agreement or in any writing required to be delivered by FCFC to IRA pursuant
to this Agreement or any statement or representation made in any certificate
or report delivered by FCFC to IRA pursuant to this Agreement is knowingly
false or erroneous in any material respect at the time made.
15. REMEDIES FOR FCFC DEFAULT. If an FCFC Event of Default shall occur
and be continuing, at any time thereafter during the continuance of such FCFC
Event of Default, unless such FCFC Event of Default shall have been remedied
to the satisfaction of IRA or waived in writing by IRA, IRA may, at its
election, do any one or more of the following:
(a) Declare this Agreement terminated.
(b) Discontinue all of the Services and other duties and
obligations required by this Agreement to be performed by IRA and discontinue
furnishing any facilities, equipment, or supplies to FCFC.
(c) Exercise any and all rights afforded by the laws of the State
of Texas or any other jurisdiction, or by this Agreement, or by law or
equity, or otherwise.
(d) Enforce the specific performance of this Agreement.
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<PAGE>
16. EVENTS OF DEFAULT BY IRA. IRA shall be in default under this
Agreement upon the occurrence of any of the following events or conditions,
and the term "IRA EVENT OF DEFAULT" as used in this Agreement shall mean the
occurrence of any one or more of the following events or conditions:
(a) The failure or refusal of IRA to properly and timely perform,
observe, and comply with any covenant or agreement contained in this
Agreement on the part of IRA to be performed, observed, or complied with and
such failure or refusal continues for more than thirty (30) days after FCFC
has given IRA written notice thereof.
(b) Any statement, representation, or warranty made in this
Agreement or in any writing required to be delivered by IRA to FCFC pursuant
to this Agreement or any statement or representation made in any certificate
or report delivered by IRA to FCFC pursuant to this Agreement is knowingly
false or erroneous in any material respect at the time made.
17. REMEDIES FOR IRA DEFAULT. If a IRA Event of Default shall occur
and be continuing, at any time thereafter during the continuance of such IRA
Event of Default, unless such IRA Event of Default shall have been remedied
to the satisfaction of FCFC or waived in writing by FCFC, FCFC may, at its
election, do any one or more of the following:
(a) Declare this Agreement terminated, in which event FCFC shall
have no further obligations under this Agreement (including without
limitation any obligation to pay any additional Management Fees accruing
after the date of termination).
(b) Exercise any and all rights afforded by the laws of the State
of Texas or any other jurisdiction, or by this Agreement, or by law or
equity, or otherwise.
(c) Enforce the specific performance of this Agreement.
18. CUMULATIVE RIGHTS. All rights available to IRA or to FCFC under
this Agreement shall be cumulative of and in addition to all other rights
granted to IRA or FCFC at law or in equity. Pursuit of any of the foregoing
remedies shall not preclude pursuit of any other remedies herein provided or
any other remedies provided by law, nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any damages accruing to IRA or
to FCFC by reason of the violation of any of the terms, provisions, or
covenants contained in this Agreement. Forbearance by IRA or FCFC to enforce
one or more of the remedies herein provided upon an FCFC Event of Default or
a IRA Event of Default (collectively, "EVENTS OF DEFAULT," and individually,
an "EVENT OF DEFAULT") shall not be deemed or construed to constitute a
waiver of such Event of Default.
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<PAGE>
19. TERMINATION. In addition to the other events and conditions set
forth in this Agreement that may result in the termination of this Agreement,
this Agreement shall be terminated upon the occurrence of any of the
following events or conditions:
(a) The mutual agreement of the parties.
(b) At the option of IRA or FCFC on any anniversary date of the
date of this Agreement beginning with the first anniversary of the date of
this Agreement, on written notice by one party to the other party given at
least thirty (30) days prior to the effective date of termination.
Upon the termination of this Agreement for any of the reasons set
forth in this Agreement, IRA shall cease to be obligated to perform the
Services and the other duties and obligations of IRA required by this
Agreement, IRA shall cease to be obligated to furnish any facilities,
equipment, or supplies to FCFC, IRA shall cease to have any rights or
benefits under this Agreement except the right to receive any unpaid
Management Fees which have accrued to the effective date of termination, and
FCFC shall cease to have any further obligations or liabilities under this
Agreement except the obligation to pay to IRA any unpaid Management Fees
which have accrued to the effective date of termination.
20. OWNERSHIP OF RECORDS; RETURN OF RECORDS AND EQUIPMENT AND SURRENDER
OF FACILITIES ON TERMINATION. All records and books relating to FCFC's
business, whether prepared by IRA or otherwise coming into IRA's possession,
shall be the property of FCFC regardless of who actually prepared or
purchased the original book or record. Upon the termination of this
Agreement, IRA shall make available to FCFC at its main office all of FCFC's
books and records in IRA's possession. IRA, at IRA's option, may retain
copies of all of FCFC's records that were prepared by IRA in the performance
of IRA's duties and obligations under this Agreement. Upon the termination
of this Agreement, FCFC shall return to IRA at its main office all of IRA's
equipment, furnishings, and supplies in FCFC's possession, together with all
other property belonging to or leased by IRA or used in connection with IRA's
business which may be in FCFC's possession, and FCFC shall immediately
surrender possession to IRA of all facilities provided by IRA to FCFC under
this Agreement.
21. EFFECT OF TERMINATION ON LIABILITY. Unless otherwise expressly
provided herein, termination of this Agreement shall not affect any liability
of either party to the other which accrued prior to the effective date of
such termination.
22. INDEMNIFICATION BY FCFC. FCFC agrees to indemnify IRA and hold IRA
harmless from and against all liabilities, losses, damages, claims, causes of
action, and expenses connected therewith (including reasonable attorneys'
fees) arising out of or resulting from the performance of FCFC's duties and
obligations under this Agreement that are caused directly or
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<PAGE>
indirectly by, or as a result of, the negligent act or omission or willful
misconduct of FCFC or any of FCFC's employees, officers, directors, agents,
or representatives.
23. INDEMNIFICATION BY IRA. IRA agrees to indemnify FCFC and hold FCFC
harmless from and against all liabilities, losses, damages, claims, causes of
action, and expenses connected therewith (including reasonable attorneys'
fees) arising out of or resulting from the performance of IRA's duties and
obligations under this Agreement that are caused directly or indirectly by,
or as a result of, the negligent act or omission or willful misconduct of IRA
or any of IRA's employees, officers, directors, agents, or representatives.
24. CLAIM FOR INDEMNITY. In the event either party hereto receives
notice of a claim or demand which results or may result in indemnification
pursuant to SECTION 22 or SECTION 23, such party shall immediately give
notice thereof to the other party to this Agreement. The party receiving
such notice shall immediately take such measures as may be reasonably
required to properly and effectively defend such claim, and may defend same
with counsel of its own choosing. In the event the party receiving such
notice fails to properly and effectively defend such claim, and in the event
such party is liable therefor, then the party so giving such notice may
defend such claim at the expense of the party receiving such notice.
25. ATTORNEYS' FEES. If any party defaults in the performance of any
term, covenant, or condition contained in this Agreement on the part of such
party to be performed and the non-defaulting party places the enforcement of
this Agreement, or any part thereof, or the exercise of any rights under this
Agreement in the hands of an attorney, or files suit upon the same, the
defaulting party agrees to pay to the non-defaulting party all costs of suit
and all costs of enforcement of the non-defaulting party's rights hereunder,
including reasonable attorneys' fees.
26. WAIVERS. No waiver by any party of any Event of Default shall be
deemed to be a waiver of any other then-existing or subsequent Event of
Default. No delay or omission by any party in exercising any right under this
Agreement shall impair such right or be construed as a waiver thereof or any
acquiescence therein, nor shall any single or partial exercise of any such
right preclude other or further exercise thereof, or the exercise of any
other right under this Agreement or otherwise. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver
of any other provision, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding unless executed
in writing by the party making it.
27. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between IRA and FCFC with respect to the subject matter hereof, and there are
no other covenants, agreements, promises, terms, provisions, conditions,
undertakings, or understandings, either oral or written, between them
concerning the subject matter of this Agreement other than those set forth
herein. No subsequent alteration, amendment, change, deletion, or addition
to this
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<PAGE>
Agreement shall be binding upon IRA or FCFC unless in writing and signed by
both IRA and FCFC.
28. BINDING EFFECT. This Agreement shall inure to the benefit of and
be binding on IRA and FCFC and their respective successors and permitted
assigns.
29. NO PARTNERSHIP. Nothing contained in this Agreement shall
constitute or be construed to be or create a partnership or joint venture
between IRA and FCFC.
30. NOTICES. Any notice, approval, waiver, objection, or other
communication (for convenience, "notice") required or permitted to be given
hereunder or given in regard to this Agreement by one party to the other
shall be in writing and the same shall be given and be deemed to have been
served and given (except when by the terms of this Agreement actual notice is
required) (a) if hand delivered, when delivered in person to the address set
forth hereinafter for the party to whom notice is given, or (b) if mailed
(except where actual receipt is specified by this Agreement), when placed in
the United States mail, postage prepaid, by certified mail, return receipt
requested, addressed to the party at the address hereinafter specified. Any
party may change its address for notices by notice theretofore given in
accordance with this section and shall be deemed effective when actually
received by the other party. The addresses of the parties are as follows:
FCFC: First Command Financial Corporation
4100 South Hulen
Fort Worth, Texas 76109
Attention: Chief Executive Officer
IRA: Independent Research Agency for Life Insurance, Inc.
P. O. Box 2387
Fort Worth, Texas 76113
Attention: Chief Financial Officer
31. GOVERNING LAW. This Agreement is being executed and delivered, and
is intended to be performed, in the State of Texas, and the laws of the State
of Texas and of the United States shall govern the rights and duties of the
parties hereto and the validity, construction, enforcement, and
interpretation of this Agreement. All obligations of the parties created by
this Agreement shall be performed in Tarrant County, Texas. The parties to
this Agreement hereby consent that venue of any action brought under this
Agreement shall be in Tarrant County, Texas.
32. HEADINGS. The headings, captions, and numbering system used in
this Agreement are intended only as a matter of convenience and may under no
circumstances be considered in interpreting the provisions of this Agreement.
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<PAGE>
33. AGREEMENT TO EXECUTE DOCUMENTS. In connection with this Agreement,
as well as with all transactions contemplated by this Agreement, each of the
parties hereto agrees to execute and deliver any and all documents and
instruments, and to perform such additional acts, as may be necessary or
appropriate to effectuate, carry out, and perform all of the terms,
provisions, and conditions of this Agreement.
34. COUNTERPARTS. This Agreement has been executed in a number of
identical counterparts, each of which constitutes an original and all of
which constitute, collectively, one agreement; but in making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.
35. SEVERABILITY. If any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Agreement, and
this Agreement shall be enforced to the fullest extent permitted by
applicable law.
Executed to be effective for all purposes as of the date first above
written.
FCFC:
FIRST COMMAND FINANCIAL
CORPORATION
By: /s/ Lamar C. Smith
----------------------------------------
Name: Lamar C. Smith
Title: Chief Executive Officer
IRA:
INDEPENDENT RESEARCH AGENCY
FOR LIFE INSURANCE, INC.
By: /s/ Martin R. Durbin
----------------------------------------
Name: Martin R. Durbin
Title: Chief Financial Officer
Page 9
<PAGE>
ADMINISTRATION AGREEMENT
This Administration Agreement (this "AGREEMENT") is made and entered into
to be effective for all purposes as of June 1, 1998, by and between INDEPENDENT
RESEARCH AGENCY FOR LIFE INSURANCE, INC., a Texas corporation ("IRA"), and FIRST
COMMAND FINANCIAL CORPORATION, a Texas corporation ("FCFC").
RECITALS
A. IRA is in the business of, among other things, owning and operating a
multi-story office building located at 4100 South Hulen, Fort Worth, Texas (the
"BUILDING").
B. IRA desires to obtain various services necessary in order to operate
the Building and certain portions of IRA's business, and IRA has requested FCFC
to provide certain of those services needed by IRA.
C. FCFC is willing to provide certain services to IRA on the terms and
conditions set forth in this Agreement.
AGREEMENT
In consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, FCFC and IRA
hereby agree as follows:
1. SERVICES. IRA agrees to retain FCFC as an independent contractor, and
FCFC agrees to be retained by IRA as an independent contractor, to provide to
IRA various services on the terms and conditions set forth in this Agreement.
As such, FCFC shall, for the term of this Agreement, make representatives of
FCFC available to IRA to render, and FCFC shall render, the following services
(collectively, the "SERVICES") relating to or affecting the operation of IRA's
business:
(a) Manage the Building, including managing the maintenance staff,
grounds staff, telephone and security systems for the Building.
(b) Manage IRA's Personnel Administration Department, including
supervision of the employee policies and benefits of IRA as well as
administering and managing the printing, graphics, and supplies administration
functions of IRA.
2. ADMINISTRATION FEE. In consideration for the Services to be rendered
by FCFC to IRA under this Agreement and all other duties and obligations of FCFC
under this Agreement, and as compensation for the Services and all other duties
and obligations of FCFC
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<PAGE>
under this Agreement, IRA agrees to pay to FCFC an ADMINISTRATION FEE (herein
so called) in the amount of $2,080.00 per month. The Administration Fee
shall be due and payable in monthly installments in advance on the first day
of each calendar month during the term of this Agreement. The Administration
Fee shall be payable by IRA to FCFC at the address for FCFC set forth in this
Agreement or at such other place as may be designated in writing by FCFC to
IRA. If the term of this Agreement commences on other than the first day of
a calendar month or ends on other than the last day of a calendar month, the
Administration Fee for the partial month shall be prorated on the basis of
the number of days during the month for which this Agreement was in effect.
If any payment of the Administration Fee remains unpaid for more than ten
(10) days after FCFC has given IRA written notice that such payment was not
paid when due, such payment shall bear interest at the rate of twelve percent
(12%) per annum from the date such payment was due until the date such
payment is paid.
3. TERM. Unless this Agreement is sooner terminated as otherwise
provided in this Agreement and except as otherwise provided herein, this
Agreement initially shall be in effect for a period of one (1) year beginning on
the date of this Agreement and ending on May 31, 1999. Thereafter, this
Agreement shall automatically renew itself from year to year unless otherwise
terminated as provided in this Agreement.
4. PLACE OF SERVICES. It is understood that the Services and the other
duties and obligations of FCFC under this Agreement will be rendered or
performed primarily at IRA's office located at 4100 South Hulen, Fort Worth,
Texas or at such other place or places mutually agreed upon by FCFC and IRA.
5. TIME DEVOTED TO SERVICES; PERSONNEL. In the performance of the
Services and the other duties and obligations of FCFC under this Agreement, the
hours FCFC is required to work on any given day and the personnel provided by
FCFC to perform such work will be within FCFC's control, and IRA will rely upon
FCFC to devote such time and to provide such personnel as is reasonably
necessary to fulfill the spirit and purpose of this Agreement. However, FCFC
will coordinate with IRA on scheduling the performance of the Services and the
other duties and obligations of FCFC under this Agreement, and the Services and
such other duties and obligations will be performed at such times as are
mutually agreeable to IRA and FCFC.
6. PERSONNEL, MATERIALS, FACILITIES AND EQUIPMENT. FCFC shall furnish,
at FCFC's own expense, all personnel, materials, facilities, equipment, supplies
and other things necessary to carry out FCFC's obligations under this Agreement.
7. EXPENSES OF FCFC. Except as otherwise provided in this Agreement,
FCFC shall pay all of FCFC's own expenses in connection with the performance of
the Services and of FCFC's other duties and obligations under this Agreement.
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<PAGE>
8. INSURANCE. At all times during the term of this Agreement, IRA will
obtain and maintain, at IRA's expense, a policy of general liability insurance
in such amounts as may be mutually agreeable to IRA and FCFC. FCFC shall be
named as an additional insured in each such policy.
9. RELATIONSHIP OF THE PARTIES. The parties to this Agreement agree that
FCFC is an independent corporation and that the relationship created by this
Agreement is that of client and independent contractor. FCFC may perform
services for itself and for others at the same time that FCFC is performing the
Services for IRA pursuant to this Agreement. IRA may, during the term of this
Agreement, engage employees and other independent contractors to perform other
services on behalf of IRA.
10. ASSIGNMENT. Neither FCFC nor IRA may assign this Agreement or any of
FCFC's or IRA's rights or obligations under this Agreement without the prior
written consent of the other party; provided, however, that FCFC may, without
IRA's consent, assign FCFC's rights and obligations under this Agreement to any
affiliate of FCFC that assumes in writing the obligations of FCFC under this
Agreement.
11. EVENTS OF DEFAULT BY IRA. IRA shall be in default under this
Agreement upon the occurrence of any of the following events or conditions, and
the term "IRA EVENT OF DEFAULT" as used in this Agreement shall mean the
occurrence of any one or more of the following events or conditions:
(a) The failure or refusal of IRA to pay any Administration Fee when
due and such failure or refusal continues for more than ten (10) days after FCFC
has given IRA written notice thereof.
(b) The failure or refusal of IRA to properly and timely perform,
observe, and comply with any other covenant or agreement contained in this
Agreement on the part of IRA to be performed, observed, or complied with and
such failure or refusal continues for more than thirty (30) days after FCFC has
given IRA written notice thereof.
(c) Any statement, representation, or warranty made in this Agreement
or in any writing required to be delivered by IRA to FCFC pursuant to this
Agreement or any statement or representation made in any certificate or report
delivered by IRA to FCFC pursuant to this Agreement is knowingly false or
erroneous in any material respect at the time made.
12. REMEDIES FOR IRA DEFAULT. If an IRA Event of Default shall occur and
be continuing, at any time thereafter during the continuance of such IRA Event
of Default, unless such IRA Event of Default shall have been remedied to the
satisfaction of FCFC or waived in writing by FCFC, FCFC may, at its election, do
any one or more of the following:
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<PAGE>
(a) Declare this Agreement terminated.
(b) Discontinue all of the Services and other duties and obligations
required by this Agreement to be performed by FCFC.
(c) Exercise any and all rights afforded by the laws of the State of
Texas or any other jurisdiction, or by this Agreement, or by law or equity, or
otherwise.
(d) Enforce the specific performance of this Agreement.
13. EVENTS OF DEFAULT BY FCFC. FCFC shall be in default under this
Agreement upon the occurrence of any of the following events or conditions, and
the term "FCFC EVENT OF DEFAULT" as used in this Agreement shall mean the
occurrence of any one or more of the following events or conditions:
(a) The failure or refusal of FCFC to properly and timely perform,
observe, and comply with any covenant or agreement contained in this Agreement
on the part of FCFC to be performed, observed, or complied with and such failure
or refusal continues for more than thirty (30) days after IRA has given FCFC
written notice thereof.
(b) Any statement, representation, or warranty made in this Agreement
or in any writing required to be delivered by FCFC to IRA pursuant to this
Agreement or any statement or representation made in any certificate or report
delivered by FCFC to IRA pursuant to this Agreement is knowingly false or
erroneous in any material respect at the time made.
14. REMEDIES FOR FCFC DEFAULT. If a FCFC Event of Default shall occur and
be continuing, at any time thereafter during the continuance of such FCFC Event
of Default, unless such FCFC Event of Default shall have been remedied to the
satisfaction of IRA or waived in writing by IRA, IRA may, at its election, do
any one or more of the following:
(a) Declare this Agreement terminated, in which event IRA shall have
no further obligations under this Agreement (including without limitation any
obligation to pay any additional Administration Fees accruing after the date of
termination).
(b) Exercise any and all rights afforded by the laws of the State of
Texas or any other jurisdiction, or by this Agreement, or by law or equity, or
otherwise.
(c) Enforce the specific performance of this Agreement.
