SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 AND 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996 Commission File No. 0-16867
UNITED TRUST, INC.
(Exact Name of Registrant as specified in its Charter)
Illinois 37-1172848
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 5147, Springfield, Illinois 62705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (217) 786-4300
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date.
Shares outstanding at July 31, 1996:
18,700,935
Common stock, no par value per share
<PAGE>
UNITED TRUST, INC.
(the "Company")
INDEX
Part I: Financial Information
Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the six months
and three months ended June 30, 1996 and 1995 . . . . . . . . . 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995. . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 12
Part II: Other Information
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . 20
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED TRUST, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
June 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Investments:
Fixed maturities at amortized cost
(market $192,654,841 and $197,006,257) $ 193,188,725 $ 191,074,220
Investments held for sale:
Fixed maturities, at market
(cost $2,775,587 and $3,224,039) 2,670,087 3,226,175
Equity securities, at market
(cost $2,086,159 and $2,181,783) 1,828,003 1,946,481
Mortgage loans on real estate at
amortized cost 12,925,481 13,891,762
Investment real estate, at cost, net of
accumulated depreciation 11,326,903 11,978,575
Real estate acquired in satisfaction of debt,
at cost net of accumulated depreciation 3,846,947 5,332,413
Policy loans 17,022,777 16,941,359
Short term investments 325,000 425,000
243,133,923 244,815,985
Cash and cash equivalents 16,461,424 12,528,025
Investment in affiliates 5,323,849 5,169,596
Indebtedness of affiliates, net 90,976 87,869
Accrued investment income 3,699,149 3,671,842
Reinsurance receivables:
Future policy benefits 13,752,819 13,540,413
Unpaid policy claims and benefits 257,160 733,524
Paid policy claims and benefits 345,787 127,964
Other accounts and notes receivable 1,139,054 1,246,367
Cost of insurance acquired 46,808,869 49,331,201
Deferred policy acquisition costs 11,678,042 11,436,728
Value of agency force acquired 6,324,513 6,485,733
Costs in excess of net assets purchased,
less accumulated amortization 5,579,492 5,661,462
Other assets 1,764,664 1,555,986
Total assets $ 356,359,721 $ 356,392,695
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits $ 245,407,402 $ 243,044,963
Policy claims and benefits payable 1,981,696 3,110,378
Other policyholder funds 2,994,836 3,004,655
Dividend and endowment accumulations 13,361,740 12,636,949
Income taxes payable:
Current 54,066 215,944
Deferred 17,127,527 17,762,408
Notes payable 20,094,432 21,447,428
Other liabilities 4,749,126 5,009,637
Total liabilities 305,770,825 306,232,362
Minority interests in consolidated subsidiaries 31,317,215 31,138,077
Shareholders' equity:
Common stock - no par value, stated value $.02
per share. Authorized 35,000,000 shares -
18,700,935 and 18,675,935 shares issued
after deducting treasury shares of 423,840
and 423,840 374,019 373,519
Additional paid-in capital 18,301,972 18,288,411
Unrealized depreciation of investments
held for sale (79,910) (1,499)
Retained earnings 675,600 361,825
Total shareholders' equity 19,271,681 19,022,256
Total liabilities and
shareholders' equity $ 356,359,721 $ 356,392,695
</TABLE>
See accompanying notes.
3
UNITED TRUST, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Premium income $ 8,749,389 $ 9,294,974 $17,677,871 $19,117,662
Reinsurance premium (1,072,667) (1,314,929) (2,363,646) (2,434,285)
Other considerations 876,639 833,667 1,762,138 1,627,323
Other considerations
paid to reinsurers (39,186) (47,908) (80,677) (99,674)
Net investment income 3,890,127 3,843,518 7,863,476 7,693,679
Net realized investment
gains (losses) (270,916) (61,239) (282,947) 7,268
Other income 322,489 385,287 749,800 715,868
12,455,875 12,933,370 25,326,015 26,627,841
Benefits and other expenses:
Benefits, claims and settlement expenses:
Life 6,111,321 8,933,564 11,221,641 15,671,639
Reinsurance benefits
and claims (536,079) (1,438,270) (776,044) (1,654,816)
Annuity 442,054 522,337 888,947 951,157
Dividends to
policyholders 1,066,507 1,096,302 2,278,019 2,243,783
Commissions and amortization
of deferred policy
acquisition costs 924,174 1,960,458 2,086,024 3,516,984
Amortization of cost of
insurance acquired 1,245,318 675,860 2,522,332 1,345,897
Amortization of agency
force 80,610 168,902 161,220 338,557
Operating expenses 2,851,752 2,492,689 6,299,081 5,696,906
Interest expense 407,416 460,889 853,608 953,061
12,593,073 14,872,731 25,534,828 29,063,168
Income (loss) before income
taxes, minority interest
and equity in earnings
of investees (137,198) (1,939,361) (208,813) (2,435,327)
Credit for income taxes 95,563 324,218 672,660 1,026,169
Minority interest in (income)
loss of consolidated
subsidiaries 35,486 1,082,694 (235,657) 1,014,968
Equity in earnings (loss)
of investees 15,187 (157,153) 85,585 (116,368)
Net income (loss) $ 9,038 $ (689,602) $ 313,775 $ (510,558)
Net income (loss)
per common share 0.00 (0.04) $ 0.02 $ (0.03)
Average common
shares outstanding 18,700,935 18,685,935 18,689,195 18,680,963
</TABLE>
See accompanying notes.
4
<PAGE>
UNITED TRUST, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
June 30, June 30,
1996 1995
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income (loss) $ 313,775 $ (510,558)
Adjustments to reconcile net income (loss) to net
cash used in operating activities
net of changes in assets and liabilities resulting
from the sales and purchases of subsidiaries:
Charges for mortality and administration of
universal life and annuity products (5,133,997) (4,891,143)
Change in policy liabilities and accruals (505,843) 4,269,592
Change in reinsurance receivables 46,135 (1,080,983)
Change in indebtedness of affiliates, net 3,107 (6,464)
Minority interest 235,657 (1,014,968)
Equity in earnings of investees (85,585) 116,368
Change in accrued investment income (27,307) (81,612)
Depreciation 263,946 286,136
Change in income taxes payable (796,759) (1,058,169)
Net realized investment (gains)losses 282,947 (7,268)
Policy acquisition costs deferred (977,000) (1,363,000)
Amortization of deferred policy
acquisition costs 1,218,314 1,507,126
Amortization of cost of insurance acquired 2,522,332 1,345,897
Amortization of value of agency force 161,220 338,557
Amortization of costs in excess of net
assets purchased 81,970 138,047
Change in other assets and liabilities, net (505,656) (1,959,773)
Net cash used in operating activities (2,902,744) (3,972,215)
Cash flows from investing activities:
Proceeds from investments sold and matured:
Fixed maturities held for sale matured 500,583 101,849
Fixed maturities sold 0 0
Fixed maturities matured 15,982,534 5,163,959
Equity securities 8,990 104,260
Mortgage loans 1,086,205 1,371,424
Real estate 2,225,127 485,169
Policy loans 2,177,694 2,312,670
Short term 400,000 200,000
Total proceeds from investments sold and matured 22,381,133 9,739,331
Cost of investments acquired:
Fixed maturities held for sale 0 0
Fixed maturities (18,713,187) (8,244,414)
Fixed maturities matured 0 (1,000,000)
Mortgage loans (119,924) (332,454)
Real estate (385,147) (531,435)
Policy loans (2,262,305) (2,148,796)
Short term (300,000) (100,000)
Total cost of investments acquired (21,780,563) (12,357,099)
Net cash provided by (used in) investing activities 600,570 (2,617,768)
Cash flows from financing activities:
Policyholder contract deposits 12,108,411 12,999,801
Policyholder contract withdrawals (8,023,342) (8,719,786)
Interest credited to account balances 3,503,500 3,229,599
Proceeds from issuance of notes payable 400,000 0
Payments of principal on notes payable (1,752,996) (602,908)
Net cash provided by financing activities 6,235,573 6,906,706
Net increase in cash and cash equivalents 3,933,399 316,723
Cash and cash equivalents at beginning of period 12,528,025 11,697,067
Cash and cash equivalents at end of period $ 16,461,424 $ 12,013,790
</TABLE>
See accompanying notes
5
<PAGE>
UNITED TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements have been
prepared by United Trust, Inc. ("Trust") and its consolidated
subsidiaries (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Although
the Company believes the disclosures are adequate to make the
information presented not be misleading, it is suggested that
these consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes thereto
presented in the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission for the year ended
December 31, 1995.
The information furnished reflects, in the opinion of the
Company, all adjustments (which include only normal and recurring
accruals) necessary for a fair presentation of the results of
operations for the periods presented. Operating results for
interim periods are not necessarily indicative of operating
results to be expected for the year or of the Company's future
financial condition.
At June 30, 1996, the parent, significant subsidiaries and
affiliates of United Trust, Inc. were as depicted on the
following organizational chart.
6
<PAGE>
ORGANIZATIONAL CHART
AS OF JUNE 30, 1996
United Trust, Inc. ("UTI") is the ultimate controlling company. UTI owns 53%
of United Trust Group ("UTG") and 30% of United Income, Inc. ("UII"). UII
owns 47% of UTG. UTG owns 72% of First Commonwealth Corporation ("FCC"). FCC
owns 100% of Universal Guaranty Life Insurance Company ("UG"). UG owns 100%
of United Security Assurance Company ("USA"). USA owns 84% of Appalachian
Life Insurance Company ("APPL") and APPL owns 100% of Abraham Lincoln
Insurance Company ("ABE").
7
<PAGE>
2. FIXED MATURITIES
As of June 30, 1996, fixed maturities and fixed maturities held
for sale represented 81% of total invested assets. As prescribed
by the various state insurance department statutes and
regulations, the insurance companies' investment portfolio is
required to be invested primarily in investment grade securities
to provide ample protection for policyholders. The liabilities
of the insurance companies are predominantly long term in nature
and therefore, the companies invest primarily in long term fixed
maturity investments. The Company has analyzed its fixed
maturities portfolio and reclassified those securities expected
to be sold prior to maturity as investments held for sale. The
investments held for sale are carried at market. Management has
the intent and ability to hold its fixed maturity portfolio to
maturity and as such carries these securities at amortized cost.
As of June 30, 1996, the carrying value of fixed maturity
securities in default as to principal or interest was immaterial
in the context of consolidated assets or shareholders' equity.
3. MORTGAGE LOANS AND REAL ESTATE
The Company holds approximately $12,925,000 in mortgage loans and
$15,174,000 in real estate holdings which represent 5% and 6% of
total invested assets of the Company, respectively. All mortgage
loans held by the Company are first position loans. The Company
has $948,000 in mortgage loans net of a $10,000 reserve
allowance, which are in default or in the process of foreclosure
representing approximately 7% of the total portfolio.
Letters are sent to each mortgagee when the loan becomes 30 days
or more delinquent. Loans 90 days or more delinquent are placed
on a non-performing status and classified as delinquent loans.
Reserves for loan losses on delinquent loans are established
based on management's analysis of the loan balances and what is
believed to be the realizable value of the property should
foreclosure take place. Loans are placed on a non-accrual status
based on a quarterly case by case analysis of the likelihood of
repayment.
The following tables show the distribution of mortgage loans and
real estate by type.
MORTGAGE LOANS AMOUNT % OF TOTAL
FHA/VA $ 739,000 6%
Commercial $ 3,178,133 24%
Residential $ 9,008,348 70%
REAL ESTATE AMOUNT % OF TOTAL
Home Office $ 2,961,920 20%
Commercial $ 2,508,856 17%
Residential development $ 5,856,127 38%
Foreclosed real estate $ 3,846,947 25%
4. NOTES PAYABLE
At June 30, 1996, the Company has $20,094,000 in notes payable.
Notes payable is comprised of the following components:
Senior debt $ 8,900,000
Subordinated 10 yr. notes 6,194,000
Subordinated 20 yr. notes 3,830,000
Other notes payable 1,150,000
Encumbrance on real estate 20,000
$ 20,094,000
8
<PAGE>
On May 8, 1996, FCC refinanced its senior debt of $8,900,000.
The refinancing was completed through First of America Bank -
Illinois NA and is subject to a credit agreement. The refinanced
debt bears interest at a rate equal to the "base rate" plus nine-
sixteenths of one percent. The Base rate is defined as the
floating daily, variable rate of interest determined and
announced by First of America Bank from time to time as its "base
lending rate." The base rate at issuance of the loan was 8.25%,
and has remained unchanged through August 8, 1996. Interest is
paid quarterly. Principal payments of $1,000,000 are due in May
of each year beginning in 1997, with a final payment due May 8,
2005.
The credit agreement contains certain covenants with which the
Company must comply. These covenants contain provisions common
to a loan of this type and include such items as; a minimum
consolidated net worth of FCC to be no less than 400% of the
outstanding balance of the debt; Statutory capital and surplus of
Universal Guaranty Life Insurance Company be maintained at no
less than $6,500,000; an earnings covenant requiring the sum of
the pre-tax earnings of Universal Guaranty Life Insurance Company
and its subsidiaries (based on Statutory Accounting Practices)
and the after-tax earnings plus non-cash charges of FCC (based on
parent only GAAP practices) shall not be less than two hundred
percent (200%) of the Company's interest expense on all of its
debt service. The Company is in compliance with all of the
covenants of the agreement and does not foresee any problem in
maintaining compliance in the future.
United Income, Inc. and First Fidelity Mortgage Company through
an assignment from United Trust, Inc. owned a participating
interest of $300,000 and $700,000 respectively of the previous
senior debt. At the date of refinance, these obligations were
converted from participations of senior debt to promissory notes.
These notes bear interest at the rate of 1% above the variable
per annum rate of interest most recently published by the Wall
Street Journal as the prime rate. Interest is payable quarterly
with principal due at maturity on May 8, 2006.
In February 1996, FCC borrowed $150,000 from an affiliate to
provide additional cash for liquidity. The note bears interest
at the rate of 1% over prime as published in the Wall Street
Journal, with interest payments due quarterly and principal due
upon maturity of the note on June 1, 1999.
The subordinated debt was incurred June 16, 1992 as a part of the
acquisition of Commonwealth Industries Corporation. The 10 year
notes bear interest at the rate of 7 1/2% per annum, payable
semi-annually beginning December 16, 1992. These notes provide
for principal payments equal to 1/20th of the principal balance
due with each interest installment beginning June 16, 1997, with
a final payment due June 16, 2002. The 20 year notes bear
interest at the rate of 8 1/2% per annum, payable semi-annually
beginning December 16, 1992, with a lump sum principal payment
due June 16, 2012.
Scheduled principal reductions on the Company's debt for the next
five years are as follows:
Year Amount
1996 $ 0
1997 1,537,000
1998 1,537,000
1999 1,687,000
2000 1,537,000
5. COMMITMENTS AND CONTINGENCIES
During the third quarter of 1994, UG became aware that certain
new insurance business was being solicited by certain agents and
issued to individuals considered to be not insurable by Company
standards. These policies had a face amount of $22,700,000 and
represent 1/2 of 1% of the insurance in force. Management's
analysis indicates that the expected death claims on the business
in force to be adequately covered by the mortality assumptions
inherent in the
9
<PAGE>
calculation of statutory reserves. Nevertheless, management has
determined it is in the best interest of the Company to repurchase
as many of the policies as possible. As of June 30, 1996, there
remained approximately $5,700,000 of the original face amount
which have not been settled. The Company will continue its
efforts to repurchase as many of the policies as possible and
regularly apprise the Ohio Department of Insurance regarding
the status of this situation. Through June 30, 1996, the Company
spent a total of $3,358,000 for the repurchase of these policies
and for the defense of related litigation.
The Company is currently involved in the following litigation:
Freeman v. Universal Guaranty Life Insurance Company
(U.S.D.C.,N.D.Ga, 1994, 1-94-CV-2593-RCF); Armstrong v.
