ACQUISITION AND AFFILIATION AGREEMENT
By and Among
CITIZENS SECURITY GROUP INC.,
CITIZENS SECURITY MUTUAL INSURANCE COMPANY,
and
MERIDIAN INSURANCE GROUP, INC.
March 20, 1996
TABLE OF CONTENTS
RECITALS 1
AGREEMENT 4
ARTICLE I THE MERGER 4
Section 1.1. Merger 4
Section 1.2. Effective Time of the Merger 4
Section 1.3. Conversion of Citizens' Shares 5
Section 1.4. Conversion of Merger Company's Shares 8
Section 1.5. Employee Stock Ownership Plan 9
Section 1.6. Stock Options 10
Section 1.7. Board of Directors of Citizens Mutual 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF CITIZENS AND
CITIZENS MUTUAL 10
Section 2.1. Organization 11
Section 2.2. Organization of Subsidiaries 11
Section 2.3. Capitalization 12
Section 2.4. Authority to Conduct Insurance Business 13
Section 2.5. Consents and Approvals and No Defaults 14
Section 2.6. Authority Relative to this Agreement 15
Section 2.7. GAAP Financial Statements 16
Section 2.8. Statutory Financial Statements 17
Section 2.9. Reserves 18
Section 2.10. No Undisclosed Liabilities 18
Section 2.11. Regulatory Filings 19
Section 2.12. SEC Reports 19
Section 2.13. Litigation 20
Section 2.14. Compliance With Law 20
Section 2.15. Properties 21
Section 2.16. Intellectual Property 22
Section 2.17. Environmental Laws and Permits 23
Section 2.18. Taxes 23
Section 2.19. Employee Benefit Plans 24
Section 2.20. Contracts and Commitments 28
Section 2.21. Related Party Transactions 29
Section 2.22. No Finders 29
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MERIDIAN 29
Section 3.1. Organization 29
Section 3.2. Corporate Power and Authority, Etc. 29
Section 3.3. No Conflicts 30
Section 3.4. Consents 30
Section 3.5. Funds Available 31
Section 3.6. Merger Company 31
Section 3.7. GAAP Financial Statements 32
Section 3.8. Statutory Financial Statements 32
Section 3.9. Reserves 33
Section 3.10. No Undisclosed Liabilities 34
Section 3.11. Regulatory Filings 34
Section 3.12. SEC Reports 35
Section 3.13. Litigation 36
Section 3.14. Compliance With Law 36
Section 3.15. Authority to Conduct Insurance Business 37
Section 3.16. Properties 38
Section 3.17. Intellectual Property 38
Section 3.18. Environmental Laws and Permits 38
Section 3.19. Taxes 39
Section 3.20. Employee Benefit Plans 40
Section 3.21. Contracts and Commitments 40
ARTICLE IV PRE-CLOSING COVENANTS 40
Section 4.1. General 40
Section 4.2. Notices and Consent 41
Section 4.3. Operation of Business 41
Section 4.4. Full Access 43
Section 4.5. Shareholders' Meeting 43
Section 4.6. Acquisition Negotiations 44
Section 4.7. Policyholders' Meeting 45
Section 4.8. Representation Letter of ESOP Trustee 46
ARTICLE V OTHER COVENANTS 46
Section 5.1. General 46
Section 5.2. Continuity of Identity and Operations for Citizens
Insurance Companies 46
Section 5.3. Indemnification; Directors and Officers Insurance 47
Section 5.4. Citizens Employees 49
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF MERIDIAN 52
Section 6.1. No Misrepresentation or Breach of Covenants
or Warranties 53
Section 6.2. Officers' Certificates 53
Section 6.3. Letter as to Transaction Cost 54
Section 6.4. Approval of Citizens' Shareholders and Citizens
Mutual's Policyholders 55
Section 6.5. Dissenting Shares 55
Section 6.6. Regulatory Approval 55
Section 6.7. ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ 56
Section 6.8. Third Party Consents 56
Section 6.9. Boards of Directors 56
Section 6.10. Officers 57
Section 6.11. Reinsurance Pooling Agreement 57
Section 6.12. Management Services Agreements 57
Section 6.13. No Material Adverse Change 58
Section 6.14. Certain Personnel Matters 58
Section 6.15. Vis'n Matters 58
Section 6.16. ESOP and Plan Matters 60
Section 6.17. Opinion of Counsel for Citizens and
Citizens Mutual 60
Section 6.18. Fairness Opinion 60
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OFCITIZENS AND
CITIZENS MUTUAL 61
Section 7.1. No Misrepresentation or Breach of
Covenants or Warranties 61
Section 7.2. Shareholder and Policyholder Approval 61
Section 7.3. Officers' Certificates 62
Section 7.4. Regulatory Approval 62
Section 7.5. ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ 63
Section 7.6. Boards of Directors 63
Section 7.7. Third Party Consents 63
Section 7.8. Reinsurance Pooling Agreement 64
Section 7.9. Management Services Agreements 64
Section 7.10. Certain Personnel Matters 64
Section 7.11. Vis'n Matters 64
Section 7.12. No Material Adverse Change 65
Section 7.13. Opinion of Counsel for Meridian 65
Section 7.14. Fairness Opinions 65
Section 7.15. Payment of ESOP Note 65
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES 66
Section 8.1. Survival of Representations and
Warranties 66
ARTICLE IX TERMINATION 66
Section 9.1. Termination 66
Section 9.2. Termination Fee 67
Section 9.3. Survival of Rights 69
ARTICLE X MISCELLANEOUS 69
Section 10.1. Notices 69
Section 10.2. Expenses 71
Section 10.3. Titles and Headings 72
Section 10.4. No Third-Party Beneficiaries 72
Section 10.5. Entire Agreement 72
Section 10.6. Public Announcements 72
Section 10.7. Waiver 73
Section 10.8. Governing Law 73
Section 10.9. Binding Effect 73
Section 10.10. No Assignment 74
Section 10.11. Invalid Provisions 74
Section 10.12. Construction 74
Section 10.13. Execution in Counterparts 74
ACQUISITION AND AFFILIATION AGREEMENT
This ACQUISITION AND AFFILIATION AGREEMENT
("Agreement") is made and entered into as of March 20, 1996,
by and among CITIZENS SECURITY GROUP INC. ("Citizens"), a
business corporation organized under the laws of the State
of Minnesota, whose office and principal place of business
is located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
CITIZENS SECURITY MUTUAL INSURANCE COMPANY ("Citizens
Mutual"), a mutual insurance company organized under the
laws of the State of Minnesota, whose office and principal
place of business is located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and MERIDIAN INSURANCE GROUP, INC.
("Meridian"), a business corporation organized under the
laws of the State of Indiana, whose office and principal
place of business is located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇.
RECITALS
A. Citizens is a publicly-held insurance holding
company. Citizens directly owns all of the issued and
outstanding shares of capital stock of Citizens Fund
Insurance Company ("Citizens Fund"), a stock insurance
company organized under the laws of the State of Minnesota,
whose office and principal place of business is located at
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and all of the
issued and outstanding shares of capital stock of Insurance
Company of Ohio ("Citizens Ohio"), a stock insurance company
organized under the laws of the State of Ohio, whose office
and principal place of business is located at ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. (Citizens Fund and
Citizens Ohio are sometimes referred to herein as the
"Citizens Subsidiaries.") Citizens was organized by Citizens
Mutual, which presently owns approximately 20% of the issued
and outstanding shares of Citizens Common Stock (as defined
in Section 2.3) and all of the issued and outstanding shares
of Citizens Preferred Stock (as defined in Section 2.3).
Citizens Mutual also owns all of the issued and outstanding
shares of capital stock of Mississippi Valley Corporation
("Mississippi Valley"), a business corporation organized
under the laws of the State of Minnesota, whose office and
principal place of business is located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. (Citizens Mutual, Citizens,
Citizens Fund, Citizens Ohio and Mississippi Valley are
collectively referred to herein as the "Citizens
Companies.")
B. Citizens Mutual, Citizens Fund and Citizens Ohio
(collectively, the "Citizens Insurance Companies") are
jointly operated and managed under a management services
agreement and a reinsurance pooling agreement.
C. Meridian is a publicly-held insurance holding
company. Meridian directly owns all of the issued and
outstanding shares of capital stock of Meridian Security
Insurance Company ("Meridian Security"), a stock insurance
company organized under the laws of the State of Indiana,
whose office and principal place of business is located at
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇.
Meridian was organized by Meridian Mutual Insurance Company
("Meridian Mutual"), a mutual insurance company organized
under the laws of the State of Indiana, whose office and
principal place of business is located at ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇; Meridian
Mutual presently owns approximately 47% of the issued and
outstanding shares of common stock of Meridian. Meridian,
Meridian Security and Meridian Mutual (such companies are
collectively referred to herein as the "Meridian Companies")
are jointly operated and managed under a reinsurance pooling
agreement and shared management services arrangements.
D. The parties to this Agreement entered into a non-
binding letter of intent (the "Letter of Intent") dated
January 29, 1996 and accepted by Citizens and Citizens
Mutual on February 1, 1996.
E. In order to consummate the acquisition of Citizens
by Meridian as contemplated by the Letter of Intent and this
Agreement, Meridian will cause a corporation to be formed
under the laws of the State of Minnesota ("Merger Company").
All of the issued and outstanding capital stock of Merger
Company will be owned by Meridian or by Meridian Security.
F. The Boards of Directors of Citizens, Citizens
Mutual, Meridian and Meridian Mutual have determined that it
is in the best interest of their respective corporations
that Citizens be acquired by Meridian pursuant to the merger
of Merger Company with and into Citizens (the "Merger"), and
the Boards of Directors of Citizens Mutual, Meridian and
Meridian Mutual have determined that it would be in the best
interests of their respective corporations that Citizens
Mutual become affiliated with Meridian, all upon and subject
to the terms and conditions of this Agreement.