15. CUMULATIVE RIGHTS. All rights available to FCFC or to IRA under this
Agreement shall be cumulative of and in addition to all other rights granted to
FCFC or IRA at law or in equity. Pursuit of any of the foregoing remedies shall
not preclude pursuit of any other
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<PAGE>
remedies herein provided or any other remedies provided by law, nor shall
pursuit of any remedy herein provided constitute a forfeiture or waiver of
any damages accruing to FCFC or to IRA by reason of the violation of any of
the terms, provisions, or covenants contained in this Agreement. Forbearance
by FCFC or IRA to enforce one or more of the remedies herein provided upon an
IRA Event of Default or a FCFC Event of Default (collectively, "EVENTS OF
DEFAULT," and individually, an "EVENT OF DEFAULT") shall not be deemed or
construed to constitute a waiver of such Event of Default.
16. TERMINATION. In addition to the other events and conditions set forth
in this Agreement that may result in the termination of this Agreement, this
Agreement shall be terminated upon the occurrence of any of the following events
or conditions:
(a) The mutual agreement of the parties.
(b) At the option of FCFC or IRA on any anniversary date of the date
of this Agreement beginning with the first anniversary of the date of this
Agreement, on written notice by one party to the other party given at least
thirty (30) days prior to the effective date of termination.
Upon the termination of this Agreement for any of the reasons set
forth in this Agreement, FCFC shall cease to be obligated to perform the
Services and the other duties and obligations of FCFC required by this
Agreement, FCFC shall cease to have any rights or benefits under this Agreement
except the right to receive any unpaid Administration Fees which have accrued to
the effective date of termination, and IRA shall cease to have any further
obligations or liabilities under this Agreement except the obligation to pay to
FCFC any unpaid Administration Fees which have accrued to the effective date of
termination.
17. OWNERSHIP OF RECORDS; RETURN OF RECORDS AND EQUIPMENT ON TERMINATION.
All records and books relating to IRA's business, whether prepared by FCFC or
otherwise coming into FCFC's possession, shall be the property of IRA regardless
of who actually prepared or purchased the original book or record. Upon the
termination of this Agreement, FCFC shall make available to IRA at its main
office all of IRA's books and records in FCFC's possession. FCFC, at FCFC's
option, may retain copies of all of IRA's records that were prepared by FCFC in
the performance of FCFC's duties and obligations under this Agreement. Upon the
termination of this Agreement, IRA shall return to FCFC at its main office all
of FCFC's equipment, furnishings, and supplies in IRA's possession, together
with all other property belonging to or leased by FCFC or used in connection
with FCFC's business which may be in IRA's possession.
18. EFFECT OF TERMINATION ON LIABILITY. Unless otherwise expressly
provided herein, termination of this Agreement shall not affect any liability of
either party to the other which accrued prior to the effective date of such
termination.
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<PAGE>
19. INDEMNIFICATION BY IRA. IRA agrees to indemnify FCFC and hold FCFC
harmless from and against all liabilities, losses, damages, claims, causes of
action, and expenses connected therewith (including reasonable attorneys' fees)
arising out of or resulting from the performance of IRA's duties and obligations
under this Agreement that are caused directly or indirectly by, or as a result
of, the negligent act or omission or willful misconduct of IRA or any of IRA's
employees, officers, directors, agents, or representatives.
20. INDEMNIFICATION BY FCFC. FCFC agrees to indemnify IRA and hold IRA
harmless from and against all liabilities, losses, damages, claims, causes of
action, and expenses connected therewith (including reasonable attorneys' fees)
arising out of or resulting from the performance of FCFC's duties and
obligations under this Agreement that are caused directly or indirectly by, or
as a result of, the negligent act or omission or willful misconduct of FCFC or
any of FCFC's employees, officers, directors, agents, or representatives.
21. CLAIM FOR INDEMNITY. In the event either party hereto receives notice
of a claim or demand which results or may result in indemnification pursuant to
SECTION 19 or SECTION 20, such party shall immediately give notice thereof to
the other party to this Agreement. The party receiving such notice shall
immediately take such measures as may be reasonably required to properly and
effectively defend such claim, and may defend same with counsel of its own
choosing. In the event the party receiving such notice fails to properly and
effectively defend such claim, and in the event such party is liable therefor,
then the party so giving such notice may defend such claim at the expense of the
party receiving such notice.
22. ATTORNEYS' FEES. If any party defaults in the performance of any
term, covenant, or condition contained in this Agreement on the part of such
party to be performed and the non-defaulting party places the enforcement of
this Agreement, or any part thereof, or the exercise of any rights under this
Agreement in the hands of an attorney, or files suit upon the same, the
defaulting party agrees to pay to the non-defaulting party all costs of suit and
all costs of enforcement of the non-defaulting party's rights hereunder,
including reasonable attorneys' fees.
23. WAIVERS. No waiver by any party of any Event of Default shall be
deemed to be a waiver of any other then-existing or subsequent Event of Default.
No delay or omission by any party in exercising any right under this Agreement
shall impair such right or be construed as a waiver thereof or any acquiescence
therein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof, or the exercise of any other right under this
Agreement or otherwise. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other provision, whether
or not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making it.
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<PAGE>
24. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between FCFC and IRA with respect to the subject matter hereof, and there are no
other covenants, agreements, promises, terms, provisions, conditions,
undertakings, or understandings, either oral or written, between them concerning
the subject matter of this Agreement other than those set forth herein. No
subsequent alteration, amendment, change, deletion, or addition to this
Agreement shall be binding upon FCFC or IRA unless in writing and signed by both
FCFC and IRA.
25. BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding on FCFC and IRA and their respective successors and permitted assigns.
26. NO PARTNERSHIP. Nothing contained in this Agreement shall constitute
or be construed to be or create a partnership or joint venture between FCFC and
IRA.
27. NOTICES. Any notice, approval, waiver, objection, or other
communication (for convenience, "notice") required or permitted to be given
hereunder or given in regard to this Agreement by one party to the other shall
be in writing and the same shall be given and be deemed to have been served and
given (except when by the terms of this Agreement actual notice is required)
(a) if hand delivered, when delivered in person to the address set forth
hereinafter for the party to whom notice is given, or (b) if mailed (except
where actual receipt is specified by this Agreement), when placed in the United
States mail, postage prepaid, by certified mail, return receipt requested,
addressed to the party at the address hereinafter specified. Any party may
change its address for notices by notice theretofore given in accordance with
this section and shall be deemed effective when actually received by the other
party. The addresses of the parties are as follows:
FCFC: First Command Financial Corporation
4100 South Hulen
Fort Worth, Texas 76109
Attention: Chief Executive Officer
IRA: Independent Research Agency for Life Insurance, Inc.
P. O. Box 2387
Fort Worth, Texas 76113
Attention: Chief Financial Officer
28. GOVERNING LAW. This Agreement is being executed and delivered, and is
intended to be performed, in the State of Texas, and the laws of the State of
Texas and of the United States shall govern the rights and duties of the parties
hereto and the validity, construction, enforcement, and interpretation of this
Agreement. All obligations of the parties created by this Agreement shall be
performed in Tarrant County, Texas. The parties to this Agreement hereby
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<PAGE>
consent that venue of any action brought under this Agreement shall be in
Tarrant County, Texas.
29. HEADINGS. The headings, captions, and numbering system used in this
Agreement are intended only as a matter of convenience and may under no
circumstances be considered in interpreting the provisions of this Agreement.
30. AGREEMENT TO EXECUTE DOCUMENTS. In connection with this Agreement, as
well as with all transactions contemplated by this Agreement, each of the
parties hereto agrees to execute and deliver any and all documents and
instruments, and to perform such additional acts, as may be necessary or
appropriate to effectuate, carry out, and perform all of the terms, provisions,
and conditions of this Agreement.
31. COUNTERPARTS. This Agreement has been executed in a number of
identical counterparts, each of which constitutes an original and all of which
constitute, collectively, one agreement; but in making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
32. SEVERABILITY. If any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Agreement, and this Agreement shall be
enforced to the fullest extent permitted by applicable law.
Executed to be effective for all purposes as of the date first above
written.
FCFC:
FIRST COMMAND FINANCIAL
CORPORATION
By: /s/ Lamar C. Smith
----------------------------------------
Name: Lamar C. Smith
---------------------------------
Title: Chief Executive Officer
--------------------------------
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<PAGE>
IRA:
INDEPENDENT RESEARCH AGENCY
FOR LIFE INSURANCE, INC.
By: /s/ Martin R. Durbin
----------------------------------------
Name: Martin R. Durbin
---------------------------------
Title: Chief Financial Officer
--------------------------------
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LINE OF CREDIT AGREEMENT
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS
FIRST COMMAND FINANCIAL INDEPENDENT RESEARCH AGENCY
CORPORATION FOR LIFE INSURANCE, INC.
4100 SOUTH HULEN PO BOX 2387
FORT WORTH, TX 76109 FORT WORTH, TX 76113
"We" and "us" means the borrower above "You" means the lender above, its
successors and assigns
Pursuant to the terms of this Line of Credit Agreement (this "AGREEMENT"), you
have extended to us a line of credit (the "LINE OF CREDIT") in the maximum
principal amount of EIGHT MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($8,500,000.00). You will make loans to us from time to time until 2:00 p.m. on
November 30, 1999, provided we have given you a written request stating the
amount to be advanced at least fourteen (14) business days prior to the date the
advance is to be made. Although the Line of Credit expires on November 30,
1999, we will remain obligated to perform all our duties under this Agreement so
long as we owe you any money advanced according to the terms of this Agreement,
as evidenced by the Note. This Agreement is an agreement between you and us.
It is not intended that any third party receive any benefit from this Agreement,
whether by direct payment, reliance for future payment or in any other manner.
The other terms and conditions of the Line of Credit are as follows:
1. OBLIGATION: Except as otherwise provided in this Agreement, the Line of
Credit is obligatory. You may not refuse to make a loan to us under this
Agreement unless one of the following occurs:
(a) We have borrowed the maximum amount available to us.
(b) The Line of Credit has expired.
(c) We have done or failed to do anything which, with or without the
giving of notice or the passage of time would constitute an Event of
Default under the Note;
(d) We have done or failed to do anything which, with or without the
giving of notice or the passage of time would constitute an Event of
Default under the Deed of Trust or under any of the other Loan
Documents; or
(e) We have not satisfied the conditions precedent set forth in
PARAGRAPH 7 of this Agreement.
Subject to the limitations above, the Line of Credit is closed-end. We may
borrow up to the maximum only one time.
2. PROMISSORY NOTE: We will repay any advances made under this Agreement as
set out in our Promissory Note dated June 1, 1998 which is payable to you
in the principal
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amount of $8,500,000.00 (the "NOTE"). The Note sets out the terms relating
to maturity, interest rate, repayment and advances. The advances will be
made as follows:
Advances will be made from time to time in such amounts and on such
dates as we request, provided that the total amount of all advances
will not exceed $7,000,000.00 plus up to $1,500,000.00 to pay interest
which accrues on the Note prior to December 1, 1999, as provided in
the Note, and provided that no advance shall be made after
November 30, 1999. Although the Note is for $8,500,000.00, the amount
of cash advances you are obligated to make to us will not exceed
$7,000,000.00. The additional $1,500,000.00 is estimated to be an
amount sufficient to cover accrued interest on the Note, which accrues
monthly prior to December 1, 1999. As the interest accrues, if we are
otherwise entitled to an advance under the provisions of PARAGRAPHS 1
and 7 of this Agreement, you will, upon our request on each date on
which a monthly payment of interest is due and payable under the Note,
make an "advance" equal to the amount of the accrued unpaid interest
then due on the Note by an entry on your books, which will then
increase the amount of principal then advanced on the Note and which
will result in the interest payment for which the advance was made
being deemed paid in full. We have the right, however, to pay this
accrued interest in cash if we so elect.
3. LOAN DOCUMENTS: We have executed and delivered to you the following
documents in connection with this Agreement and the Note:
(a) Deed of Trust, Security Agreement, Financing Statement and Assignment
of Rents and Leases dated June 1, 1998 (the "DEED OF TRUST").
(b) Financing Statement.
This Agreement, the Note, the Deed of Trust, the Financing Statement, and
all other documents evidencing, securing, supporting, or guaranteeing the
Line of Credit are sometimes collectively referred to in this Agreement as
the "LOAN DOCUMENTS".
4. REMEDIES: If we are in default on the Note, the Deed of Trust or any of
the other Loan Documents you may:
(a) take any action as provided in any of the Loan Documents; and
(b) without notice to us, immediately suspend all advances under this
Agreement and the Note and terminate the Line of Credit.
By selecting any of these remedies you do not give up our right to later
use any other remedy. By deciding not to use any remedy should we default,
you do not waive your right to later consider the event a default, if it
happens again.
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5. COST AND FEES: If you hire an attorney to enforce this Agreement we will
pay your reasonable attorney's fees, where permitted by law. We will also
pay your court costs and costs of collection, where permitted by law.
6. NOTICES: All notices or other correspondence to us should be sent to our
address stated above to the attention of "Chief Executive Officer." We
will send all notices or correspondence to you to your address stated above
to the attention of "Chief Financial Officer." All notices or
correspondence shall be effective two (2) days after being deposited in the
mail properly addressed with postage prepaid, certified or registered mail,
return receipt requested, or when delivered in person.
7. CONDITIONS PRECEDENT.
(a) You are not obligated to make the first advance to us under this
Agreement until the following have occurred:
(i) We have executed and delivered to you all of the Loan Documents;
(ii) You have a first lien on the collateral described in the Deed
of Trust; and
(iii) You have received certified copies of resolutions adopted by
our board of directors authorizing the Loan Documents and the
transactions contemplated by the Loan Documents, and a
certificate of existence and a certificate of account status
from the Texas Secretary of State and Comptroller of Public
Accounts, respectively, all in form and substance reasonably
acceptable to your counsel.
(b) You are not obligated to make any loan advance to us under this
Agreement if:
(i) After the advance, the total amount advanced under the Note
would exceed a total of $7,000,000.00 advanced directly by
you to us or a total of $1,500,000.00 advanced by you to pay
interest on the Note;
(ii) All of the representations and warranties made by us in the
loan documents are not true, correct, and complete in all
material respects; or
(iii) We have violated any of our covenants under any of the Loan
Documents.
8. MISCELLANEOUS: This Agreement may not be changed except by a written
agreement signed by you and us. The law of the state of Texas will govern
this Agreement. Any term or provision of this Agreement which is contrary
to applicable law will not be effective, unless the law permits you and us
to agree to such a variation.
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THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED to be effective for all purposes as of June 1, 1998.
BORROWER: LENDER:
FIRST COMMAND FINANCIAL INDEPENDENT RESEARCH AGENCY
CORPORATION FOR LIFE INSURANCE, INC.
By: /s/ Lamar C. Smith By: /s/ Martin R. Durbin
--------------------------- ---------------------------
Title: Chief Executive Officer Title: Chief Financial Officer
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PROMISSORY NOTE
$8,500,000.00 June 1, 1998
FOR VALUE RECEIVED, on or before December 1, 2014 ("MATURITY DATE"), the
undersigned, FIRST COMMAND FINANCIAL CORPORATION ("BORROWER"), promises to pay
to the order of INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC. ("LENDER")
at its offices in Tarrant County, Texas at P. O. Box 2387, Fort Worth, Texas
76113 the principal amount of EIGHT MILLION FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($8,500,000.00) ("TOTAL PRINCIPAL AMOUNT"), or such amount less than the
Total Principal Amount which has been advanced to Borrower if the total amount
advanced under this Promissory Note ("NOTE") is less than the Total Principal
Amount, together with interest on such portion of the Total Principal Amount
which has been advanced to Borrower from the date advanced until paid at a fixed
rate per annum equal to the lesser of (a) the Maximum Rate (as hereinafter
defined) or (b) seven percent (7.0%), calculated on the basis of actual days
elapsed in a year consisting of 365 or, in the case of a leap year, 366 days.
The term "MAXIMUM RATE," as used herein, shall mean at the particular time in
question the maximum rate of interest which, under applicable law, may then be
charged on this Note.
The principal of and all accrued but unpaid interest on this Note shall be
due and payable as follows:
(a) prior to and including December 1, 1999, interest on the unpaid
principal balance outstanding on this Note shall be due and payable monthly as
it accrues, commencing on July 1, 1998, and continuing monthly thereafter on the
first day of each successive month until and including December 1, 1999, but if
Borrower is entitled to an advance under the Line of Credit Agreement, Lender
will, upon Borrower's request, make an advance under this Note and pursuant to
the Line of Credit Agreement in an amount sufficient to pay the accrued interest
which is then due and payable on this Note, which advance will be added to the
total amount advanced and outstanding under this Note;
(b) the unpaid principal of and accrued but unpaid interest on this Note
shall be due and payable in sixty (60) equal quarter-annual installments each in
the amount necessary to amortize the unpaid principal balance of this Note
outstanding as of November 30, 1999, in sixty (60) equal quarter-annual payments
of principal and interest, such installments commencing on March 1, 2000 and
continuing on the first day of each successive March, June, September, and
December thereafter; and
(c) the outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the Maturity Date.
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During the continuance of any Event of Default, Lender, at its option, may
also, if permitted under applicable law, increase the rate of interest that the
unpaid principal balance of this Note bears to a yearly rate equal to three
percent in excess of the prime rate quoted in the Money Rates section of the
WALL STREET JOURNAL, changing each time the prime rate changes, but in no event
to exceed the maximum, non-usurious contract rate of interest permitted by
applicable law. If that publication of prime rate is discontinued, such rate of
interest will be 15% per annum.
Borrower may from time to time prepay all or any portion of the principal
of this Note without premium or penalty. All prepayments of principal will be
applied in the inverse order of maturity and will not reduce the amount of
obligatory payments unless this Note has been paid in full. Unless otherwise
agreed to in writing, or otherwise required by applicable law, payments and
prepayments will be applied first to unpaid accrued interest, then to principal,
and any remaining amount to any unpaid collection costs; provided, however, that
during the continuance of an Event of Default, Lender reserves the right to
apply payments among principal, interest, and collection costs at its
discretion. All payments and prepayments of principal of or interest on this
Note shall be made in lawful money of the United States of America at the
address of Lender indicated above, or such other place in Tarrant County, Texas
as the holder of this Note shall designate in writing to Borrower. If any
payment of principal of or interest on this Note shall become due on a day which
is not a Business Day (as hereinafter defined), such payment shall be made on
the next succeeding Business Day and any such extension of time shall be
included in computing interest in connection with such payment. 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.
This Note has been executed and delivered pursuant to that certain Line of
Credit Agreement dated June 1, 1998 by and between Borrower and Lender ("LINE OF
CREDIT AGREEMENT"), and is secured by a Deed of Trust, Security Agreement and
Assignment of Rents and Leases of even date herewith from Borrower in favor of
Robert F. Watson, Trustee for the benefit of Lender, covering certain real
property interests located in Tarrant County, Texas, as more particularly
described therein.
This Note, the Line of Credit Agreement, and the Deed of Trust are
hereinafter collectively referred to as the "LOAN DOCUMENTS." The holder of
this Note is entitled to the benefits and security provided in the Loan
Documents.
Under the Line of Credit Agreement, Borrower may, subject to the terms and
conditions thereof, request and obtain advances hereunder from time to time from
the date of this Note through and including November 30, 1999, provided that it
is understood and agreed that the aggregate principal amount advanced hereunder
shall not at any time exceed the Total Principal Amount, nor shall the amount of
principal advances (exclusive of those to pay accrued interest) exceed
$7,000,000.00, as provided in PARAGRAPH 2 of the Line of Credit Agreement.
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Borrower agrees that during the continuance of any one or more of the
following events of default ("EVENT OF DEFAULT"):
(a) failure of Borrower to pay any installment of principal of or
interest on this Note when due which failure continues for more than ten
(10) days after Lender has given Borrower written notice thereof (except
that Lender will not be obligated to give more than three (3) such notices
in any calendar year); or
(b) the occurrence of any event of default specified in any of the
other Loan Documents;
the holder of this Note may, at its option, without further notice or demand,
(i) declare the outstanding principal balance of and accrued but unpaid interest
on this Note at once due and payable, (ii) refuse to advance any additional
amounts under this Note, (iii) foreclose all liens and security interests
securing payment hereof, (iv) pursue any and all other rights, remedies and
recourses available to the holder hereof, including but not limited to any such
rights, remedies or recourses under the Loan Documents, at law or in equity, or
(v) pursue any combination of the foregoing.