Universal Guaranty Life Insurance Company and James Melville
(Circuit Court of Davidson County, Tenn., 1994, 94C3222);
Armstrong v. Universal Guaranty Life Insurance Company and James
Melville (Circuit Court of Davidson County, Tenn., 1994,
94C3720); Ridings v. Universal Guaranty Life Insurance Company
and James Melville (Circuit Court of Davidson County, Tenn.,
1994, 94C3221).
Four general agents of UG filed independent suits against UG in
the latter part of September or early October 1994. Kathy
Armstrong (3-94-1085), another general agent, filed her suit on
November 16, 1994. All of the suits allege that the plaintiff
was libeled by statements made in a letter sent by UG. The
letter was sent to persons who had been issued life insurance
policies by UG as the result of policy applications submitted by
the five agents. Mr. Melville is a defendant in some of the
suits because he signed the letter as president of UG.
In addition to the defamation count, Mr. Freeman alleges that UG
also breached a contract by failing to pay his commissions for
policies issued. Mr. Freeman claims unpaid commissions of
$65,000. In the libel claim, Mr. Freeman claims compensatory
damages of over $5,000,000, punitive damages of over $3,000,000,
costs, and litigation expenses. The other plaintiffs request the
award of unspecified compensatory damages and punitive (or
special) damages as well as costs and attorney's fees. UG has
filed Answers to all of these suits asserting various defenses
and, where appropriate, counterclaims. The Freeman suit went to
trial in April 1996. The jury awarded Mr. Freeman $365,000 in
general damages and $700,000 in punitive damages. In May 1996,
UG filed an appeal. The Company believes the ultimate settlement
of these lawsuits will not have a material impact on the
financial statements and intends to defend these suits
vigorously.
Jeffrey Ploskonka, Keith Bohn and Paul Phinney v. Universal
Guaranty Life Insurance Company (Circuit Court of the Seventh
Judicial Circuit Sangamon County, Illinois Case No.: 95-L-0213)
On March 9, 1995 a lawsuit was filed against Universal Guaranty
Life Insurance Company on behalf of three insureds and a
potential class of other insureds. The Plaintiffs allege that UG
violated the insurance contract in attempting to cancel life
insurance contracts. Additionally, the Plaintiffs assert
violations of Illinois law alleging vexations and unreasonable
insurance practices, breach of duty of good faith and fair
dealing, and that Illinois consumer fraud laws have been
violated. The Plaintiffs seek unspecified compensatory damages,
injunctive relief, attorneys' fees, statutory damages in an
amount up to $25,000.00, punitive damages of $1,000,000.00, and
other equitable relief. UG filed an Answer to this lawsuit in
May 1995, asserting various defenses and reserving the right to
assert counterclaims. UG has also filed motions to dismiss
certain allegations and claims made in the lawsuit. UG believes
it has no liability to any of the plaintiffs, or other potential
class members, and intends to defend the lawsuit vigorously. In
June 1995, the court conditionally certified a class of non-
settling insureds. This suit is currently in the discovery
stage, with a trial date set for late October.
The Company and its subsidiaries are named as defendants in a
number of legal actions arising primarily from claims made under
insurance policies. Those actions have been considered in
establishing the Company's liabilities. Management and its legal
counsel are of the opinion that the settlement of those actions
will not have a material adverse effect on the Company's
financial position or results of operations.
10
<PAGE>
The number of insurance companies that are under regulatory
supervision has increased, and that increase is expected to
result in an increase in assessments by state guarantee funds to
cover losses to policyholders of insolvent or rehabilitated
companies. Those mandatory assessments may be partially
recovered through a reduction in future premium taxes in some
states. For all assessment notifications received, the Company
has accrued for those assessments.
11
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze the
Company's financial condition, changes in financial condition and
results of operations which reflect the performance of the
Company. The information in the consolidated financial
statements and related notes should be read in conjunction with
this section.
LIQUIDITY AND CAPITAL RESOURCES:
The Company and its consolidated subsidiaries have three
principal needs for cash - the insurance company's contractual
obligations to policyholders, the payment of operating expenses
and servicing of its long-term debt. Cash and cash equivalents
as a percentage of total assets were 4.6% and 3.5% as of June 30,
1996, and December 31, 1995, respectively. Fixed maturities as a
percentage of total invested assets were 79% and 78% as of June
30, 1996 and December 31, 1995, respectively. Fixed maturities
increased slightly in 1996 compared to 1995.
The Company holds approximately $325,000 in short term
investments with fixed maturities of $7,222,000 maturing in one
year and $95,648,000 maturing in two to five years, which in the
opinion of management is sufficient to meet the Company's cash
requirements.
Consolidated operating activities of the Company produced
negative cash flows of ($2,903,000) and $(3,972,000) in second
quarter of 1996 and 1995, respectively. The net cash used in
operating activities plus interest credited to account balances
and net policyholder contract deposits after the payment of
policyholder withdrawals, equalled $4,686,000 in second quarter
of 1996 and $3,537,000 in second quarter of 1995. Management
believes this measurement of cash flows more accurately indicates
the performance of the Company's insurance operations, since
reporting regulations require cash inflows and outflows from
universal life insurance products to be shown as financing
activities.
Cash provided by (used in) investing activities was $601,000 and
($2,618,000) for second quarter of 1996 and 1995, respectively.
The most significant aspect of investing activities is the fixed
maturity transactions. Fixed maturities account for 86% and 67%
of the total cost of investments acquired in second quarter of
1996 and 1995, respectively. The Company has not directed its
investable funds to so-called "junk bonds" or derivative
investments. Real estate sold increased significantly when
comparing second quarter of 1996 to second quarter of 1995.
Approximately $1,500,000 of real estate sold during 1996, is the
result of two properties that were originally acquired by
satisfaction of debt. The sale of the two properties produced a
net realized loss of $200,000. Management believes investing the
proceeds received from the sale of the two properties will
improve future investment returns.
Net cash provided by financing activities was $6,236,000 and
$6,907,000 for second quarter of 1996 and 1995, respectively.
Policyholder contract deposits decreased 7% in second quarter of
1996 compared to second quarter of 1995. The decrease between
1996 and 1995 is due to the decline in first year premium
production. Policyholder contract withdrawals has decreased 8%
in second quarter of 1996 compared to second quarter of 1995.
The decrease in 1996 is not attributable to any one significant
event. Factors that contribute to the decrease are the
fluctuation of interest rates, competition and other economic
factors. The Company's current marketing strategy and product
portfolio is directly structured to conserve the existing
customer base and at the same time increase the customer base
through new policy production.
Interest credited to account balances increased 8% in second
quarter of 1996 compared to second quarter of 1995. The increase
in 1996 is due to the larger account balances from continued
sales of UL products. Insurance products that are marketed
currently are crediting between 5.5% and 6% interest. On May 1,
12
<PAGE>
1996, the Company reduced the crediting rate from 6% to 5.5% on
the "UL90A" product as well as other less significant plans. The
reduction in interest rates was due to the Company's analysis of
interest spreads between investment portfolio yield and product
crediting rates. It takes approximately one year to fully
realize a change in credited rates since a change becomes
effective on each policy's next anniversary.
The payment of cash dividends to shareholders is not legally
restricted. At June 30, 1996, substantially all of the
consolidated shareholders equity represents net assets of its
subsidiaries. UTI does not have significant day to day
operations of its own. Cash requirements of UTI primarily relate
to the payment of expenses related to maintaining the Company as
a corporation in good standing with the various regulatory bodies
which govern corporations in the jurisdictions where the Company
does business. UTI is able to meet its cash needs through its
management agreement with UII and its income received on invested
assets and cash balances. Insurance company dividend payments
are regulated by the state insurance department where the company
is domiciled. UG's dividend limitations are described below.
Ohio domiciled insurance companies require five days prior
notification to the insurance commissioner for the payment of an
ordinary dividend. Ordinary dividends are defined as the greater
of: a) prior year statutory earnings or b) 10% of statutory
capital and surplus. For the year ended December 31, 1995, UG
had a statutory gain from operations of $3,197,000. At December
31, 1995, UG's statutory capital and surplus amounted to
$7,274,000. Extraordinary dividends (amounts in excess of
ordinary dividend limitations) require prior approval of the
insurance commissioner and are not restricted to a specific
calculation.
On May 8, 1996, FCC refinanced its senior debt of $8,900,000.
The refinancing was completed through First of America Bank -
Illinois NA. The Company's senior debt bears interest at a rate
equal to the "base rate" plus nine-sixteenths of one percent.
The Base rate is defined as the floating daily, variable rate of
interest determined and announced by First of America Bank from
time to time as its "base lending rate." Interest is paid
quarterly. Principal payments of $1,000,000 are due in May of
each year beginning in 1997, with a final payment due May 8,
2005.
Management believes the overall sources of liquidity available
will be sufficient to satisfy its financial obligations.
RESULTS OF OPERATIONS
YEAR-TO-DATE 1996 COMPARED TO 1995:
(a) REVENUES
Total revenue decreased 5% when comparing the first six months of
1996 to the first six months of 1995.
Premium income, net of reinsurance premium, decreased 8% when
comparing the first six months of 1996 to the same period one
year ago. The decrease is primarily attributed to the reduction
in new business production and the change in products marketed.
In 1995, the Company has streamlined the product portfolio, as
well as restructured the marketing force. The decrease in first
year premium production is directly related to the Company's
change in distribution systems. The Company has changed its
focus from primarily a broker agency distribution system to a
captive agent system. Business written by the broker agency
force in recent years did not meet Company expectations. With
the change in focus of distribution systems, most of the broker
agents were terminated.
The change in marketing strategy from traditional life insurance
products to universal life insurance products had a significant
impact on new business production. As a result of the change in
marketing strategy the agency force went through a restructure
and retraining process. Cash collected from the universal life
and interest sensitive products contribute only the risk charge
13
<PAGE>
to premium income; however, traditional insurance products
contribute all monies received to premium income. One factor
that has had a positive impact on premium income is the
improvement of persistency. Persistency is a measure of
insurance in force retained in relation to the previous year.
Other considerations, net of reinsurance, increased 10% compared
to one year ago. Other considerations consists of administrative
charges on universal life and interest sensitive life insurance
products. The insurance in force relating to these types of
products continues to increase as marketing efforts are focused
on universal life insurance products.
Net investment income increased 2% when comparing the first six
months of 1996 to the first six months of 1995. The Company's
investments are generally managed to match related insurance and
policyholder liabilities. The Company, in conjunction with the
decrease in average yield of the Company's fixed maturity
portfolio, has decreased the average crediting rate for the
insurance and investment products. The comparison of investment
return with insurance or investment product crediting rates
establishes an interest spread. The minimum interest spread
between earned and credited rates is 1% on the "Century 2000"
universal life insurance product, the Company's primary product.
The Company monitors investment yields, and when necessary takes
action to adjust credited interest rates on its insurance
products to preserve targeted spreads. Over 60% of the insurance
and investment product reserves are crediting 5% or less in
interest and 39% of the insurance and investment product reserves
are crediting 5.25% to 6% in interest. It is expected that the
monitoring of the interest spreads by management will provide the
necessary margin to adequately provide for associated costs on
insurance policies the Company has in force and will write in the
future.
(b) EXPENSES
Total expenses decreased 12% when comparing the first six months
of 1996 to the same period one year ago.
Life benefits, net of reinsurance benefits and claims, decreased
24% when comparing the first six months of 1996 to the same
period one year ago. The decrease is primarily due to the
decrease in mortality. Mortality decreased approximately
$1,100,000 in the first six months of 1996 when compared to 1995.
The decrease can also be attributed to the decrease in first year
premium production. Another factor that has caused life benefits
to decrease is that during 1994, the Company lowered its
crediting rates on interest sensitive products in response to
financial market conditions. This action will facilitate the
appropriate spreads between investment returns and credited
interest rates. It takes approximately one year to fully realize
a change in credited rates since a change becomes effective on
each policy's next anniversary. Please refer to discussion of
net investment income for analysis of interest spreads.
Dividends to policyholders increased slightly when comparing the
first six months of 1996 to the first six months of 1995. USA
continued to market participating policies through most of 1994.
Management expects dividends to policyholders will continue to
increase in the future. However, a decrease in the dividend
scales on certain products was approved by the Board of Directors
in late 1995. A significant portion of the insurance in force is
participating insurance. A significant portion of the
participating business is relatively newer business, and the
dividend scale for participating policies increases in the early
durations. The dividend scale is subject to approval of the
Board of Directors and may be changed at their discretion. The
Company has discontinued its marketing of participating policies.
Commissions and amortization of deferred policy acquisition costs
decreased 41% in the first six months of 1996 when compared to
the same period one year ago. The Company revised its portfolio
of products as previously discussed in premium income. These new
products pay lower first year commissions than the products sold
in prior periods. Also, the Company benefited from improved
persistency.
14
<PAGE>
Amortization of cost of insurance acquired increased
significantly in first six months of 1996 compared to the same
period one year ago. Cost of insurance acquired is amortized in
relation to expected future profits, including direct charge-offs
for any excess of the unamortized asset over the projected future
profits. The Company did not have any charge-offs during the
periods covered by this report. The increase in amortization
during the current period is a normal fluctuation due to the
expected future profits. Amortization of cost of insurance
acquired is particularly sensitive to changes in persistency of
certain blocks of insurance in force.
Operating expenses increased 11% in the first six months of 1996
when compared to the same period one year ago. The increase was
caused by several factors. The primary factor for the increase
in operating expenses is due to the decrease in production. The
decrease in production was discussed in the analysis of premium
income. As such, the Company was positioned to handle
significantly more first year production than was produced by the
agency force. The difference between the policy acquisition
costs deferred in the first six months of 1996 compared to the
same period one year ago, effected the increase in operating
expenses.
Another factor that caused the increase in operating expenses is
directly related to increased legal costs. During the third
quarter of 1994, UG became aware that certain new insurance
business was being solicited by certain agents and issued to
individuals considered to be not insurable by Company standards.
These policies had a face amount of $22,700,000 and represent 1/2
of 1% of the insurance in force of the Company. As of June 30,
1996, there remained approximately $5,700,000 of the original
face amount which have not been settled. The Company will
continue its efforts to repurchase as many of the policies as
possible and regularly apprise the Ohio Department of Insurance
regarding the status of this situation. The Company incurred
legal costs of $453,000 and $429,000 in the first six months of
1996 and the first six months of 1995, respectively, for the
legal defense of related litigation.
Interest expense decreased 10% in the first six months of 1996
compared to the first six months of 1995. Since December 31,
1995, notes payable has decreased $1,353,000 which has provided
the decrease in interest expense during 1996. Additionally, the
interest rate charged on the senior debt following the
restructure is slightly lower than on the previous debt.
(c) NET INCOME
The Company had net income of $314,000 for the first six months
of 1996 compared to a net loss of ($511,000) for the first six
months of 1995. The improvement in results can be attributed
primarily to the decrease in life benefits.
SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995:
(a) REVENUES
Total revenue decreased 4% when comparing second quarter of 1996
to second quarter of 1995.
Premium income, net of reinsurance premium, decreased 4% when
comparing second quarter of 1996 to second quarter of 1995. The
decrease is primarily attributed to the reduction in new business
production and the change in products marketed. In 1995, the
Company streamlined the product portfolio, as well as
restructured the marketing force. The decrease in first year
premium production is directly related to the Company's change in
distribution systems. The Company has changed its focus from
primarily a broker agency distribution system to a captive agent
system. Business written by the broker agency force in recent
years did not meet Company expectations. With the change in
focus of distribution systems, most of the broker agents were
terminated.