G. Citizens, Citizens Mutual and Meridian desire to
make certain representations, warranties, covenants and
agreements in connection with the transactions contemplated
by the Letter of Intent and this Agreement and to prescribe
various conditions precedent to the transactions
contemplated hereby.
AGREEMENT
In consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein
set forth, the parties to this Agreement hereby agree as
follows:
ARTICLE I
THE MERGER
Section 1.1. Merger. Subject to the terms and
conditions of this Agreement and the Plan of Merger
substantially in the form attached hereto as Exhibit A (the
"Plan of Merger"), at the Effective Time (as defined in
Section 1.2) Merger Company shall merge with and into
Citizens in accordance with the applicable laws of the State
of Minnesota and the separate existence of Merger Company
shall cease (except insofar as continued by applicable law).
Articles of Merger, with the Plan of Merger attached, shall
be filed with the Secretary of State of the State of
Minnesota in connection with the closing of the Merger and
other transactions contemplated by this Agreement (the
"Closing").
Section 1.2. Effective Time of the Merger and Closing
. Unless otherwise agreed by the parties or otherwise
provided by law, the Merger shall become effective at 11:59
p.m., Eastern Standard Time, on a date as soon as
practicable after the conditions to the Merger pursuant to
Articles VI and VII are satisfied or waived, or such other
date as the parties may agree (the "Effective Time"). The
parties anticipate that the Effective Time will be on or
about June 30, 1996. The Closing shall take place at the
offices of Meridian, or such other place as the parties may
agree.
Section 1.3. Conversion of Citizens' Shares. (a) At
the Effective Time of the Merger, the shares of Citizens
Common Stock and Citizens Preferred Stock issued and
outstanding immediately prior to the Effective Time, and all
rights with respect thereto, shall by reason of the Merger
and without any further action on the part of the holders
thereof, be cancelled and converted into rights to receive
cash (except for Dissenting Shares, as defined in Section
1.3(f)), as follows:
(i) Citizens Common Stock. The holders
of Citizens Common Stock shall be entitled
to receive, for each share held, an amount of
cash equal to the portion of the "Final
Common Stock Merger Price" (as hereinafter
defined) which bears the same proportion to
the total Final Common Stock Merger Price as
one share of Citizens Common Stock bears to
all issued and outstanding shares of Citizens
Common Stock as of the Effective Time. The
term "Final Common Stock Merger Price" as
used in this Agreement means: $24,957,312,
less 85.1% of the Transaction Costs
Adjustment, if any, as that term is defined
in Section 10.2.
(ii) Citizens Preferred Stock. Citizens
Mutual, as the holder of all of the issued
and outstanding shares of Citizens Preferred
Stock, shall be entitled to receive for all
of such shares, an amount of cash equal to:
$4,375,000, less 14.9% of the Transaction
Costs Adjustment, if any, as that term is
defined in Section 10.2.
No Dissenting Shares shall be converted into or represent a
right to receive cash. Dissenting Shares shall be subject
to the provisions of Section 1.3(f).
(b) Immediately following the Effective Time,
each holder of an outstanding certificate representing
shares of Citizens Common Stock, upon surrender of the
certificate or certificates therefor, properly endorsed, to
a bank appointed by Citizens with the prior approval of
Meridian (which approval shall not be unreasonably withheld)
to act as exchange agent (the "Exchange Agent"), shall be
entitled to receive the amount of cash as provided herein.
The cash payment will be made by check payable to the
registered holder of each certificate representing shares of
Citizens Common Stock in the name of each such holder, or to
such other person as that holder may specify in writing to
the Exchange Agent. Immediately following the Effective
Time, Citizens Mutual, upon surrender to Citizens of the
certificate or certificates representing the Citizens
Preferred Stock, properly endorsed, shall be entitled to
receive the amount of cash as provided herein. The cash
payment shall be made by direct wire transfer of funds to a
bank account of Citizens Mutual specified in writing to
Meridian not less than two business days prior to the
Closing, or in such other manner as Citizens Mutual and
Meridian may agree.
(c) All rights with respect to shares of Citizens
Common Stock and Citizens Preferred Stock owned by holders
thereof as of the Effective Time shall cease and terminate,
notwithstanding that any certificates for such shares shall
not have been surrendered to the Exchange Agent or Citizens,
and the holders of such shares shall have no interest in nor
claims against Citizens, the surviving corporation in the
Merger, except the right to receive the cash payment
specified herein, without interest (except for Dissenting
Shares, the holders of which shall be subject to Section
1.3(f)).
(d) Meridian shall cause to be deposited with the
Exchange Agent and with Merger Company on or prior to
Closing, funds immediately available as shall be necessary
for the cash distribution by the Exchange Agent and Citizens
described herein. No interest shall accrue or be payable
with respect to any funds held by the Exchange Agent or
Merger Company or Citizens for the benefit of the former
holders of Citizens Common Stock or Citizens Preferred
Stock. All interest or other investment income earned on
the funds on deposit with the Exchange Agent shall, from
time to time, be paid to Merger Company prior to the
Effective Time or to Citizens following the Effective Time.
(e) To the extent permitted by law, the
appointment of the Exchange Agent may be terminated by
Citizens at any time after twelve months following the
Effective Time; and upon termination of such appointment,
any unclaimed funds for cash payments shall be returned to
Citizens, as the surviving corporation in the Merger, and
thereafter the holders of certificates formerly representing
shares of Citizens Common Stock who have not received their
cash payments for whatever reason may surrender such
certificates to Citizens and (subject to applicable
abandoned property, escheat and similar laws) receive in
exchange therefor the cash payment to which they are
entitled under this Agreement.
(f) Each share of Citizens Common Stock, the
holder of which has taken all of the steps required by
Section 302A.473 of the Minnesota Business Corporation Act
(the "Minnesota Dissenters' Rights Statute") to establish
such holder's shares as dissenting shares as therein
defined, is herein referred to as a "Dissenting Share."
Dissenting Shares owned by each holder thereof shall not be
converted into or represent the right to receive cash and
shall be entitled only to receive the value of such
Dissenting Shares in accordance with the Minnesota
Dissenters' Rights Statute, provided that such holder
complies with the procedures contemplated by and set forth
therein. If any holder of Dissenting Shares shall
effectively withdraw or lose such holder's dissenters'
rights, such Dissenting Shares shall be converted into the
right to receive cash in accordance with the provisions of
Section 1.3(a).
(g) Citizens shall give Meridian (i) prompt
notice of any written notices, demands for payment,
withdrawals of notices or demands and any other instrument
served pursuant to the Minnesota Dissenters' Rights Statute
and received by Citizens (such notice by Citizens shall, to
the extent available to Citizens, set forth the name and
address of, and the number of shares of Citizens Common
Stock held by, the holder making such objection or giving
such notice), and (ii) the opportunity to direct all
negotiations or proceedings with respect to holders of
Dissenting Shares. Citizens shall not voluntarily make any
payment with respect to any demands for payment for shares
under the Minnesota Dissenters' Rights Statute, and shall
not, except with the prior written consent of Meridian,
settle or offer to settle any such demands.
Section 1.4. Conversion of Merger Company's Shares.
At the Effective Time of the Merger, the shares of capital
stock of Merger Company issued and outstanding immediately
prior to the Effective Time shall, by reason of the Merger
and without any further action on the part of the holder
thereof, be cancelled and converted into all of the issued
and outstanding shares of capital stock of Citizens.
Immediately following the Effective Time, the holder of the
certificate representing all of the shares of capital stock
of Merger Company issued and outstanding immediately prior
to the Effective Time, upon surrender to Citizens of the
certificate therefor, properly endorsed, shall be entitled
to receive a certificate representing all of the issued and
outstanding shares of capital stock of Citizens following
the Effective Time.
Section 1.5. Employee Stock Ownership Plan. Prior to
the Closing and the Effective Time, Citizens and Citizens
Mutual shall take such actions in connection with the
Citizens Security Employee Stock Ownership Plan (the "ESOP")
as may be necessary to:
(a) cause National City Bank of Minneapolis, as
Trustee of the ESOP (the "ESOP Trustee"), to surrender to
the Exchange Agent the certificates representing all shares
of Citizens Common Stock owned by the ESOP for payment at
the Effective Time in accordance with the terms of the
Merger;
(b) cause (i) the repayment, by ESOP Trustee, of the
outstanding amounts due under the Promissory Note of the
ESOP dated October 30, 1992, executed on behalf of the ESOP
by the ESOP Trustee and payable to the order of Citizens
Mutual (the "ESOP Note"), (ii) the cancellation of the ESOP
Note, and (iii) the release of the assets held as collateral
in the ESOP suspense account, as of the Effective Time;
(c) allow for the allocation of the unallocated assets
held by the ESOP, after repayment of the outstanding amounts
due under the ESOP Note, to the ESOP participants as
provided in the ESOP and to the fullest extent permitted by
applicable law, as soon as practicable after the Effective
Time; and
(d) at the Effective Time, cause the ESOP participants
who were employed by Citizens Mutual as of February 8, 1996,
to become fully vested in their ESOP accounts and cause ESOP
participation to be limited to those individuals employed by
Citizens Mutual on or before the Closing.