The failure to exercise the option to accelerate the maturity of this Note
or any other right, remedy or recourse available to the holder hereof during the
continuance of an Event of Default hereunder shall not constitute a waiver of
the right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default if such Event of Default
is then continuing or any other Event of Default which is then continuing. The
rights, remedies and recourses of the holder hereof, as provided in this Note
and in any of the other Loan Documents, shall be cumulative and concurrent and
may be pursued separately, successively or together as often as occasion
therefore shall arise, at the sole discretion of the holder hereof. The
acceptance by the holder hereof of any payment under this Note which is less
than the payment in full of all amounts due and payable at the time of such
payment shall not (i) constitute a waiver of or impair, reduce, release or
extinguish any right, remedy or recourse of the holder hereof, or nullify any
prior exercise of any such right, remedy or recourse, or (ii) impair, reduce,
release or extinguish the obligations of any party liable under any of the Loan
Documents as originally provided herein or therein.
This Note and all of the other Loan Documents are intended to be performed
in accordance with, and only to the extent permitted by, all applicable usury
laws. If any provision hereof or of any of the other Loan Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the application of such
provision to any other person or circumstance nor the remainder of the
instrument in which such provision is contained shall be affected thereby and
shall be enforced to the greatest extent permitted by law. It is expressly
stipulated and agreed to be the intent of the holder hereof to at all times
comply with the usury and other applicable laws now or
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hereafter governing the interest payable on the indebtedness evidenced by
this Note. If the applicable law is ever revised, repealed or judicially
interpreted so as to render usurious any amount called for under this Note or
under any of the other Loan Documents, or contracted for, charged, taken,
reserved or received with respect to the indebtedness evidenced by this Note,
or if Lender's exercise of the option to accelerate the maturity of this
Note, or if any prepayment by Borrower results in Borrower having paid any
interest in excess of that permitted by law, then it is the express intent of
Borrower and Lender that all excess amounts theretofore collected by Lender
be credited on the principal balance of this Note (or, if this Note and all
other indebtedness arising under or pursuant to the other Loan Documents have
been paid in full, refunded to Borrower), and the provisions of this Note and
the other Loan Documents immediately be deemed reformed and the amounts
thereafter collectable hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder or thereunder. All sums paid, or agreed to be
paid, by Borrower for the use, forbearance, detention, taking, charging,
receiving or reserving of the indebtedness of Borrower to Lender under this
Note or arising under or pursuant to the other Loan Documents shall, to the
maximum extent permitted by applicable law, be amortized, prorated, allocated
and spread throughout the full term of such indebtedness until payment in
full so that the rate or amount of interest on account of such indebtedness
does not exceed the usury ceiling from time to time in effect and applicable
to such indebtedness for so long as such indebtedness is outstanding. To the
extent federal law permits Lender to contract for, charge or receive a
greater amount of interest, Lender will rely on federal law instead of the
Texas Finance Code, as supplemented by Texas Credit Title, for the purpose of
determining the Maximum Rate. Additionally, to the maximum extent permitted
by applicable law now or hereafter in effect, Lender may, at its option and
from time to time, implement any other method of computing the Maximum Rate
under the Texas Finance Code, as supplemented by Texas Credit Title, or under
other applicable law, by giving notice, if required, to Borrower as provided
by applicable law now or hereafter in effect. Notwithstanding anything to
the contrary contained herein or in any of the other Loan Documents, it is
not the intention of Lender to accelerate the maturity of any interest that
has not accrued at the time of such acceleration or to collect unearned
interest at the time of such acceleration.
In no event shall Chapter 346 of the Texas Finance Code (which regulates
certain revolving loan accounts and revolving tri-party accounts) apply to this
Note. To the extent that Chapter 303 of the Texas Finance Code, is applicable
to this Note, the "weekly ceiling" specified in such Chapter 303 is the
applicable ceiling; provided that, if any applicable law permits greater
interest, the law permitting the greatest interest shall apply.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through bankruptcy or other legal
proceedings of any kind, Borrower agrees to pay, in addition to all other sums
payable hereunder, all reasonable costs and expenses of collection, including
but not limited to reasonable attorneys' fees.
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Except as otherwise provided in this Note or in any of the other Loan
Documents, Borrower and any and all endorsers and guarantors of this Note
severally waive presentment for payment, notice of nonpayment, protest, demand,
notice of protest, notice of intent to accelerate, notice of acceleration and
dishonor, diligence in enforcement and indulgences of every kind and without
further notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral, indulgences or partial payments,
either before or after maturity.
All notices, requests, demands or other communications required or
permitted to be given by Lender to Borrower pursuant to this Note shall be in
writing and given by (i) personal delivery, (ii) expedited delivery service with
proof of delivery, or (iii) United States mail, postage prepaid, registered or
certified mail, return receipt requested, sent to Borrower at the address set
forth on the signature page hereof or to such different address as Borrower
shall have designated by written notice sent to Lender at the address to which
payments under this Note are to be made and shall be deemed to have been
received either, in the case of personal delivery, at the time of personal
delivery, in the case of expedited delivery service, as of the date of first
attempted delivery on a Business Day at the address and in the manner provided
herein, or in the case of mail, two (2) Business Days after deposit in a
depository receptacle under the care and custody of the United States Postal
Service. Borrower shall have the right to change its address for notice
hereunder by notice to Lender of such new address at least ten (10) days prior
to the effective date of such new address.
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
Borrower's Address:
FIRST COMMAND FINANCIAL
First Command Financial Corporation CORPORATION
4100 South Hulen
Fort Worth, Texas 76109
Attention: Chief Executive Officer By: /s/ Lamar C Smith
--------------------------------------
Name: Lamar C Smith
Title: Chief Executive Officer
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When Recorded, Return To:
INDEPENDENT RESEARCH AGENCY FOR
LIFE INSURANCE, INC.
P. O. Box 2387
Fort Worth, Texas 76113
Attention: General Counsel
DEED OF TRUST, SECURITY AGREEMENT AND
ASSIGNMENT OF RENTS AND LEASES
STATE OF TEXAS Section
Section KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF TARRANT Section
THAT, FIRST COMMAND FINANCIAL CORPORATION ("GRANTOR", whether one or
more), whose address is 4100 South Hulen, Fort Worth, Texas 76109, for and in
consideration of the sum of TEN DOLLARS ($10.00) to Grantor in hand paid by
Robert F. Watson, Trustee, of Tarrant County, Texas ("TRUSTEE"), in order to
secure the payment of the Indebtedness (as hereinafter defined) and the
performance of the obligations, covenants, agreements and undertakings of
Grantor hereinafter described, does hereby GRANT, BARGAIN, SELL, CONVEY,
TRANSFER, ASSIGN and SET OVER to Trustee all of Grantor's right, title and
interest in and to the real estate (the "LAND") situated in the County of
Tarrant and State of Texas described in EXHIBIT "A" attached hereto and made
a part hereof, TOGETHER WITH the following, whether now owned or hereafter
acquired by Grantor: (a) all buildings and other improvements now or
hereafter attached to or placed, erected, constructed or developed on the
Land (the "IMPROVEMENTS"); (b) all materials, equipment, fixtures,
furnishings, inventory and articles of personal property (the "PERSONAL
PROPERTY") whatsoever now or hereafter delivered to, attached to, installed
in, or used in or about the Improvements or which are necessary or useful for
the complete and comfortable use and occupancy of the Improvements for the
purposes for which they were or are to be attached, placed, erected,
constructed or developed, or which Personal Property is or may be used in the
development of the Improvements, and all renewals of or replacements or
substitutions for any of the foregoing whether or not the same shall be
attached to the Land or Improvements; (c) all building materials and
equipment now or hereafter delivered to and intended to be installed in or on
the Land or Improvements; (d) all security deposits and advance rentals under
any lease agreements now or at any time hereafter arising from or by virtue
of any transactions related to the Land, Improvements or the Personal
Property and held by or for the benefit of Grantor; (e) all monetary deposits
which Grantor has given to any public or private utility with respect to
utility services furnished to the Land or Improvements; (f) all rents,
issues, profits, revenues, royalties, bonuses or other benefits of the Land,
the Improvements or the Personal Property, including, without limitation,
cash or securities deposited pursuant to leases of all or any part of the
Land, Improvements or Personal
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Property; (g) all proceeds (including premium refunds) of each policy of
insurance relating to the Land, Improvements or Personal Property; (h) all
proceeds from the taking of the Land, Improvements, Personal Property or any
part thereof or any interest or right or estate appurtenant thereto by
eminent domain or by purchase in lieu thereof; (i) all Grantor's rights (but
not its obligations) under any contracts related to the Land or Improvements;
(j) all plans, specifications, maps, surveys, reports, architectural,
engineering and construction contracts, books of account, insurance policies
and other documents, of whatever kind or character, relating to the use,
construction upon, occupancy, leasing, sale or operation of the Land or
Improvements; (k) all easements and rights of way used in connection with the
Land or Improvements or as a means of ingress to or egress from said Land or
Improvements; (l) all right, title and interest of Grantor in and to all
streets, roads, ways, alleys, public places, easements and rights-of-way,
existing or proposed, public or private, adjacent to or used in connection
with, belonging or pertaining to the Land or any part thereof; and (m) all
rights, estates, powers, privileges and interests of whatever kind or
character appurtenant or incident to the foregoing. If the estate of Grantor
in any of the above-described property is a leasehold estate ("LEASEHOLD
ESTATE"), this conveyance shall include, and the lien and security interest
created hereby shall encumber, all additional title, estate, interest and
other rights that may hereafter be acquired by Grantor in the property
demised under the Leasehold Estate. The above-described property is
collectively herein referred to as the "MORTGAGED PROPERTY."
TO HAVE AND TO HOLD the Mortgaged Property, together with the rights,
privileges and appurtenances thereto belonging unto the Trustee and his
successors or substitutes, forever in this trust and to his or their
successors and assigns, IN TRUST, however, upon the terms, provisions and
conditions herein set forth.
ARTICLE I
SECURED INDEBTEDNESS
1.1 SECURED INDEBTEDNESS. This Deed of Trust, Security Agreement and
Assignment of Rents and Leases (the "MORTGAGE") is made to secure and enforce
the payment of the following promissory note, obligations, indebtedness and
liabilities: (a) one certain promissory note of even date herewith in the
original principal amount of EIGHT MILLION FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($8,500,000.00), made by Grantor and payable to the order of
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC., whose address is P. O.
Box 2387, Fort Worth, Texas 76113, with interest at the rate or rates therein
provided, both principal and interest being payable as therein provided, and
containing a provision for the payment of a reasonable additional amount as
attorneys' fees (such promissory note and all modifications, increases,
renewals or extensions thereof, in whole or in part, and all other notes
given in substitution therefor or in modification, increase, renewal or
extension thereof, in whole or in part, are collectively referred to herein
as the "NOTE", and said payee and all subsequent holders of the Note or any
part thereof or any of the Indebtedness,
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as hereinafter defined, are collectively referred to herein as "NOTEHOLDER");
and (b) all future loans and advances made by Noteholder to Grantor and all
other indebtedness, obligations and liabilities of every kind and character
of Grantor now or hereafter existing in favor of Noteholder, including,
without limitation, all those incurred or arising pursuant to the provisions
of this Mortgage or any other instrument, document or agreement, whether such
debts, obligations or liabilities be direct or indirect, primary or
secondary, joint or several, fixed or contingent, and whether originally
payable to Noteholder or to a third party and subsequently acquired by
Noteholder and whether such debts, obligations and liabilities are evidenced
by note, open account, overdraft, endorsement, surety agreement, guaranty or
otherwise, it being contemplated that Grantor may hereafter become indebted
to Noteholder in further sum or sums. The indebtedness, obligations, and
liabilities referred to in this Paragraph are hereinafter collectively
referred to as the "INDEBTEDNESS." This Mortgage, the Note, the Loan
Agreement (as hereinafter defined) and any other instruments, documents and
agreements now or hereafter evidencing, securing, governing, guaranteeing
and/or pertaining to the Indebtedness or any part thereof are hereinafter
collectively referred to as the "LOAN DOCUMENTS."
ARTICLE II
REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS OF GRANTOR
2.1 REPRESENTATIONS AND WARRANTIES. Grantor does hereby represent and
warrant to Noteholder as follows:
(a) FINANCIAL MATTERS. Grantor is solvent, is not bankrupt and
has no outstanding liens, suits, garnishments, bankruptcies or court
actions which could render Grantor insolvent or bankrupt. There has not
been filed by or against Grantor a petition in bankruptcy or a petition
or answer seeking an assignment for the benefit of creditors, the
appointment of a receiver, trustee, custodian or liquidator with respect
to Grantor or any portion of Grantor's property, reorganization,
arrangement, rearrangement, composition, extension, liquidation or
dissolution or similar relief under the United States Bankruptcy Code or
any state law. All reports, statements and other data furnished by
Grantor to Noteholder in connection with the loan evidenced by the Note
are true and correct in all material respects and do not omit to state
any fact or circumstance necessary to make the statements contained
therein not misleading. No material adverse change has occurred since
the dates of such reports, statements and other data in the financial
condition of Grantor or of any tenant under leases described in such
reports, statements and other data.
(b) TITLE AND AUTHORITY. Grantor is the owner and holder of the
leasehold estate in and to the Land, and Grantor is the lawful owner of
good, indefeasible and marketable title to the Improvements and has good
right and authority to grant, bargain, sell,
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transfer, assign and mortgage Grantor's interest in the Land and the
Improvements and to grant a security interest in the Personal Property.
Grantor does not do business with respect to the Mortgaged Property
under any trade name.
(c) PERMITTED ENCUMBRANCES. The Mortgaged Property is free and
clear from all liens, security interests and encumbrances except the
lien and security interest evidenced hereby and any liens and/or
encumbrances affecting the Mortgaged Property appearing in the Real
Property Records of the county in which the Land is situated, but only
to the extent the same are valid and subsisting (hereinafter called the
"PERMITTED ENCUMBRANCES"). There are no mechanic's or materialmen's
liens, lienable bills or other claims constituting or that may
constitute a lien on the Mortgaged Property, or any part thereof.
(d) NO FINANCING STATEMENT. There is no financing statement
covering all or any part of the Mortgaged Property or its proceeds on
file in any public office which has not been terminated or assigned to
Noteholder.
(e) LOCATION OF PERSONAL PROPERTY. All tangible Personal Property
is located on the Land.
(f) NO HOMESTEAD. No portion of the Mortgaged Property is being
used as Grantor's business or residential homestead.
(g) NO DEFAULT OR VIOLATION. The execution, delivery and
performance of this Mortgage, the Note and all of the other Loan
Documents do not contravene, result in a breach of or constitute a
default under any mortgage, deed of trust, lease, promissory note, loan
agreement or other contract or agreement to which Grantor is a party or
by which Grantor or any of its properties may be bound or affected and
do not violate or contravene any law, order, decree, rule or regulation
to which Grantor is subject.
(h) COMPLIANCE WITH COVENANTS AND LAWS. The Mortgaged Property
and the intended use thereof by Grantor comply with all applicable
restrictive covenants, zoning ordinances and building codes, flood
disaster laws, applicable health and environmental laws and regulations
and all other applicable laws, statutes, ordinances, rules, regulations,
orders, determinations and court decisions, including, without
limitation, the Americans With Disabilities Act of 1990 and TEX. REV.
CIV. STAT. ANN. art. 9102, as amended (all of the foregoing hereinafter
sometimes collectively referred to as "APPLICABLE LAWS"), without
reliance upon grandfather provisions or adjacent or other properties.
Grantor has obtained all requisite zoning, utility, building, health and
operating permits from each governmental authority or municipality
having jurisdiction over the Mortgaged Property. All engineering
specifications with respect to the Mortgaged Property are within
applicable environmental standards.
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(i) ENVIRONMENTAL. Without limitation of any of the foregoing, to
the best of Grantor's knowledge no asbestos, material containing
asbestos which is or may become friable or material containing asbestos
deemed hazardous by Applicable Laws has been installed in the Mortgaged
Property and the Mortgaged Property and Grantor are not in violation of
or subject to any existing, pending or, to the best knowledge of
Grantor, threatened investigation or inquiry by any governmental
authority or to any remedial obligations under any Applicable Laws
pertaining to health or the environment (such Applicable Laws as they
now exist or are hereafter enacted and/or amended hereinafter sometimes
collectively referred to as "APPLICABLE ENVIRONMENTAL LAWS"), including
without limitation, 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 referred to as "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 and Solid Waste Amendments of 1984
(collectively, together with any subsequent amendments hereinafter
called "RCRA"), the Texas Water Code and the Texas Solid Waste Disposal
Act, and this representation would continue to be true and correct
following disclosure to the applicable governmental authorities of all
relevant facts, conditions and circumstances, if any, pertaining to the
Mortgaged Property and Grantor. Grantor has not obtained and is not
required to obtain any permits, licenses or similar authorizations to
construct, occupy, operate or use any buildings, improvements, fixtures
and equipment forming a part of the Mortgaged Property by reason of any
Applicable Environmental Laws. Grantor undertook, at the time of
acquisition of the Mortgaged Property, all appropriate inquiry into the
previous ownership and uses of the Mortgaged Property consistent with
good commercial or customary practice to determine that the Mortgaged
Property and the uses therefor are in compliance with all Applicable
Environmental Laws. Grantor has taken all steps necessary to determine
and has determined that no hazardous substances or solid wastes have
been disposed of or otherwise released on or to the Mortgaged Property.
The use which Grantor makes and intends to make of the Mortgaged
Property will not result in the disposal or other release of any
hazardous substance or solid waste on or to the Mortgaged Property. The
terms "HAZARDOUS SUBSTANCE" and "RELEASE" as used in this Mortgage shall
have the meanings specified in CERCLA, and the terms "SOLID WASTE" and
"DISPOSAL" (or "DISPOSED") shall have the meanings specified in RCRA;
provided, in the event either CERCLA or RCRA is amended so as to broaden
the meaning of any term defined thereby, then such broader meaning shall
apply subsequent to the effective date of such amendment and provided
further, to the extent that the laws of the State of Texas establish a
meaning for the terms "HAZARDOUS SUBSTANCE," "RELEASE," "SOLID WASTE,"
or "DISPOSAL" (or "DISPOSED") which is broader than that specified in
either CERCLA or RCRA, such broader meaning shall apply.
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(j) NO SUITS. There are no judicial or administrative actions,
suits or proceedings pending or, to the best of Grantor's knowledge,
threatened against or affecting Grantor, any other person liable,
directly or indirectly, for the Indebtedness, or the Mortgaged Property
or involving the validity, enforceability or priority of any of the Loan
Documents.
(k) [Intentionally Omitted]
(l) ORGANIZATION. Grantor, if a corporation, is duly incorporated
and validly existing under the laws of the state of its incorporation
and is duly qualified to do business in the State of Texas. Grantor has
all requisite power and all governmental certificates of authority,
licenses, permits, qualifications and other documentation to own, lease
and operate its properties and to carry on its business as now conducted
and as contemplated to be conducted.
(m) ENFORCEABILITY. The Note, this Mortgage and all other Loan
Documents constitute the legal, valid and binding obligations of Grantor
enforceable in accordance with their respective terms. The execution
and delivery of, and performance under, the Note, this Mortgage and all
other Loan Documents are within Grantor's powers and have been duly
authorized by all requisite action and are not in contravention of the
powers of Grantor's charter, bylaws or other corporate papers.
(n) NOT A FOREIGN PERSON. Grantor is not a "FOREIGN PERSON"
within the meaning of the Internal Revenue Code of 1986, as amended
(hereinafter called the "CODE"), Sections 1445 and 7701 (i.e. Grantor is
not a non-resident alien, foreign corporation, foreign partnership,
foreign trust or foreign estate, as those terms are defined in the Code
and regulations promulgated thereunder).