15
<PAGE>
The change in marketing strategy from traditional life insurance
products to universal life insurance products had a significant
impact on new business production. As a result of the change in
marketing strategy the agency force went through a restructure
and retraining process. Cash collected from the universal life
and interest sensitive products contribute only the risk charge
to premium income; however, traditional insurance products
contribute all monies received to premium income. One factor
that has had a positive impact on premium income is the
improvement of persistency. Persistency is a measure of
insurance in force retained in relation to the previous year.
Other considerations, net of reinsurance, increased 7% compared
to one year ago. Other considerations consists of administrative
charges on universal life and interest sensitive life insurance
products. The insurance in force relating to these types of
products continues to increase as marketing efforts are focused
on universal life insurance products.
Net investment income increased slightly when comparing second
quarter of 1996 to second quarter of 1995. The Company's
investments are generally managed to match related insurance and
policyholder liabilities. The Company, in conjunction with the
decrease in average yield of the Company's fixed maturity
portfolio has decreased the average crediting rate for the
insurance and investment products. The comparison of investment
return with insurance or investment product crediting rates
establishes an interest spread. The minimum interest spread
between earned and credited rates is 1% on the "Century 2000"
universal life insurance product, the Company's primary product.
The Company monitors investment yields, and when necessary takes
action to adjust credited interest rates on its insurance
products to preserve targeted spreads. Over 60% of the insurance
and investment product reserves are crediting 5% or less in
interest and 39% of the insurance and investment product reserves
are crediting 5.25% to 6% in interest. It is expected that the
monitoring of the interest spreads by management will provide the
necessary margin to adequately provide for associated costs on
insurance policies the Company has in force and will write in the
future.
(b) EXPENSES
Total expenses decreased 15% when comparing second quarter of
1996 to second quarter of 1995.
Life benefits, net of reinsurance benefits and claims, decreased
25% when comparing second quarter of 1996 to the same period one
year ago. The decrease is primarily due to the decrease in
mortality. Mortality decreased approximately $781,000 in the
second quarter of 1996 when compared to the second quarter of
1995. The decrease can also be attributed to the decrease in
first year premium production. Another factor that has caused
life benefits to decrease is that during 1994, the Company
lowered its crediting rates on interest sensitive products in
response to financial market conditions. This action will
facilitate the appropriate spreads between investment returns and
credited interest rates. It takes approximately one year to
fully realize a change in credited rates since a change becomes
effective on each policy's next anniversary. Please refer to
discussion of net investment income for analysis of interest
spreads.
Dividends to policyholders decreased slightly when comparing
second quarter of 1996 to second quarter of 1995. The decrease
in dividends to policyholders is due to a decrease in the
dividend scales on certain products, approved by the Board of
Directors, in late 1995. A significant portion of the insurance
in force is participating insurance. A significant portion of
the participating business is relatively newer business, and the
dividend scale for participating policies increases in the early
durations. The dividend scale is subject to approval of the
Board of Directors and may be changed at their discretion. The
Company has discontinued its marketing of participating policies.
16
<PAGE>
Commissions and amortization of deferred policy acquisition costs
decreased 53% in second quarter of 1996 compared to second
quarter of 1995. The Company revised its portfolio of products
as previously discussed in premium income. These new products
pay lower first year commissions than the products sold in prior
periods. Also, the Company benefited from improved persistency.
Amortization of cost of insurance acquired increased
significantly in second quarter of 1996 compared to second
quarter of 1995. Cost of insurance acquired is amortized in
relation to expected future profits, including direct charge-offs
for any excess of the unamortized asset over the projected future
profits. The Company did not have any charge-offs during the
periods covered by this report. The increase in amortization
during the current period is a normal fluctuation due to the
expected future profits. Amortization of cost of insurance
acquired is particularly sensitive to changes in persistency of
certain blocks of insurance in force.
Operating expenses increased 14% in second quarter of 1996
compared to second quarter of 1995. The increase was caused by
several factors. The primary factor for the increase in
operating expenses is due to the decrease in production. The
decrease in production was discussed in the analysis of premium
income. As such, the Company was positioned to handle
significantly more first year production than was produced. The
difference between the policy acquisition costs deferred in
second quarter of 1996 compared to the same period one year ago,
effected the increase in operating expenses.
Another factor that caused the increase in operating expenses is
directly related to increased legal costs. During the third
quarter of 1994, UG became aware that certain new insurance
business was being solicited by certain agents and issued to
individuals considered to be not insurable by Company standards.
These policies had a face amount of $22,700,000 and represent 1/2
of 1% of the insurance in force of the Company. As of June 30,
1996, there remained approximately $5,700,000 of the original
face amount which have not been settled. The Company will
continue its efforts to repurchase as many of the policies as
possible and regularly apprise the Ohio Department of Insurance
regarding the status of this situation. The Company incurred
legal costs of $371,000 and $227,000 in second quarter of 1996
and second quarter of 1995, respectively, for the legal defense
of related litigation.
(c) NET INCOME
The Company had net income of $9,000 in second quarter of 1996
compared to a net loss of ($690,000) in second quarter of 1995.
The improvement in results can be attributed primarily to the
decrease in life benefits.
FINANCIAL CONDITION
(a) ASSETS
At June 30, 1996 and December 31, 1995, cash and invested assets
represented approximately 73% of consolidated assets. Cash and
cash equivalents increased 31% when comparing June 30, 1996 to
December 31, 1995. The increase in cash and cash equivalents is
a temporary fluctuation and it is anticipated that future cash
balances will return to levels similar to December 31, 1995. As
of June 30, 1996 and December 31, 1995, fixed maturities
represented 74% of total invested assets and cash.
By insurance statute, the majority of the Company's investment
portfolio is required to be invested in investment grade
securities to provide ample protection to policyholders. The
liabilities are predominantly long term in nature and therefore,
the Company invests in long term fixed maturity investments which
are reported in the financial statements at their amortized cost.
The Company has the ability and intent to hold these investments
to maturity; consequently, the Company does not expect to realize
any significant loss from
17
<PAGE>
these investments. The Company does not own any derivative
investments or "junk bonds". As of June 30, 1996, the carrying
value of fixed maturity securities in default as to principal
or interest was immaterial in the context of consolidated assets
or shareholders' equity. The Company has identified securities
it may sell and classified them as"investments held for
sale". Investments held for sale are carried at market.
The Company's fixed maturity securities include mortgage-backed
bonds of $19,415,000 and $21,415,000 at June 30, 1996 and
December 31, 1995, respectively. The mortgage-backed bonds are
subject to risks associated with variable prepayments of the
underlying mortgage loans. Prepayments cause those securities to
have different actual maturities than that expected at the time
of purchase. Prepayment of mortgage backed securities with an
amortized cost greater than par will incur a reduction in yield
or loss. Those securities that have an amortized cost less than
par will generate an increase in yield or gain. The degree to
which a security is susceptible to either gains or losses is
influenced by the difference between its amortized cost and par,
the relative interest rate sensitivity of the underlying
mortgages backing the assets and the repayment priority of the
securities in the overall securitization structure.
The Company limits its credit risk by purchasing securities
backed by stable collateral and by concentrating on securities
with enhanced priority in their trust structure. Such securities
with reduced risk typically have a lower yield (but higher
liquidity) than higher-risk mortgage-backed bonds (i.e.,
mortgage-backed bonds structured to share in residual cash flows
or which cover only interest payments). At June 30, 1996, the
Company does not have a significant amount of higher-risk
mortgage-backed bonds. There are negligible default risks in the
Company's mortgage-backed bond portfolio as a whole. The vast
majority of the assets are either guaranteed by U.S. government-
sponsored entities or are supported in the securitization
structure by junior securities enabling the assets to achieve
high investment grade status.
Mortgage loans decreased 7% in second quarter of 1996 as compared
to December 31, 1995. The Company is not actively seeking new
mortgage loans, and the decrease is due to early pay-offs from
mortgagee's seeking refinancing at lower interest rates. All
mortgage loans held by the Company are first position loans. The
Company has $948,000 in mortgage loans, net of a $10,000 reserve
allowance, which are in default or in the process of foreclosure,
this represents approximately 7% of the total portfolio.
Investment real estate and real estate acquired in satisfaction
of debt decreased 12% in second quarter of 1996 compared to
December 31, 1995. The decrease is primarily due to the sale of
two commercial properties.
Policy loans increased slightly in second quarter of 1996
compared to December 31, 1995. There is no single event that
caused policy loans to increase. Industry experience for policy
loans indicates few policy loans are ever repaid by the
policyholder other than through termination of the policy.
Policy loans are systematically reviewed to ensure that no
individual policy loan exceeds the underlying cash value of the
policy. Policy loans will generally increase due to new loans
and interest compounding on existing policy loans.
Cost of insurance acquired and cost in excess of net assets
purchased decreased 5% in second quarter of 1996 compared to
December 31, 1995. The decrease is directly attributed to normal
amortization during the period. The Company did not recognize
any impairments during the period.
Deferred policy acquisition costs increased slightly in second
quarter of 1996 compared to December 31, 1995. The Company
anticipates similar increases in the future due to continued
marketing efforts by the Company's agency force. The Company did
not recognize any impairments during the period.
18
<PAGE>
(b) LIABILITIES
Total liabilities decreased slightly in second quarter of 1996
compared to December 31, 1995. Future policy benefits increased
less than 1% in second quarter of 1996 and represented 80% of
total liabilities at June 30, 1996. Management expects future
policy benefits to increase in the future due to the aging of the
volume of insurance in force and continued production by the
Company's sales force.
Policy claims and benefits payable decreased 36% in second
quarter of 1996 compared to December 31, 1995. There is no
single event that caused this item to decrease. Policy claims
vary from period to period and therefore, fluctuations in this
liability are to be expected and are not considered unusual by
management.
Dividend and endowment accumulations increased 6% in second
quarter of 1996 compared to December 31, 1995. The increase is
attributed to the significant amount of participating business
the Company has in force. There are generally four options a
policyholder can select to pay policy dividends. Over 47% of all
dividends paid were put on deposit to accumulate with interest.
Accordingly, management expects this liability to increase in the
future.
Income taxes payable decreased 4% in the aggregate in second
quarter of 1996 compared to December 31, 1995. The change in
deferred income taxes payable is attributable to temporary
differences between Generally Accepted Accounting Principles
("GAAP") and tax basis.
Notes payable decreased 6% in second quarter of 1996 compared to
December 31, 1995. On May 8, 1996, FCC refinanced its senior
debt of $8,900,000. The refinancing was completed through First
of America Bank - Illinois NA and is subject to a credit
agreement. The refinanced debt bears interest at a rate equal to
the "base rate" plus nine-sixteenths of one percent. The Base
rate is defined as the floating daily, variable rate of interest
determined and announced by First of America Bank from time to
time as its "base lending rate." The base rate at issuance of
the loan was 8.25%, and has remained unchanged through August 8,
1996. Interest is paid quarterly. Principal payments of
$1,000,000 are due in May of each year beginning in 1997, with a
final payment due May 8, 2005. The Company's long term debt is
discussed in more detail in Note 4 of the Notes to the Financial
Statements.
(c) SHAREHOLDERS' EQUITY
Total shareholders' equity increased slightly in second quarter
of 1996 compared to December 31, 1995. The increase in
shareholders' equity is primarily due to net income of $314,000
through second quarter of 1996. The Company experienced $78,000
in unrealized depreciation of investments held for sale through
second quarter of 1996.
FUTURE OUTLOOK
Factors expected to influence life insurance industry growth
include: 1) competitive pressure among the large number of
existing firms; 2) competition from financial service
companies, as they seek to expand into insurance products; 3)
customers' changing needs for new types of insurance products;
4) customers' lack of confidence in the entire industry as a
result of the recent highly visible failures; and 5)
uncertainty concerning the future regulation of the industry.
Growth in demand for insurance products will depend on
demographic variables such as income growth, wealth accumulation,
populations and workforce changes.
19
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits
4(a) Term note for $8,900,000 of First Commonwealth
Corporation to First of America Bank - Illinois, N.A.
dated as of May 8, 1996.
4(b) Credit agreement dated May 8, 1996, between First of
America Bank - Illinois, N.A. and First Commonwealth
Corporation.
The Company hereby incorporates by reference the exhibits as
reflected in the Index to Exhibits of the Company's Form 10-K for
the year ended December 31, 1995.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNITED TRUST, INC.
(Registrant)
Date August 9, 1996 By /s/ Thomas F. Morrow
Thomas F. Morrow, Chief Operating
Officer, President, Treasurer
and Director
Date August 9, 1996 By /s/ James E. Melville
James E. Melville, Chief Financial
Officer and Senior Executive Vice
President
21
<PAGE>
CREDIT AGREEMENT
$8,900,000
Dated May 8, 1996
between
FIRST OF AMERICA BANK-ILLINOIS, N.A., as Lender
and
FIRST COMMONWEALTH CORPORATION, as Borrower
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS AND ACCOUNTING MATTERS. . . . . . . . 1
1.1 Certain Defined Terms . . . . . . . . . . . . . . . 1
1.2 Accounting Terms; Statements of Variation . . . . . 6
SECTION 2. LOAN . . . . . . . . . . . . . . . . . . . . . 7
2.1 $8,900,000.00 Loan . . . . . . . . . . . . . . . . 7
2.2 Optional Prepayments . . . . . . . . . . . . . . . 8
2.3 Payments . . . . . . . . . . . . . . . . . . . . . 8
2.4 Computation of Interest . . . . . . . . . . . . . . 8
2.5 Security . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3. FEES . . . . . . . . . . . . . . . . . . . . . 9
3.1 Origination Fee . . . . . . . . . . . . . . . . . . 9
SECTION 4. CONDITIONS TO THE LOAN AND ADVANCES UNDER THE
NOTE . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Conditions . . . . . . . . . . . . . . . . . . . . 9
SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . 10
5.1 Corporate Existence and Structure . . . . . . . . . 10
5.2 Financial Condition . . . . . . . . . . . . . . . . 10
5.3 Litigation . . . . . . . . . . . . . . . . . . . . 10
5.4 No Breach . . . . . . . . . . . . . . . . . . . . . 10
5.5 Corporate Action . . . . . . . . . . . . . . . . . 11
5.6 Approvals . . . . . . . . . . . . . . . . . . . . . 11
5.7 ERISA . . . . . . . . . . . . . . . . . . . . . . . 11
5.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . 11
5.9 Investment Company Act . . . . . . . . . . . . . . 11
5.10 Public Utility Holding Company Act . . . . . . . . 11
5.11 Capitalization of the Company and Universal . . . . 11
5.12 Assets of the Company and its Subsidiaries . . . . 12
5.13 Other Agreements . . . . . . . . . . . . . . . . . 12
5.14 Agreements . . . . . . . . . . . . . . . . . . . . 12
5.15 Solvency . . . . . . . . . . . . . . . . . . . . . 12
5.16 Security Documents . . . . . . . . . . . . . . . . 12
5.17 Margin Regulations . . . . . . . . . . . . . . . . 13
5.18 Use of Proceeds of the Loan . . . . . . . . . . . . 13
SECTION 6. COVENANTS . . . . . . . . . . . . . . . . . . 13
6.1 Information . . . . . . . . . . . . . . . . . . . . 13
6.2 Litigation . . . . . . . . . . . . . . . . . . . . 14
6.3 Corporate Existence Etc . . . . . . . . . . . . . . 14
6.4 Minimum Consolidated Net Worth . . . . . . . . . . 15
6.5 Capital and Surplus . . . . . . . . . . . . . . . . 15
6.6 Indebtedness . . . . . . . . . . . . . . . . . . . 15
6.7 Capital Expenditures . . . . . . . . . . . . . . . 15
6.8 Mergers, Acquisitions Sale of Assets Etc. . . . . . 16
6.9 Restricted Payments . . . . . . . . . . . . . . . . 16
6.10 Amendments to Documents; Prepayment of
Indebtedness . . . . . . . . . . . . . . . . . . . 16
<PAGE>
6.11 Liens . . . . . . . . . . . . . . . . . . . . . . . 16
6.12 Issuance of Capital Stock . . . . . . . . . . . . . 16
6.13 Investment and Joint Ventures . . . . . . . . . . . 16
6.14 Additional Security Documents . . . . . . . . . . . 16
6.15 Transactions With Affiliates . . . . . . . . . . . 17
6.16 Further Assurances . . . . . . . . . . . . . . . . 17
6.17 Compensation . . . . . . . . . . . . . . . . . . . 17
6.18 Senior Lender Status . . . . . . . . . . . . . . . 17
6.19 Earnings Covenants . . . . . . . . . . . . . . . . 17
6.20 Management Agreements . . . . . . . . . . . . . . . 17
6.21 Risk Based Capital Ratio. . . . . . . . . . . . . . 18
6.22 Surplus Relief Reinsurance. . . . . . . . . . . . . 18
6.23 Methods of Calculation. . . . . . . . . . . . . . . 18
SECTION 7. EVENTS OF DEFAULT. . . . . . . . . . . . . . . 18
SECTION 8. MISCELLANEOUS . . . . . . . . . . . . . . . . 20
8.1 Waiver . . . . . . . . . . . . . . . . . . . . . . 20
8.2 Notices . . . . . . . . . . . . . . . . . . . . . . 20
8.3 Expenses, Etc . . . . . . . . . . . . . . . . . . . 20
8.4 Amendments Etc . . . . . . . . . . . . . . . . . . 21
8.5 Successors and Assigns . . . . . . . . . . . . . . 21
8.6 Assignments and Participations . . . . . . . . . . 21
8.7 Survival . . . . . . . . . . . . . . . . . . . . . 21
8.8 Captions . . . . . . . . . . . . . . . . . . . . . 21
8.9 Counterparts . . . . . . . . . . . . . . . . . . . 21
8.10 Integration; Severability . . . . . . . . . . . . . 21
8.11 Governing Law; Submission to Jurisdiction; Etc . . 22
8.12 Waiver of Trial by Jury . . . . . . . . . . . . . . 22
<PAGE>
EXHIBITS
Exhibit A - Assignment of Policy as Collateral Security A-1
Exhibit B - Security Agreement - Pledge . . . . . . . . B-1
Exhibit C - Term Note . . . . . . . . . . . . . . . . . C-1
Exhibit D - Opinion . . . . . . . . . . . . . . . . . . D-1
ANNEXES
Annex I - Liens . . . . . . . . . . . . . . . . . . . I-1
Annex II - List of Subsidiaries . . . . . . . . . . . II-1
Annex III - Existing Indebtedness . . . . . . . . . . III-1
Annex IV - Management Agreements . . . . . . . . . . IV-1
Annex V - Litigation and Other Proceedings . . . . . . V-1
<PAGE>
THIS CREDIT AGREEMENT (this "Agreement" as the same may be
amended, modified, supplemented or replaced from time to time) is
entered into May 8, 1996, by and between FIRST COMMONWEALTH
CORPORATION, a Virginia corporation (the "Company"), and FIRST OF
AMERICA BANK-ILLINOIS, N.A. (the "Bank").