Section 1.6. Stock Options. Prior to the Closing and
the Effective Time, Citizens shall make any necessary
amendments to or adjustments in outstanding stock options
for the purchase of shares of Citizens Common Stock, or the
plan under which those options were issued, so that:
(a) such options may be exercised immediately prior to the
Effective Time (including payment to Citizens in cash of the
exercise price), (b) the shares of Citizens Common Stock
issued in respect of such exercises may be tendered for
payment in accordance with the terms of the Merger, and (c)
any unexercised options and any stock option plans of
Citizens shall, as of the Effective Time, terminate, no
longer be exercisable, and otherwise not represent any claim
against Citizens or Merger Company for the issuance of
capital stock or other securities or for the payment of cash
or other consideration.
Section 1.7. Board of Directors of Citizens Mutual.
At the Effective Time, the Board of Directors of Citizens
Mutual shall be reconstituted so that it consists of the six
current directors of Meridian Security, plus the current
Vice President of Marketing of Citizens Mutual and the
current President of Citizens Mutual.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CITIZENS AND CITIZENS
MUTUAL
Citizens and Citizens Mutual hereby represent and
warrant to Meridian as follows; subject, however, to the
exceptions set forth on the attached Disclosure Schedule
which specifies the particular section or sections to which
each exception relates; and further subject to the exception
that the representations and warranties of Citizens Mutual
set forth in this Article II and pertaining solely to
Citizens or to the Citizens Subsidiaries are limited and
made to the knowledge of Citizens Mutual, its officers,
directors and employees who are not officers, directors or
employees of Citizens or the Citizens Subsidiaries:
Section 2.1. Organization. Each of Citizens and
Citizens Mutual is a corporation duly organized and validly
existing under the laws of the State of Minnesota. Each of
Citizens and Citizens Mutual has the corporate power and
authority to own, operate and lease its properties and
assets and to carry on its business as now being conducted.
Section 2.2. Organization of Subsidiaries. Citizens
Mutual has no direct or indirect subsidiaries other than
Citizens (and its subsidiaries) and Mississippi Valley, and
Citizens has no direct or indirect subsidiaries other than
the Citizens Subsidiaries. Schedule 2.2 sets forth for
Mississippi Valley and for each Citizens Subsidiary the
authorized capital stock, the number of shares duly issued
and outstanding, and the owners of such shares and the
number of shares held by each owner. The shares of capital
stock of Mississippi Valley owned by Citizens Mutual, and
the shares of capital stock of each Citizens Subsidiary
owned directly or indirectly by Citizens are duly
authorized, validly issued, fully paid and non-assessable,
and are owned free and clear of any liens, claims, charges
or encumbrances. No equity security of Mississippi Valley
or either Citizens Subsidiary is or may be required to be
issued by reason of any option, warrant, right to subscribe
to, call, or commitment of any character whatsoever relating
to, or security or right convertible into, shares of any
capital stock, and there are no contracts, commitments,
understandings, or arrangements by which Mississippi Valley
or either Citizens Subsidiary is bound to issue additional
shares of its capital stock, or options, warrants, or rights
to purchase or acquire any additional shares of its capital
stock. None of the Citizens Companies has any investment in
any partnership, joint venture or limited liability company,
and all loans or advances to its independent insurance
agents are listed on Schedule 2.2 (including the relevant
amounts, outstanding balances and dates thereof). Each of
Mississippi Valley and the Citizens Subsidiaries is a
corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to
own or lease its properties and carry on its business as now
being conducted.
Section 2.3. Capitalization. The authorized capital
stock of Citizens consists of (i) 5,000,000 shares of
preferred stock, par value $0.01 per share, of which the
only authorized series is 1,250,000 shares of Series A
Preferred Stock, par value $0.01 per share (the "Citizens
Preferred Stock"), and (ii) 10,000,000 shares of common
stock, par value $0.01 per share (the "Citizens Common
Stock"). As of the date of this Agreement, the only issued
and outstanding shares of Citizens' capital stock are
1,250,000 shares of Citizens Preferred Stock and 1,661,585
shares of Citizens Common Stock. The only outstanding
options, warrants, or other rights to purchase shares of
Citizens Common Stock or Preferred Stock are the employee
and nonemployee director stock options covering a total of
335,000 shares of Citizens Common Stock referred to in
Section 1.6 above. All shares of capital stock of Citizens
which are outstanding as of the date hereof, or which will
be outstanding immediately prior to the Effective Time, are
or will be duly authorized, validly issued, fully paid and
non-assessable, and are not or will not be subject to or
issued in violation of, any preemptive rights. Except as
set forth above, there are no shares of capital stock of
Citizens authorized or outstanding and there are no
subscriptions, options to purchase shares of the capital
stock of Citizens, conversion or exchange rights, warrants,
preemptive rights or other arrangements, claims or
commitments of any nature whatsoever (whether firm or
conditional) obligating Citizens to issue, transfer, deliver
or sell, or cause to be issued, transferred, delivered or
sold, additional shares of the capital stock or other
securities or interests of Citizens or obligating Citizens
to grant, extend or enter into any such agreement or
commitment.
Section 2.4. Authority to Conduct Insurance Business.
Each of Citizens Mutual and the Citizens Subsidiaries is an
insurance company licensed or authorized to write the kinds
of insurance coverage set forth on Schedule 2.4 in its
respective state of incorporation and in each of the
jurisdictions specified in such schedule in which it writes
insurance. Each of Citizens Mutual and the Citizens
Subsidiaries holds a license and is fully qualified as a
foreign insurer to conduct its business in each of those
jurisdictions, and there is no other jurisdiction in which
the failure to hold a license or to be so qualified to
conduct the business as now being conducted by the
respective company would have a material adverse effect on
the business of the Citizens Companies (considered as a
whole) or on the consolidated results of operations or
consolidated financial condition of Citizens and the
Citizens Subsidiaries (considered as a whole) or of Citizens
Mutual and Mississippi Valley (considered as a whole)
(hereinafter referred to as a "Citizens Material Adverse
Effect"). No license or certificate of authority identified
in Schedule 2.4 has been revoked, restricted, suspended,
limited or modified nor is any license or certificate of
authority the subject of, nor, to the knowledge of Citizens
or Citizens Mutual, is there a basis for, a proceeding for,
or a threatened proceeding for, revocation, restriction,
suspension, limitation or modification, nor is Citizens
Mutual or either of the Citizens Subsidiaries operating
under any formal or informal agreement or understanding with
the licensing authority of any state that restricts its
authority to do business or requires any such company to
take, or refrain from taking, any action.
Section 2.5. Consents and Approvals and No Defaults.
The execution and delivery by Citizens and Citizens Mutual
of this Agreement, the performance by Citizens and Citizens
Mutual of their obligations hereunder, and the consummation
by Citizens and Citizens Mutual of the transactions
contemplated hereby do not require Citizens or Citizens
Mutual to obtain any consent, approval or action of, or make
any filing with or give any notice to, any corporation,
person or firm or any public, governmental or judicial
authority, other than any consents or approvals from, or any
filings or notices to, any corporations, persons or firms in
connection with any agreements or other instruments that
individually or in the aggregate are not material to
Citizens or Citizens Mutual. This Agreement is the valid
and binding obligation of each of Citizens and Citizens
Mutual, enforceable against each of them in accordance with
its terms, subject to bankruptcy, receivership, insolvency,
reorganization, moratorium or similar laws affecting or
relating to creditors' rights generally and subject to
general principles of equity. Provided the required
approvals of agencies of any government (including, without
limitation, the Insurance Division of the Minnesota
Department of Commerce (the "Minnesota Department") and the
Ohio Department of Insurance (the "Ohio Department")) are
obtained, neither the execution, delivery, and performance
by Citizens or Citizens Mutual of this Agreement, nor the
consummation of the transactions contemplated hereby, nor
compliance by Citizens or Citizens Mutual with any of the
provisions hereof, will:
(A) violate, conflict with, or result
in a breach of any provisions of, or
constitute a default (or an event which, with
notice or lapse of time or both, would
constitute a default) under, or result in the
termination of, or accelerate the performance
required by, or result in a right of
termination or acceleration of, or result in
the creation of any lien, security interest,
charge, or encumbrance upon any of the
properties or assets of the Citizens
Companies under, any of the terms,
conditions, or provisions of:
(i) their respective articles
of incorporation or by-laws, or
(ii) any material note, bond,
mortgage, indenture, deed of trust,
license, lease, agreement, or other
material instrument or obligation to
which any of the Citizens Companies is a
party or by which any of such companies
may be bound, or to which any Citizens
Company or any of their properties or
assets may be subject; or
(iii) any governmental
license, permit or authorization
material to the business of any Citizens
Company; or
(B) violate any judgment, ruling,
order, writ, injunction, decree, statute,
rule, or regulation applicable to any
Citizens Company or any of their respective
properties or assets.
Section 2.6. Authority Relative to this Agreement.
Each of Citizens and Citizens Mutual has all requisite
corporate power and authority to enter into and deliver this
Agreement, and the execution and delivery hereof has been
duly approved and authorized by the Boards of Directors of
Citizens and Citizens Mutual. Subject to approvals by the
holders of the Citizens Preferred Stock and the Citizens
Common Stock and such approvals of governmental agencies
having regulatory authority over the Citizens Companies
(including the Minnesota Department and the Ohio Department)
and such further action of the Board of Directors of
Citizens and Citizens Mutual as may be required by the
Minnesota Insurance Law or the Indiana Insurance Law,
Citizens and Citizens Mutual have or will have all requisite
corporate power and authority to effectuate the Merger. The
holders of Citizens Preferred Stock and the holders of
Citizens Common Stock are entitled to vote as separate
classes on the Merger in person or by proxy at a meeting
convened to approve the Merger (with each such holder being
entitled to one vote per share), and the vote at such
meeting is the only vote of the holders of Citizens
Preferred Stock or Citizens Common Stock necessary to
approve the Merger.