2.2 COVENANTS AND AGREEMENTS. So long as the Indebtedness or any part
thereof remains unpaid, Grantor covenants and agrees with Noteholder as follows:
(a) PAYMENT AND PERFORMANCE. Grantor will make prompt payment, as
the same becomes due, of the Indebtedness and shall punctually and
properly perform all of Grantor's covenants, obligations and liabilities
under the Loan Documents.
(b) EXISTENCE. Grantor will continuously maintain its existence
and its right to do business in the State of Texas together with its
franchises and trade names.
(c) TAXES ON NOTE AND OTHER TAXES. Grantor will promptly pay all
income, franchise and other taxes owing by Grantor and any stamp taxes
which may be required to be paid with respect to the Note, this Mortgage
or any other Loan Documents.
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(d) OPERATION OF MORTGAGED PROPERTY. Grantor will operate the
Mortgaged Property in a good and workmanlike manner and in accordance
with all Applicable Laws and will pay all fees or charges of any kind in
connection therewith. Grantor will keep the Mortgaged Property occupied
so as not to impair the insurance carried thereon. Grantor will not use
or occupy, or allow the use or occupancy of, the Mortgaged Property in
any manner which violates any Applicable Law or which constitutes a
public or private nuisance or which makes void, voidable or cancelable,
or increases the premium of, any insurance then in force with respect
thereto. Grantor will not initiate or permit any zoning
reclassification of the Mortgaged Property or seek any variance under
existing zoning ordinances applicable to the Mortgaged Property or use
or permit the use of the Mortgaged Property in such a manner which would
result in such use becoming a nonconforming use under applicable zoning
ordinances or other Applicable Laws. Grantor will not impose any
restrictive covenants or encumbrances upon the Mortgaged Property,
execute or file any subdivision plat affecting the Mortgaged Property or
consent to the annexation of the Mortgaged Property to any municipality,
without the prior written consent of Noteholder. Grantor shall not
cause or permit any drilling or exploration for, or extraction, removal
or production of, minerals from the surface or subsurface of the
Mortgaged Property. Grantor will not do or suffer to be done any act
whereby the value of any part of the Mortgaged Property may be lessened.
Grantor will allow Noteholder or its authorized representative to enter
the Mortgaged Property at any reasonable time to inspect the Mortgaged
Property and Grantor's books and records pertaining thereto and Grantor
will assist Noteholder or said representative in whatever way necessary
to make such inspection. If Grantor receives a notice or claim from any
federal, state or other governmental entity pertaining to the Mortgaged
Property, including, without limitation, a notice that the Mortgaged
Property is not in compliance with any Applicable Law, Grantor will
promptly furnish a copy of such notice or claim to Noteholder.
(e) DEBTS FOR CONSTRUCTION. Grantor will cause all debts and
liabilities of any character, including without limitation, all debts
and liabilities for labor, material and equipment and all debts and
charges for utilities servicing the Mortgaged Property, incurred in the
construction, maintenance, operation and development of the Mortgaged
Property, to be promptly paid.
(f) AD VALOREM TAXES. Grantor will cause to be paid prior to
delinquency all taxes and assessments heretofore or hereafter levied or
assessed against the Mortgaged Property, or any part thereof, or against
Trustee or Noteholder for or on account of the Note or any other
Indebtedness or the interest created by this Mortgage and will furnish
Noteholder with receipts showing payment of such taxes and assessments
at least ten (10) days prior to the applicable default date therefor;
provided that Grantor may in good faith, by appropriate proceedings,
contest the validity, applicability, or amount of any asserted tax or
assessment, and pending such contest Grantor shall not be deemed in
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default hereunder if (i) Grantor shall diligently prosecute such contest
in a manner not prejudicial to the rights, liens and security interests
of Noteholder; (ii) prior to delinquency of the asserted tax or
assessment Grantor establishes with Noteholder an escrow acceptable to
Noteholder adequate to cover the payment of such tax or assessment with
interest, costs and penalties and a reasonable additional sum to cover
possible costs, interest and penalties (which escrow shall be returned
to Grantor upon payment of all such taxes, assessments, interest, costs
and penalties or disbursed in accordance with the resolution of the
contest to the claimant) or furnishes Noteholder with an indemnity bond
secured by a deposit in cash or other security acceptable to Noteholder,
or with a surety acceptable to Noteholder, in the amount of the tax or
assessment being contested by Grantor plus a reasonable additional sum
to pay all costs, interests and penalties which may be imposed or
incurred in connection therewith; (iii) Grantor pays to Noteholder
promptly after demand therefor all costs and expenses incurred by
Noteholder in connection with such contest; and (iv) Grantor promptly
causes to be paid any amount adjudged by a court of competent
jurisdiction to be due, with all costs, penalties and interest thereon,
promptly after such judgment becomes final and non-appealable; provided,
however, that in any event each such contest shall be concluded and the
tax, assessment, penalties, interest and costs shall be paid prior to
the date any writ or order is issued under which the Mortgaged Property
or any part thereof may be sold.
(g) REPAIR AND MAINTENANCE. Grantor will keep the Mortgaged
Property in first class order, repair, operating condition and
appearance, causing all necessary repairs, renewals, replacements,
additions and improvements to be promptly made, and will not allow any
of the Mortgaged Property to be misused, abused or wasted or to
deteriorate. Grantor will promptly replace all worn-out or obsolete
fixtures or personal property covered by this Mortgage with fixtures or
personal property comparable to the replaced fixtures or personal
property when new, and will repaint the Mortgaged Property when needed.
Grantor will make all renovations, modifications and alterations to the
Mortgaged Property in compliance with all Applicable Laws.
Notwithstanding any of the foregoing, Grantor will not, without the
prior written consent of Noteholder, (i) remove from the Mortgaged
Property any fixtures or personal property covered by this Mortgage
except those replaced by Grantor by an article of equal suitability and
value, owned by Grantor, free and clear of any lien or security interest
(except that created by this Mortgage); (ii) make any structural
alteration to the Mortgaged Property or any other alterations thereto
which impair the value thereof; or (iii) make any alteration to the
Mortgaged Property involving an estimated expenditure exceeding $10,000
except pursuant to plans and specifications approved in writing by
Noteholder.
(h) INSURANCE AND CASUALTY. Grantor will keep the Mortgaged
Property insured against loss or damage by fire, explosion, windstorm,
hail, flood (if the Mortgaged Property shall at any time be located in
an identified "FLOOD PRONE AREA" in which flood insurance has been made
available pursuant to the Flood Disaster Protection
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Act of 1973), tornado and such other hazards as may be required by
Noteholder by policies of fire, extended coverage and other insurance in
such company or companies, in such amounts, upon such terms and
provisions, and with such endorsements, all as may be acceptable to
Noteholder. Grantor will also provide such other insurance as
Noteholder may from time to time require, in such companies, upon such
terms and provisions, in such amounts, and with such endorsements, all
as are approved by Noteholder. Grantor further agrees that Grantor will
deliver to Noteholder the original policies evidencing such insurance
and any additional insurance which shall be taken out upon any part of
the Mortgaged Property and receipts evidencing the payment of all
premiums, and will deliver certificates evidencing renewals of all such
policies of insurance to Noteholder at least fifteen (15) days before
any such insurance shall expire. Without limiting the discretion of
Noteholder with respect to required endorsements to insurance policies,
Grantor further agrees that all such policies shall provide that
proceeds thereunder will be payable to Noteholder as its interest may
appear pursuant and subject to a mortgage clause (without contribution)
of standard form attached to or otherwise made a part of the applicable
policy. In the event of foreclosure of this Mortgage, or other transfer
of title to the Mortgaged Property in extinguishment in whole or in part
of the Indebtedness, all right, title and interest of Grantor in and to
such policies then in force concerning the Mortgaged Property and all
proceeds payable thereunder shall thereupon vest in the purchaser at
such foreclosure or Noteholder or other transferee in the event of such
other transfer of title. In the event any of the Mortgaged Property
covered by such insurance is destroyed or damaged by fire, explosion,
windstorm, hail or by any other casualty against which insurance shall
have been required hereunder, (i) Noteholder may, but shall not be
obligated to, make proof of loss if not made promptly by Grantor; (ii)
each insurance company concerned is hereby authorized and directed to
make payment for such loss directly to Noteholder instead of to Grantor;
and (iii) Noteholder shall have the right to apply the insurance
proceeds first, to reimburse Noteholder or Trustee for all costs and
expenses, including, without limitation, reasonable attorneys' fees,
incurred in connection with the collection of such proceeds and, second,
the remainder of said proceeds shall be applied, at the sole discretion
of Noteholder, in payment (without premium or penalty) of the
Indebtedness, either in whole or in part, in the order determined by
Noteholder in its sole discretion, or to the repair, restoration or
replacement, either partly or entirely, of the Mortgaged Property so
destroyed or damaged, provided that, any insurance proceeds held by
Noteholder to be applied to the repair, restoration or replacement of
the Mortgaged Property shall be so held without payment or allowance of
interest thereon and shall be paid out from time to time upon compliance
by Grantor with such terms, conditions and requirements as may be
imposed by Noteholder. In any event the unpaid portion of the
Indebtedness shall remain in full force and effect and Grantor shall not
be excused in the payment thereof. If any act or occurrence of any kind
or nature (including any casualty on which insurance was not obtained or
obtainable) shall result in damage to or loss or destruction of the
Mortgaged Property, Grantor shall give immediate written notice
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thereof to Noteholder and, unless otherwise so instructed by Noteholder,
shall promptly, at Grantor's sole cost and expense and regardless of
whether the insurance proceeds, if any, shall be sufficient for the
purpose, restore, repair, replace and rebuild the Mortgaged Property as
nearly as possible to its value, condition and character immediately
prior to such damage, loss or destruction in accordance with plans and
specifications submitted to and approved by Noteholder.
(i) CONDEMNATION. Immediately upon obtaining knowledge of the
institution of any proceedings for the condemnation of the Mortgaged
Property or any portion thereof, or any other proceedings arising out of
injury or damage to the Mortgaged Property, or any portion thereof,
Grantor will notify Noteholder of the pendency of such proceedings.
Noteholder may participate in any such proceedings, and Grantor shall
from time to time deliver to Noteholder all instruments requested by it
to permit such participation. Grantor shall, at its expense, diligently
prosecute any such proceedings, and shall consult with Noteholder, its
attorneys and experts, and cooperate with them in the carrying on or
defense of any such proceedings. All proceeds of condemnation awards or
proceeds of sale in lieu of condemnation with respect to the Mortgaged
Property and all judgments, decrees and awards for injury or damage to
the Mortgaged Property shall be paid to Noteholder and shall be applied,
first, to reimburse Noteholder or Trustee for all costs and expenses,
including, without limitation, reasonable attorneys' fees, incurred in
connection with collection of such proceeds and, second, the remainder
of said proceeds shall be applied, at the sole discretion of Noteholder,
to the payment of the Indebtedness (without premium or penalty) in the
order determined by Noteholder in its sole discretion or paid out to
repair or restore the Mortgaged Property so affected by such
condemnation, injury or damage in the same manner as provided in
Subparagraph (h) of this Paragraph 2.2. In any event the unpaid portion
of the Indebtedness shall remain in full force and effect and Grantor
shall not be excused in the payment thereof. In the event any of the
foregoing proceeds are applied to the repair, restoration or replacement
of the Mortgaged Property, Grantor shall promptly commence and complete
such repair, restoration or replacement of the Mortgaged Property as
nearly as possible to its value, condition and character immediately
prior to such damage or taking in accordance with plans and
specifications submitted to and approved by Noteholder. Grantor hereby
assigns and transfers all such proceeds, judgments, decrees and awards
to Noteholder and agrees to execute such further assignments of all such
proceeds, judgments, decrees and awards as Noteholder may request.
Noteholder is hereby authorized, in the name of Grantor, to execute and
deliver valid acquittances for, and to appeal from, any such judgment,
decree or award. Noteholder shall not be, in any event or
circumstances, liable or responsible for the failure to collect, or the
failure to exercise diligence in the collection of, any such proceeds,
judgments, decrees or awards.
(j) PROTECTION AND DEFENSE OF LIEN. If the validity or priority
of this Mortgage or of any rights, titles, liens or security interests
created or evidenced hereby
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with respect to the Mortgaged Property or any part thereof shall be
endangered or questioned or shall be attacked directly or indirectly or
if any legal proceedings are instituted against Grantor with respect
thereto, Grantor will give prompt written notice thereof to Noteholder
and at Grantor's own cost and expense will diligently endeavor to cure
any defect that may be developed or claimed, and will take all necessary
and proper steps for the defense of such legal proceedings, including,
without limitation, the employment of counsel, the prosecution or
defense of litigation and the release or discharge of all adverse
claims, and Trustee and Noteholder, or either of them (whether or not
named as parties to legal proceedings with respect thereto) are hereby
authorized and empowered to take such additional steps as in their
judgment and discretion may be necessary or proper for the defense of
any such legal proceedings or the protection of the validity or priority
of this Mortgage and the rights, titles, liens and security interests
created or evidenced hereby, including, without limitation, the
employment of counsel, the prosecution or defense of litigation, the
compromise or discharge of any adverse claims made with respect to the
Mortgaged Property, the purchase of any tax title and the removal of
prior liens or security interests (including, without limitation, the
payment of debts as they mature or the payment in full of matured or
unmatured debts, which are secured by these prior liens or security
interests), and all expenses so incurred of every kind and character
shall be subject to and covered by the provisions of Paragraph 2.3
hereof.
(k) NO OTHER LIENS. Grantor will not, without the prior written
consent of Noteholder, create, place or permit to be created or placed,
or through any act or failure to act, acquiesce in the placing of, or
allow to remain, any deed of trust, mortgage, voluntary or involuntary
lien, whether statutory, constitutional or contractual (except for the
lien for ad valorem taxes on the Mortgaged Property which are not
delinquent), security interest, encumbrance or charge, or conditional
sale or other title retention document, against or covering the
Mortgaged Property, or any part thereof, other than the Permitted
Encumbrances, regardless of whether the same are expressly or otherwise
subordinate to the lien or security interest created in this Mortgage,
and should any of the foregoing become attached hereafter in any manner
to any part of the Mortgaged Property without the prior written consent
of Noteholder, Grantor will cause the same to be promptly discharged and
released. Grantor will own all parts of the Mortgaged Property and will
not acquire any fixtures, equipment or other property forming a part of
the Mortgaged Property pursuant to a lease, license or similar
agreement, without the prior written consent of Noteholder.
(l) BOOKS AND RECORDS. Grantor will keep accurate books and
records in accordance with sound accounting principles in which full,
true and correct entries shall be promptly made as to all operations on
the Mortgaged Property, and will permit all such books and records
(including, without limitation, all contracts, statements, invoices,
bills and claims for labor, materials and services supplied for the
construction and
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operation of the improvements forming a part of the Mortgaged Property) to
be inspected and copied by Noteholder and its duly authorized
representatives at all times during reasonable business hours.
(m) FINANCIAL STATEMENTS AND REPORTS; RENT ROLL. Grantor will
deliver to Noteholder, within sixty (60) days after the close of each
fiscal year of Grantor, a statement of condition or balance sheet, a cash
flow statement and a statement of contingent liabilities of Grantor as of
the end of such fiscal year. Grantor will deliver to Noteholder, within
sixty (60) days after the close of the fiscal year of each guarantor of the
Indebtedness, a statement of condition or balance sheet of such guarantor
as at the end of such fiscal year. Grantor will deliver to Noteholder,
within forty-five (45) days after the close of each fiscal quarter of
Grantor, an operating statement showing in reasonable detail all income and
expenses of Grantor with respect to the Mortgaged Property during such
quarter and for the fiscal year through the end of such quarter. All such
statements of condition, balance sheets, cash flow statements and operating
statements shall be in form, scope and detail satisfactory to Noteholder
and shall be prepared and certified as to accuracy by an independent
certified public accountant or representative of Grantor acceptable to
Noteholder. Grantor will deliver to Noteholder, within sixty (60) days
after the close of each fiscal year of Grantor, a rent roll of the
Mortgaged Property containing the name and address of all tenants then
occupying portions of the Mortgaged Property under valid and subsisting
lease agreements and, with respect to each lease, the rentals payable,
square footage of the leased premises, amount of security deposit, lease
commencement date, lease expiration date, date through which rent is paid
and the nature and extent of any defaults by any tenant, all certified as
to accuracy by a representative of Grantor acceptable to Noteholder.
Grantor shall use its best efforts to obtain and examine financial and
credit information on all proposed lessees and provide copies of same to
Noteholder upon its request. If, and as often as, reasonably requested by
Noteholder, Grantor will make further reports of operations in such form as
Noteholder prescribes, setting out full data requested by Noteholder.
(n) ESCROW. If requested by Noteholder at any time during the term
the Indebtedness is outstanding in order to secure the performance and
discharge of Grantor's obligations under Subparagraphs (f) and (h) of this
Paragraph 2.2, but not in lieu of such obligations, Grantor will deposit
with Noteholder a sum equal to ad valorem taxes, assessments and charges
(which charges for the purpose of this Subparagraph shall include without
limitation ground rents and water and sewer rents and any other recurring
charge which could create or result in a lien against the Mortgaged
Property) against the Mortgaged Property for the current year and the
premiums for such policies of insurance for the current year, all as
estimated by Noteholder and prorated to the end of the calendar month
following the month during which this Mortgage is executed and delivered,
and thereafter will deposit with Noteholder, on each date when an
installment of principal and/or interest is due on the Note, sufficient
funds (as estimated from time
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to time by Noteholder) to permit Noteholder to pay, at least fifteen
(15) days prior to the due date thereof, the next maturing ad valorem
taxes, assessments and charges and premiums for such policies of
insurance. Noteholder shall have the right to rely upon tax information
furnished by applicable taxing authorities in the payment of such taxes
or assessments and shall have no obligation to make any protest of any
such taxes or assessments. Any excess over the amounts required for
such purposes shall be held by Noteholder for future use, applied to any
Indebtedness or refunded to Grantor, at Noteholder's option, and any
deficiency in such funds so deposited shall be made up by Grantor upon
demand of Noteholder. All such funds so deposited shall bear no
interest whatsoever, may be mingled with the general funds of Noteholder
and shall be applied by Noteholder toward the payment of such taxes,
assessments, charges and premiums when statements therefor are presented
to Noteholder by Grantor (such statements to be presented by Grantor to
Noteholder within a reasonable time before the applicable amount is
due); provided, however, that, if a Default (as hereinafter defined)
shall have occurred hereunder, such funds may at Noteholder's option be
applied to the payment of the Indebtedness in the order determined by
Noteholder in its sole discretion, and that Noteholder may at any time,
in its sole discretion, apply all or any part of such funds toward the
payment of any such taxes, assessments, charges or premiums which are
past due, together with any penalties or late charges with respect
thereto. The conveyance or transfer of Grantor's interest in the
Mortgaged Property for any reason (including, without limitation, the
foreclosure of a subordinate lien or security interest or a transfer by
operation of law) shall constitute an assignment or transfer of
Grantor's interest in and rights to such funds held by Noteholder under
this Subparagraph but subject to the rights of Noteholder hereunder.
(o) FURTHER ASSURANCES. Grantor will, on request of Noteholder,
promptly (i) correct any defect, error or omission which may be discovered
in the contents of this Mortgage or in any other instrument now or
hereafter executed in connection herewith or in the execution or
acknowledgment thereof; (ii) execute, acknowledge, deliver and record or
file such further instruments (including, without limitation, further deeds
of trust, security agreements, financing statements, continuation
statements and assignments of rents and leases) and do such further acts as
may be necessary, desirable or proper to carry out more effectively the
purposes of this Mortgage and such other instruments and to subject to the
liens and security interests hereof and thereof any property intended by
the terms hereof and thereof to be covered hereby and thereby including,
without limitation, any renewals, additions, substitutions, replacements or
appurtenances to the Mortgaged Property; (iii) execute, acknowledge,
deliver, procure and record or file any document or instrument (including,
without limitation, any financing statement) deemed advisable by Noteholder
to protect the lien or security interest hereunder against the rights or
interests of third persons; and (iv) provide such certificates, documents,
reports, information, affidavits and other instruments and do such further
acts as may be necessary, desirable or proper in the reasonable
determination of Noteholder to enable
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Noteholder to comply with the requirements or requests of any agency
having jurisdiction over Noteholder or any examiners of such agencies
with respect to the Indebtedness, Grantor or the Mortgaged Property and
Grantor will pay all costs connected with any of the foregoing.