To induce the Bank to extend credit and financial accom-
modations to the Company and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows, intending to
be legally bound:
SECTION 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.1 CERTAIN DEFINED TERMS. As used herein, the following
terms shall have the following meanings (all terms defined in
this Section 1 or in other provisions of this Agreement in the
singular to have the same meanings when used in the plural and
vice versa):
ACQUISITION shall mean any transaction, or any series of
related transactions, consummated after the date of this
Agreement, by which the Company and/or any of its Affiliates (in
one transaction or as the most recent transaction in a series of
transactions) (a) acquires any going business or all or
substantially all of the assets of any firm, corporation or
division thereof, whether through purchase of assets, merger or
otherwise, (b) directly or indirectly acquires control of at
least a majority (in number of votes) of the securities of a
corporation which have ordinary voting power for the election of
directors or (c) directly or indirectly acquires control of a
majority ownership interest in any partnership or joint venture.
ADJUSTED STATUTORY CAPITAL AND SURPLUS shall mean the sum of
(i) the capital of Universal Guaranty Life Insurance Company, an
Ohio life insurance company ("Universal"), (ii) Universal's
surplus, (iii) the Asset Valuation Reserve of Universal and its
insurance company subsidiaries, (iv) the Interest Maintenance
Reserve of Universal and its insurance company subsidiaries, (v)
the miscellaneous reserves that would be reflected in Exhibit 8,
Part G of the Annual Statements of Universal and its
subsidiaries, (vi) the non-admitted agent debit balances of
Universal and its insurance company subsidiaries, (viii) the
provision for policyholders' dividends payable in the following
calendar year of Universal and its insurance company
subsidiaries, and (ix) the excess, if any, of the market value
over the carrying value of the bond portfolio of Universal and
its insurance company subsidiaries. Item (i) - (ix) shall each
be computed in accordance with Statutory Accounting Practices,
which are or would be reflected on the statutory financial
statements of Universal or its insurance company subsidiaries as
of the date in question.
AFFILIATE shall mean, with respect to any Person, any other
Person or group of affiliated Persons directly or indirectly con-
trolling (including without limitation all directors and officers
of such Person), controlled by, or under direct or indirect
common control with, such Person. For purposes of this
definition, a Person shall be deemed to control another Person if
such first Person possesses, directly or indirectly, the power
(a) to vote 20% or more of the securities having ordinary voting
power for the election of directors of such other Person or (b)
to direct or cause the direction of the management or policies of
such other Person, whether through the ownership of voting
securities, by contract or otherwise, provided, however, a
natural person shall not be considered an Affiliate for purposes
of this Agreement.
APPALACHIAN shall mean Appalachian Life Insurance Company, a
West Virginia life insurance company.
ASSIGNMENT shall mean collectively those certain Assignments
of Policy as Collateral Security in the form of Exhibit A,
attached hereto, assigning to the Bank policies of life insurance
as collateral security on the lives of James E. Melville and
Larry E. Ryherd, each in the amount of Five Million and No/100
Dollars ($5,000,000).
BASE COMPENSATION shall mean the aggregate amount of
compensation, in all forms, paid to the following officers of the
Company: President, Vice Chairman, Senior Executive Vice
President, Senior Vice President and Secretary and Senior Vice
President - Real Estate; which initial aggregate sum for purposes
of this Agreement shall be One Million Four Hundred Thousand and
No/100 Dollars ($1,400,000).
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BASE RATE shall mean the floating daily, variable rate of
interest determined and announced by the Bank from time to time
as its "Base Lending Rate" (without reference to prime or base
rate of any other financial institution) which rate may not
necessarily be the lowest rate of interest charged by the Bank to
any of its customers. The Bank's Base Rate is an "Index" and the
actual rate charged to any borrower for a specific loan may be
above or below that "Index".
BASIC RATE shall mean a variable per annum rate of interest
equal to the sum of (i) nine sixteenths percent (9/16%) plus (ii)
the Base Rate, which Basic Rate shall change when and as the Base
Rate shall change, effective on the day of such change.
BUSINESS DAY shall mean any day on which commercial banks
are not authorized or required to close in Springfield, Illinois.
CAPITAL EXPENDITURES shall mean (a) expenditures (whether
paid in cash or accrued as a liability) for fixed assets,
tooling, plant and equipment (including without limitation
payments of Capital Lease Obligations), (b) any other
expenditures that would be classified as capital expenditures
under GAAP and (c) the amount of consideration paid and/or any
monetary obligation incurred in respect of the purchase price for
any Acquisition.
CAPITAL LEASE OBLIGATIONS shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a
lease of (or other agreement conveying the right to use) real
and/or personal property, which obligations are required to be
classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP and, for purposes of this
Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
CHANGE IN CONTROL shall mean any transaction or series of
transactions whether or not by operation of law, contract or
otherwise, which result in more than 49% of the Company Capital
Stock or substantially all of the assets of the Company being
owned legally or beneficially by any Person other than United
Trust Group.
CODE shall mean the Internal Revenue Code of 1986, as
amended.
COMPANY PLEDGE AGREEMENT shall mean a Security Agreement-
Pledge executed by the Company in favor of the Bank in
substantially the form of Exhibit B attached hereto, whereby the
Company shall pledge to the Bank as collateral security for the
Loan one hundred percent (100%) of the Stock, as the same may be
amended, modified, supplemented or replaced from time to time.
CONSOLIDATED NET WORTH shall mean, at any date, the amount
which would be set forth opposite the caption "total
shareholders' equity" (or any like caption) on a consolidated
balance sheet of the Company and its consolidated Subsidiaries.
CREDIT DOCUMENTS shall mean, collectively, this Agreement,
the Note, the Security Documents, and any and all other documents
executed in connection therewith or as security for the Loan, as
the same may be renewed, extended, amended, modified,
supplemented or replaced from time to time.
DEFAULT shall mean an Event of Default or an event which
with notice or lapse of time or both would become an Event of
Default.
DOLLARS and $ shall mean lawful money of the United States
of America.
ERISA shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
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ERISA AFFILIATE shall mean any corporation or trade or busi-
ness which is a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the Code)
as the Company or is under common control (within the meaning of
Section 414(c) of the Code) with the Company.
EVENT OF DEFAULT shall have the meaning assigned to such
term in Section 7 hereof.
FCC NOTES shall mean those certain Promissory Notes made by
the Company payable to United Trust Group, Inc., and any and all
renewals, extensions, modifications, replacements, supplements or
rearrangements thereof, and referred to in the UTG Security
Agreement by and among United Trust Group, Inc. and the Lenders,
as defined therein, Commonwealth Industries Corporation and the
Company.
GAAP shall mean generally accepted accounting principles in
the United States of America, as in effect from time to time.
GUARANTEE shall mean, in respect of any Person, any obliga-
tion, contingent or otherwise, of such Person directly or
indirectly guaranteeing any Indebtedness of another Person,
including without limitation by means of an agreement to purchase
or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or to maintain financial covenants, or to
assure the payment of such Indebtedness by an agreement to make
payments in respect of goods or services regardless of whether
delivered, or otherwise, provided, that the term "Guarantee"
shall not include endorsements for deposit or collection in the
ordinary course of business; and such term when used as a verb
shall have a correlative meaning.
INDEBTEDNESS shall mean, as to any Person, without duplica-
tion: (a) all obligations of such Person for borrowed money or
evidenced by bonds, debentures, notes or similar instruments; (b)
all obligations of such Person for the deferred purchase price of
property or services, except trade accounts payable and accrued
liabilities arising in the ordinary course of business which are
not overdue by more than 30 days or which are being contested in
good faith by appropriate proceedings; (c) all Capital Lease
Obligations of such Person; (d) all Indebtedness of others
secured by a Lien on any properties, assets or revenue of such
Person to the extent of the value of the property subject to such
Lien; (e) all Indebtedness of others Guaranteed by such Person;
and (f) all obligations of such Person, contingent or otherwise,
in respect of any letters of credit or bankers' acceptances.
INVESTMENT by any Person in any other Person shall mean:
(a) The amount paid or committed to be paid, or the value
of property or services contributed or committed to be
contributed, by such first Person for or in connection with any
stock, bonds, notes, debentures, partnership or other ownership
interests or other securities of such other Person or as a
capital contribution to such other Person; and
(b) the principal amount of any advance, loan or extension
of credit by such first Person to such other Person (other than
any such advance, loan or extension of credit having a term not
exceeding 45 days made by such first Person to its trade
customers in the ordinary course of its business) and (without
duplication) any amount committed to be advanced, loaned or
extended by such first Person to such other Person.
INVESTMENT STRATEGY shall mean the practice of investing in
investments rated higher than BB by Standard and Poors Rating
Service.
JOINT VENTURE shall mean a joint venture, partnership or
other similar arrangement, whether in corporate, partnership or
other legal form; provided that, as to any such arrangement in
corporate form, such corporation shall not, as to any Person of
which such corporation is a Subsidiary, be considered to be a
Joint Venture to which such Person is a party.
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LIEN shall mean any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind, including without limitation
the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
LINCOLN shall mean Abraham Lincoln Insurance Company, an
Illinois insurance company.
LOAN shall mean the loan from the Bank to the Company pro-
vided for in Section 2.1 hereof.
MANAGEMENT AGREEMENTS shall mean those Management Agreements
described in Annex IV, attached hereto.
MARGIN STOCK shall mean "margin stock" as defined in
Regulation U.
MAXIMUM RATE shall mean the maximum lawful rate of interest
permitted by applicable laws, now or hereafter enacted, which
interest rate shall change when and as such laws change, to the
extent permitted by such laws, effective.
MULTI-EMPLOYER PLAN shall mean a Plan defined as such in
Section 3(37) of ERISA to which contributions have been made by
the Company or any ERISA Affiliate and which is covered by Title
IV of ERISA.
NOTE shall mean the promissory note executed by the Company
and payable to the order of the Bank evidencing the Loan, as
provided for by Section 2.1 hereof, as the same may be renewed,
extended, modified, supplemented, replaced or rearranged at any
time.
OTHER DEBT DOCUMENTS shall mean collectively the FCC Notes
and the Other Notes.
OTHER NOTES shall mean the notes of the Company payable to
United Income, Inc. and First Fidelity Mortgage Company, and
referenced in Annex III attached hereto, the aggregate principal
amount of which shall not exceed One Million Dollars
($1,000,000).
PBGC shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
PERMITTED LIENS shall mean:
(a) pledges or deposits by the Company, and/or any
Subsidiaries or Affiliate under workmen's compensation laws,
unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than
for the payment of Indebtedness of the Company, and/or any
Subsidiaries or Affiliate), or leases to which the Company,
and/or any Subsidiaries or Affiliate are parties, deposits to
secure public or statutory obligations of the Company, and/or any
Subsidiaries or Affiliate, deposits with state insurance
departments, deposits of cash or U.S. Government bonds to secure
surety or appeal bonds or performance bonds to which the Company,
and/or any Subsidiaries or Affiliate are parties or which are
issued for its account, or deposits for the payment of rent
(provided that such deposits as security for the payment of rent
are required in the ordinary course of business);
(b) Liens imposed by law, such as carriers', warehouse-
men's, materialmen's and mechanics' liens, or Liens arising out
of judgments or awards against the Company, and/or any of its
Subsidiaries with respect to which the Company, and/or any
Subsidiaries or Affiliate at the time shall currently be
prosecuting an appeal or proceedings for review in good faith and
by proper procedure;
(c) Liens for taxes not yet subject to penalties for non-
payment and Liens for taxes which are not yet overdue and the
payment of which is being contested in good faith by appropriate
proceedings;
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(d) minor survey exceptions, minor encumbrances, easements
or reservations of, or rights of others for, rights of way,
highways and railroad crossings, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or
other Liens incidental to the conduct of the business of the
Company, and/or any Subsidiaries or Affiliate or to the ownership
of their property which were not incurred in connection with
Indebtedness of the Company, and/or any Subsidiaries or
Affiliate, which Liens do not in the aggregate materially detract
from the value of said properties or materially impair the
operation of the business of the Company, and/or any Subsidiaries
or Affiliate;
(e) Liens created in connection with Capital Lease Obli-
gations, provided that such Liens do not encumber any property
other than the property financed by the capital lease under which
such Capital Lease Obligations exist;
(f) Liens existing on any assets acquired by the Company,
and/or any Subsidiaries or Affiliate (subject to Section 6.6
hereof) or created at the time of acquisition of such assets to
secure purchase money Indebtedness;
(g) Liens existing on the date hereof in respect of
property, assets or revenues of the Company, Subsidiaries and
their Subsidiaries listed on Annex I hereto;
(h) Liens created pursuant to the Security Documents;
(i) Statutory liens held by policy holders of the Company,
the Subsidiaries or an Affiliate.