Section 2.7. GAAP Financial Statements. Citizens has
previously delivered to Meridian true and complete copies of
audited financial statements (the "GAAP Financial
Statements") for the years ended December 31, 1993,
December 31, 1994, and December 31, 1995 for Citizens
(prepared on a consolidated basis). The GAAP Financial
Statements so provided were prepared in accordance with
generally accepted accounting principles ("GAAP") applied on
a consistent basis and present fairly, in all material
respects, the financial condition, results of operations and
changes in financial position of Citizens as of the dates or
for the periods covered thereby, in conformity with GAAP.
Citizens has also previously delivered to Meridian true and
complete copies of the internally prepared unaudited
financial statements for the years ended December 31, 1993,
December 31, 1994, and December 31, 1995, for Mississippi
Valley (the "Mississippi Valley Financial Statements"). The
Mississippi Valley Financial Statements were prepared by
personnel of Citizens Mutual based on the accounting records
of Mississippi Valley, which accounting records were
prepared by personnel of Citizens Mutual in the ordinary
course and in accordance with customary business practices,
and the Mississippi Valley Financial Statements fairly
present in all material respects the financial condition and
results of operations of Mississippi Valley for the periods
covered by the Mississippi Valley Financial Statements.
Section 2.8. Statutory Financial Statements. (a)
Citizens has previously delivered to Meridian true and
complete copies of the audited statutory financial
statements of Citizens Mutual and each Citizens Subsidiary
(including statements of operations, unassigned surplus and
cash flows) for the fiscal years ended December 31, 1990 to
1995 (the "Audited SAP Financials"). The Audited SAP
Financial Statements present fairly in all material respects
the financial condition of the respective companies at such
dates and results of operations for such periods and were
prepared in accordance with statutory accounting principles
("SAP").
(b) Annual Statements required to be filed with
applicable insurance regulatory authorities on the
respective forms prescribed or permitted by such authorities
(the "Annual Statements") for Citizens Mutual and each
Citizens Subsidiary for the years ended December 31, 1991,
1992, 1993, 1994 and 1995 have been filed with the
appropriate regulatory authorities in all jurisdictions in
which such filing is required. The Annual Statements were
prepared in accordance with accounting practices prescribed
or permitted by such regulatory authorities, applied on a
consistent basis throughout the related periods except as
otherwise stated therein, and presented fairly in all
material respects the statutory financial position of the
respective company at the dates of, and the statutory
results of operations for the respective company for the
periods covered by, such statutory statements.
Section 2.9. Reserves. The aggregate actuarial
reserves and other actuarial amounts held in respect of
liabilities with respect to Citizens Mutual and each of the
Citizens Subsidiaries as established or reflected in their
respective financial statements as of December 31, 1995:
(a) (i) were determined in accordance with generally
accepted actuarial standards consistently applied, (ii) were
fairly stated in accordance with sound actuarial principles,
and (iii) were based on reasonable and appropriate actuarial
assumptions;
(b) met the requirements of the applicable insurance
laws of the States of Minnesota and Ohio, or any other state
having such jurisdiction in all material respects; and
(c) were adequate (under generally accepted actuarial
standards consistently applied) to cover the total amount of
all reasonably anticipated matured and unmatured liabilities
of Citizens Mutual and each Citizens Subsidiary under all
outstanding insurance policies pursuant to which Citizens
Mutual or either Citizens Subsidiary has any liability.
Section 2.10. No Undisclosed Liabilities. As of
December 31, 1995, none of the Citizens Companies had any
debts, obligations or liabilities of whatever kind or
nature, either direct or indirect, absolute or contingent,
matured or unmatured (the "Citizens Liabilities"), except
debts, obligations and liabilities that are fully reflected
in, or reserved against on, the GAAP Financial Statements or
the Audited SAP Financial Statements, except for liabilities
arising from the ordinary course of business that are not
required to be reflected in a balance sheet prepared in
accordance with GAAP or SAP (as the case may be). Since
such date, there have been no changes in the Citizens
Liabilities except for changes arising from the ordinary
course of business, none of which changes, individually or
in the aggregate, have had a Citizens Material Adverse
Effect.
Section 2.11. Regulatory Filings. Citizens has
previously delivered to Meridian true and complete copies of
all filings which were made by Citizens, Citizens Mutual or
any Citizens Subsidiary within the past three years with the
Minnesota Department, the Ohio Department or any other
department of insurance in any jurisdiction where Citizens,
Citizens Mutual or any Citizens Subsidiary is required to
make such filings. Each of such filings, as of its
respective date, complied as to form and content in all
material respects with the provisions of applicable law.
Section 2.12 . SEC Reports. Citizens has delivered to
Meridian (i) each registration statement, Current Report on
Form 8-K, Quarterly Report on Form 10-Q, annual report to
shareholders, and proxy statement or information statement
prepared by it since January 1, 1992, (ii) an Annual Report
on Form 10-K for each of the years ended December 31, 1991,
1992, 1993 and 1994, and (iii) a Quarterly Report on Form
10-Q for each of the periods ended March 31, June 30 and
September 30, 1995, each in the form (including exhibits)
filed with Securities and Exchange Commission (collectively,
the "Citizens SEC Reports"). As of its respective date,
each of the Citizens SEC Reports did not contain any untrue
statements of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in
which they were made, not misleading. Each of the balance
sheets included in or incorporated by reference into the
Citizens SEC Reports (including the related notes and
schedules) fairly presents the financial position of
Citizens as of its date, and each of the statements of
income, of shareholders' equity and of cash flows included
in or incorporated by reference into the Citizens SEC
Reports (including the related notes and schedules) fairly
presents the results of operations, shareholders' equity and
cash flows, as the case may be, of Citizens for the period
set forth therein (subject, in the case of unaudited
statements, to normal year-end audit adjustments which will
not be material to Citizens in amount or effect), in each
case in accordance with generally accepted accounting
principals consistently applied during the periods involved,
except as may be noted therein. Other than the Citizens SEC
Reports, Citizens has not filed any other definitive reports
or statements with the Securities and Exchange Commission
since January 1, 1992.
Section 2.13. Litigation. There are no proceedings or
investigations (other than claims in the ordinary course of
the insurance business), pending or threatened against,
relating to, involving or otherwise affecting any of the
Citizens Companies, which individually exceed $10,000 or in
the aggregate may have a Citizens Material Adverse Effect.
Section 2.14. Compliance With Law. (a) None of the
Citizens Companies is in violation in any material respect
(or, with notice or lapse of time or both, would be in
violation in any material respect) of any term or provision
of any applicable law, regulation, rule, ordinance, order,
judgment, writ or injunction of any federal, state or local
government or instrumentality or agency thereof, or of any
court, which violation may reasonably be expected to have a
Citizens Material Adverse Effect, and Citizens and Citizens
Mutual are not aware of any facts or circumstances which may
constitute or result in any such violation.
(b) None of the Citizens Companies is a party to
any contract with or other undertaking to, or is subject to
any order by, or is a recipient of any supervisory letter or
other oral or written communication of any kind from, any
governmental entity that (i) currently materially and
adversely affects the business of the Citizens Companies
(considered as a whole) or the consolidated financial
condition of either Citizens and the Citizens Subsidiaries
(considered as a whole) or Citizens Mutual and Mississippi
Valley (considered as a whole), including without
limitation, reserve adequacy, investment, sales or trade
practices and policies, underwriting practices and policies,
or management, or (ii) may reasonably be expected to
materially and adversely affect the business or financial
condition of any of the Citizens Companies. None of
Citizens, Citizens Mutual or any Citizens Subsidiary has
been advised by a governmental entity that it is
contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any order,
contract or other communication of the kind described above
in this Section 2.14.
Section 2.15. Properties. Each of Citizens Companies
has good title to all properties and assets material to the
conduct of its business, which it purports to own,
including, without limitation, all property reflected in the
GAAP Financial Statements or Audited SAP Financial
Statements or Mississippi Valley Financial Statements dated
December 31, 1995, or acquired since that date (except in
all cases to the extent such assets or properties have been
sold or otherwise disposed of in the ordinary and usual
course of business since that date). All such properties
and assets are owned, free and clear of all liens, charges
and encumbrances, other than (i) those set forth on
Schedule 2.15, (ii) any liens and assessments for taxes not
yet due and payable or being contested in good faith by
appropriate proceedings, and (iii) such imperfections of
title, or encumbrances and liens, if any, as do not
materially detract from the value or interfere with the
actual or intended use of the properties owned by any of the
Citizens Companies or otherwise materially impair the
business operations of any of the Citizens Companies. All
material leases pursuant to which any of the Citizens
Companies leases real or personal property are valid and
binding on the respective Citizens Company, enforceable
against such Citizens Company in accordance with their
respective terms subject to bankruptcy, receivership,
insolvency, reorganization, moratorium or similar laws
affecting or relating to creditors' rights generally and
subject to general principles of equity (and Citizens and
Citizens Mutual do not know of any reason that such leases
would not be valid and binding upon or enforceable against
the other parties thereto), and there is not under any of
such leases any existing default or event of default on the
part of any Citizens Company, or any event which with notice
or lapse of time, or both, would constitute a default on the
part of any Citizens Company (and Citizens and Citizens
Mutual do not know of any default, event of default or event
which with notice or lapse of time, or both, would
constitute a default, in each case on the part of the other
party thereto), the consequence of which would have a
Citizens Material Adverse Effect.
Section 2.16. Intellectual Property. There are no
copyrights, trademarks, trade names, service marks or
patents covered under federal or state common law or
statutory law, whether or not registered, used by any of the
Citizens Companies (the "Intellectual Property") that are
material to the conduct of their respective businesses. Set
forth on Schedule 2.16 is a listing of any federal or state
registered Intellectual Property that any of the Citizens
Companies uses in the conduct of its respective business.