(p) [Intentionally Omitted]
(q) FEES AND EXPENSES; INDEMNIFICATION. Grantor will pay all
appraisal fees, filing and recording fees, inspection fees, survey fees,
taxes, brokerage fees and commissions, abstract fees, title policy fees,
uniform commercial code search fees, escrow fees, attorneys' fees, and all
other costs and expenses of every character incurred by Grantor or
Noteholder in connection with the Indebtedness, either at the closing
thereof or at any time during the term thereof, or otherwise attributable
or chargeable to Grantor as owner of the Mortgaged Property, and will
reimburse Noteholder for all such costs and expenses incurred by
Noteholder. Grantor shall pay all expenses and reimburse Noteholder for
any expenditures, including, without limitation, reasonable attorneys' fees
and legal expenses, incurred or expended in connection with (i) the breach
by Grantor of any covenant herein or in any other Loan Document; (ii)
Noteholder's exercise of any of its rights and remedies hereunder or under
the Note or any other Loan Document or Noteholder's protection of the
Mortgaged Property and its lien and security interest therein; or (iii) any
amendments to this Mortgage, the Note or any other Loan Document or any
matter requested by Grantor or any approval required hereunder. Grantor
will indemnify and hold harmless Trustee and Noteholder (for purposes of
this Subparagraph, the terms "TRUSTEE" and "NOTEHOLDER" shall include the
directors, officers, partners, employees, representatives and agents of
Trustee and Noteholder, respectively, and any persons or entities owned or
controlled by, owning or controlling, or under common control or affiliated
with Trustee and Noteholder, respectively) from and against, and reimburse
them for, all claims, demands, liabilities, losses, damages, causes of
action, judgments, penalties, costs and expenses (including, without
limitation, reasonable attorneys' fees) which may be imposed upon, asserted
against or incurred or paid by them by reason of, on account of or in
connection with any bodily injury or death or property damage occurring in
or upon or in the vicinity of the Mortgaged Property through any cause
whatsoever or asserted against them on account of any act performed or
omitted to be performed hereunder or on account of any transaction arising
out of or in any way connected with the Mortgaged Property or with this
Mortgage, the Note or any other Loan Documents. WITHOUT LIMITATION OF THE
FOREGOING, IT IS THE INTENTION OF GRANTOR AND GRANTOR AGREES THAT THE
FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO
CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS,
PENALTIES, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS' FEES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF
THE
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NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY. However, such
indemnities shall not apply to any indemnified party to the extent the
subject of the indemnification is caused by or arises out of the gross
negligence or willful misconduct of such indemnified party. The foregoing
indemnities shall not terminate upon release, foreclosure or other
termination of this Mortgage but will survive foreclosure of this Mortgage
or conveyance in lieu of foreclosure and the repayment of the Indebtedness
and the discharge and release of this Mortgage and the other Loan
Documents. Any amount to be paid hereunder by Grantor to Noteholder and/or
Trustee shall be subject to and governed by the provisions of Paragraph 2.3
hereof.
(r) LIABILITY INSURANCE. Grantor shall maintain Commercial General
Liability insurance against claims for bodily injury or death and property
damage occurring in or upon or resulting from the Mortgaged Property, in
standard form and with such insurance company or companies as may be
acceptable to Noteholder, such insurance to afford immediate protection, to
the limit of not less than $1,000,000 in respect of any one accident or
occurrence, and to the limit of not less than $100,000 for property damage,
with not more than $5,000 deductible. Such Commercial General Liability
insurance shall include Blanket Contractual Liability coverage which
insures contractual liability under the indemnification of Noteholder and
the Trustee by Grantor set forth in this Mortgage (but such coverage or the
amount thereof shall in no way limit such indemnification). Grantor shall
maintain with respect to each policy or agreement evidencing such
Commercial General Liability insurance such endorsements as may be required
by Noteholder and shall at all times deliver and maintain with Noteholder a
certificate with respect to such insurance in form satisfactory to
Noteholder. Not less than fifteen (15) days prior to the expiration date
of each policy of insurance required of Grantor pursuant to this
Subparagraph, Grantor shall deliver to Noteholder a renewal policy or
policies marked "PREMIUM PAID" or accompanied by other evidence of payment
satisfactory to Noteholder. In the event of a foreclosure of this
Mortgage, the purchaser of the Mortgaged Property shall succeed to all the
rights of Grantor, including, without limitation, any right to unearned
premiums, in and to all policies of insurance assigned pursuant to the
provisions of this Subparagraph, and Grantor hereby authorizes Noteholder
to notify any or all insurance carriers of this assignment.
(s) WARRANTY. Grantor will warrant and forever defend the title to
the Mortgaged Property against the claims of all persons making any claim
to the same or any part thereof, subject to the Permitted Encumbrances.
(t) TAX ON LIEN. In the event of the enactment after the date hereof
of any law of the State of Texas or of any other governmental entity
deducting from the value of property for the purpose of taxation any lien
or security interest thereon, or imposing upon Noteholder the payment of
the whole or any part of the taxes or assessments or charges or liens
herein required to be paid by Grantor, or changing in any way the laws
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relating to the taxation of deeds of trust or mortgages or security
agreements or debts secured by deeds of trust or mortgages or security
agreements or the interest of the mortgagee or secured party in the
property covered thereby, or the manner of collection of such taxes, so as
to affect this Mortgage or the Indebtedness or Noteholder, then, and in any
such event, Grantor upon demand by Noteholder, shall pay such taxes,
assessments, charges or liens, or reimburse Noteholder therefor; provided,
however, that if in the opinion of counsel for Noteholder (i) it might be
unlawful to require Grantor to make such payment; or (ii) the making of
such payment might result in the contracting for, charging or receiving of
interest beyond the maximum amount permitted by law, then and in such
event, Noteholder may elect, by notice in writing given to Grantor, to
declare all of the Indebtedness to be and become due and payable sixty (60)
days from the giving of such notice.
(u) CHANGE OF NAME, IDENTITY OR STRUCTURE. Grantor will not change
Grantor's name, identity (including its trade name or names) or Grantor's
corporate structure without notifying Noteholder of such change in writing
at least thirty (30) days prior to the effective date of such change.
Grantor will execute and deliver to Noteholder, prior to or
contemporaneously with the effective date of any such change, any financing
statement or financing statement change or other document required by
Noteholder to establish or maintain the validity, perfection and priority
of the lien and security interest granted herein. At the request of
Noteholder, Grantor shall execute a certificate in form satisfactory to
Noteholder listing the trade names under which Grantor intends to operate
the Mortgaged Property, and representing and warranting that Grantor does
business under no other trade name with respect to the Mortgaged Property.
(v) LOCATION AND USE OF PERSONAL PROPERTY. All tangible Personal
Property will be used in the business of Grantor and shall remain in
Grantor's possession or control at all times at Grantor's risk of loss and
shall be located on the Land.
(w) ESTOPPEL CERTIFICATE. Grantor shall at any time and from time to
time furnish promptly upon request by Noteholder a written statement in
such form as may be required by Noteholder stating that the Note, this
Mortgage and the other Loan Documents are valid and binding obligations of
Grantor, enforceable against Grantor in accordance with their terms; the
unpaid principal balance of the Note; the date to which interest on the
Note is paid; that the Note, this Mortgage and the other Loan Documents
have not been released, subordinated or modified; and that there are no
offsets or defenses against the enforcement of the Note, this Mortgage or
any other Loan Documents, or if any of the foregoing statements are untrue,
specifying the reasons therefor.
(x) PROCEEDS OF PERSONAL PROPERTY. Grantor shall account fully and
faithfully for and, if Noteholder so elects, shall promptly pay or turn
over to Noteholder all
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proceeds in whatever form received from any disposition of any of the
Personal Property, except as otherwise specifically authorized herein.
Grantor shall at all times keep the Personal Property and its proceeds
separate and distinct from other property of Grantor and shall keep
accurate and complete records of the Personal Property and its proceeds.
(y) LOAN AGREEMENT. Grantor will punctually perform and discharge
each and every obligation and undertaking of Grantor under the Line of
Credit Agreement, of even date herewith, as from time to time amended or
restated (the "LOAN AGREEMENT"), between Grantor and Noteholder and will
not permit a default to occur thereunder.
(z) PERMITTED ENCUMBRANCES. Grantor will comply with and will
perform all of the covenants, agreements and obligations imposed upon it or
the Mortgaged Property in the Permitted Encumbrances in accordance with
their respective terms and provisions. Grantor will not modify or permit
any modification of any Permitted Encumbrance without the prior written
consent of Noteholder.
(aa) ENVIRONMENTAL. Grantor will not cause or permit the Mortgaged
Property or Grantor to be in violation of, or do anything or permit
anything to be done which will subject the Mortgaged Property to any
remedial obligations under, any Applicable Environmental Laws, including,
without limitation, CERCLA, RCRA, the Texas Water Code and the Texas Solid
Waste Disposal Act, assuming disclosure to the applicable governmental
authorities of all relevant facts, conditions and circumstances, if any,
pertaining to Grantor and/or the Mortgaged Property, and Grantor will
promptly notify Noteholder in writing of any existing, pending or, to the
best knowledge of Grantor, threatened investigation or inquiry by any
governmental authority in connection with any Applicable Environmental
Laws. Grantor shall obtain any permits, licenses or similar authorizations
to construct, occupy, operate or use any buildings, improvements, fixtures
and equipment forming a part of the Mortgaged Property by reason of any
Applicable Environmental Laws. Grantor shall take all steps necessary to
determine that no hazardous substances or solid waste are being disposed of
or otherwise released on or to the Mortgaged Property. Grantor will not
cause or permit the disposal or other release of any hazardous substance or
solid waste on or to the Mortgaged Property and covenants and agrees to
keep or cause the Mortgaged Property to be kept free of any hazardous
substance or solid waste and to remove the same (or if removal is
prohibited by law, to take whatever action is required by law) promptly
upon discovery at its sole expense. Upon Noteholder's reasonable request,
at any time and from time to time during the existence of this Mortgage,
Grantor will provide at Grantor's sole expense an inspection or audit of
the Mortgaged Property from an engineering or consulting firm approved by
Noteholder, indicating the presence or absence of hazardous substances and
solid wastes on the Mortgaged Property. If Grantor fails to provide same
after forty-five (45) days' notice, Noteholder may order same, and Grantor
grants to Noteholder and its agents, employees, contractors and consultants
access to the Mortgaged Property and a license
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(which is coupled with an interest and irrevocable while this Mortgage
is in effect) to perform inspections and tests. The cost of such
inspections and tests shall be a demand obligation owing by Grantor to
Noteholder pursuant to this Mortgage and shall be subject to and covered
by the provisions of Paragraph 2.3 hereof.
(bb) ASBESTOS. Grantor covenants and agrees that it will not install
in the Mortgaged Property, nor permit to be installed in the Mortgaged
Property, asbestos, material containing asbestos which is or may become
friable or material containing asbestos deemed hazardous by any Applicable
Environmental Law, and that if any such asbestos or material containing
asbestos exists in or on the Mortgaged Property, whether installed by
Grantor or others, Grantor will remove the same (or if removal is
prohibited by law, will take whatever action is required by law, including,
without limitation, implementing any required operation and maintenance
program) promptly upon discovery at its sole expense. Upon Noteholder's
reasonable request, at any time and from time to time during the existence
of this Mortgage, Grantor shall provide at Grantor's sole expense an
inspection or audit of the Mortgaged Property from an engineering or
consulting firm approved by Noteholder, indicating the presence or absence
of asbestos or material containing asbestos on the Mortgaged Property. If
Grantor fails to provide same after thirty (30) days' notice, Noteholder
may order same, and Grantor grants to Noteholder and its agents, employees,
contractors and consultants access to the Mortgaged Property and a license
(which is coupled with an interest and irrevocable while this Mortgage is
in effect) to perform inspections and tests. The cost of such inspections
and tests shall be subject to and covered by the provisions of Paragraph
2.3 hereof.
(cc) COMPLY WITH LEASE. Grantor will fully perform and comply with
all covenants, warranties, representations, and other obligations imposed
upon or assumed by it as lessee, sublessee or otherwise under any lease,
sublease or similar agreement pursuant to which it has a possessory
interest in the Land and, upon Grantor's failure or alleged failure
(notwithstanding that Grantor's failure or alleged failure may be contested
by Grantor) so to do, Noteholder will have the absolute and immediate right
to enter upon the Mortgaged Property and to take such other action, to such
extent and as often as Noteholder, in its opinion, deems necessary or
desirable, to prevent or to cure any such failures or alleged failures by
Grantor.
(dd) MATTERS PERTAINING TO LEASE. Grantor will not, without
Noteholder's prior written consent, (i) terminate or modify any lease,
sublease or similar agreement pursuant to which it has a possessory
interest in the Land in any respect or (ii) permit the fee title to the
Land demised by such lease, sublease or agreement and the leasehold estate
so created to merge, but rather such fee title and such leasehold estate
shall always be separate and distinct.
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2.3 RIGHT OF NOTEHOLDER TO PERFORM. Grantor agrees that if Grantor fails
to perform any act or to take any action which Grantor is required to perform or
take hereunder or under any of the other Loan Documents, or to pay any money
which Grantor is required to pay hereunder or under any of the other Loan
Documents, or takes any action prohibited hereby or thereby, Noteholder, in
Grantor's name or in its own name, may but shall not be obligated to perform or
cause to be performed such act or take such action, including, without
limitation, entering the Mortgaged Property for such purpose and to take all
such action thereon as it may deem necessary or appropriate, or pay such money
or remedy any action so taken, and any expenses so incurred by Noteholder, and
any money paid by Noteholder in connection therewith, shall be a demand
obligation owing by Grantor to Noteholder and Noteholder, upon making such
payment, shall be subrogated to all of the rights of the party receiving such
payment. Any amounts due and owing by Grantor to Noteholder pursuant to this
Mortgage shall bear interest from the date such amount becomes due until paid at
the rate of interest payable on matured but unpaid principal of or interest on
the Note and shall be a part of the Indebtedness and shall be secured by this
Mortgage and by all of the other Loan Documents.
2.4 INDEMNIFICATION REGARDING ENVIRONMENTAL MATTERS. Grantor agrees to
indemnify and hold Noteholder and Trustee (for purposes of this Paragraph, the
terms "NOTEHOLDER" and "TRUSTEE" shall include the directors, officers,
partners, employees, representatives and agents of Noteholder and Trustee,
respectively, and any persons or entities owned or controlled by, owning or
controlling, or under common control or otherwise affiliated with Noteholder and
Trustee, respectively) harmless from and against, and to reimburse Noteholder
and Trustee with respect to, any and all claims, demands, losses, damages
(including consequential damages), liabilities, causes of action, judgments,
penalties, costs and expenses (including attorneys' fees and court costs) of any
and every kind or character, known or unknown, fixed or contingent, imposed on,
asserted against or incurred by Noteholder and/or the Trustee at any time and
from time to time by reason of, in connection with or arising out of (a) the
breach of any representation or warranty of Grantor as set forth herein
regarding asbestos, material containing asbestos or Applicable Environmental
Laws, (b) the failure of Grantor to perform any obligation herein required to be
performed by Grantor regarding asbestos, material containing asbestos or
Applicable Environmental Laws, (c) any violation on or before the Release Date
(as hereinafter defined) of any Applicable Environmental Law in effect on or
before the Release Date, (d) the removal of hazardous substances or solid wastes
from the Mortgaged Property (or if removal is prohibited by law, the taking of
whatever action is required by law), (e) the removal of asbestos or material
containing asbestos from the Mortgaged Property (or if removal is prohibited by
Applicable Environmental Laws, the taking of whatever action is required by
Applicable Environmental Laws, including, without limitation, the implementation
of any required operation and maintenance program), (f) any act, omission, event
or circumstance existing or occurring on or prior to the Release Date
(including, without limitation, the presence on the Mortgaged Property or
release from the Mortgaged Property of any hazardous substance or solid waste
disposed of or otherwise released on or prior to the Release Date), resulting
from or in connection with the ownership, construction, occupancy,
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operation, use and/or maintenance of the Mortgaged Property, regardless of
whether the act, omission, event or circumstance constituted a violation of
any Applicable Environmental Law at the time of its existence or occurrence,
and (g) any and all claims or proceedings (whether brought by private party
or governmental agency) for bodily injury, property damage, abatement or
remediation, environmental damage or impairment or any other injury or damage
resulting from or relating to any hazardous substance or solid waste located
upon or migrating into, from or through the Mortgaged Property (whether or
not any or all of the foregoing was caused by Grantor or its tenant or
subtenant, or a prior owner of the Mortgaged Property or its tenant or
subtenant, or any third party and whether or not the alleged liability is
attributable to the handling, storage, generation, transportation or disposal
of such substance or waste or the mere presence of such substance or waste on
the Mortgaged Property). WITHOUT LIMITATION, THE FOREGOING INDEMNITIES SHALL
APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO CLAIMS, DEMANDS, LOSSES,
DAMAGES (INCLUDING CONSEQUENTIAL DAMAGES), LIABILITIES, CAUSES OF ACTION,
JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS' FEES AND COURT
COSTS) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE
OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY. However, such indemnities shall
not apply to any indemnified party to the extent the subject of the
indemnification is caused by or arises out of the gross negligence or willful
misconduct of such indemnified party. The term "RELEASE DATE" as used herein
shall mean the earlier of the following two dates: (i) the date on which the
Indebtedness has been paid and performed in full and this Mortgage has been
released, or (ii) the date on which the lien of this Mortgage is foreclosed
or a conveyance by deed in lieu of such foreclosure is fully effective;
provided, if such payment, performance, release, foreclosure or conveyance is
challenged, in bankruptcy proceedings or otherwise, the Release Date shall be
deemed not to have occurred until such challenge is rejected, dismissed or
withdrawn with prejudice. The foregoing indemnities shall not terminate upon
the Release Date or upon the release, foreclosure or other termination of
this Mortgage but will survive the Release Date, foreclosure of this Mortgage
or conveyance in lieu of foreclosure, and the repayment of the Indebtedness
and the discharge and release of this Mortgage and the other Loan Documents.
Any amount to be paid hereunder by Grantor to Noteholder and/or Trustee shall
be a demand obligation owing by Grantor to Noteholder and/or Trustee and
shall be subject to and covered by the provisions of Paragraph 2.3 hereof.
Nothing in this Paragraph, elsewhere in this Mortgage or in any other Loan
Document shall limit or impair any rights or remedies of Noteholder and/or
Trustee against Grantor or any third party under Applicable Environmental
Laws, including without limitation, any rights of contribution or
indemnification available hereunder or thereunder.