(j) extensions, renewals, refinancings or replacements of
any Permitted Liens referred to above, provided that the
principal amount of the obligation secured thereby is not
increased and that any such extension, renewal, refinancing or
replacement is limited to the property originally encumbered
thereby.
PERSON shall mean any individual, corporation, partnership,
trust, joint venture, unincorporated association or other
enterprise or any government or any agency, instrumentality or
political subdivision thereof.
PLAN shall mean an employee benefit plan established or
maintained by the Company or any ERISA Affiliate and which is
covered by Title IV of ERISA, other than a Multi-Employer Plan.
POST-DEFAULT RATE shall mean, in respect of any principal of
the Loan or any other amount whatsoever payable by the Company
under this Agreement or the Note which is not paid when due
(whether at stated maturity, by acceleration or otherwise), a
rate per annum during the period commencing on and including the
due date of such amount to but not including the date such amount
is paid in full equal to five percent (5%) per annum above the
Base Rate as it varies from time to time.
REGULATION U shall mean Regulation U of the Board of
Governors of the Federal Reserve System (or any successor
thereto), as the same may be amended or supplemented from time to
time.
RISK BASED CAPITAL RATIO shall mean the ratio of Adjusted
Capital to Authorized Control Level Risk Based Capital, as
defined by the National Association of Insurance Commissioners.
RESTRICTED PAYMENTS shall mean: (a) any declaration or pay-
ment of dividends of the Company or any of its Affiliates (in
cash, property or obligations) on, or other payments or
distributions on account of (whether made by the Company or any
of its Affiliates), or the setting apart of money for a sinking
or other analogous fund (whether made by the Company or any of
its Affiliates) for, the purchase, redemption, prepayment,
retirement or other acquisition of, any shares of any class of
stock of the Company, or any Subsidiaries; (b) any payment
(whether made by the Company or any of its Affiliates) on account
of the purchase, redemption, prepayment, defeasance (including,
but not limited to, in-substance or legal defeasance) or other
acquisition or retirement for value of any Indebtedness of the
Company or any of its Affiliates which is subordinated to the
prior payment of the Loan (including without limitation the
Subordinated Debt); and (c) any payment of management, financial
advisory, investment banking or similar fees
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by the Company or any of its Affiliates to any Person, except
management fees paid by the Company or any of its Affiliates
under existing or future management contracts which have been, or
will be, furnished to the Bank and approved by the applicable
state insurance commission or other insurance regulatory authority
and by the Bank in writing.
SEC shall mean the Securities and Exchange Commission or any
successor thereto.
SECURITY DOCUMENTS shall mean, collectively, the Company
Pledge Agreement, the Assignment, and any and all other documents
executed in connection therewith or as security for the Note, as
the same may be amended, modified, supplemented or replaced from
time to time.
SENIOR AFFILIATE means United Trust Group, United Trust,
Inc. and United Income, Inc..
SENIOR INDEBTEDNESS shall mean all Indebtedness of the Com-
pany and its Affiliates other than the FCC Notes and the Other
Notes.
STATUTORY ACCOUNTING PRACTICES shall mean accounting
practices prescribed or permitted by state insurance laws
applicable to, or state insurance regulatory authorities with
jurisdiction over, the Company or any of its Affiliates, applied
on a consistent basis and to the extent described in financial
statements submitted to such state insurance regulatory
authorities or any other Person.
STATUTORY CAPITAL AND SURPLUS shall mean, with respect to
Universal and its Subsidiaries, the capital and surplus of
Universal and its Subsidiaries which is or would be reflected as
such on a balance sheet of Universal as of the date in question,
prepared in accordance with Statutory Accounting Practices.
STOCK shall mean the Universal Capital Stock, as defined in
Section 5.11.
SUBSIDIARY shall mean, with respect to any Person, any cor-
poration or other entity of which at least a majority of the out-
standing securities or other ownership interests having by the
terms thereof ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions
(irrespective of whether or not at the time stock of any other
class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at
the time directly or indirectly owned or controlled by such
Person or one or more of its Subsidiaries or by such Person and
one or more of its Subsidiaries.
SURPLUS RELIEF shall mean any reinsurance agreement
involving insurance business currently in force which results in
a direct increase in capital and surplus in the aggregate in
excess of One Hundred Thousand Dollars ($100,000).
UNITED SECURITY shall mean United Security Assurance
Company, an Ohio insurance company.
UNIVERSAL shall mean Universal Guaranty Life Insurance Co.,
an Ohio life insurance company.
UTG SECURITY AGREEMENT shall mean that certain Security
Agreement dated June 16, 1992 between United Trust Group, Inc.
and certain shareholders of Commonwealth Industries Corporation,
First Commonwealth Corporation, and Commonwealth Industries
Corporation.
WHOLLY-OWNED SUBSIDIARY shall mean, with respect to any
Person, any Subsidiary of such Person all of the shares of
capital stock (and all rights and options to purchase such
shares) of which, other than directors' qualifying shares, are
owned, beneficially and of record, by such Person or another
Wholly-Owned Subsidiary of such Person.
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1.2 ACCOUNTING TERMS; STATEMENTS OF VARIATION.
(a) All accounting terms used herein shall (except as
otherwise expressly provided herein) be interpreted, and all
financial statements and certificates and reports as to financial
matters required to be delivered to the Bank hereunder shall be
prepared, in accordance with either (i) GAAP applied on a basis
consistent with that used in the preparation of prior financial
statements, or (ii) Statutory Accounting Practices applied on a
basis consistent with that used in the preparation of prior
financial statements.
(b) The Company shall deliver to the Bank at the same
time as the delivery of any annual or quarterly financial
statement under Section 6.1 hereof a description in reasonable
detail of any material variation between the application of
accounting principles employed in the preparation of such
statement and the application of accounting principles employed
in the preparation of the next preceding annual or quarterly
financial statements and reasonable estimates of the differences
between such statements arising as a consequence thereof.
(c) Except as otherwise provided herein, if any
changes in accounting principles from those used in the
preparation of the financial statements referred to in Section
6.1 hereof are hereafter required or permitted by either (i) the
rules, regulations, pronouncements and opinions of the Financial
Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with
similar functions), or (ii) state insurance laws applicable to,
or state insurance regulatory authorities with jurisdiction over,
the Company or any of its Affiliates, and are adopted by the
Company and its Subsidiaries with the agreement of its
independent certified public accountants or in accordance with
state insurance law or with the permission of any state insurance
commission or other state insurance regulatory authority, and
such changes result in a change in the method of calculation of
any of the financial covenants, standards or terms in or relating
to Section 6 hereof, the parties hereto agree to enter into
discussions with a view to amending such provisions so as to
equitably reflect such changes with the desired result that the
criteria for evaluating the financial condition of the Company
and its Subsidiaries shall be the same after such changes as if
such changes had not been made, provided that no change in GAAP
and no change in Statutory Accounting Practices that would affect
the method of calculation of any of said financial covenants,
standards or terms shall be given effect in such calculations
until such provisions are amended, in a manner satisfactory to
the Bank, to so reflect such change in accounting principles.
(d) The Company shall maintain its accounts and the
accounts of its Subsidiaries on the basis of a fiscal year ending
December 31 of each year.
SECTION 2. LOAN.
2.1 $8,900,000.00 LOAN. Subject to and upon the terms,
conditions, covenants and agreements contained herein, the Bank
agrees to lend to the Company the sum of $8,900,000.00 to be
evidenced by the Company's promissory note payable to the order
of the Bank in substantially the form of Exhibit C, attached
hereto. The principal amount from time to time outstanding under
the Note shall bear interest during each day the loan evidenced
thereby at a variable per annum rate equal to the lesser of (i)
the Basic Rate, as it varies, or (ii) the Maximum Rate, as it
varies. Notwithstanding the foregoing, if at any time the Basic
Rate shall exceed the Maximum Rate and thereafter the Basic Rate
shall become less than the Maximum Rate, the rate of interest
payable thereunder shall be the Maximum Rate until the Bank shall
have received the amount of interest which the Bank would have
received if the Basic Rate had not been limited by the Maximum
Rate during the period of time the Basic Rate exceeded the
Maximum Rate. All past due principal and interest thereunder,
whether due as a result of acceleration of maturity or otherwise,
shall bear interest at the lesser of (x) the Post-Default Rate,
as it varies, or (y) the Maximum Rate, as it varies, from the
date payment thereof shall have become due until same shall have
been discharged by payment. The principal of and interest to
accrue on the Note shall be due and payable as follows:
(a) Interest to accrue on the outstanding principal balance
of the Note shall be due and payable in quarter-annual
installments as it accrues, with the first such installment of
interest to be due and payable three (3) months from the date
hereof, and a subsequent installment of interest to be due and
payable on the same day of each succeeding
<PAGE>
third calendar month thereafter until May 8, 2005, on which date
the then remaining unpaid principal balance of the Note and all
accrued unpaid interest thereon shall be due and payable in full;
and
(b) The principal balance of the Note shall be due and
payable as follows: (i) an installment of principal in the amount
of $1,000,000 shall be due and payable on May 8, 1997, and (ii)
installments of principal in the amount of $1,000,000 shall be
payable on May 8 of each year thereafter until May 8, 2005, when
the then remaining unpaid balance of principal of the Note and
all accrued unpaid interest thereon shall be due and payable in
full.
(c) All renewals, extensions, modifications, replacements
and rearrangements of the Note, if any, shall be deemed to be
made pursuant to this Agreement and, accordingly, shall be
subject to the terms and provisions hereof, and the Company shall
be deemed to have ratified and confirmed, as of such renewal,
extension, modification, replacement or rearrangement date, and
on any borrowing date hereunder, all of the representations,
warranties, covenants and agreements set forth herein.
(d) The Bank may require payment in full of the Note at any
time after (i) the fourth (4th) anniversary of the Note, or (ii)
the separation from employment or change in position from that
position held with the Company on the date hereof, of any of
Larry E. Ryherd, James E. Melville or Thomas F. Morrow, or (iii)
A.M. Best shall have rated Universal below C+ (the "Call
Option"). The Bank shall exercise the Call Option, if at all, by
giving written notice of its election (the "Call Notice") to
Company, in which event the Note, and any other sums due under
the Credit Documents, shall be due and payable three hundred
sixty five (365) days after the date the Call Notice is given.
2.2 OPTIONAL PREPAYMENTS. The Company, at its option
without notice, premium or penalty, may prepay the Note in full
at any time or from time to time in part, upon payment of accrued
interest to the date of prepayment on the Note or the portion of
the unpaid principal amount thereof to be paid. Subject to
Section 2.3(c) hereof, all optional prepayments of principal
shall be applied to the principal of the Note in inverse order of
maturity.
2.3 PAYMENTS.
(a) All payments of principal of and interest on the Note
shall be made to the Bank at its office described in Section 8.2
hereof.
(b) Whenever any payment of principal of or interest on the
Note shall be due on a day which is not a Business Day, the date
for payment thereof shall be extended to the next succeeding
Business Day and interest shall be payable for such extended time
at the rate of interest with respect thereto in effect at the due
date.
(c) All payments under the Note, whether designated as
principal or interest, shall be applied first, to any expenses,
damages or other amounts for which the Bank may be entitled to
reimbursement hereunder or under any of the other Credit
Documents; second, to accrued unpaid interest under the Note; and
third, to the principal balance of the Note.
2.4 COMPUTATION OF INTEREST. Interest on the unpaid princi-
pal amount of the Note from time to time outstanding shall be
computed on the basis of a year of 360 days and paid for the
actual number of days elapsed.
2.5 SECURITY. Payment of the Note and the performance of
all obligations of the Company under the Credit Documents,
whether now existing or hereafter arising, will be secured,
directly or indirectly, by a first priority perfected security
interest, assignment, pledge, or Lien, as the case may be, in and
upon the following described property and assets:
(a) One hundred percent (100%) of the Universal Capital
Stock, which security interest, pledge or assignment will be
evidenced by the Company Pledge Agreement; and
(b) All of the life insurance evidenced by the Assignment.
<PAGE>
The Company agrees to execute, acknowledge and deliver to
the Bank such instruments, security agreements, security
agreement-pledges, guaranty agreements, statements, assignments
and financing statements, in form and substance acceptable to the
Bank as in the good faith and discretion of counsel for the Bank
may be necessary to enforce, grant to the Bank and perfect in the
United States the security interests, liens, pledges, and
assignments on or of the collateral; provided, however, that if
any requests by the Bank for execution of any such instruments
shall be made after the first draw hereunder, then such
instruments shall conform as closely as possible to the
instruments executed at closing and shall not contain any terms
or provisions which require the Company to take any action or
perform any act which is not required by the documents executed
at closing. The Company and the Bank agree that all collateral
now or hereafter securing the Note and/or the obligations of the
Company under the Credit Documents also shall secure any and all
other indebtedness and liabilities now or hereafter owing by any
of the Company to the Bank.
SECTION 3. FEES.
3.1 ORIGINATION FEEe. Upon execution of this Agreement,
the Company shall pay to the Bank as an origination fee for the
Loan an amount equal to Fifty Thousand and No/100 Dollars
($50,000.00) (the "Fee").
SECTION 4. CONDITIONS TO THE LOAN AND ADVANCES UNDER THE
NOTE.
4.1 CONDITIONS. Any obligation of the Bank to make the
Loan or advance any funds under the Note is subject to complete
satisfaction of all of the following conditions precedent (but no
advance made before satisfaction of any such conditions shall be
deemed to be a waiver thereof in respect to any subsequent
advance):
(a) This Agreement, duly executed and delivered by the
Company;
(b) The Note to the Bank duly executed and delivered by the
Company;
(c) The Company Pledge Agreement, duly executed and
delivered by the Company;
(d) The Assignment, duly executed and delivered by the
Company; and
(e) The other Security Documents duly executed and
delivered to the Bank, and
(f) Certified copies of the certificate of incorporation
and by-laws (or equivalent documents) of the Company and of
resolutions of its Board of Directors authorizing the making and
performance by the Company of this Agreement, the Note and the
Company Pledge Agreement, and the other Security Documents to
which it is a party, and the transactions contemplated hereby and
thereby.
(g) A certificate of appropriate officers of the Company in
respect of each of its officers (i) who is authorized to execute
and deliver, as the case may be, this Agreement, the Note and
each of the Security Documents to which it is a party, and (ii)
who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the
purpose of signing documents and giving notices and other
communications in connection with this Agreement and the other
Credit Documents and the transactions contemplated hereby and
thereby (and the Bank may conclusively rely on such certificate
until it receives notice in
writing from the Company, as the case may be, to the contrary);
(h) Receipt by the Bank of the certificates evidencing the
shares of Stock to be pledged by the Company pursuant to the
Security Documents, accompanied by undated stock powers duly
executed in blank;
(i) An opinion of Fagel & Haber, counsel to the Company,
dated as of the date hereof, in substantially the form of Exhibit
D hereto;
<PAGE>
(j) Such other documents as the Bank or counsel to the Bank
shall reasonably request.
(k) (i) No Default shall have occurred and be continuing
and (ii) the representations and warranties made by the Company
herein and in the Security Documents to which it is a party shall
be true on and as of such date with the same force and effect as
if made on and as of such date.
(l) Payment of the Fee to the Bank specified in Section 3.1
hereof.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to the Bank as follows:
5.1 CORPORATE EXISTENCE AND STRUCTURE. The Company, and the
Subsidiaries are corporations duly organized and validly existing
in good standing under the laws of the jurisdiction of their
respective organizations; have all requisite corporate power, and
have all material governmental licenses, authorizations, consents
and approvals necessary to own their respective assets and carry
on their respective businesses as now being or as proposed to be
conducted; and are qualified to do business in all jurisdictions
in which the nature of the business conducted by them makes such
qualification necessary and where failure so to qualify would
have a material adverse effect on the assets, prospects,
business, operations, financial condition, liabilities or
capitalization of the Company, or any of the Subsidiaries.