There are no infringement suits pending, or to the best
knowledge of Citizens or Citizens Mutual threatened, against
any of the Citizens Companies with respect to the
Intellectual Property, and neither Citizens nor Citizens
Mutual knows of any fact or condition which could give rise
to any such infringement suit.
Section 2.17. Environmental Laws and Permits. Each of
the Citizens Companies is in compliance with any and all
laws, regulations, rules, ordinances, orders, judgments,
permits, agreements, licenses or other governmental
restrictions or requirements relating to health, the
environment or the release by such Citizens Company of any
materials into the environment, now in effect in any and all
jurisdictions, in which the Citizens Companies are or from
time to time may be doing business (collectively the
"Environmental Laws"), except where such failure to comply
would not have a Citizens Material Adverse Effect.
Section 2.18. Taxes. (a) All federal income tax
returns required to be filed by the Citizens Companies have
been properly and timely filed with the Internal Revenue
Service, (b) all state and local income tax returns
required to be filed by the Citizens Companies have been
properly and timely filed with the appropriate state or
local taxing authorities, except where the failure so to
file such state and local income tax returns would not have
a Citizens Material Adverse Effect, and (c) all federal,
state and local tax information returns required to be filed
by the Citizens Companies have been properly and timely
filed with the appropriate federal, state or local taxing
authorities, except where the failure so to file such
information returns would not have a Citizens Material
Adverse Effect. Such income tax returns were true, correct
and complete in all material respects at the time filed, and
the Citizens Companies have paid all taxes shown to be due
on such returns. The Citizens Companies have adequately
reserved, in accordance with GAAP, on the GAAP Financial
Statements, and in accordance with SAP, on the Audited SAP
Financial Statements, for the payment of all unpaid federal,
state and local taxes, including interest and penalties,
payable in respect of any taxable event or period (including
interim periods) ending on the dates of such financial
statement and for all periods prior thereto. There are no
outstanding deficiencies, assessments or proceedings for the
assessment or collection of taxes or any material dispute as
to taxes against or involving any of the Citizens Companies.
Section 2.19. Employee Benefit Plans. (a) Except
for the Citizens Companies, there are no other trades or
businesses, whether or not incorporated, which, together
with any of the Citizens Companies, would be deemed to be a
"single employer" within the meaning of Code Sections
414(b), (c) or (m) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) Schedule 2.19 sets forth a true and a complete
list of (i) each employee benefit plan, as defined in
Section 3 (3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") that any of the Citizens
Companies currently maintains or has maintained within the
three year period preceding the Effective Time (the "ERISA
Plans"), and (ii) each other plan, arrangement, program and
agreement providing employee benefits, including, but not
limited to, deferred compensation, bonuses, severance pay
and fringe benefits, that are presently maintained for the
benefit of any current or former employees of any of the
Citizens Companies (the ERISA Plans and each other plan
listed on Schedule 2.19 hereafter, collectively, the
"Plans"). Citizens has delivered or made available to
Meridian copies of all Plans and any related documents or
instruments establishing the Plans or any related trusts or
funding arrangements; the most recent determination letter,
or any outstanding request for a determination letter, from
the Internal Revenue Service (the "IRS") with respect to
each ERISA Plan intended to satisfy the requirements of Code
Section 401(a) and a copy of the application on which the
determination letter or request for determination letter is
based; actuarial valuations, if applicable, for the most
recent three plan years for which such valuations are
available; current summary plan descriptions; annual
returns/reports on Form 5500 and summary annual reports for
each of the most recent three plan years; Form 5310 and any
related filings with the IRS, the Department of Labor
("DOL") or the Pension Benefit Guaranty Corporation ("PBGC")
within the last five years preceding the date of this
Agreement; and any material correspondence to or from the
IRS, DOL or PBGC within the last three years preceding the
Effective Time in connection with any Plan.
(c) Each ERISA Plan intended to be qualified under
Code Section 401(a) has received a favorable determination
letter from the IRS that the Plan, in its current form, is
qualified and satisfies all legal requirements, including
the requirements of the Tax Reform Act of 1986 and
subsequent legislation enacted through the date hereof.
Nothing has occurred since the dates of the respective IRS
favorable determination letters that could adversely affect
the qualification of the Plans and their related trusts.
(d) None of the Citizens Companies currently maintains
or contributes to, or has ever maintained or contributed to,
a "multiemployer plan" as defined in ERISA Section 3(37),
and none of the Citizens Companies currently maintains or
contributes to a defined benefit pension plan, as defined in
ERISA Section 3 (35). None of the Citizens Companies has
any unpaid liability or is threatened with any liability for
the termination of any Plan, and each terminated Plan was
terminated in accordance with all provisions of applicable
law. Each terminated ERISA Plan that was intended to be
qualified under Code Section 401(a) received a favorable
determination letter from the IRS that such Plan was
qualified upon termination.
(e) The written terms of each of the Plans, and any
related trust agreement, group annuity contract, insurance
policy or other funding arrangement are in substantial
compliance with all applicable laws, rules and regulations,
including without limitation, the rules and regulations
promulgated by the DOL, PBGC or IRS pursuant to the
provisions of ERISA and the Code, and each of such Plans has
been administered in substantial compliance with such
requirements.
(f) Except with respect to income taxes on benefits
paid or provided, no income, excise or other tax or penalty
(federal or state) has been waived or excused, has been paid
or is owed by any person (including, but not limited to, any
Plan, any Plan fiduciary or any of the Citizens Companies)
with respect to the operations of, or any transactions with
respect to, any Plan. No action has been taken by any of
the Citizens Companies, nor has there been any failure by
any of the Citizens Companies to take any action, nor is any
action or failure to take action contemplated by any of the
Citizens Companies, that would subject any person or entity
to any liability, tax or penalty imposed by the IRS, DOL, or
PBGC, in connection with any Plan. No reserve for any taxes
or penalties has been established with respect to any Plan
by any of the Citizens Companies, nor has any advice been
given to any of the Citizens Companies with respect to the
need to establish such a reserve.
(g) There are no (i) actions, suits, arbitrations or
claims (other than routine claims for benefits), (ii) legal,
administrative or other proceedings or governmental
investigations or audits, or (iii) complaints to or by any
governmental entity, which are pending, anticipated or
threatened, against any Plan or its assets, or against any
Plan fiduciary or administrator, or against any of the
Citizens Companies or their officers or employees with
respect to any Plan.
(h) The present value of the future cost of post-
retirement medical benefits that any of the Citizens
Companies is obligated to provide, calculated on the basis
of actuarial assumptions Citizens Mutual considers
reasonable estimates of future experience and which have
been provided to Meridian, does not exceed the amount
specified on Schedule 2.19.
(i) None of the Citizens Companies, nor any of the
Plans, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a transaction in
connection with which any of the Citizens Companies, any of
the Plans, any such trust, or any trustee or administrator
thereof, or any party dealing with the Plans or related
trusts could be subject to either a civil penalty assessed
pursuant to ERISA Sections 409 or 502 or a tax imposed
pursuant to Code Sections 4975 or 4976. None of the
Citizens Companies is, or, as a result of any actions,
omissions, occurrences or state of facts existing prior to
or at the Effective Time, may become liable for any tax
imposed under Code Sections 4978 or 4978(B).
(j) There are no leased employees, as defined in Code
Section 414(n), that must be taken into account with respect
to the requirements under Code Section 414(n)(3).
(k) Total employer contributions to each Plan with
respect to the most recent plan year are listed in Scheduled
2.19 and the employer contributions to all Plans required
for the current plan year are not estimated to be materially
more than contributions for the prior plan year.
(l) Each Plan may be terminated directly or indirectly
by Meridian, in its discretion, at any time after the
Effective Time of the Merger in accordance with its terms,
without any liability to Meridian, or any of the Citizens
Companies, to any person, entity or government agency for
any conduct, practice or omission of any of the Citizens
Companies which occurred prior to the Effective Time of the
Merger, except for liabilities to and the rights of the
employees thereunder accrued prior to the Effective Time of
the Merger, or if later, the time of termination, and except
for continuation rights required by the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, or other
applicable law.
Section 2.20. Contracts and Commitments. None of the
Citizens Companies is in default under any material
agreement, commitment, arrangement, lease, insurance policy,
or other instrument, whether entered into in the ordinary
course of business or otherwise, and there has not occurred
any event that, with the lapse of time or giving of notice
or both, would constitute such a default, except, in all
cases, where such default would not have a Citizens Material
Adverse Effect.
Section 2.21. Related Party Transactions. None of the
Citizens Companies has made any loan to any director,
officer or other affiliate of any of the Citizens Companies
which remains outstanding, nor has any of the Citizens
Companies entered into any agreement for the purchase or
sale of any property or services from or to any director,
officer or other affiliate of any of the Citizens Companies.
Section 2.22. No Finders. None of the Citizens
Companies has made any representation, contract or
commitment by which any such party or Meridian might be
obligated to pay any finder's fee, brokerage commission or
similar payment for bringing the parties together or
bringing about the transactions contemplated by this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MERIDIAN
Meridian represents and warrants to Citizens and
Citizens Mutual that:
Section 3.1. Organization. Meridian is a corporation
duly organized and validly existing under the laws of the
State of Indiana and has the corporate power and authority
to carry on its business as it is now being conducted and to
execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby.
Section 3.2. Corporate Power and Authority, Etc. The
execution, delivery and performance by Meridian of this
Agreement and the consummation by Meridian of the
transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Meridian.
This Agreement has been duly and validly executed and
delivered by Meridian and constitutes the valid and binding
obligation of Meridian, enforceable against it in accordance
with its terms, subject to bankruptcy, receivership,
insolvency, reorganization, moratorium or similar laws
affecting or relating to creditors' rights generally and
subject to general principles of equity.