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ARTICLE III
ASSIGNMENT OF RENTS, LEASES, PROFITS, INCOME,
CONTRACTS AND BONDS
3.1 ASSIGNMENT OF RENTS. Grantor does hereby absolutely and
unconditionally assign, transfer and set over to Noteholder all rents, income,
receipts, revenues, issues, profits and proceeds to be derived from the
Mortgaged Property, including, without limitation, the immediate and continuing
right to collect and receive all of the rents, income, receipts, revenues,
issues, profits and other sums of money that may now or at any time hereafter
become due and payable to Grantor under the terms of any leases now or hereafter
covering the Mortgaged Property, or any part thereof, including, but not limited
to, minimum rents, additional rents, percentage rents, deficiency rents and
liquidated damages following default, all proceeds payable under any policy of
insurance covering the loss of rents resulting from untenantability caused by
destruction or damage to the Mortgaged Property, and all of Grantor's rights to
recover monetary amounts from any tenant in bankruptcy, including, without
limitation, rights of recovery for use and occupancy and damage claims arising
out of lease defaults, including rejections, under any Applicable Bankruptcy Law
(as hereinafter defined), together with any sums of money that may now or at any
time hereafter become due and payable to Grantor by virtue of any and all
royalties, overriding royalties, bonuses, delay rentals and any other amount of
any kind or character arising under any and all present and future oil, gas and
mining leases covering the Mortgaged Property or any part thereof (collectively,
the "RENTS"); and all proceeds and other amounts paid or owing to Grantor under
or pursuant to any and all contracts and bonds relating to the construction,
erection or renovation of the Mortgaged Property; subject however to a license
hereby granted by Noteholder to Grantor to collect and receive all of the
foregoing (such license evidenced by Noteholder's acceptance of the Mortgage),
subject to the terms and conditions hereof. Notwithstanding anything contained
herein or in any of the other Loan Documents to the contrary, the assignment in
this Paragraph is an absolute, unconditional and presently effective assignment
and not merely a security interest; provided, however, upon the occurrence of a
Default (as hereinafter defined) hereunder or upon the occurrence of any event
or circumstance which with the lapse of time or the giving of notice or both
would constitute a Default hereunder, such license shall automatically and
immediately terminate and Grantor shall hold all Rents paid to Grantor
thereafter in trust for the use and benefit of Noteholder and Noteholder shall
have the right, power and authority, whether or not it takes possession of the
Mortgaged Property, to seek enforcement of any such lease, contract or bond and
to demand, collect, receive, sue for and recover in its own name any and all of
the above described amounts assigned hereby and to apply the sum(s) collected,
first to the payment of expenses incident to the collection of the same, and the
balance to the payment of the Indebtedness; provided further, however, that
Noteholder shall not be deemed to have taken possession of the Mortgaged
Property except on the exercise of its option to do so, evidenced by its demand
and overt act for such purpose. It shall not be necessary for
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Noteholder to institute any type of legal proceedings or take any other
action whatsoever to enforce the assignment provisions in this Paragraph 3.1.
3.2 ASSIGNMENT OF LEASES. Grantor hereby assigns to Noteholder all
existing and future leases, including, without limitation, all subleases
thereof, and any and all extensions, renewals, modifications and replacements
thereof, upon any part of the Mortgaged Property (collectively, the "LEASES").
Grantor hereby further assigns to Noteholder all guaranties of tenants'
performance under the Leases. Prior to a Default, Grantor shall have the right,
without joinder of Noteholder, to enforce the Leases, unless Noteholder directs
otherwise.
3.3 WARRANTIES CONCERNING LEASES AND RENTS. Grantor represents and
warrants that:
(a) Grantor has good title to the Leases and Rents and authority to
assign them, and no other person or entity has any right, title
or interest therein;
(b) all existing Leases are valid, unmodified and in full force and
effect, except as indicated herein, and no default exists
thereunder;
(c) unless otherwise provided herein, no Rents have been or will be
assigned, mortgaged or pledged;
(d) no Rents have been or will be anticipated, waived, released,
discounted, set off or compromised; and
(e) except as indicated in the Leases, Grantor has not received any
funds or deposits from any tenant for which credit has not
already been made on account of accrued Rents.
3.4 GRANTOR'S COVENANTS OF PERFORMANCE. Grantor covenants to:
(a) perform all of its obligations under the Leases and give prompt
notice to Noteholder of any failure to do so;
(b) give immediate notice to Noteholder of any notice Grantor
receives from any tenant or subtenant under any Leases,
specifying any claimed default by any party under such Leases,
excluding, however, notices of default under residential leases;
(c) enforce the tenant's obligations under the Leases;
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(d) defend, at Grantor's expense, any proceeding pertaining to the
Leases, including, if Noteholder so requests, any such proceeding
to which Noteholder is a party; and
(e) neither create nor permit any encumbrance upon its interest as
lessor of the Leases, except this Mortgage and any other
encumbrances permitted by this Mortgage.
3.5 PRIOR APPROVAL FOR ACTIONS AFFECTING LEASES. Grantor shall not,
without the prior written consent of Noteholder:
(a) receive or collect Rents more than one month in advance;
(b) encumber or assign future Rents;
(c) waive or release any obligation of any tenant under the Leases;
(d) cancel, terminate or modify any of the Leases; cause or permit
any cancellation, termination or surrender of any of the Leases;
or commence any proceedings for dispossession of any tenant under
any of the Leases, except upon default by the tenant thereunder;
(e) renew or extend any of the Leases, except pursuant to terms in
existing Leases;
(f) permit any assignment of the Leases; or
(g) enter into any Leases after the date hereof.
3.6 SETTLEMENT FOR TERMINATION. Grantor agrees that no settlement for
damages for termination of any of the Leases under the Federal Bankruptcy Code,
or under any other federal, state or local statute, shall be made without the
prior written consent of Noteholder, and any check in payment of such damages
will be made payable to both Grantor and Noteholder. Grantor hereby assigns any
such payment to Noteholder to be applied to the Indebtedness as Noteholder may
elect and agrees to endorse any check for such payment to the order of
Noteholder.
3.7 NOTEHOLDER IN POSSESSION. Noteholder's acceptance of this assignment
shall not, prior to entry upon and taking possession of the Mortgaged Property
by Noteholder, be deemed to constitute Noteholder a "MORTGAGEE IN POSSESSION,"
nor obligate Noteholder to appear in or defend any proceedings relating to any
of the Leases or to the Mortgaged Property, take any action hereunder, expend
any money, incur any expenses, or perform any obligation or liability
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under the Leases, or assume any obligation for any deposits delivered to
Grantor by any tenant and not delivered to Noteholder. Noteholder shall not
be liable for any injury or damage to any person or property in or about the
Mortgaged Property.
3.8 APPOINTMENT OF ATTORNEY. Grantor hereby irrevocably appoints
Noteholder its attorney-in-fact, coupled with an interest, empowering Noteholder
to subordinate any Leases to this Mortgage.
3.9 INDEMNIFICATION. Grantor hereby indemnifies and holds Noteholder
(which shall include the directors, officers, partners, employees,
representatives and agents of Noteholder and any persons or entities owned or
controlled by, owning or controlling, or under common control or affiliated with
Noteholder) harmless from all liability, damage or expense imposed on or
incurred by Noteholder from any claims under the Leases, including, without
limitation, any claims by Grantor with respect to payments of Rents made
directly to Noteholder after Default and claims by any tenant for security
deposits or for rental payments more than one (1) month in advance and not
delivered to Noteholder. All amounts indemnified against hereunder, including,
without limitation, attorneys' fees, if paid by Noteholder shall bear interest
at the maximum lawful rate and shall be payable by Grantor in accordance with
Paragraph 2.3 hereof. The foregoing indemnities shall not terminate upon the
foreclosure, release or other termination of this Mortgage but will survive
foreclosure of this Mortgage or conveyance in lieu of foreclosure and the
repayment of the Indebtedness and the discharge and release of this Mortgage and
the other Loan Documents.
3.10 RECORDS. Upon request by Noteholder, Grantor shall deliver to
Noteholder executed originals of all Leases and copies of all records relating
thereto.
3.11 MERGER. There shall be no merger of the leasehold estates, created by
the Leases, with the fee estate of the Land without the prior written consent of
Noteholder.
3.12 RIGHT TO RELY. Grantor hereby irrevocably authorizes and directs the
tenants under the Leases to pay Rents to Noteholder upon written demand by
Noteholder without further consent of Grantor, and the tenants may rely upon any
written statement delivered by Noteholder to the tenants. Any such payment to
Noteholder shall constitute payment to Grantor under the Leases. The provisions
of this Paragraph are intended solely for the benefit of the tenants and shall
never inure to the benefit of Grantor or any person claiming through or under
Grantor, other than a tenant who has not received such notice. The assignment
of Rents set forth in Paragraph 3.1 is not contingent upon any notice or demand
by Noteholder to the tenants.
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ARTICLE IV
EVENTS OF DEFAULT
DEFAULTS. The term "DEFAULT" as used in this Mortgage shall mean the
occurrence of any of the following events:
4.1 FAILURE TO PAY INDEBTEDNESS. The failure, refusal or neglect of
Grantor to make due and punctual payment of principal or interest on the
Indebtedness, or any portion thereof, as the same shall become due and payable
which failure, refusal or neglect continues for more than ten (10) days after
Noteholder has given Grantor written notice thereof (except that Noteholder will
not be obligated to give more than three (3) such notices in any calendar year);
or
4.2 NON-PERFORMANCE OF COVENANTS. The failure of Grantor to timely and
properly observe, keep or perform any covenant, agreement, warranty or condition
(other than the covenant and agreement to pay the Indebtedness when due)
required herein or in any other Loan Document to be observed, kept or performed
which failure continues for more than thirty (30) days after Noteholder has
given Grantor written notice thereof; or
4.3 FALSE REPRESENTATION. Any representation contained herein or in any
other Loan Document or otherwise made by Grantor or any other person or entity
to Noteholder in connection with the Indebtedness is false or misleading in any
material respect; or
4.4 BANKRUPTCY OR INSOLVENCY. If the owner of the Mortgaged Property or
any person obligated to pay the Indebtedness: (a) 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; (b) generally is not paying its debts as such debts become due; (c) 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 Mortgaged Property,
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; (d) files a
petition for relief under the United States Bankruptcy Code or any other present
or future federal or state insolvency, bankruptcy or similar law (all of the
foregoing hereinafter collectively referred to as "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; (e) fails to have
discharged within a period of sixty (60)
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days any attachment, sequestration or similar writ levied upon any property
of such party; or (f) fails to pay within thirty (30) days any final money
judgment against such party; or
4.5 EXECUTION ON MORTGAGED PROPERTY. The Mortgaged Property or any part
thereof is taken on execution or other process of law in any action against
Grantor; or
4.6 ABANDONMENT. Grantor abandons all or a portion of the Mortgaged
Property; or
4.7 ACTION BY OTHER LIENHOLDER. The holder of any lien or security
interest on the Mortgaged Property (without hereby implying the consent of
Noteholder to the existence or creation of any such lien or security interest)
declares a default thereunder or institutes foreclosure or other proceedings for
the enforcement of its remedies thereunder; or
4.8 TRANSFER OF MORTGAGED PROPERTY. Without the prior written consent of
Noteholder, Grantor sells, leases, exchanges, assigns, transfers, conveys or
otherwise disposes of all or any part of the Mortgaged Property or any interest
therein (except for the disposition of worn-out or obsolete personal property or
fixtures under the circumstances described in Subparagraph 2.2(g) hereof), or
legal or equitable title to the Mortgaged Property, or any interest therein, is
vested in any other party, in any manner whatsoever, by operation of law or
otherwise, it being understood that the consent of Noteholder required hereunder
may be refused by Noteholder in its sole discretion or may be predicated upon
any terms, conditions and covenants deemed advisable or necessary in the sole
discretion of Noteholder, including, without limitation, the right to change the
interest rate, date of maturity or payments of principal and/or interest on the
Note, to require payment of any amount as additional consideration as a transfer
fee or otherwise and to require assumption of the Note and this Mortgage; or
4.9 OTHER LIENS. Without the prior written consent of Noteholder, Grantor
creates, places or permits to be created or placed, or through any act or
failure to act, acquiesces in the placing of, or allows to remain, any deed of
trust, mortgage, voluntary or involuntary lien, whether statutory,
constitutional or contractual (except for the lien for ad valorem taxes on the
Mortgaged Property which are not delinquent), security interest, encumbrance or
charge, or conditional sale or other title retention document, against or
covering the Mortgaged Property, or any part thereof, other than the Permitted
Encumbrances, regardless of whether the same are expressly or otherwise
subordinate to the lien or security interest created in this Mortgage, or
acquires any fixtures, equipment or other property forming a part of the
Mortgaged Property pursuant to a lease, license or similar agreement; or
4.10 DESTRUCTION OF MORTGAGED PROPERTY. The Mortgaged Property is so
demolished, destroyed or damaged that, in the judgment of Noteholder, it cannot
be restored or rebuilt with available funds to a profitable condition within a
reasonable period of time; or
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4.11 CONDEMNATION. So much of the Mortgaged Property is taken in
condemnation, or sold in lieu of condemnation, or the Mortgaged Property is so
diminished in value due to any injury or damage to the Mortgaged Property, that
the remainder thereof cannot, in the judgment of Noteholder, continue to be
operated profitably for the purpose for which it was being used immediately
prior to such taking, sale or diminution.
ARTICLE V
REMEDIES AND RELATED RIGHTS
If a Default shall occur, Noteholder may exercise any one or more of the
following remedies and shall, in addition to any other rights, have the
following related rights, without notice (unless notice is required by
Applicable Laws):
5.1 ACCELERATION. Upon the occurrence of a Default, Noteholder shall have
the option of declaring all Indebtedness in its entirety to be immediately due
and payable, and the liens and security interests evidenced hereby shall be
subject to foreclosure in any manner provided for herein or provided for by
applicable law as Noteholder may elect.
5.2 POSSESSION. Upon the occurrence of a Default, or any event or
circumstance which, with the lapse of time or the giving of notice, or both,
would constitute a Default hereunder, Noteholder is authorized prior or
subsequent to the institution of any foreclosure proceedings to enter upon the
Mortgaged Property, or any part thereof, and to take possession of the Mortgaged
Property and of all books, records and accounts relating thereto and to exercise
without interference from Grantor any and all rights which Grantor has with
respect to the management, possession, operation, protection or preservation of
the Mortgaged Property, including the right to rent the same for the account of
Grantor and to deduct from such rents all costs, expenses and liabilities of
every character incurred by Noteholder in collecting such rents and in managing,
operating, maintaining, protecting or preserving the Mortgaged Property and to
apply the remainder of such rents to the Indebtedness in such manner as
Noteholder may elect in its sole discretion. All such costs, expenses and
liabilities incurred by Noteholder in collecting such rents and in managing,
operating, maintaining or preserving the Mortgaged Property, if not paid out of
rents as hereinabove provided, shall constitute a demand obligation owing by
Grantor and shall be subject to and covered by Paragraph 2.3 hereof. If
necessary to obtain the possession provided for above, Noteholder may invoke any
and all legal remedies to dispossess Grantor, including, without limitation, one
or more actions for forcible entry and detainer, trespass to try title and
restitution. In connection with any action taken by Noteholder pursuant to this
Paragraph, Noteholder shall not be liable for any loss sustained by Grantor
resulting from any failure to rent the Mortgaged Property, or any part thereof,
or from any other act or omission of Noteholder in managing the Mortgaged
Property unless such loss is caused by the willful misconduct and bad faith of
Noteholder, nor shall Noteholder be obligated to perform or discharge any
obligation, duty or liability under any Lease covering the Mortgaged
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Property or any part thereof or under or by reason of this instrument or the
exercise of rights or remedies hereunder. Grantor shall and does hereby
agree to indemnify Noteholder for, and to hold Noteholder (which shall
include the directors, officers, partners, employees, representatives and
agents of Noteholder and any persons or entities owned or controlled by,
owning or controlling or under common control or affiliated with Noteholder)
harmless from, any and all liability, loss or damage which may or might be
incurred by Noteholder under any Lease or under or by reason of this Mortgage
or the exercise of rights or remedies hereunder and from any and all claims
and demands whatsoever which may be asserted against Noteholder by reason of
any alleged obligations or undertakings on its part to perform or discharge
any of the terms, covenants or agreements contained in any Lease. Should
Noteholder incur any such liability, the amount thereof, including costs,
expenses and reasonable attorneys' fees, shall be subject to and covered by
Paragraph 2.3 hereof. Nothing in this Paragraph shall impose any duty,
obligation or responsibility upon Noteholder for the control, care,
management or repair of the Mortgaged Property, nor for the carrying out of
any of the terms and conditions of any such Lease; nor shall it operate to
make Noteholder responsible or liable for any waste committed on the
Mortgaged Property by the tenants or by any other parties or for any
dangerous or defective condition of the Mortgaged Property, or for any
negligence in the management, upkeep, repair or control of the Mortgaged
Property resulting in loss or injury or death to any tenant, licensee,
employee or stranger. Grantor hereby assents to, ratifies and confirms any
and all actions of Noteholder with respect to the Mortgaged Property taken
under this Paragraph and agrees that the foregoing indemnity shall not
terminate upon release, foreclosure or other termination of this Mortgage.
5.3 FORECLOSURE. Upon the occurrence of a Default, Trustee, his successor
or substitute, is authorized and empowered and it shall be his special duty at
the request of Noteholder to sell the Mortgaged Property or any part thereof
situated in the State of Texas at the courthouse of any county in the State of
Texas in which any part of the Mortgaged Property is situated, at public vendue
to the highest bidder for cash. The sale shall take place at such area of the
courthouse as shall be properly designated from time to time by the
commissioners court (or, if not so designated by the commissioners court, at the
courthouse door) of the specified county, between the hours of 10 o'clock a.m.
and 4 o'clock p.m. (the commencement of such sale to occur within three hours
following the time designated in the hereinafter described notice of sale as the
earliest time at which such sale shall occur, if required by Applicable Laws) on
the first Tuesday in any month after having given notice of such sale at least
twenty-one (21) days before the day of sale of the time, place and terms of said
sale (including the earliest time at which such sale shall occur) in accordance
with the statutes of the State of Texas then in force governing sales of real
estate under powers conferred by deeds of trust. Notice of a sale of all or
part of the Mortgaged Property by Trustee shall be given by posting written
notice thereof at the courthouse door (or other area in the courthouse as may be
designated for such public notices) of the county in which the sale is to be
made, and by filing a copy of the notice in the office of the county clerk of
the county in which the sale is to be made at least twenty-one (21) days
preceding the date of the sale, and if the Mortgaged Property to be sold is in
more than one
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county, a notice shall be posted at the courthouse door and filed with the
county clerk of each county in which the Mortgaged Property is situated. In
addition, Noteholder shall, at least twenty-one (21) days preceding the date
of sale, serve written notice of the proposed sale by certified mail on
Grantor and each debtor obligated to pay the Indebtedness or any portion
thereof according to the records of Noteholder. Service of such notice shall
be completed upon deposit of the notice, enclosed in a postpaid certified
mail wrapper, properly addressed to Grantor and each such debtor at the most
recent address as shown by the records of Noteholder, in a post office or
official depository under the care and custody of the United States Postal
Service. The affidavit of any person having knowledge of the facts to the
effect that such service was completed shall be prima facie evidence of the
fact of service. Any sale made by Trustee hereunder may be as an entirety or
in such parcels as Noteholder may request, and any sale may be adjourned by
announcement at the time and place appointed for such sale without further
notice except as may be required by law. The sale by Trustee of less than
the whole of the Mortgaged Property shall not exhaust the power of sale
herein granted, and Trustee is specifically empowered to make successive sale
or sales under such power until the whole of the Mortgaged Property shall be
sold; and, if the proceeds of such sale of less than the whole of the
Mortgaged Property shall be less than the aggregate of the Indebtedness and
the expense of executing this trust as provided herein, this Mortgage and the
lien hereof shall remain in full force and effect as to the unsold portion of
the Mortgaged Property just as though no sale had been made; provided,
however, that Grantor shall never have any right to require the sale of less
than the whole of the Mortgaged Property but Noteholder shall have the right,
at its sole election, to request Trustee to sell less than the whole of the
Mortgaged Property. After each sale, Trustee shall make to the purchaser or
purchasers at such sale good and sufficient conveyances in the name of
Grantor, conveying the property so sold to the purchaser or purchasers in fee
simple with general warranty of title, and shall receive the proceeds of said
sale or sales and apply the same as herein provided. Payment of the purchase
price to Trustee shall satisfy the obligation of purchaser at such sale
therefor, and such purchaser shall not be responsible for the application
thereof. The power of sale granted herein shall not be exhausted by any sale
held hereunder by Trustee or his substitute or successor, and such power of
sale may be exercised from time to time and as many times as Noteholder may
deem necessary until all of the Mortgaged Property has been duly sold and all
Indebtedness has been fully paid. In the event any sale hereunder is not
completed or is defective in the opinion of Noteholder, such sale shall not
exhaust the power of sale hereunder and Noteholder shall have the right to
cause a subsequent sale or sales to be made hereunder. Any and all
statements of fact or other recitals made in any deed or deeds given by
Trustee or any successor or substitute appointed hereunder as to nonpayment
of the Indebtedness, or as to the occurrence of any Default, or as to
Noteholder having declared all of such Indebtedness to be due and payable, or
as to the request to sell, or as to notice of time, place and terms of sale
and of the properties to be sold having been duly given, or as to the
refusal, failure or inability to act of Trustee or any substitute or
successor, or as to the appointment of any substitute or successor Trustee,
or as to any other act or thing having been duly done by Noteholder or by
Trustee or any substitute or successor, shall be taken as prima facie
evidence of the truth of the facts so stated and recited. Trustee, his
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successor or substitute, may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any sale held by
Trustee, including, without limitation, the posting of notices and the
conducting of sales, but in the name and on behalf of Trustee, his successor
or substitute.