5.2 FINANCIAL CONDITION. The audited consolidated
balance sheet of the Company and its consolidated Subsidiaries as
of December 31, 1995 and the related consolidated statements of
earnings and changes in financial position of the Company and its
consolidated Subsidiaries for the fiscal year ended on said date,
with the opinion thereon of Kerber, Eck & Braeckel, LLP,
heretofore furnished to the Bank, fairly present the consolidated
financial condition of the Company and its consolidated
Subsidiaries as at said date and the consolidated results of
their operations for the period covered thereby, all in
accordance with GAAP applied on a consistent basis. Neither the
Company, nor any of its Subsidiaries had on said date any
material contingent liabilities, other than as disclosed in Annex
V, liabilities for past due taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or
provided for in said balance sheet or the notes thereto as at
said date. Since December 31, 1995 there has been no material
adverse change in the assets, prospects, business, operations,
financial condition, liabilities or capitalization of the Company
and its consolidated Subsidiaries taken as a whole or the Company
from that set forth in said financial statements as at said date.
5.3 LITIGATION. Except as disclosed in Annex V attached
hereto, there are no legal or arbitration proceedings or any
proceedings by or before any governmental or regulatory authority
or agency, now pending or to the Company's knowledge threatened
against the Company, or any of its Subsidiaries which are likely
to have a material adverse effect on the assets, prospects,
business, operations, financial condition, liabilities or
capitalization of the Company, any of its Subsidiaries, or on the
timely payment of the principal of or interest on the Loan or the
enforceability of this Agreement, the Note or any of the other
Credit Documents, or the rights and remedies of the Bank
hereunder or thereunder.
5.4 NO BREACH. The execution and delivery of this
Agreement, the Note or any of the other Credit Documents, or the
consummation of the transactions herein and therein contemplated
or performance or compliance with the terms and provisions hereof
or thereof, will not conflict with or result in a breach of, or
require any consent other than consent already obtained under:
(a) the charter or by-laws of the Company, or any of its
Subsidiaries, or
(b) any applicable law, rule or regulation (including
without limitation Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System), or
<PAGE>
(c) any law, statute, regulation, rule, order, writ,
injunction or decree of any court or governmental authority or
agency applicable to or binding on the Company, any of its
Subsidiaries, or any of their respective properties or assets, or
(d) Any agreement or instrument to which the Company, any
of its Subsidiaries, or any of their respective properties or
assets, is a party or by which it is bound, or constitute a
default under any such agreement or instrument, or result in the
creation or imposition of any Lien (other than Permitted Liens)
upon any of the properties, assets or revenue of the Company, any
of its Subsidiaries, pursuant to the terms of any such agreement
or instrument.
5.5 CORPORATE ACTION. The Company has all necessary
corporate power and authority to make and perform this Agreement,
the Note, and each of the other Credit Documents executed or to
be executed by it; the making and performance by the Company of
this Agreement, the Note, and each of the other Credit Documents
executed or to be executed by it, have been duly authorized by
all necessary corporate action on its part; and this Agreement
constitutes, and the Note when executed and delivered by the
Company for value will constitute, and each of the other Credit
Documents constitute, the legal, valid and binding obligation of
the Company, enforceable in accordance with its terms, except to
the extent that enforcement may be limited by applicable bank-
ruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally, and by
general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law).
5.6 APPROVALS. No authorizations, approvals or consents
of, which have not been obtained and no filings or registrations
with, any governmental or regulatory authority or agency are
necessary for the making or performance by the Company of the
Note or for the making or performance by the Company of this
Agreement or any of the other Credit Documents executed or to be
executed by it, or for the validity or enforceability thereof.
5.7 ERISA. The Company and each of its ERISA Affiliates
has fulfilled its obligations under the minimum funding standards
of ERISA and the Code with respect to each Plan and are in
compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and have not incurred any
material liability to the PBGC or any Plan or Multi-Employer
Plan, other than an obligation to fund or make contributions to
any such Plan in accordance with its terms and in the ordinary
course.
5.8 TAXES. The Company, each of its Subsidiaries, have
filed all United States Federal income tax returns and all other
material tax returns which are required to be filed by them and
have paid all taxes shown to be due pursuant to such returns or
pursuant to any assessment received by them, except those taxes
being contested in good faith by proper proceedings and for which
adequate reserves are being maintained.
5.9 INVESTMENT COMPANY ACT. Neither the Company, nor any
of its Subsidiaries is an "investment company", or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5.10 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the
Company, nor any of its Subsidiaries is a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding
company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.11 CAPITALIZATION OF THE COMPANY AND UNIVERSAL.
(a) The authorized capital stock of the Company (the
"Company Capital Stock") consists of 25,000,000 shares of common
stock, par value $1.00 per share, of which 23,967,545 shares are
issued and outstanding on the date hereof. All such outstanding
shares of the Company Capital Stock are fully paid and
nonassessable. The Company shall not have any capital stock
other than the Company Capital Stock. The Company is a Subsidiary
of United Trust Group. As of the date hereof, the Company has
only the Subsidiaries listed on Annex II hereto. There are no
<PAGE>
outstanding subscriptions, options, warrants, calls, rights
(including preemptive rights) or other agreements or commitments
of any nature relating to the Company Capital Stock or any
capital stock of any of its Subsidiaries.
(b) The authorized capital stock of Universal (the
"Universal Capital Stock") consists of 400,000 shares of common
stock, par value $1.00 per share, of which 400,000 shares are
issued and outstanding on the date hereof. All such outstanding
shares of Universal Capital Stock are fully paid and non-
assessable, and one hundred percent (100%) of such outstanding
shares are owned beneficially and of record by the Company, free
and clear of all Liens and encumbrances whatsoever. The
outstanding capital stock of Universal consists only of Universal
Capital Stock, and the Company owns and has good title to free
and clear of all Liens and encumbrances whatsoever, and has the
unencumbered right to vote, one hundred percent (100%) of the
outstanding shares of the Universal Capital Stock. There are no
outstanding subscriptions, options, warrants, calls, rights
(including preemptive rights) or other agreements or commitments
of any nature relating to the Universal Capital Stock. Universal
shall not have any capital stock other than the Universal Capital
Stock. The only direct Subsidiary of Universal is United
Security Assurance Company.
5.12 ASSETS OF THE COMPANY AND ITS SUBSIDIARIES. T h e
Company, and each of its Subsidiaries has good and marketable
title to all of its properties and assets, free and clear of all
Liens (except Permitted Liens).
5.13 OTHER AGREEMENTS. As of the date hereof, no default
exists under the FCC Notes and no Event of Default, as defined in
the UTG Security Agreement, exists and no circumstance exist
which, with the passage of time, would constitute such and Event
of Default, and the UTG Security Agreement has not been amended
or otherwise modified, not have any of its provisions been
waived, except pursuant to a written agreement, a copy of which
has been provided to the Bank.
5.14 AGREEMENTS.
(a) Neither the Company, nor its Subsidiaries, is a party
to any agreement or instrument or subject to any restriction that
has or is likely to have a material and adverse effect on the
assets, prospects, business, operations, financial condition,
liabilities or capitalization of the Company.
(b) Neither the Company, nor its Subsidiaries, is in
default in any manner that could materially and adversely affect
the assets, prospects, business, operations, financial condition,
liabilities or capitalization of the Company, and/or its
Subsidiaries, or the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any
material agreement or instrument to which it is a party.
5.15 SOLVENCY.
(a) The fair saleable value of the assets of the Company
respectively exceeds and will, immediately following the making
of the Loan, exceed the amount that will be required to be paid
on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Company as they mature.
(b) Neither the Company, nor Subsidiaries respectively, has
or will have, immediately following the making of the Loan,
unreasonably small capital to carry out its business as conducted
or as proposed to be conducted.
(c) Neither the Company, nor Subsidiaries respectively,
intends to, or believes that it will, incur debts beyond its
ability to pay such debts as they mature.
5.16 SECURITY DOCUMENTS. On and after the date hereof, the
Security Documents create, as security for the obligations
purported to be secured thereby, a valid and enforceable
perfected security interest in and Lien on all of the properties
covered thereby in favor of the Bank, superior to and prior to
the rights of all third Persons and subject to no other Liens
(other than Permitted Liens). The respective pledgor, assignor or
grantor, as the case may be, has good and marketable title to all
such properties free and clear of all Liens (other than Permitted
Liens).
<PAGE>
5.17 MARGIN REGULATIONS. Neither the making of the Loan
hereunder, nor the use of the proceeds thereof, will violate or
be inconsistent with the provisions of Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System.
5.18 USE OF PROCEEDS OF THE LOAN. The proceeds of the Loan
will be used by the Company to refinance indebtedness evidenced
by that certain Credit Agreement between the Company and First
Bank of Gladstone dated as of December 11, 1989, as amended.
SECTION 6. COVENANTS.
Until payment in full of the principal of and interest on
the Loan and all other amounts payable by the Company hereunder:
6.1 INFORMATION. The Company shall deliver or cause to be
delivered to the Bank:
(a) as soon as available and in any event within 50 days
after the end of each fiscal quarter of the Company, consolidated
statements of earnings and cash flows of the Company and its
consolidated Subsidiaries for such quarter and for the period
from the beginning of the respective fiscal year to the end of
such quarter, and the related consolidated balance sheet as at
the end of such quarter, setting forth in each case in
comparative form the corresponding figures for the corresponding
period in the preceding fiscal year, accompanied by a certificate
of the principal financial officer of the Company, which
certificate shall state that said financial statements fairly
present the consolidated financial condition and results of
operations of the Company and its consolidated Subsidiaries in
accordance with GAAP consistently applied, as at the end of, and
for, such period (subject to normal year-end audit adjustments
and to the absence of footnote disclosures);
(b) as soon as available and in any event within 95 days
after the end of each fiscal year of the Company, consolidated
statements of earnings and cash flows the Company and its
consolidated Subsidiaries for such year and the related con-
solidated balance sheet as at the end of such year, setting forth
in each case in comparative form the corresponding figures for
the preceding fiscal year, and accompanied by an opinion thereon
of independent certified public accountants satisfactory to the
Bank, which opinion shall state without qualification that said
consolidated financial statements fairly present the consolidated
financial condition and results of operations of the Company and
its consolidated Subsidiaries as at the end of, and for, such
fiscal year.
(c) promptly upon their becoming available, copies of all
registration statements and annual, periodic or other regular
reports, and such proxy statements and other information, as
shall be filed by the Company or any of its Subsidiaries with the
SEC, any national securities exchange or any governmental
authority (including, without limitation, any state insurance
commission or other insurance regulatory authority);
(d) promptly upon the mailing thereof to the shareholders
of the Company or any of its Subsidiaries generally, copies of
all financial statements, reports and proxy statements so mailed;
(e) as soon as possible, and in any event within ten days
after the Company or any ERISA Affiliate knows or has reason to
know that any of the events or conditions specified below with
respect to any Plan or Multi-Employer Plan have occurred or
exist, a statement signed by a senior officer of the Company
setting forth details respecting such event or condition and the
action, if any, which the Company or its ERISA Affiliate proposes
to take with respect thereto (and a copy of any report or notice
required to be filed with or given to PBGC by the Company or an
ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section
4043(b) of ERISA and the regulations issued thereunder, with
respect to a Plan, as to which PBGC has not by regulation
waived the requirement of Section
<PAGE>
4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (provided that a failure to meet
the minimum funding standard of Section 412 of the Code or
Section 302 of ERISA shall be a reportable event regardless
of the issuance of any waivers in accordance with Section
412(d) of the Code);
(ii) the filing under Section 4041 of ERISA of a
notice of intent to terminate any Plan or the termination of
any Plan;
(iii) the institution by PBGC of proceedings
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice
from a Multi-Employer Plan that such action has been taken
by PBGC with respect to such Multi-Employer Plan;
(iv) the complete or partial withdrawal by the
Company or any ERISA Affiliate under Section 4201 or 4205 of
ERISA from a Multi-Employer Plan, or the receipt by the
Company or any ERISA Affiliate of notice from a Multi-
Employer Plan that is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA or that it intends
to terminate or has terminated under Section 4041A of ERISA;
and
(v) the institution of a proceeding by a fidu-
ciary of any Multi-Employer Plan against the Company or any
ERISA Affiliate to enforce Section 515 of ERISA, which pro-
ceeding is not dismissed within 30 days;
(f) promptly after the Company knows that any Default has
occurred, notice of such Default, describing the same in
reasonable detail and describing the steps being taken to remedy
the same;
(g) promptly upon delivery of any notice or communication
to the Company of any notice required to be given pursuant to the
Other Debt Documents, including demands for payment and notices
of default, a copy thereof to the Bank (but only to the extent
such notice or communication has not previously been given to the
Bank hereunder);
(h) promptly from time to time such other information as
reasonably requested by the Bank regarding (i) the business,
affairs, operations or condition (financial or otherwise) of the
Company, or any of its Subsidiaries, (ii) compliance by the
Company with respect to its obligations contained herein or in
any of the other Credit Documents, or (iii) the transactions
contemplated hereby.
The Company will furnish to the Bank, at the time the Company
furnishes each set of financial statements pursuant to clauses
(a) or (b) above, a certificate of the principal financial
officer of the Company to the effect that no Default has occurred
and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail and
describing the steps being taken to remedy the same) and
including such other information as the Bank may from time to
time request to be included in such certificate.
6.2 LITIGATION. The Company will promptly give to the
Bank notice of all legal or arbitration proceedings, and of all
proceedings by or before any governmental or regulatory authority
or agency, affecting the Company, and/or its Subsidiaries, which,
if adversely determined, might have a material adverse effect on
the assets, prospects, business, operations, financial condition,
liabilities or capitalization of the Company, and/or its
Subsidiaries, or on the timely payment of the principal of or
interest on the Loan or the enforceability of this Agreement, the
Note or any of the other Credit Documents, or the rights and
remedies of the Bank hereunder.
6.3 CORPORATE EXISTENCE ETC. The Company shall, and shall
cause each of the Subsidiaries to:
(a) preserve and maintain its corporate existence and all
of its material rights, privileges and franchises;
(b) comply with the requirements of all applicable laws,
rules, regulations and orders of governmental or regulatory
authorities or agencies if failure to comply with such
requirements would materially and adversely affect the
<PAGE>
assets, prospects, business, operations, financial condition,
liabilities or capitalization of the Company, and/or its
Subsidiaries, or the timely payment of the principal of or
interest on the Loan or the enforceability of this Agreement, the
Note or any of the other Credit Documents, or the rights and
remedies of the Bank hereunder or thereunder;
(c) pay and discharge all taxes, assessments and govern-
mental charges or levies imposed on it or on its income or
profits or on any of its property prior to the date on which
penalties attach thereto, except for any such tax, assessment
charge or levy the payment of which is being contested in good
faith and by proper proceedings and against which adequate
reserves are being maintained;
(d) maintain all of its properties used or useful in its
business in good working order and condition, ordinary wear and
tear excepted;
(e) permit representatives of the Bank, during normal
business hours, to examine, copy and make extracts from its books
and records, to inspect its properties, and to discuss its
business and affairs with its officers, all to the extent
reasonably requested by the Bank; and
(f) keep insured by financially sound and reputable
insurers all property of a character usually insured by
corporations engaged in the same or similar business similarly
situated against loss or damage of the kinds and in the amounts
customarily insured against by such corporations and carry such
other insurance as is usually carried by such corporations.
6.4 MINIMUM CONSOLIDATED NET WORTH. The Company shall
not permit Consolidated Net Worth (based on GAAP) on any date to
be less than four hundred percent (400%) of the outstanding
balance of the Note.
6.5 CAPITAL AND SURPLUS.
(a) The Company shall not permit the Statutory Capital and
Surplus of Universal and its Subsidiaries to be less than Six
Million Five Hundred Thousand and No/100 Dollars ($6,500,000) on
any date.