Section 3.3. No Conflicts. The execution, delivery
and performance by Meridian of this Agreement and the
consummation by Meridian of the transactions contemplated
hereby will not, with or without the giving of notice or the
lapse of time, or both, (i) violate any provision of law,
statute, rule or regulation to which Meridian is subject,
(ii) violate any order, judgment or decree applicable to
Meridian or (iii) conflict with, or result in a breach or
default under, any term or condition of the Articles of
Incorporation or By-Laws of Meridian or any material
agreement or other material instrument to which Meridian or
any of its subsidiaries is a party or by which any of them
may be bound; except for violations, conflicts, breaches or
defaults which in the aggregate would not materially hinder
or impair the consummation of the transactions contemplated
hereby.
Section 3.4. Consents. Except as set forth on
Schedule 3.4, no consent, approval or authorization of,
exemption by, or filing with, any governmental or regulatory
authority, or any third party, is required in connection
with the execution, delivery and performance by Meridian of
this Agreement or the consummation by Meridian of the
transactions
contemplated hereby.
Section 3.5. Funds Available. Meridian and Merger
Company have or will have available to them sufficient funds
to perform all of their respective obligations pursuant to
this Agreement.
Section 3.6. Merger Company. At or prior to the
Closing:
(a) Merger Company shall be a corporation duly
organized and validly existing under the laws of the State
of Minnesota, with the corporate power and authority to
adopt, deliver and perform the Plan of Merger and to
consummate the transactions of Merger Company contemplated
thereby and by this Agreement.
(b) The adoption, delivery and performance by Merger
Company of the Plan of Merger and the consummation by Merger
Company of the transactions contemplated thereby and by this
Agreement shall have been duly authorized by all necessary
corporate action on the part of Merger Company, and the Plan
of Merger shall have been duly and validly adopted by Merger
Company and constitute its valid and binding obligation,
enforceable against Merger Company in accordance with its
terms, subject to bankruptcy, receivership, insolvency,
reorganization, moratorium or similar laws affecting or
relating to creditors' rights generally and subject to
general principles of equity.
(c) The adoption, delivery and performance by Merger
Company of the Plan of Merger and the consummation by Merger
Company of the transactions contemplated thereby and by this
Agreement will not, with or without the giving of notice or
the lapse of time, or both, (i) violate any provision of
law, statute, rule or regulation to which Merger Company is
subject, (ii) violate any order, judgment or decree
applicable to Merger Company, or (iii) conflict with, or
result in a breach or default under, any term or condition
of the Articles of Incorporation or By-Laws of Merger
Company.
Section 3.7. GAAP Financial Statements. Meridian has
previously delivered to Citizens and Citizens Mutual true
and complete copies of audited financial statements (the
"Meridian GAAP Financial Statements") for the years ended
December 31, 1993, December 31, 1994, and December 31, 1995
for Meridian (prepared on a consolidated basis). The
Meridian GAAP Financial Statements so provided were prepared
in accordance with GAAP applied on a consistent basis and
present fairly, in all material respects, the financial
condition, results of operations and changes in financial
position of Meridian as of the dates or for the periods
covered thereby, in conformity with GAAP.
Section 3.8. Statutory Financial Statements. (a)
Meridian has previously delivered to Citizens and Citizens
Mutual true and complete copies of (i) the audited combined
statutory financial statements of Meridian Mutual and
affiliates (including statements of operations, unassigned
surplus and cash flows) for the fiscal years ended December
31, 1990 to 1994 (the "Meridian Audited SAP Financial
Statements"), and (ii) the unaudited combined statutory
financial statements of Meridian Mutual and affiliates for
the interim periods ended March 31, 1995, June 30, 1995 and
September 30, 1995 (the "Meridian Unaudited Interim SAP
Financials"). The Meridian Audited SAP Financial Statements
present fairly in all material respects the combined
financial condition of Meridian Mutual and affiliates at
such dates and results of operations for such periods and
were prepared in accordance with SAP, and the Meridian
Unaudited Interim SAP Financial Statements present fairly in
all material respects the combined financial condition of
Meridian Mutual and affiliates at such dates and results of
operations for such periods and were prepared in accordance
with SAP, except for the absence of notes and subject to
normal year-end adjustments which are not material to the
Meridian Companies in amount or effect.
(b) Annual Statements required to be filed with
applicable insurance regulatory authorities on the
respective forms prescribed or permitted by such authorities
(the "Meridian Annual Statements") for Meridian Mutual and
Meridian Security for the years ended December 31, 1991,
1992, 1993, 1994 and 1995 have been filed with the
appropriate regulatory authorities in all jurisdictions in
which such filing is required. The Meridian Annual
Statements were prepared in accordance with accounting
practices prescribed or permitted by such regulatory
authorities, applied on a consistent basis throughout the
related periods except as otherwise stated therein, and
presented fairly in all material respects the statutory
financial position of the respective company at the dates
of, and the statutory results of operations for the
respective company for the periods covered by, such
statutory statements.
Section 3.9. Reserves. The aggregate actuarial
reserves and other actuarial amounts held in respect of
liabilities with respect to Meridian Mutual and Meridian
Security as established or reflected in their combined
financial statements as of September 30, 1995:
(a) (i) were determined in accordance with
generally accepted actuarial standards consistently
applied, (ii) were fairly stated in accordance with
sound actuarial principles, and (iii) were based on
reasonable and appropriate actuarial assumptions;
(b) met the requirements of the applicable
insurance laws of the State of Indiana, or any other
state having such jurisdiction, in all material
respects; and
(c) were adequate (under generally accepted
actuarial standards consistently applied) to cover the
total amount of all reasonably anticipated matured and
unmatured liabilities of Meridian Mutual and Meridian
Security under all outstanding insurance policies
pursuant to which Meridian Mutual or Meridian Security
has any liability;
subject, however, to normal year-end adjustments which shall
not be material to the Meridian Companies in amount or
effect.
Section 3.10. No Undisclosed Liabilities. None of the
Meridian Companies has any debts, obligations or liabilities
of whatever kind or nature, either direct or indirect,
absolute or contingent, matured or unmatured (the "Meridian
Liabilities"), except debts, obligations and liabilities
that are fully reflected in, or reserved against on, the
Meridian GAAP Financial Statements, the Meridian Audited SAP
Financial Statements or the Meridian Unaudited Interim SAP
Financial Statements, except for liabilities arising from
the ordinary course of business that are not required to be
reflected in a balance sheet prepared in accordance with
GAAP or SAP (as the case may be), and except for changes in
the Meridian Liabilities arising from the ordinary course of
business since the respective dates of such financial
statements, none of which changes, individually or in the
aggregate, have had a Meridian Material Adverse Effect.
Section 3.11. Regulatory Filings. Meridian has
previously delivered or made available to Citizens and
Citizens Mutual true and complete copies of all filings
which were made by the Meridian Companies within the past
three years with the Indiana Department of Insurance (the
"Indiana Department") or any other department of insurance
in any jurisdiction where any of the Meridian Companies is
required to make such filings. Each of such filings, as of
its respective date, complied as to form and content in all
material respects with the provisions of applicable law.
Section 3.12 . SEC Reports. Meridian has delivered or
made available to Citizens and Citizens Mutual (i) each
registration statement, Current Report on Form 8-K,
Quarterly Report on Form 10-Q, annual report to
shareholders, proxy statement or information statement
prepared by it since January 1, 1992, (ii) an Annual Report
on Form 10-K for each of the years ended December 31, 1991,
1992, 1993 and 1994, and (iii) a Quarterly Report on Form
10-Q for each of the periods ended March 31, June 30 and
September 30, 1995, each in the form (including exhibits)
filed with Securities and Exchange Commission (collectively,
the "Meridian SEC Reports"). As of its respective date,
each of the Meridian SEC Reports did not contain any untrue
statements of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in
which they were made, not misleading. Each of the balance
sheets included in or incorporated by reference into the
Meridian SEC Reports (including the related notes and
schedules) fairly presents the financial position of
Citizens as of its date, and each of the statements of
income, of shareholders' equity and of cash flows included
in or incorporated by reference into the Meridian SEC
Reports (including the related notes and schedules) fairly
presents the results of operations, shareholders' equity and
cash flows, as the case may be, of Meridian for the period
set forth therein (subject, in the case of unaudited
statements, to normal year-end audit adjustments which will
not be material to Meridian in amount or effect), in each
case in accordance with generally accepted accounting
principals consistently applied during the periods involved,
except as may be noted therein. Other than the Meridian SEC
Reports, Meridian has not filed any other definitive reports
or statements with the Securities and Exchange Commission
since January 1, 1992.
Section 3.13. Litigation. There are no proceedings or
investigations (other than claims in the ordinary course of
the insurance business), pending or threatened against,
relating to, involving or otherwise affecting any of the
Meridian Companies, which individually or in the aggregate
may have a material adverse effect on the business, results
of operations or financial condition of the Meridian
Companies (considered as a whole) (a "Meridian Material
Adverse Effect").
Section 3.14. Compliance With Law. (a) None of the
Meridian Companies is in violation in any material respect
(or, with notice or lapse of time or both, would be in
violation in any material respect) of any term or provision
of any applicable law, regulation, rule, ordinance, order,
judgment, writ or injunction of any federal, state or local
government or instrumentality or agency thereof, or of any
court, which violation may reasonably be expected to have a
Meridian Material Adverse Effect, and Meridian and Meridian
Mutual are not aware of any facts or circumstances which may
constitute or result in any such violation.