5.4 JUDICIAL FORECLOSURE. This Mortgage shall be effective as a mortgage
as well as a deed of trust and upon the occurrence of a Default may be
foreclosed as to any of the Mortgaged Property in any manner permitted by the
laws of the State of Texas or of any other state in which any part of the
Mortgaged Property is situated, and any foreclosure suit may be brought by
Trustee or by Noteholder. In the event a foreclosure hereunder shall be
commenced by Trustee, or his substitute or successor, Noteholder may at any time
before the sale of the Mortgaged Property direct Trustee to abandon the sale,
and may then institute suit for the collection of the Indebtedness, and/or for
the foreclosure of this Mortgage. It is agreed that if Noteholder should
institute a suit for the collection of the Indebtedness and/or for the
foreclosure of this Mortgage, Noteholder may at any time before the entry of a
final judgment in said suit dismiss the same, and require Trustee, his
substitute or successor to sell the Mortgaged Property in accordance with the
provisions of this Mortgage.
5.5 RECEIVER. In addition to all other remedies herein provided for,
Grantor agrees that upon the occurrence of a Default, or any event or
circumstance which, with the lapse of time or the giving of notice, or both,
would constitute a Default, Noteholder shall as a matter of right be entitled to
the appointment of a receiver or receivers for all or any part of the Mortgaged
Property, whether such receivership be incident to a proposed sale of the
Mortgaged Property or otherwise, and without regard to the value of the
Mortgaged Property or the solvency of any person or persons liable for the
payment of the Indebtedness, and Grantor does hereby consent to the appointment
of such receiver or receivers, waives any and all defenses to such appointment
and agrees not to oppose any application therefor by Noteholder, but nothing
herein is to be construed to deprive Noteholder of any other right, remedy or
privilege it may now have under the law to have a receiver appointed; provided,
however, that the appointment of such receiver or other appointee by virtue of
any court order, statute or regulation shall not impair or in any manner
prejudice the rights of Noteholder to receive payment of the Rents pursuant to
Paragraph 3.1 hereof. Any money advanced by Noteholder in connection with any
such receivership shall be subject to and covered by Paragraph 2.3 hereof.
5.6 PROCEEDS OF SALE. The proceeds of any sale held by Trustee or any
receiver or public officer in foreclosure of the liens evidenced hereby shall be
applied:
FIRST, to the payment of all necessary costs and expenses incident to
such foreclosure sale, including but not limited to, all court costs and
charges of every character in the event foreclosed by suit, attorneys' fees
and a reasonable fee to Trustee acting under the provisions of Paragraph
5.3 if foreclosed by power of sale as provided in said paragraph, not
exceeding five percent (5%) of the proceeds of such sale;
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SECOND, to the payment in full of the Indebtedness (including, without
limitation, the principal and interest due and unpaid on the Note,
attorneys' fees and any other amounts due and unpaid and owed to Noteholder
under this Mortgage) in such order as Noteholder may elect in its sole
direction; and
THIRD, the remainder, if any there shall be paid to Grantor or to such
other party or parties as may be entitled thereto by applicable law.
5.7 NOTEHOLDER AS PURCHASER. Noteholder shall have the right to become
the purchaser at any sale held by any Trustee or substitute or successor or by
any receiver or public officer, and any Noteholder purchasing at any such sale
shall have the right to credit upon the amount of the bid made therefor, to the
extent necessary to satisfy such bid, the Indebtedness owing to such Noteholder.
5.8 ADDITIONAL REMEDIES UNDER THE BUSINESS CODE. Upon the occurrence of a
Default, Noteholder may exercise its rights of enforcement with respect to the
Personal Property under the Texas Business and Commerce Code, as amended, (the
"BUSINESS CODE") and in conjunction with, in addition to or in substitution for
those rights and remedies:
(a) Noteholder may enter upon the Mortgaged Property to take
possession of, assemble and collect the Personal Property or to render it
unusable; and
(b) Noteholder may require Grantor to assemble the Personal Property
and make it available at a place Noteholder designates which is mutually
convenient to allow Noteholder to take possession or dispose of the
Personal Property; and
(c) written notice mailed to Grantor as provided herein five (5) days
prior to the date of public sale of the Personal Property or prior to the
date after which any private sale of the Personal Property will be made
shall constitute reasonable notice; and
(d) any sale made pursuant to the provisions of this Paragraph shall
be deemed to have been a public sale conducted in a commercially reasonable
manner if held contemporaneously with the sale of the Mortgaged Property
under power of sale as provided herein upon giving the same notice with
respect to the sale of the Personal Property hereunder as is required for
such sale of the Mortgaged Property under power of sale; and
(e) in the event of a foreclosure sale, whether made by Trustee under
the terms hereof, or under judgment of a court, the Personal Property and
the Mortgaged Property may, at the option of Noteholder, be sold as a
whole; and
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(f) it shall not be necessary that Noteholder take possession of the
Personal Property or any part thereof prior to the time that any sale
pursuant to the provisions of this Paragraph is conducted and it shall not
be necessary that the Personal Property or any part thereof be present at
the location of such sale; and
(g) prior to application of proceeds of disposition of the Personal
Property to the Indebtedness, such proceeds shall be applied to the
reasonable expenses of retaking, holding, preparing for sale or lease,
selling, leasing and the like and the reasonable attorneys' fees and legal
expenses incurred by Noteholder; and
(h) any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any foreclosure sale
hereunder as to nonpayment of the Indebtedness or as to the occurrence of
any Default, or as to Noteholder having declared all of such Indebtedness
to be due and payable, or as to notice of time, place and terms of sale and
of the properties to be sold having been duly given, or as to any other act
or thing having been duly done by Noteholder, shall be taken as prima facie
evidence of the truth of the facts so stated and recited; and
(i) Noteholder may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any sale held by
Noteholder, including the sending of notices and the conduct of the sale,
but in the name and on behalf of Noteholder.
5.9 PARTIAL FORECLOSURE. In the event of a Default in the payment of any
part of the Indebtedness, Noteholder shall have the right to proceed with
foreclosure of the liens and security interests evidenced hereby without
declaring the entire Indebtedness due, and in such event any such foreclosure
sale may be made subject to the unmatured part of the Indebtedness; and any such
sale shall not in any manner affect the unmatured part of the Indebtedness, but
as to such unmatured part this Mortgage shall remain in full force and effect
just as though no sale had been made. The proceeds of any such sale shall be
applied as provided in Paragraph 5.6 except that the amount paid under
subparagraph SECOND thereof shall be only the matured portion of the
Indebtedness and any proceeds of such sale in excess of those provided for in
subparagraphs FIRST and SECOND (modified as provided above) shall be applied to
installments of principal of and interest on the Note in the inverse order of
maturity. Several sales may be made hereunder without exhausting the right of
sale for any unmatured part of the Indebtedness.
5.10 REMEDIES CUMULATIVE. All remedies herein expressly provided for are
cumulative of any and all other remedies existing at law or in equity and are
cumulative of any and all other remedies provided for in any of the other Loan
Documents, or any part thereof, or otherwise benefiting Noteholder, and Trustee
and Noteholder shall, in addition to the remedies herein provided, be entitled
to avail themselves of all such other remedies as may now or hereafter
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exist at law or in equity for the collection of the Indebtedness and the
enforcement of the covenants herein and the foreclosure of the liens and
security interests evidenced hereby, and resort to any remedy provided for
hereunder or under any such Loan Documents or provided for by law shall not
prevent the concurrent or subsequent employment of any other appropriate
remedy or remedies.
5.11 RESORT TO ANY SECURITY. Noteholder may resort to any security given
by this Mortgage or to any other security now existing or hereafter given to
secure the payment of the Indebtedness, in whole or in part, and in such
portions and in such order as may seem best to Noteholder in its sole and
absolute discretion, and any such action shall not in any way be considered as a
waiver of any of the rights, benefits, liens or security interests evidenced by
this Mortgage.
5.12 WAIVER. To the full extent Grantor may do so, Grantor agrees that
Grantor will not at any time insist upon, plead, claim or take the benefit or
advantage of any law now or hereafter in force pertaining to the rights and
remedies of sureties or providing for any appraisement, valuation, stay,
extension or redemption, and Grantor, for Grantor and Grantor's heirs, devisees,
representatives, successors and assigns, and for any and all persons ever
claiming any interest in the Mortgaged Property, to the extent permitted by law,
hereby waives and releases all rights of redemption, valuation, appraisement,
stay of execution, notice of intention to mature or declare due the whole of the
Indebtedness, notice of election to mature or declare due the whole of the
Indebtedness and all rights to a marshaling of the assets of Grantor, including,
without limitation, the Mortgaged Property, or to a sale in inverse order of
alienation in the event of foreclosure of the liens and security interests
hereby created. Grantor shall not have or assert any right under any statute or
rule of law pertaining to the marshaling of assets, sale in inverse order of
alienation, the exemption of homestead, the administration of estates of
decedents or other matters whatever to defeat, reduce or affect the right of
Noteholder under the terms of this Mortgage to a sale of the Mortgaged Property
for the collection of the Indebtedness without any prior or different resort of
collection, or the right of Noteholder under the terms of this Mortgage to the
payment of such Indebtedness out of the proceeds of sale of the Mortgaged
Property in preference to every other claimant whatever. If any law referred to
in this Paragraph and now in force, of which Grantor or Grantor's heirs,
devisees, representatives, successors and assigns and such other persons
claiming any interest in the Mortgaged Property might take advantage despite
this Paragraph, shall hereafter be repealed or cease to be enforced, such law
shall not thereafter be deemed to preclude the application of this Paragraph.
5.13 DELIVERY OF POSSESSION AFTER FORECLOSURE. In the event there is a
foreclosure sale hereunder and at the time of such sale Grantor or Grantor's
heirs, devisees, representatives, successors or assigns or any other persons
claiming any interest in the Mortgaged Property by, through or under Grantor are
occupying or using the Mortgaged Property, or any part thereof, each and all
shall immediately become the tenant of the purchaser at such sale, which tenancy
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shall be a tenancy from day-to-day, terminable at the will of either landlord or
tenant, at a reasonable rental per day based upon the value of the property
occupied, such rental to be due daily to the purchaser. In the event the tenant
fails to surrender possession of said property upon demand, the purchaser shall
be entitled to institute and maintain an action for forcible entry and detainer
of said property in the appropriate court having jurisdiction.
5.14 TENDER AFTER ACCELERATION. If, following the occurrence of a Default
and the acceleration of the Indebtedness but prior to the foreclosure of this
Mortgage, Grantor shall tender to Noteholder payment of an amount sufficient to
pay the entire Indebtedness, such tender shall be deemed to be a voluntary
prepayment under the Note and, consequently, Grantor shall also pay to
Noteholder any charge or premium required under the Note or any other Loan
Documents to be paid in order to prepay principal and, if such principal payment
is made during any period when prepayment is prohibited by this Mortgage, the
Note or any of the other Loan Documents the applicable charge or premium shall
be the maximum prepayment penalty provided for in the Note; provided, however,
that in the event any amount payable under this Paragraph is deemed interest, in
no event shall such amount when added to the interest otherwise payable on the
Note and the other Indebtedness exceed the maximum interest permitted under
applicable law.
ARTICLE VI
MISCELLANEOUS
6.1 DEFEASANCE. If all of the Indebtedness is paid as the same becomes
due and payable and if all of the covenants, warranties, undertakings and
agreements made in this Mortgage are kept and performed, then and in that event
only, all rights under this Mortgage shall terminate and the Mortgaged Property
shall become wholly clear of the liens, security interests, conveyances and
assignments evidenced hereby, which shall be released by Noteholder in due form
at Grantor's cost.
6.2 SUCCESSOR TRUSTEE. Trustee may resign by an instrument in writing
addressed to Noteholder, or Trustee may be removed at any time with or without
cause by an instrument in writing executed by Noteholder. In case of the death,
resignation, removal or disqualification of Trustee or if for any reason
Noteholder shall deem it desirable to appoint a substitute or successor Trustee
to act instead of the herein named Trustee or any substitute or successor
Trustee, then Noteholder shall have the right and is hereby authorized and
empowered to appoint a successor Trustee, or a substitute Trustee, without
formality other than appointment and designation in writing executed by
Noteholder and the authority hereby conferred shall extend to the appointment of
other successor and substitute Trustees successively until the Indebtedness has
been paid in full or until the Mortgaged Property is sold hereunder. In the
event the Indebtedness is owned by more than one person or entity, the holders
of not less than a majority in the amount of such Indebtedness shall have the
right and authority to make the appointment
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of a successor or substitute Trustee provided for in the preceding sentence.
Such appointment and designation by Noteholder or by the holder or holders of
not less than a majority of the Indebtedness shall be full evidence of the
right and authority to make the same and of all facts therein recited. If
Noteholder is a national banking association or corporation and such
appointment is executed in its behalf by an officer of such national banking
association or corporation, such appointment shall be conclusively presumed
to be executed with authority and shall be valid and sufficient without proof
of any action by the board of directors or any superior officer of the
association or corporation. Upon the making of any such appointment and
designation, all of the estate and title of Trustee in the Mortgaged Property
shall vest in the named successor or substitute Trustee and he shall
thereupon succeed to and shall hold, possess and execute all the rights,
powers, privileges, immunities and duties herein conferred upon Trustee; but
nevertheless, upon the written request of Noteholder or of the successor or
substitute Trustee, Trustee ceasing to act shall execute and deliver an
instrument transferring to such successor or substitute Trustee all of the
estate and title in the Mortgaged Property of Trustee so ceasing to act,
together with all the rights, powers, privileges, immunities and duties
herein conferred upon Trustee, and shall duly assign, transfer and deliver
any of the properties and moneys held by said Trustee hereunder to said
successor or substitute Trustee. All references herein to Trustee shall be
deemed to refer to Trustee (including any successor or substitute appointed
and designated as herein provided) from time to time acting hereunder.
Grantor hereby ratifies and confirms any and all acts which the herein named
Trustee or his successor or successors, substitute or substitutes, in this
trust, shall do lawfully by virtue hereof.
6.3 LIABILITY AND INDEMNIFICATION OF TRUSTEE. Trustee shall not be liable
for any error of judgment or act done by Trustee in good faith, or be otherwise
responsible or accountable under any circumstances whatsoever (including,
without limitation, Trustee's negligence), except for Trustee's gross negligence
or willful misconduct. Trustee shall have the right to rely on any instrument,
document or signature authorizing or supporting any action taken or proposed to
be taken by him hereunder, believed by him in good faith to be genuine. All
moneys received by Trustee shall, until used or applied as herein provided, be
held in trust for the purposes for which they were received, but need not be
segregated in any manner from any other moneys (except to the extent required by
law), and Trustee shall be under no liability for interest on any moneys
received by him hereunder. Grantor will reimburse Trustee for, and indemnify
and save him harmless against, any and all liability and expenses (including,
without limitation, reasonable attorneys' fees) which may be incurred by him in
the performance of his duties hereunder (Trustee shall include the directors,
officers, partners, employees, representatives and agents of Trustee and any
persons or entities owned or controlled by, owning or controlling or under
common control or affiliated with Trustee). The foregoing indemnity shall not
terminate upon release, foreclosure or other termination of this Mortgage.
6.4 WAIVER BY NOTEHOLDER. Noteholder may at any time and from time to
time in writing (a) waive compliance by Grantor with any covenant herein made by
Grantor to the extent and in the manner specified in such writing; (b) consent
to Grantor doing any act which
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hereunder Grantor is prohibited from doing, or consent to Grantor failing to
do any act which hereunder Grantor is required to do, to the extent and in
the manner specified in such writing; (c) release any part of the Mortgaged
Property, or any interest therein, from the lien and security interest of
this Mortgage without the joinder of Trustee; or (d) release any party
liable, either directly or indirectly, for the Indebtedness or for any
covenant herein or in any of the other Loan Documents now or hereafter
securing the payment of the Indebtedness, without impairing or releasing the
liability of any other party. No such act shall in any way impair the rights
of Noteholder hereunder except to the extent specifically agreed to by
Noteholder in such writing.
6.5 ACTIONS BY NOTEHOLDER. The lien, security interest and other security
rights of Noteholder hereunder shall not be impaired by any indulgence,
moratorium or release granted by Noteholder, including but not limited to (a)
any renewal, extension, increase or modification which Noteholder may grant with
respect to any of the Indebtedness; (b) any surrender, compromise, release,
renewal, extension, exchange or substitution which Noteholder may grant in
respect of the Mortgaged Property, or any part thereof or any interest therein;
or (c) any release or indulgence granted to any endorser, guarantor or surety of
any of the Indebtedness. The taking of additional security by Noteholder shall
not release or impair the lien, security interest or other security rights of
Noteholder hereunder or affect the liability of Grantor or of any endorser or
guarantor or other surety or improve the rights of any permitted junior
lienholder in the Mortgaged Property.
6.6 RIGHTS OF NOTEHOLDER. Noteholder may waive any Default without
waiving any other prior or subsequent Default. Noteholder may remedy any
default without waiving the Default remedied. Neither the failure by Noteholder
to exercise, nor the delay by Noteholder in exercising, any right, power or
remedy upon any Default shall be construed as a waiver of such Default or as a
waiver of the right to exercise any such right, power or remedy at a later date.
No single or partial exercise by Noteholder of any right, power or remedy
hereunder shall exhaust the same or shall preclude any other or further exercise
thereof, and every such right, power or remedy hereunder may be exercised at any
time and from time to time. No modification or waiver of any provision hereof
nor consent to any departure by Grantor therefrom shall in any event be
effective unless the same shall be in writing and signed by Noteholder and then
such waiver or consent shall be effective only in the specific instances, for
the purpose for which given and to the extent therein specified. No notice to
nor demand on Grantor in any case shall of itself entitle Grantor to any other
or further notice or demand in similar or other circumstances. Acceptance by
Noteholder of any payment in an amount less than the amount then due on any of
the Indebtedness shall be deemed an acceptance on account only and shall not in
any way affect the existence of a Default hereunder.
6.7 NOTIFICATION OF ACCOUNT DEBTORS. Noteholder may at any time after
Default by Grantor notify the account debtors or obligors of any accounts,
chattel paper, negotiable
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<PAGE>
instruments or other evidences of indebtedness included in the Personal
Property to pay Noteholder directly.
6.8 REPRODUCTION AS FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Mortgage or of any financing statement relating to this
Mortgage shall be sufficient as a financing statement.
6.9 FIXTURE FILING. This Mortgage shall be effective as a financing
statement filed as a fixture filing with respect to all fixtures included within
the Mortgaged Property and is to be filed for record in the real property
records in the Office of the County Clerk for the county or counties where the
Mortgaged Property (including said fixtures) is situated. This Mortgage shall
also be effective as a financing statement covering minerals or the like
(including oil and gas) and accounts subject to Subsection 9.103(e) of the
Uniform Commercial Code as in effect from time to time in the State of Texas
(the "CODE") and is to be filed for record in the real property records of the
county where the Mortgaged Property is situated. The mailing address of Grantor
is set forth on the first page of this Mortgage and the address of Noteholder
from which information concerning the security interest may be obtained is the
address of Noteholder set forth in Paragraph 1.1 of this Mortgage.