(b) The Company shall not permit the sum of its cash or
cash equivalents plus Adjusted Statutory Capital and Surplus of
Universal to be less than Fifteen Million and No/100 Dollars
($15,000,000) on any date.
6.6 INDEBTEDNESS. The Company shall not, and shall not
permit any of its Subsidiaries to, create, assume, incur or
suffer to exist any Indebtedness except:
(a) Indebtedness of the Company under this Agreement, the
Note and the other Credit Documents;
(b) Indebtedness of the Company and its Subsidiaries not
exceeding an aggregate principal amount of one hundred fifty
thousand and No/100 Dollars ($150,000) at any one time
outstanding, other than Indebtedness described in Sections
6.6(a), 6.6(c), 6.6(d) and 6.6(e);
(c) Indebtedness owing by any Subsidiary or Affiliate of
the Company to the Company, or by any such Subsidiary or
Affiliate to any other such Subsidiary or Affiliate.
(d) Indebtedness evidenced by the FCC Notes; and
(e) Indebtedness evidenced by the Other Notes.
6.7 CAPITAL EXPENDITURES. The Company shall not, and
shall not permit any of its Subsidiaries to, make Capital
Expenditures for any fiscal year in an aggregate amount exceeding
two hundred fifty thousand and No/100 Dollars ($250,000).
<PAGE>
6.8 MERGERS, ACQUISITIONS SALE OF ASSETS ETC. Without
the prior written consent of the Bank, the Company shall not, and
shall not permit any of its Subsidiaries to, consolidate or merge
with, or sell, lease, assign, transfer or otherwise dispose of
all or any part of its business or assets to or be a party to any
Acquisition of any other Person, other than:
(a) sales of assets in the ordinary course of the business
of the Company, and/or its Subsidiaries or Affiliates; and
(b) the disposition of obsolete or worn-out fixed assets,
plant, equipment or other property no longer required by or
useful to the Company, and/or its Subsidiaries or Affiliates in
connection with the operation of its business.
6.9 RESTRICTED PAYMENTS. The Company shall not, and
shall not permit any of its Subsidiaries or Affiliates to, make
any Restricted Payment, except (i) payments of dividends by any
Subsidiary of the Company to the Company or any other Subsidiary
of the Company; and (ii) so long as no Event of Default exists
under this Agreement, the Company may make payment under the FCC
Notes as and when required, but not more than ten (10) days in
advance of the date payment is due; and (iii) so long as no Event
of Default exists under this Agreement, the Company may make
payments of interest only under the Other Notes as and when
required by the terms thereof.
6.10 AMENDMENTS TO DOCUMENTS; PREPAYMENTS OF INDEBTEDNESS.
(a) The Company shall not amend or otherwise modify any
provision of the Other Debt Documents.
(b) The Company shall not at any time exercise any option
or right under the Other Debt Documents to prepay, redeem,
defease or make any payment the effect of which is to prepay,
redeem or defease any of the FCC Notes or Other Notes.
6.11 LIENS. The Company shall not, and shall not permit
any of its Subsidiaries to, create, incur or permit to exist any
Lien on or in respect of any of its properties, assets or
revenues, now or hereafter acquired, securing Indebtedness or
other obligations, except (a) Permitted Liens and (b) the Liens
created pursuant to the Security Documents.
6.12 ISSUANCE OF CAPITAL STOCK. The Company shall not,
and shall not permit any of its Subsidiaries to, issue any
additional shares of capital stock or any options, warrants or
other rights therefor.
6.13 INVESTMENT AND JOINT VENTURES.
(a) Without the prior written consent of the Bank, which
consent may be withheld by the Bank in its sole discretion, the
Company shall not and shall not permit Appalachian, Lincoln,
Universal or United Security to (i) alter the Investment
Strategy, or (ii) after the date hereof, invest in real estate
mortgages, the amount of which when aggregated with the amount
mortgages invested in after the date hereof by Appalachian,
Lincoln, Universal and United Security exceeds Five Million and
No/100 Dollars ($5,000,000) at any one time; or (iii) invest in
the aggregate more than Seven Hundred Fifty Thousand and No/100
Dollars ($750,000) in any other investments permitted by
applicable state insurance laws.
6.14 ADDITIONAL SECURITY DOCUMENTS. Promptly upon any
Person becoming a direct Subsidiary of the Company, the Company
shall promptly notify the Bank thereof and, if requested by the
Bank, pledge the shares of capital stock of such Person pursuant
to a Security Agreement-Pledge in form and substance satisfactory
to the Bank; and the Company agrees to cause such Person to
execute and deliver such other documentation as the Bank may
reasonably require, including without limitation favorable
opinions of counsel to such Person (which shall cover, among
other things, the legality, validity, binding effect and
enforceability of the documentation referred to above, subject to
customary exceptions).
<PAGE>
6.15 TRANSACTIONS WITH AFFILIATES. The Company shall not, at
any time hereafter, and shall not permit any of its Subsidiaries
at any time hereafter to, directly or indirectly, (a) make any
Investment in an Affiliate, (b) transfer, sell, lease, assign or
otherwise dispose of any assets to an Affiliate other than as
expressly permitted herein, (c) merge or consolidate with or
purchase or acquire any assets from an Affiliate, (d) guarantee
or assume any obligations of an Affiliate, or (e) enter into any
other transaction directly or indirectly with or for the benefit
of an Affiliate; provided that (i) any Affiliate who is an indi-
vidual may serve as a director, officer or employee of the
Company, or any of its Subsidiaries and receive compensation or
indemnification in connection with his or her services in such
capacity, (ii) the Company and any of its Subsidiaries may enter
into any sale, lease or similar transaction with an Affiliate in
the ordinary course of business if the monetary or business con-
sideration arising therefrom would be substantially as advanta-
geous to the Company, or such Subsidiary as the monetary or
business consideration which would obtain in a comparable arm's
length transaction with a Person not an Affiliate.
6.16 FURTHER ASSURANCES. The Company shall do all things as
may be reasonably required by the Bank and execute and deliver to
the Bank such documents and other instruments ("Supplemental
Instruments") in form and substance reasonably satisfactory to
the Bank, as may be required in order to create and maintain the
validity and priority of the Lien of any of the Security
Documents. The Company shall cause any such Supplemental
Instrument to be recorded or filed in the appropriate office,
shall pay any recording taxes, charges or fees incurred in
connection therewith, and shall reimburse the Bank for all
reasonable out-of-pocket costs, fees and expenses incurred by the
Bank in connection with the execution and delivery of any such
Supplemental Instrument.
6.17 COMPENSATION. In any calendar year, the Company shall
not increase the aggregate Base Compensation of its executive
officers by greater than one hundred fifteen percent (115%) over
the Base Compensation paid to those officers in the aggregate in
the immediately preceding calendar year.
6.18 SENIOR LENDER STATUS
(a) Within sixty (60) days after the date hereof, the
Company shall deliver to the Bank the written acknowledgement of
Lenders acknowledging that the Bank is a Senior Lender and that
the security interest of the Lenders in the Collateral is subject
to the Lien of the Bank.
(b) Capitalized terms used in this Section 6.18 but not
defined in this Agreement shall have the meaning given to them in
the UTG Security Agreement.
6.19 EARNINGS COVENANTS. The Company shall not permit:
(a) The sum of (i) pre-tax earnings of Universal and its
Subsidiaries (based on Statutory Accounting Practices) and (ii)
the pre-tax earnings of the Company, before interest expense and
non-cash charges (based on parent only GAAP practices) shall not
be less than two hundred percent (200%) of the Company's interest
expense on all of its debt service; and
(b) The sum of (i) the combined after-tax earnings of
Universal and its Subsidiaries (based on Statutory Accounting
Practices) and (ii) the after-tax earnings plus non-cash charges
of the Company (based on parent only GAAP practices) shall not be
less than two hundred percent (200%) of the Company's principal
payments due during the year on all of its debt service;
provided, however, that so long as no Event of Default exists
under the Credit Documents and Universal's Risk Based Capital
Ratio shall not be less than 2.5 to 1.0, the Bank shall waive the
Company's compliance with this covenant.
6.20 MANAGMENT AGREEMENTS. After the occurrence of an
Event of Default, the Subsidiaries shall make no payment to each
other or to the Company pursuant to the Management Agreements
which is in the aggregate in excess of the amount needed by the
Company to service the Note and make other payments to the Bank
required by the Credit Documents.
<PAGE>
6.21 RISK BASED CAPITAL RATIO. The Company shall not
permit Universal's ratio of Risk Based Capital Ratio to be less
than 2.5 to 1.0 at December 31, 1996, 2.75 to 1.0 at December 31,
1997 and 3.0 to 1.0 at December 31, 1998 and at all times
thereafter. Compliance with this covenant shall be evidenced by
quarterly certification from the Company's chief financial
officer.
6.22 SURPLUS RELIEF REINSURANCE. The Company shall not
permit any Subsidiary to enter into any Surplus Relief treaty.
6.23 METHODS OF CALCULATION. The Company shall not, and
shall not permit any Subsidiary, without the prior written
consent of the Bank, to change the methods or assumptions used to
calculate statutory reserves and for statutory reporting
purposes. If the use of practices of accounting otherwise
permitted by applicable law (the "Other Practices") but not used
by the Company or the Subsidiaries on the date hereof, are later
used, such Other Practices shall not be permissible if the result
of their use causes compliance with Sections 6.5(b) or 6.21.
SECTION 7. EVENTS OF DEFAULT.
If one or more of the following events (herein called
"Events of Default") shall occur and be continuing:
(a) Within seven (7) days following written notice from the
Bank, the Company shall default in the payment of any principal
of the Loan; or the Company shall default in the payment of
interest on the Loan or any fee or other amount payable by it
hereunder; or
(b) The Company, and/or its Subsidiaries shall default in
the payment when due of any principal of or interest on any of
its or their other Indebtedness beyond any applicable grace
periods; or any other event specified in any note, agreement,
indenture or other document evidencing or relating to any such
Indebtedness shall occur if the effect of such event is to cause,
or to permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause,
such Indebtedness to become due prior to its stated maturity; or
(c) Any representation, warranty or certification made or
deemed made in this Agreement or in any of the other Credit
Documents by the Company, and/or its Subsidiaries, or any
certificate furnished to the Bank pursuant to the provisions
hereof or thereof, shall prove to have been false or misleading
as of the time made or furnished in any material respect; or
(d) Within thirty (30) days following written notice from
the Bank, the Company shall default in the performance or
observance of any term, covenant, agreement or obligation
hereunder or under any of the other Credit Documents; or
(e) The Company or any of its Subsidiaries (each a
"Specified Party") shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due; or
(f) Any Specified Party shall (i) apply for or consent in
writing to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or
a substantial part of its property, (ii) make a general assign-
ment for the benefit of its creditors, (iii) commence a voluntary
case under the Bankruptcy Code (as now or hereafter in effect),
(iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up,
or composition or readjustment of debts, (v) fail to controvert
in a timely and appropriate manner, or acquiesce in writing to,
any petition filed against it in an involuntary case under the
Bankruptcy Code or (vi) take any action for the purpose of
effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the
application or consent of any Specified Party, in any court of
competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, for the composition or
readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of such Specified
Party
<PAGE>
or of all or any substantial part of its assets, or (iii) similar
relief in respect of such Specified Party under any law relating
to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of 60 days; or an
order for relief against any Specified Party shall be entered in
an involuntary case under the Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money
in excess of $100,000.00 in the aggregate shall be rendered by a
court or courts against any Specified Party and the same shall
not be discharged (or provision shall not be made for such dis-
charge), or a stay of execution thereof shall not be procured,
within 45 days from the date of entry thereof and such Specified
Party shall not, within said period of 45 days, or such longer
period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed
during such appeal; except for policyholder suits for which
adequate provision has been made on the books of the Specified
Party; or
(i) An event or condition specified in Section 6.1(e)
hereof shall occur or exist with respect to any Plan or Multi--
Employer Plan and, as a result of such event or condition,
together with all other such events or conditions, the Company or
any ERISA Affiliate shall incur a liability to a Plan, a Multi-
Employer Plan or PBGC (or any combination of the foregoing) in
excess of $25,000.00; or
(j) One or more of the Security Documents shall cease to be
in full force and effect, or shall cease to give the Bank the
Liens, rights, powers and privileges purported to be created
thereby (including without limitation a first priority perfected
security interest in and Lien on all of the properties covered
thereby), in favor of the Bank, subject to no equal or prior
Liens (other than Permitted Liens); or
(k) Any material adverse change occurs in the condition
(financial or otherwise) of the Company, and/or its Subsidiaries;
or
(l) Any governmental authority or agency shall determine or
declare that the Company or any of its Subsidiaries is insolvent;
or any governmental authority or agency shall intervene in the
affairs of the Company, or the Subsidiaries in a manner which has
a material adverse effect upon the financial conditions of the
Company or the Subsidiaries or their ability to conduct their
business, including, but not limited to issuance of a consent
order or an order of impairment covering the Company or any
Subsidiaries; or any governmental authority or agency shall take
possession of any of the assets, property or business of the
Company or any of its Subsidiaries; or any governmental authority
or agency shall take any action to vacate or revoke any charter,
license or other authorization to engage in the insurance
business of the Company or any of its Subsidiaries, or gives any
notice of its intent to terminate the status of any Subsidiary of
the Company as a licensed insurance company; or any governmental
authority or agency shall appoint a liquidator or receiver to
take charge of the affairs, assets and/or business of the Company
or its Subsidiaries if the declaration, intervention or action is
not vacated or dismissed within sixty (60) days after it is made
or taken by the governmental authority or agency; or
(m) Any of the authorized Capital Stock of Appalachian,
United Security or Lincoln shall be mortgaged, pledged, assigned,
charged, encumbered or subject to a security interest of any
kind; or
(n) An event of default shall occur under the FCC Notes,
the UTG Security Agreement or the Other Notes; or
(o) A Change in Control; or
(p) Without the prior written consent of the Bank, which
consent may be withheld in the sole discretion of the Bank, the
occurrence of any transaction or series of transactions by which
a majority (in number of votes) of the capital stock or
substantially all of the assets of any Senior Affiliate shall be
acquired, whether through purchase of assets, merger or
otherwise, by any other Senior Affiliate or any Person.
<PAGE>
THEREUPON: (i) in the case of an Event of Default other than an
Event of Default referred to in clause (f), (g) or (l) of this
Section 7, the Bank may, at its option, declare the principal
amount then outstanding under the Note, all accrued unpaid
interest thereon, and all other amounts payable by the Company
under this Agreement and the Note to be forthwith due and
payable, whereupon such amounts shall be immediately due and
payable without presentment, demand, protest, notice of protest,
notice of acceleration, notice of intention to accelerate or
other formalities or notices of any kind, all of which are hereby
expressly waived by the Company, except as provided above, and
(ii) in the case of the occurrence of an Event of Default
referred to in clause (f), (g) or (l) of this Section 7, the
principal amount then outstanding under the Note, all accrued
unpaid interest thereon, and all other amounts payable by the
Company under this Agreement and the Note shall become
automatically immediately due and payable without presentment,
demand, protest, notice of protest, notice of acceleration,
notice of intention to accelerate or other formalities or notices
of any kind, all of which are hereby expressly waived by the
Company.
SECTION 8. MISCELLANEOUS.
8.1 WAIVER. No failure on the part of the Bank to
exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under this
Agreement or any of the other Credit Documents shall operate as a
waiver thereof nor shall any single or partial exercise of any
right, power or privilege under this Agreement or any of the
other Credit Documents preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of
any remedies provided by law or equity.