(b) None of the Meridian Companies is a party to
any contract with or other undertaking to, or is subject to
any order by, or is a recipient of any supervisory letter or
other oral or written communication of any kind from, any
governmental entity that (i) currently materially and
adversely affects the business, results of operations or
financial condition of the Meridian Companies (considered as
a whole), including without limitation, reserve adequacy,
investment, sales or trade practices and policies,
underwriting practices and policies, or management, or
(ii) may reasonably be expected to materially and adversely
affect the business, results of operations or financial
condition of any of the Meridian Companies. None of the
Meridian Companies has been advised by a governmental entity
that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting)
any order, contract or other communication of the kind
described above in this Section 3.14.
Section 3.15. Authority to Conduct Insurance Business.
Each of Meridian Mutual and Meridian Security is an
insurance company licensed or authorized to write insurance
coverages in its state of incorporation, and each of
Meridian Mutual and Meridian Security holds a license and is
fully qualified as a foreign insurer to conduct its
respective business in each jurisdiction in which such
licensure or qualification is required therefor, and there
is no other jurisdiction in which the failure to hold a
license or to be so qualified to conduct the business as is
now being conducted by the respective company would have a
Meridian Material Adverse Effect. No such license or
certificate of authority has been revoked, restricted,
suspended, limited or modified nor is any license or
certificate of authority the subject of, nor, to the
knowledge of Meridian, is there a basis for, a proceeding
for, or a threatened proceeding for, revocation,
restriction, suspension, limitation or modification, nor is
Meridian Mutual or Meridian Security operating under any
formal or informal agreement or understanding with the
licensing authority of any state that restricts its
authority to do business or requires any such company to
take, or refrain from taking, any action.
Section 3.16. Properties. Each of Meridian Companies
has good title to all properties and assets material to the
conduct of its business, which it purports to own,
including, without limitation, all property reflected in the
Meridian GAAP Financial Statements or Meridian Audited SAP
Financial Statements, or acquired since the date of such
financial statements, except (a) in all cases to the extent
such assets or properties have been sold or otherwise
disposed of in the ordinary and usual course of business
since that date or (b) to the extent such failure to have
good title would not have a Meridian Material Adverse
Effect.
Section 3.17. Intellectual Property. There are no
infringement suits pending, or to the best knowledge of
Meridian, threatened, against any of the Meridian Companies
with respect to any copyright, trademark, trade name,
service ▇▇▇▇, or patent covered under federal or state
common law or statutory law, whether or not registered, used
by any of the Meridian Companies in a way that is material
to the conduct of their respective businesses, which would
have a Meridian Material Adverse Effect, and neither
Meridian nor Meridian Mutual knows of any fact or condition
which could give rise to any such infringement suit.
Section 3.18. Environmental Laws and Permits. Each of
the Meridian Companies is in compliance with any and all
laws, regulations, rules, ordinances, orders, judgments,
permits, agreements, licenses or other governmental
restrictions or requirements relating to health, the
environment or the release by such Meridian Company of any
materials into the environment, now in effect in any and all
jurisdictions, in which the Meridian Companies are or from
time to time may be doing business, except where such
failure to comply would not have a Meridian Material Adverse
Effect.
Section 3.19. Taxes. (a) All federal income tax
returns required to be filed by the Meridian Companies have
been properly and timely filed with the Internal Revenue
Service, (b) all state and local income tax returns
required to be filed by the Meridian Companies have been
properly and timely filed with the appropriate state or
local taxing authorities, except where the failure so to
file such state and local income tax returns would not have
a Meridian Material Adverse Effect, and (c) all federal,
state and local tax information returns required to be filed
by the Meridian Companies have been properly and timely
filed with the appropriate federal, state or local taxing
authorities, except where the failure so to file such
information returns would not have a Meridian Material
Adverse Effect. Such income tax returns were true, correct
and complete in all material respects at the time filed, and
the Meridian Companies have paid all taxes shown to be due
on such returns. The Meridian Companies have adequately
reserved, in accordance with GAAP, on the GAAP Financial
Statements, and in accordance with SAP, on the Audited SAP
Financial Statements, for the payment of all unpaid federal,
state and local taxes, including interest and penalties,
payable in respect of any taxable event or period (including
interim periods) ending on the dates of such financial
statement and for all periods prior thereto, except where
any deficiencies would not have a Meridian Material Adverse
Effect. There are no outstanding deficiencies, assessments
or proceedings for the assessment or collection of taxes or
any material dispute as to taxes against or involving any of
the Meridian Companies that would have a Meridian Material
Adverse Effect.
Section 3.20. Employee Benefit Plans. All employee
benefit plans, as defined in Subsection 3(3) of ERISA, and
all other arrangements, agreements, or programs for deferred
compensation, bonuses, severance pay, or employee fringe
benefits covering current or former employees of the
Meridian Companies that the Meridian Companies currently
maintain or to which the Meridian Companies contribute, or
are obligated to contribute, and all related trusts and
insurance contracts comply in form and in operation in all
material respects with all applicable laws and regulations,
including, without limitation, the applicable requirements
of ERISA and the Code, except where any failure to comply
would not have a Meridian Material Adverse Effect.
Section 3.21. Contracts and Commitments. None of the
Meridian Companies is in default under any material
agreement, commitment, arrangement, lease, insurance policy,
or other instrument, whether entered into in the ordinary
course of business or otherwise, and there has not occurred
any event that, with the lapse of time or giving of notice
or both, would constitute such a default, except, in all
cases, where such default would not have a Meridian Material
Adverse Effect.
ARTICLE IV
PRE-CLOSING COVENANTS
From the date hereof through the Closing Date, the
parties covenant and agree as follows:
Section 4.1. General. Each of the parties will use
its good faith efforts to take all action and to do all
things necessary, proper or advisable in order to consummate
and make effective the transactions contemplated by this
Agreement (including, without limitation, the Merger, the
reconfiguration of the Citizens Mutual Board of Directors as
contemplated by Section 1.7, and the satisfaction, but not
waiver, of the closing conditions set forth in Articles VI
and VII below); provided, however, that nothing contained in
this Agreement shall constitute an obligation or agreement
of Citizens Mutual to vote its shares of Citizens Common
Stock and Citizens Preferred Stock in favor of the Merger
and other transactions contemplated by this Agreement at the
meeting of the shareholders of Citizens contemplated by
Section 4.5(a).
Section 4.2. Notices and Consent. Each of the parties
to this Agreement will, individually and in cooperation with
the other parties, give any notices to, make any filing
with, and use good faith efforts to obtain any
authorizations, consents, and approvals of, governments and
governmental agencies and any other third parties that are
necessary, proper or advisable in connection with the
transactions contemplated by this Agreement (including,
without limitation, the Merger and the reconfiguration of
the Citizens Mutual Board of Directors as contemplated by
Section 1.7). Without limiting the generality of the
foregoing, each of the parties will file any Notification
and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the
Antitrust Division of the United States Department of
Justice under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, will use good faith
efforts to obtain a waiver from the applicable waiting
period, and will make any further filings pursuant thereto
that may be necessary, proper or advisable.
Section 4.3. Operation of Business. Except as set
forth in Schedule 4.3, as otherwise contemplated by this
Agreement or as Meridian may otherwise consent to in
writing: (a) each of the Citizens Companies will: (i)
operate only in the ordinary course of business in
substantially the same manner as its business has
historically been conducted; (ii) use good faith efforts to
keep available the services of its present executive
officers and key employees; and (iii) use good faith efforts
to preserve its relationships with employees and agents,
lenders, suppliers, policyholders, licensors and licensees,
insurance departments and others having material business
dealings with the Citizens Companies; and (b) none of the
Citizens Companies will: (i) issue, sell or deliver any
shares of its capital stock or issue or sell any securities
convertible into or exchangeable for, or options with
respect to, or warrants to purchase or rights to subscribe
to any of its capital stock; (ii) effect any
recapitalization, reclassification, stock dividend, stock
split or similar change in capitalization; (iii) merge with
or into, consolidate or otherwise combine with, or acquire
all or substantially all of the assets of, any other entity
(except as may be permitted under Section 4.6 of this
Agreement); (iv) make any commitments that extend beyond the
Closing Date in an amount individually exceeding $25,000;
(v) change any provision of its Articles of Incorporation or
By-Laws or similar governing documents; (vi) permit any
material insurance policy naming it as a beneficiary or a
loss payable payee to be cancelled or terminated or any of
the coverage thereunder to lapse unless simultaneously with
such termination or cancellation replacement policies
reasonably satisfactory to Meridian are in full force and
effect; (vii) enter into any material contract, lease or
other agreement other than in the ordinary course of
business, that extends by its terms beyond the Effective
Time; (viii) amend or cancel or agree to the amendment or
cancellation of any reinsurance agreement, treaty or
arrangement; (ix) make any material change in any accounting
methods or practices; (x) effect any increases in salary,
bonuses or otherwise increase or enhance any employee or
officer compensation or benefits other than in the ordinary
course of business consistent with past practices or make
any employment commitments to existing employees that extend
by their terms beyond the Effective Time, except such as are
consistent with Section 5.4 and Section 7.10(c) hereof; or
(xi) enter into any agreement or understanding to do any of
the things described in clauses (i) through (x) above.
Section 4.4. Full Access. Citizens and Citizens
Mutual shall permit representatives of Meridian to have full
access at all reasonable times to all premises, properties,
personnel, books, records (including tax records),
contracts, and documents of or pertaining to the Citizens
Companies.
Section 4.5. Shareholders' Meeting. (a) Citizens
shall prepare and file with the Securities and Exchange
Commission (the "SEC"), as soon as is reasonably
practicable, the required proxy materials relating to
shareholder approval of the Merger and shall use its good
faith efforts to obtain clearance by the SEC of the mailing
of such material to the Citizens shareholders. After such
clearance is obtained, Citizens shall promptly call a
meeting of its shareholders to be held at the earliest date
that is reasonably practicable for the purpose of voting on
this Agreement and the transactions contemplated hereby.