6.10 FILING AND RECORDATION. Grantor will cause this Mortgage and all
amendments and supplements thereto and substitutions therefor and all financing
statements and continuation statements relating hereto to be recorded, filed,
re-recorded and refiled in such manner and in such places as Trustee or
Noteholder shall reasonably request, and will pay all such recording, filing,
re-recording and refiling taxes, fees and other charges.
6.11 DEALING WITH SUCCESSOR. In the event the ownership of the Mortgaged
Property or any part thereof becomes vested in a person other than Grantor,
Noteholder may, without notice to Grantor, deal with such successor or
successors in interest with reference to this Mortgage and to the Indebtedness
in the same manner as with Grantor, without in any way vitiating or discharging
Grantor's liability hereunder or for the payment of the Indebtedness; provided,
however, nothing in this Paragraph shall be construed as permitting any transfer
of the Mortgaged Property which would constitute a Default under this Mortgage.
No sale of the Mortgaged Property, no forbearance on the part of Noteholder and
no extension of the time for the payment of the Indebtedness given by Noteholder
shall operate to release, discharge, modify, change or affect, in whole or in
part, the liability of Grantor hereunder or for the payment of the Indebtedness
or the liability of any other person hereunder or for the payment of the
Indebtedness, except as agreed to in writing by Noteholder.
6.12 PLACE OF PAYMENT. The Indebtedness shall be payable at the place
designated in the Note, or if no such designation is made, at the office of
Noteholder at the address indicated in this Mortgage, or at such other place as
Noteholder may designate in writing.
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<PAGE>
6.13 SUBROGATION. To the extent that proceeds of the Note are used to pay
indebtedness secured by any outstanding lien, security interest, charge or prior
encumbrance against the Mortgaged Property, such proceeds have been advanced by
Noteholder at Grantor's request and Noteholder shall be subrogated to any and
all rights, security interests and liens owned or held by any owner or holder
of such outstanding liens, security interests, charges or encumbrances,
irrespective of whether said liens, security interests, charges or encumbrances
are released; provided, however, that the terms and provisions of this Mortgage
shall govern the rights and remedies of Noteholder and shall supersede the
terms, provisions, rights and remedies under and pursuant to the instruments
creating the liens, security interests, charges or encumbrances to which
Noteholder is subrogated hereunder.
6.14 APPLICATION OF INDEBTEDNESS. If any part of the Indebtedness cannot
be lawfully secured by this Mortgage or if any part of the Mortgaged Property
cannot be lawfully subject to the lien and security interest hereof to the full
extent of the Indebtedness, then all payments made shall be applied on said
Indebtedness first in discharge of that portion thereof which is unsecured by
this Mortgage.
6.15 USURY. This Mortgage has been executed under, and shall be construed
and enforced in accordance with, the laws of the State of Texas, except as such
laws are preempted by federal law. This Mortgage and all of the other Loan
Documents are intended to be performed in accordance with, and only to the
extent permitted by, all applicable usury laws. If any provision hereof or of
any of the other Loan Documents or the application thereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the application of such provision to any other person or
circumstance nor the remainder of the instrument in which such provision is
contained shall be affected thereby and shall be enforced to the greatest extent
permitted by Applicable Laws. It is expressly stipulated and agreed to be the
intent of Grantor and Noteholder to at all times comply with the usury and other
applicable laws now or hereafter governing the interest payable on the
Indebtedness. If the applicable law is ever revised, repealed or judicially
interpreted so as to render usurious any amount called for under the Note or
under any of the other Loan Documents, or contracted for, charged, taken,
reserved or received with respect to the Indebtedness, or if Noteholder's
exercise of the option to accelerate the maturity of the Indebtedness, or if any
prepayment of the Indebtedness results in the payment of any interest in excess
of that permitted by law, then it is the express intent of Grantor and
Noteholder that all excess amounts theretofore collected by Noteholder be
credited on the principal balance of the Note (or, if the Note and all of such
other Indebtedness have been paid in full, refunded), and the provisions of the
Note and the other Loan Documents immediately be deemed reformed and the amounts
thereafter collectable hereunder and thereunder reduced, without the necessity
of the execution of any new document, so as to comply with the then Applicable
Laws, but so as to permit the recovery of the fullest amount otherwise called
for hereunder or thereunder. All sums paid, or agreed to be paid, for the use,
forbearance, detention, taking, charging, receiving or reserving on the
Indebtedness shall, to the extent permitted by Applicable Laws, be amortized,
prorated, allocated and spread
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<PAGE>
throughout the full term of such Indebtedness until payment in full so that
the rate or amount of interest on account of such Indebtedness does not
exceed the usury ceiling from time to time in effect and applicable thereto
for so long as debt is outstanding under the Indebtedness. To the extent that
Noteholder is relying on Chapter 303 of the Texas Finance Code, as amended,
to determine the maximum rate ("MAXIMUM RATE") payable on the Indebtedness,
Noteholder will utilize the weekly ceiling from time to time in effect as
provided in such Chapter 303. To the extent federal law permits Noteholder
to contract for, charge or receive a greater amount of interest, Noteholder
will rely on federal law instead of such article, as amended, for the purpose
of determining the Maximum Rate. Additionally, to the extent permitted by
applicable law now in effect, Noteholder may, at its option and from time to
time, implement any other method of computing the Maximum Rate under such
article, as amended, or under other applicable law by giving notice, if
required, to Grantor as provided by applicable law now or hereafter in
effect. In no event shall the provisions of Chapter 346 of the Texas Finance
Code (which regulates certain revolving credit loan accounts and revolving
triparty accounts) apply to the Indebtedness. Notwithstanding anything to
the contrary contained herein or in any of the other Loan Documents, it is
not the intention of Noteholder to accelerate the maturity of any interest
that has not accrued at the time of such acceleration or to collect unearned
interest at the time of such acceleration.
6.16 NOTICE. Any notice, request, demand or other communication required
or permitted hereunder, or under the Note, or under any of the other Loan
Documents (unless otherwise expressly provided therein) shall be given in
writing by (a) personal delivery, (b) expedited delivery service with proof of
delivery, or (c) United States mail, postage prepaid, registered or certified
mail, return receipt requested, sent to the intended addressee at the address
shown in this Mortgage, or to such different address as the addressee shall have
designated by written notice sent in accordance herewith, and shall be deemed to
have been given and received either at the time of personal delivery or, in the
case of delivery service, as of the date of first attempted delivery at the
address and in the manner provided herein, or in the case of mail, upon deposit
in a receptacle of United States mail; provided that, service of a notice
required by Texas Property Code Section 51.002 shall be considered complete when
the requirements of that statute are met.
6.17 SUCCESSORS AND ASSIGNS. The terms, provisions, covenants and
conditions hereof shall be binding upon Grantor, and the successors and assigns
of Grantor including all successors in interest of Grantor in and to all or any
part of the Mortgaged Property, and shall inure to the benefit of Trustee and
Noteholder and their respective heirs, successors, substitutes and assigns and
shall constitute covenants running with the Land. All references in this
Mortgage to Grantor, Trustee or Noteholder shall be deemed to include all such
heirs, devisees, representatives, successors, substitutes and assigns.
6.18 SEVERABILITY. A determination that any provision of this Mortgage is
unenforceable or invalid shall not affect the enforceability or validity of any
other provision and any
Page 39
<PAGE>
determination that the application of any provision of this Mortgage to any
person or circumstance is illegal or unenforceable shall not affect the
enforceability or validity of such provision as it may apply to any other
persons or circumstances.
6.19 GENDER AND NUMBER. Within this Mortgage, words of any gender shall
be held and construed to include any other gender, and words in the singular
number shall be held and construed to include the plural and words in the plural
number shall be held and construed to include the singular, unless in each
instance the context otherwise requires.
6.20 COUNTERPARTS. This Mortgage may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall
constitute one instrument, but in making proof hereof it shall only be necessary
to produce one such counterpart.
6.21 JOINT AND SEVERAL. Where two or more persons or entities have
executed this Mortgage, unless the context clearly indicates otherwise, the term
"GRANTOR" as used in this Mortgage means the grantors hereunder or either or any
of them and the obligations of Grantor hereunder shall be joint and several.
6.22 REPORTING REQUIREMENTS. Grantor agrees to comply with any and all
reporting requirements applicable to the transaction evidenced by the Note and
secured by this Mortgage which are set forth in any law, statute, ordinance,
rule, regulation, order or determination of any governmental authority
(including, but not limited to, The International Investment Survey Act of 1976,
The Agricultural Foreign Investment Disclosure Act of 1978, The Foreign
Investment in Real Property Tax Act of 1980 and the Tax Reform Act of 1984) and
further agrees upon request of Noteholder to furnish Noteholder with evidence of
such compliance.
6.23 HEADINGS. The Paragraph headings contained in this Mortgage are for
convenience only and shall in no way enlarge or limit the scope or meaning of
the various and several Paragraphs hereof.
6.24 CONSENT OF NOTEHOLDER. Except where otherwise provided herein, in
any instance hereunder where the approval, consent or the exercise of judgment
of Noteholder is required, the granting or denial of such approval or consent
and the exercise of such judgment shall be within the sole discretion of
Noteholder, and Noteholder shall not, for any reason or to any extent, be
required to grant such approval or consent or exercise such judgment in any
particular manner, regardless of the reasonableness of either the request or
Noteholder's judgment.
6.25 MODIFICATION OR TERMINATION. The Loan Documents may only be modified
or terminated by a written instrument or instruments executed by the party
against which enforcement of the modification or termination is asserted. Any
alleged modification or termination which is not so documented shall not be
effective as to any party. Grantor agrees
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<PAGE>
that it shall be bound by any modification of this Mortgage or any of the
other Loan Documents made by Noteholder and any subsequent owner of the
Mortgaged Property, with or without notice to or consent of Grantor, and no
such modification shall impair the obligations of Grantor under this Mortgage
or under any other Loan Document.
6.26 NEGATION OF PARTNERSHIP. Nothing contained in the Loan Documents is
intended to create any partnership, joint venture or association between Grantor
and Noteholder, or in any way make Noteholder a co-principal with Grantor with
reference to the Mortgaged Property, and any inferences to the contrary are
hereby expressly negated.
6.27 ENTIRE AGREEMENT. The Loan Documents constitute the entire
understanding and agreement between Grantor and Noteholder with respect to the
transactions arising in connection with the Indebtedness and supersede all prior
written or oral understandings and agreements between Grantor and Noteholder
with respect thereto. Grantor hereby acknowledges that, except as incorporated
in writing in the Loan Documents, there are not, and were not, and no persons
are or were authorized by Noteholder to make, any representations,
understandings, stipulations, agreements or promises, oral or written, with
respect to the transaction which is the subject of the Loan Documents.
EXECUTED as of June 1, 1998.
FIRST COMMAND FINANCIAL CORPORATION
By: /s/ Lamar C Smith
-----------------------------------------
Name: Lamar C. Smith
-----------------------------------
Title: Chief Executive Officer
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<PAGE>
STATE OF TEXAS Section
Section
COUNTY OF TARRANT Section
This instrument was acknowledged before me on June 11, 1998, by
Lamar C. Smith, as ___________________________________ of First Command
Financial Corporation, a Texas corporation, on behalf of said corporation.
[S E A L]
/s/ Sandra T. Allen
-----------------------------------
Notary Public, State of Texas
My Commission Expires:
3-26-01 SANDRA T. ALLEN
- ------------ -----------------------------------
Printed Name of Notary
Page 42
<PAGE>
EXHIBIT A
BEING a 43750 sqaure foot tract of land situated in the B.B.B. & C.R.R.
Survey, Abstract Number 217, and the J. Howard Survey, Abstract Number 693,
City of Fort Worth, Tarrant County, Texas, being part of Lot 2-R, Block C of
OVERTON WEST ADDITION described by plat recorded in Volume 388-173, Page 10,
Plat Records of Tarrant County, Texas (PRTCT), and being part of a called
17.000 acre tract of land described by deed as "TRACT FOUR" to Cassco Land
Co., Inc., recorded in Volume 6494, Page 389, Deed Records of Tarrant County,
Texas (DRTCT), said 43750 square foot tract of land being more particularly
described by metes and bounds as follows:
Commencing at a 1/2-inch iron rod found at the intersection of the north
right-of-way line of Overton Plaza (an 80-foot right-of-way) and the west
right-of-way line of South Hulen Street (a 120-foot right-of-way);
THENCE along said west right-of-way line the following:
North 00DEG.09'00" East, a distance of 281.00 feet to a 1/2-inch iron
rod found for the beginning of a curve to the left having a central
angle of 09DEG.31'21" and a radius of 1287.60 feet;
Along said curve to the left an arc distance of 214.00 feet and a chord
bearing and distance of North 04DEG.36'41" West 213.75 feet to a
1/2-inch iron rod found for the southeast corner of Lot 1, Block C of
OVERTON WEST ADDITION described by plat recorded in Volume 388-74, Page
2, PRTCT;
THENCE South 84DEG.46'00" West, a distance of 327.42 feet along the south
line of said Lot 1 to a point;
THENCE South 05DEG.14'00" East, a distance of 59.71 feet to a point for
corner, said point being the POINT OF BEGINNING;
THENCE South 04DEG.23'44" East, a distance of 125.00 feet to a point for
corner;
THENCE South 85DEG.36'16" West, a distance of 350.00 feet to a point for
corner;
THENCE North 04DEG.23'44" West, a distance of 125.00 feet to a point for
corner;
THENCE North 85DEG.36'16" East, a distance of 350.00 feet to the POINT OF
BEGINNING.
CONTAINING a computed area of 43750 square foot feet of land.
<PAGE>
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT
(NON-UNIFORM UCC-1)
THIS STATEMENT IS PRESENTED
TO A FILING OFFICER FOR FILING
PURSUANT TO THE UNIFORM
COMMERCIAL CODE
1. DEBTOR: FIRST COMMAND FINANCIAL CORPORATION
DEBTOR'S MAILING ADDRESS: 4100 South Hulen
Fort Worth, Texas 76109
2. SECURED PARTY: INDEPENDENT RESEARCH AGENCY FOR LIFE
INSURANCE, INC.
SECURED PARTY'S MAILING ADDRESS: P. O. Box 2387
Fort Worth, Texas 76113
3. THIS FINANCING STATEMENT COVERS THE FOLLOWING TYPES OF
PROPERTY:
All of the following whether now owned or hereafter acquired by Debtor:
(a) all buildings and other improvements (the "IMPROVEMENTS") now or
hereafter attached to or placed, erected, constructed or developed on
the real estate (the "LAND") situated in Tarrant County, Texas,
described in Exhibit A attached hereto and made a part hereof; (b) all
materials, equipment, fixtures, furnishings, inventory and articles of
personal property (the "PERSONAL PROPERTY") whatsoever now or hereafter
delivered to, attached to, installed in, or used in or about the
Improvements or which are necessary or useful for the complete and
comfortable use and occupancy of the Improvements for the purposes for
which they were or are to be attached, placed, erected, constructed or
developed, or which Personal Property is or may be used in the
development of the Improvements, and all renewals of or replacements or
substitutions for any of the foregoing whether or not the same shall be
attached to the Land or Improvements; (c) all building materials and
equipment now or hereafter delivered to and intended to be installed in
or on the Land or Improvements; (d) all security deposits and advance
rentals under any lease agreements now or at any time hereafter arising
from or by virtue of any transactions related to the Land, Improvements
or the Personal Property and held by or for the benefit of Debtor; (e)
all monetary deposits which Debtor has given to any public or private
utility with respect to utility services furnished to the Land or
Improvements; (f) all rents, issues, profits, revenues, royalties,
bonuses or other benefits of the Land, the Improvements or the Personal
Property, including, without limitation, cash or securities deposited
pursuant to leases of all or any part of the Land, Improvements or
Personal Property; (g) all proceeds (including premium refunds) of each
policy of insurance relating to the Land, Improvements or Personal
Property; (h) all proceeds from the taking of the Land, Improvements,
Personal Property or any part thereof or any
<PAGE>
interest or right or estate appurtenant thereto by eminent domain or by
purchase in lieu thereof; (i) all Debtor's rights (but not its
obligations) under any contracts related to the Land or Improvements;
(j) all plans, specifications, maps, surveys, reports, architectural,
engineering and construction contracts, books of account, insurance
policies and other documents, of whatever kind or character, relating to
the use, construction upon, occupancy, leasing, sale or operation of the
Land or Improvements; (k) all easements and rights of way used in
connection with the Land or Improvements or as a means of ingress to or
egress from said Land or Improvements; (l) all right, title and interest
of Debtor in and to all streets, roads, ways, alleys, public places,
easements and rights-of-way, existing or proposed, public or private,
adjacent to or used in connection with, belonging or pertaining to the
Land or any part thereof; and (m) all rights, estates, powers,
privileges and interests of whatever kind or character appurtenant or
incident to the foregoing. If the estate of Debtor in any of the
above-described property is a leasehold estate ("LEASEHOLD ESTATE"),
this financing statement shall cover all additional title, estate,
interest and other rights that may hereafter be acquired by Debtor in
the property demised under the Leasehold Estate.
4. Products of collateral are also covered.
5. SIGNATURE OF DEBTOR:
FIRST COMMAND FINANCIAL CORPORATION
By: /s/ Lamar C. Smith
--------------------------------------
Name: Lamar C. Smith
------------------------------
Title: Chief Executive Officer
------------------------------
6. RETURN COPY TO Independent Research Agency for Life Insurance, Inc.
P. O. Box 2387
Fort Worth, Texas 76113
Attn: Chief Financial Officer
<PAGE>
EXHIBIT A
BEING a 43750 sqaure foot tract of land situated in the B.B.B. & C.R.R.
Survey, Abstract Number 217, and the J. Howard Survey, Abstract Number 693,
City of Fort Worth, Tarrant County, Texas, being part of Lot 2-R, Block C of
OVERTON WEST ADDITION described by plat recorded in Volume 388-173, Page 10,
Plat Records of Tarrant County, Texas (PRTCT), and being part of a called
17.000 acre tract of land described by deed as "TRACT FOUR" to Cassco Land
Co., Inc., recorded in Volume 6494, Page 389, Deed Records of Tarrant County,
Texas (DRTCT), said 43750 square foot tract of land being more particularly
described by metes and bounds as follows:
Commencing at a 1/2-inch iron rod found at the intersection of the north
right-of-way line of Overton Plaza (an 80-foot right-of-way) and the west
right-of-way line of South Hulen Street (a 120-foot right-of-way);
THENCE along said west right-of-way line the following:
North 00DEG.09'00" East, a distance of 281.00 feet to a 1/2-inch iron
rod found for the beginning of a curve to the left having a central
angle of 09DEG.31'21" and a radius of 1287.60 feet;
Along said curve to the left an arc distance of 214.00 feet and a chord
bearing and distance of North 04DEG.36'41" West 213.75 feet to a
1/2-inch iron rod found for the southeast corner of Lot 1, Block C of
OVERTON WEST ADDITION described by plat recorded in Volume 388-74, Page
2, PRTCT;
THENCE South 84DEG.46'00" West, a distance of 327.42 feet along the south
line of said Lot 1 to a point;
THENCE South 05DEG.14'00" East, a distance of 59.71 feet to a point for
corner, said point being the POINT OF BEGINNING;
THENCE South 04DEG.23'44" East, a distance of 125.00 feet to a point for
corner;
THENCE South 85DEG.36'16" West, a distance of 350.00 feet to a point for
corner;
THENCE North 04DEG.23'44" West, a distance of 125.00 feet to a point for
corner;
THENCE North 85DEG.36'16" East, a distance of 350.00 feet to the POINT OF
BEGINNING.
CONTAINING a computed area of 43750 square foot feet of land.