8.2 NOTICES. All notices and other communications provided
for herein (including, without limitation, any waivers or
consents under this Agreement) shall be given or made by Federal
Express or other national overnight courier, messenger delivery
or certified mail, return receipt requested (each communication
given by any of such means to be deemed to be "in writing" for
purposes of this Agreement) to the intended recipient at the
"Address for Notices" specified below its name on the signature
pages hereof or, as to any party, at such other address as shall
be designated by such party in a written notice to the other
parties hereto. Except as otherwise provided in this Agreement,
all such communications shall be deemed to have been duly given
when transmitted by Federal Express or other national overnight
courier, messenger delivery or certified mail, return receipt
requested, or when personally delivered or, in the case of a
mailed notice, upon deposit with the United States Postal
Service, postage prepaid, in each case given or addressed as
aforesaid.
8.3 EXPENSES, ETC. The Company agrees (a) to pay or reim-
burse the Bank on demand for the reasonable out-of-pocket costs
and expenses of the Bank (including without limitation the
reasonable fees and expenses of Howard & Howard in connection
with (i) the negotiation, preparation, execution and delivery of
this Agreement, the Note and any of the other Credit Documents,
and the making of the Loan hereunder and (ii) any amendment,
modification, waiver or extension of any of the terms of this
Agreement, the Note or any of the other Credit Documents, (b) to
pay or reimburse the Bank for all reasonable out-of-pocket costs
and expenses of the Bank (including reasonable counsels' fees and
expenses) in connection with the enforcement of this Agreement,
the Note or any of the other Credit Documents or any rights or
remedies of the Bank thereunder, or at law, or in equity, and all
transfer, stamp, documentary or other similar taxes, assessments
or charges levied by any governmental or revenue authority in
respect of this Agreement, the Note or any of the other Credit
Documents and (c) to pay filing and recording fees relating to,
and taxes and other charges incurred in connection with
perfecting, maintaining and protecting, the Liens created or
contemplated to be created pursuant to the Security Documents.
The Company hereby indemnifies the Bank and its directors,
officers, employees, agents and affiliates from, and agrees to
hold each of them harmless against any and all losses, claims,
damages, liabilities (or actions or other proceedings commenced
or threatened in respect thereof) and reasonable expenses that
arise out of or in any way relate to or result from the making of
the Loan hereunder or the other transactions contemplated hereby
or thereby, including, without limitation, any investigation or
litigation or other proceedings (whether or not such indemnified
person is a party to any action or proceeding out of which any of
the foregoing arise), other than any of the foregoing to the
extent incurred by reason of the gross negligence or wilful
misconduct of the person to be indemnified. The Bank shall not be
responsible or liable to the Company or any other
<PAGE>
Person for any consequential damages which may be alleged as a
result of this Agreement or any action or omission by the Bank
in connection therewith or the transactions contemplated thereby.
8.4 AMENDMENTS ETC. Except as otherwise expressly
provided in this Agreement, any provision of this Agreement or
any of the other Credit Documents may be amended only by an
instrument in writing signed by the Company, and the Bank.
8.5 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding uponand inure to thebenefit of the partieshereto and its-
legal representatives, successors and permitted assigns.
8.6 ASSIGNMENTS AND PARTICIPATIONS.
(a) The Company may not assign its rights or obligations
hereunder or under any of the other Credit Documents without the
prior written consent of the Bank.
(b) The Bank may assign the Loan, the Note or any other
Credit Document, without the prior consent of the Company. Upon
notice to the Company of any assignment permitted hereunder, the
assignee shall have, to the extent of such assignment, the
obligations, rights and benefits of the Bank assigned to it and
the Bank shall, to the extent of such assignment, be released
from any obligation under the Loan, this Agreement or any of the
other Credit Documents so assigned.
(c) The Bank may sell to one or more other Persons
("Participants") a participation in all or any part of the Loan.
All amounts payable by the Company to the Bank hereunder
(including without limitation under Section 3 hereof) shall be
determined as if the Bank had not sold any participations and as
if the Bank were funding the Loan in which participations have
been sold in the same way that it is funding the portion of the
Loan in which no participations have been sold. In no event shall
the Bank be obligated to the participant under the participation
agreement to take or refrain from taking any action hereunder or
under any of the other Credit Documents (including without
limitation granting approval of any amendment or waiver) except
that the Bank may agree in the participation agreement that it
will not, without the consent of the participant, agree to (i)
the extension of any date fixed for the payment of principal of
or interest on the Loan, (ii) the reduction of any payment of
principal thereof, (iii) the reduction of the rate at which
interest is payable thereon or (iv) the release or termination of
any Lien created by any of the Security Documents (except as
expressly provided for therein).
(d) The Bank may furnish any information concerning the
Company or any of its Subsidiaries in the possession of the Bank
from time to time to assignees and participants (including
prospective assignees and participants).
8.7 SURVIVAL. The obligations of the Company under Section
8.3 hereof shall survive the repayment of the Loan.
8.8 CAPTIONS. Captions and section headings appearing
herein are included solely for convenience of reference and are
not intended to affect the interpretation of any provision of
this Agreement.
8.9 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall
constitute one and the same instrument and any of the parties
hereto may execute this Agreement by signing any such
counterpart.
8.10 INTEGRATION; SEVERABILITY. This Agreement, together
with the Note, the Security Documents, and all other Credit
Documents, constitutes the entire agreement of the parties
thereto, and supersedes all prior agreements and understandings,
both written and oral. No course of dealing between the parties,
no course of performance, no usage of trade, and no parol
evidence of any nature shall be used to supplement or modify any
term of this Agreement, the Note, the Security Documents, or any
of the other Credit Documents. If any clause, provision or
section of this
<PAGE>
Agreement, the Note, any of the Security Documents or any
of the other Credit Documents shall be held illegal or invalid
by any court, the validity of such clause, provision or section
shall not effect any of the remaining clauses, provisions or
sections of this Agreement, the Note, any of the Security
Documents, or any of the other Credit Documents, and the same
shall be construed and enforced as if such illegal or invalid
clause, provision or section had not been contained herein or
therein. In case any agreement or obligation contained this
Agreement, the Note, any of the Security Documents or any of the
other Credit Documents shall be held to be in part a
violation of law, then such agreement or obligation shall be
enforced to the fullest extent permitted by law.
8.11 Governing Law; Submission to Jurisdiction; Etc. THIS
AGREEMENT, THE NOTE AND THE OTHER CREDIT DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF ILLINOIS. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY ILLINOIS STATE OR UNITED STATES FEDERAL COURT
SITTING IN SPRINGFIELD, ILLINOIS OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE, OR ANY OF
THE OTHER CREDIT DOCUMENTS, AND THE COMPANY HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN SUCH ILLINOIS STATE OR FEDERAL
COURT. THE COMPANY WAIVES ANY OBJECTION TO VENUE IN SUCH STATE
AND ANY OBJECTION TO ANY ACTION OR PROCEEDING IN SUCH STATE ON
THE BASIS OF FORUM NON CONVENIENS. NOTHING IN THIS SECTION 8.11
SHALL AFFECT THE RIGHT OF THE BANK TO SERVE LEGAL PROCESS IN ANY
MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE BANK TO BRING
ANY ACTION OR PROCEEDING AGAINST THE COMPANY OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION.
8.12 Waiver of Trial by Jury. THE COMPANY HEREBY WAIVES
TRIAL BY JURY IN ANY LAWSUIT, ACTION, PROCEEDING, COUNTERCLAIM,
OR CROSSCLAIM ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY
WAY RELATED TO THIS AGREEMENT OR ANY OF THE OTHER CREDIT
DOCUMENTS.
IN WITNESS WHEREOF, the parties hereto have caused this
Credit Agreement to be duly executed as of the day and year first
above written.
The rest of this page is intentionally left blank.
rfm\foa-ill\first.cmw\credagr.cln
<PAGE>
SIGNATURE PAGE TO CREDIT AGREEMENT
THE COMPANY:
FIRST COMMONWEALTH CORPORATION
James E. Melville
By:_____________________________________
James E. Melville
Its: Senior Executive Vice President
Attest: Address for Notices:
George E. Francis
_____________________________ 5250 South Sixth Street Road
George E. Francis, Secretary Springfield, Illinois 62705
rfm\foa-ill\first.cmw\credagr.cln
<PAGE>
SIGNATURE PAGE TO CREDIT AGREEMENT
THE BANK:
FIRST OF AMERICA BANK-ILLINOIS, N.A.
Michael L. McGlasson
By:__________________________________
Michael L. McGlasson
Its: Senior Vice President
Address for Notices:_________________
_________________
_________________
rfm\foa-ill\first.cmw\credagr.cln
<PAGE>
TERM NOTE
Springfield, Illinois
As of May 8, 1996 $8,900,000.00
FOR VALUE RECEIVED, the undersigned, FIRST COMMONWEALTH
CORPORATION, a Virginia corporation (herein called "Maker"),
promises to pay to the order of FIRST OF AMERICA BANK-ILLINOIS,
N.A. (herein called "Payee," which term herein in every instance
shall refer to any owner or holder of this note) the sum of EIGHT
MILLION NINE HUNDRED THOUSAND AND NO/100 DOLLARS ($8,900,000.00),
together with interest on the principal hereof from time to time
outstanding from the date of advancement until maturity, at the
per annum rate hereinafter stated, said principal and interest
being payable in lawful money of the United States of America at
the banking office quarters of the Payee at One Old Capital Plaza
North, Springfield, Illinois 62794-9268, or at such other place
as Payee may designate hereafter in writing.
The principal balance hereof advanced and from time to time
remaining unpaid shall bear interest during each day of the term
of the loan evidenced hereby at a variable per annum rate equal
to the lesser of (a) a per annum rate that is equal to the sum
(herein called the "Basic Rate") of (i) nine-sixteenths of one
percent (9/16%) plus (ii) the Base Rate. "Base Rate" means the
floating daily, variable rate of interest determined and
announced by the Bank from time to time as its "Base Lending
Rate" (without reference to prime or base rate of any other
financial institution) which rate may not necessarily be the
lowest rate of interest charged by the Bank to any of its
customers. The Bank's Base Rate is an "Index" and the actual
rate charged to any borrower for a specific loan may be above or
below that "Index". The Basic Rate shall change when and as the
"Base Rate" shall change, effective on the date of such change or
(b) the Maximum Rate (hereinafter defined). Notwithstanding the
foregoing, if at any time the Basic Rate shall exceed the Maximum
Rate and thereafter the Basic Rate shall become less than the
Maximum Rate, the rate of interest payable hereunder shall be the
Maximum Rate until the Payee shall have received the amount of
interest it otherwise would have received if the interest payable
hereunder had not been limited by the Maximum Rate during the
period of time the Basic Rate exceeded the Maximum Rate.
All past due principal and interest of this note, whether
due as the result of acceleration of maturity or otherwise, shall
bear interest at the lesser of (1) a rate that is five percentage
points above the Base Rate, as it varies, or (2) the maximum
lawful rate of interest permitted by the applicable laws, now or
hereafter enacted, which interest rate (herein called the
"Maximum Rate") shall change when and as said laws shall change
to the extent permitted by said laws, effective on the day such
change in said laws becomes effective, from the date the payment
thereof shall have become due until the same have been fully
discharged by payment.
Interest on the principal balance of this note advanced and
from time to time outstanding shall be due and payable in
quarter-annual installments as it accrues, the first such
installment of interest to be due and payable three (3) months
from the date hereof and a subsequent
<PAGE>
installment of interest to be due and payable on the same day
of each succeeding third calendar month thereafter until May
8, 2005, when the then remaining unpaid principal balance
hereof and all accrued unpaid interest thereon shall be due and
payable in full.
The principal balance of the Note shall be due and payable
as follows: (i) an installment of principal in the amount of
$1,000,000 shall be due and payable on May 8, 1997, and (ii)
installments of principal in the amount of $1,000,000 shall be
payable on May 8 of each year thereafter until May 8, 2005, when
the then remaining unpaid balance of principal of the Note and
all accrued unpaid interest thereon shall be due and payable in
full.
Any other provisions of this Note or the Credit Documents
notwithstanding, and subject to the limitations provided below,
the Payee may require payment in full of this Note pursuant to
the Call Option provided in the Credit Agreement, as defined
below.
This note is issued pursuant to that certain Credit
Agreement of even date herewith (the "Credit Agreement"), by and
between Maker and the Payee. This Note is entitled to all the
benefits of the Credit Agreement, is secured as provided in the
Credit Agreement, and reference is hereby made to the Credit
Agreement for certain rights as to the prepayment and the
acceleration of the maturity hereof.
Except as expressly provided herein, in the Credit
Agreement, or in any of the other Credit Documents, Maker and any
and all sureties, guarantors and endorsers of this note and all
other parties now or hereafter liable hereon, severally waive
grace, demand, presentment for payment, protest, notice of any
kind (including, but not limited to, notice of dishonor, notice
of protest, notice of intention to accelerate and notice of
acceleration), all other formalities of any kind and diligence in
collecting and bringing suit against any party hereto, and agree
(a) to all extensions and partial payments, with or without
notice, before or after maturity, (b) to any substitution,
exchange or release of any security now or hereafter given for
this note, (c) to the release of any party primarily or
secondarily liable hereon, and (d) that it will not be necessary
for Payee, in order to enforce payment of this note, to first
institute or exhaust Payee's remedies against Maker or any other
party liable therefor or against any security for this note.
This note shall be governed by and construed under the laws
of the State of Illinois and applicable federal law.
Any check, draft, money order or other instrument given in
payment of all or any portion hereof may be accepted by Payee and
handled in collection in the customary manner, but the same shall
not constitute payment hereunder or diminish any rights of Payee
except to the extent that actual cash proceeds of such instrument
are unconditionally received by Payee.
Maker represents and warrants to Payee and to all other
owners and holders of any indebtedness evidenced hereby that the
loan evidenced by this note is for business, commercial,
investment or other similar purpose and not primarily for
personal, family, household or
<PAGE>
agricultural use, as such terms are used or defined in Regulation
Z promulgated by the Board of Governors of the Federal Reserve
System and under Title I and V of the Consumer Credit Protection
Act.
FIRST COMMONWEALTH CORPORATION,
a Virginia corporation
James E. Melville
Attest: By:____________________________________
James E. Melville
Its: Senior Executive Vice President
George E. Francis
______________________________
George E. Francis, Secretary
rfm\foa-ill\first.cmw\exhibitC.cln
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<DEBT-HELD-FOR-SALE> 2,670,087 0
<DEBT-CARRYING-VALUE> 193,188,725 187,358,497
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 1,828,003 1,893,471
<MORTGAGE> 12,925,481 14,783,086
<REAL-ESTATE> 15,173,850 17,320,558
<TOTAL-INVEST> 243,133,923 241,099,469
<CASH> 16,461,424 12,013,790
<RECOVER-REINSURE> 14,355,766 15,000,609
<DEFERRED-ACQUISITION> 11,678,042 10,778,602
<TOTAL-ASSETS> 356,359,721 367,076,929
<POLICY-LOSSES> 0 0
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 247,389,098 244,624,067
<POLICY-HOLDER-FUNDS> 16,356,576 14,578,564
<NOTES-PAYABLE> 20,094,432 21,450,381
0 0
0 0
<COMMON> 374,019 373,519
<OTHER-SE> 18,897,662 21,106,274
<TOTAL-LIABILITY-AND-EQUITY> 356,359,721 367,076,929
15,314,225 16,683,377
<INVESTMENT-INCOME> 7,863,476 7,693,679
<INVESTMENT-GAINS> (282,947) 7,268
<OTHER-INCOME> 2,431,261 2,243,517
<BENEFITS> 13,612,563 17,211,763
<UNDERWRITING-AMORTIZATION> 2,683,552 1,684,454
<UNDERWRITING-OTHER> 7,152,689 6,649,967
<INCOME-PRETAX> (208,813) (2,435,327)
<INCOME-TAX> 672,660 1,026,169
<INCOME-CONTINUING> 313,775 (510,558)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 313,775 (510,558)
<EPS-PRIMARY> .02 (.03)
<EPS-DILUTED> .02 (.03)
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