Subject to the provisions of Section 4.5(b) hereof, Citizens
shall, through its Board of Directors, recommend to its
shareholders approval of the Merger and of the other
transactions contemplated by this Agreement (to the extent
such shareholder approval is required for such other
transactions).
(b) The Board of Directors of Citizens may fail to make
the foregoing recommendation, or withdraw, modify or change
any such recommendation in a manner adverse to Meridian or
approval of the Merger, if such Board of Directors, after
having consulted with and considered the advice of outside
counsel, has reasonably determined in good faith that the
making of such recommendation, or the failure to withdraw,
modify or change its recommendation, would constitute a
breach of the fiduciary duty of the members of such Board of
Directors under applicable law.
Section 4.6. Acquisition Negotiations. During the
period from the date of this Agreement to the Effective
Time, Citizens shall not without the prior written consent
of Meridian authorize or permit any of its officers,
directors, employees or agents to directly or indirectly
solicit, initiate or encourage any inquiries relating to, or
the making of any proposal which constitutes, a Takeover
Proposal (as defined below), or recommend or endorse any
Takeover Proposal, or participate in any discussions or
negotiations, or provide third parties with any nonpublic
information, relating to any such inquiry or proposal or
otherwise facilitate any effort or attempt to make or
implement a Takeover Proposal; provided, however, that,
following prior written notice to Meridian, Citizens may,
and may authorize and permit its officers, directors,
employees and agents to,
(i) provide a third party with nonpublic
information (subject to execution of an appropriate
confidentiality agreement requiring, that all
confidential or non-public information provided to such
third party or its representatives shall be used
exclusively for the purpose of evaluating the possible
Takeover Proposal and not for any other purpose) or
otherwise facilitate any offer or attempt by that third
party to make a Takeover Proposal,
(ii) participate in discussions and negotiations
with that third party relating to any Takeover
Proposal, and
(iii) recommend or endorse any Takeover Proposal
with or by that third party,
if the Board of Directors of Citizens, after having
consulted with and considered the advice of outside counsel,
has reasonably determined in good faith that the failure to
do so would cause the members of such Board of Directors to
breach their fiduciary duties under applicable law. The
prior written notice to Meridian required by the foregoing
sentence shall include the identity of the third party and
shall be maintained by Meridian on a confidential basis. As
used in this Agreement, "Takeover Proposal" shall mean, with
respect to any person, any tender or exchange offer,
proposal for a merger, consolidation or other business
combination involving any of the Citizens Companies or any
proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets
of, any of the Citizens Companies other than the
transactions contemplated or permitted by this Agreement.
Section 4.7. Policyholders' Meeting. Citizens Mutual
shall promptly call a meeting of its policyholders to be
held at the earliest date that is reasonably practicable for
the purpose of ratifying this Agreement and voting on the
reconstitution of the Board of Directors of Citizens Mutual,
as contemplated by Section 1.7 of this Agreement, and
Citizens Mutual shall (absent the existence of an event
which has a Meridian Material Adverse Effect), through its
Board of Directors, recommend to its policyholders the
ratification of this Agreement and the approval of such
reconstitution of the Board of Directors, as contemplated by
Section 1.7 of this Agreement.
Section 4.8. Representation Letter of ESOP Trustee.
Citizens and Citizens Mutual shall use their good faith
efforts to cause the ESOP Trustee to provide to Meridian and
Citizens Mutual the ESOP Trustee's written representations,
dated the date of Closing and substantially in the form of
Exhibit J (Representation Letter of ESOP Trustee), that the
ESOP Trustee has made an independent investigation of the
proposed Merger and the transactions contemplated by this
Agreement (including use of the Merger proceeds to pay the
outstanding balance due under the ESOP Note) and determined
that such Merger and transactions are in the best interests
of the ESOP and its beneficiaries, and that all allocated
and unallocated ESOP Shares have been voted in accordance
with the provisions of the ESOP and applicable laws.
ARTICLE V
OTHER COVENANTS
The parties agree as follows with respect to the period
following the Closing:
Section 5.1. General. In case at any time after the
Closing any further action is necessary or desirable to
carry out the purposes and interest of this Agreement, each
of the parties will take such further action (including the
execution and delivery of such further instruments and
documents) as any other party reasonably may request, all at
the sole cost and expense of the requesting party.
Section 5.2. Continuity of Identity and Operations for
Citizens Insurance Companies. Meridian acknowledges the
importance of Citizens Mutual and the Citizens Subsidiaries
to the community of Red Wing, Minnesota. Accordingly,
through at least December 31, 1999, Meridian shall cause
Citizens Mutual to continue to operate under its present
corporate name and shall cause Citizens Mutual and the
Citizens Subsidiaries to continue to maintain substantial
business operations and employment in the Red Wing,
Minnesota, area.
Section 5.3. Indemnification; Directors and Officers
Insurance. (a) For a period of at least five years after
the Effective Time, Meridian shall not, and shall not permit
any of its affiliates to, take any action to change, alter
or diminish the rights to indemnification and reimbursement
or advancement of expenses by the Citizens Companies now
existing in favor of each present and former director,
officer, employee and agent of any of the Citizens Companies
(the "Indemnified Parties") as provided in their respective
articles or certificate of incorporation in effect on the
date hereof; provided that, in the event any claim or claims
are asserted or made within such five-year period, all
rights to indemnification and reimbursement or advancement
of expenses with respect of any such claim or claims shall
continue until final disposition of any and all such claims.
(b) To the extent not otherwise provided for in
the rights to indemnification referred to in Section 5.3(a)
hereof, Meridian shall, subject to the terms set forth
herein, indemnify and hold harmless an Indemnified Party,
and advance costs and expenses (including reasonably
attorneys' fees) as incurred, in each case to the fullest
extent permitted under applicable law (provided, the person
to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such
person is not entitled to indemnification), in connection
with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative,
arising out of or pertaining to the transactions
contemplated by this Agreement, for a period of five years
after the Effective Time; provided that, in the event any
claim or claims are asserted or made within such five-year
period, all rights to such indemnification and advancement
of expenses in respect of the defense of any such claim or
claims shall continue until final disposition of any and all
such claims.
(c) Any Indemnified Party wishing to claim
indemnification under Section 5.3(a) or (b), upon learning
of any such claim, action, suit, proceeding or
investigation, shall promptly notify Meridian thereof, but
the failure to so notify shall not relieve Meridian of any
liability it may have to such Indemnified Party except to
the extent such failure materially prejudices Meridian. In
the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective
Time), (i) Meridian shall have the right to assume the
defense thereof, and Meridian shall not be liable to such
Indemnified Parties for any advancement of legal expenses of
other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense
thereof, except that, if Meridian elects not to assume such
defense or if counsel for the Indemnified Parties advises
that there are issues which raise conflicts of interest
between Meridian and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them,
and Meridian shall advance all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as
statements therefor are received; provided, however, that
(i) Meridian shall be obligated to advance costs and
expenses for only one firm of counsel for all Indemnified
Parties in any jurisdiction unless the use of one counsel
for such Indemnified Parties would present such counsel with
a conflict of interest, and (ii) all Indemnified Parties
shall cooperate in good faith in the defense of any such
matter. If full indemnity is not available with respect to
any Indemnified Party, Meridian and the Indemnified Party
shall contribute to the amount payable in such proportion as
is appropriate to reflect faults and benefits.
(d) For a period of five years from the Effective
Time, Meridian shall use good faith efforts to provide that
portion of directors' and officers' liability insurance that
serves to reimburse the present and former officers and
directors of each of the Citizens Companies (determined
immediately prior to the Effective Time) with respect to
claims against such officers and directors arising from
facts or events which occurred before the Effective Time but
were not previously reported to the Citizens Companies'
insurance carriers, which insurance shall contain
substantially at least the same coverage and amounts, and
contain terms and conditions substantially no less
advantageous, as that coverage currently provided by the
Citizens Companies; provided, that officers and directors of
the Citizens Companies may be required to make application
and provide customary representations and warranties to
Meridian's or the Citizens Companies' insurance carrier for
the purpose of obtaining such insurance; and provided,
further, that such coverage will have a single aggregate for
such five-year period in an amount not less than the annual
aggregate of such coverage currently provided by the
Citizens Companies.
(e) The provisions of this Section 5.3 shall
survive the Closing , shall be binding on all successors and
assigns of Meridian, and are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and
his or her heirs and representatives.
Section 5.4. Citizens Employees. This Section 5.4
sets forth certain agreements of Meridian with Citizens and
Citizens Mutual regarding the employees of Citizens Mutual
(the "Citizens Employees") following the Closing. At or
prior to the Closing, Meridian and Citizens Mutual shall
provide a joint letter to each of the Citizens Employees
establishing the applicable agreements contained in this
Section 5.4.
(a) The Citizens Employees listed on Schedule 5.4(a)
will be offered continued employment in Red Wing, Minnesota
in their present or similar capacities with Citizens Mutual
(and at not less than their current cash compensation
levels) until the earlier of (i) the date on which such
Citizens Employees are offered employment with Vis'n (as
defined in Section 6.15 hereof) or (ii) the first
anniversary date of the date of the Closing; and until the
earlier of such dates the employment of such Citizens
Employees may not be terminated except for failure to meet
reasonable performance expectations consistent with their
respective job descriptions, failure to comply with
applicable employment policies, or misconduct.
(b) The Citizens Employees listed on Schedule 5.4(b)
will be offered continued employment in Red Wing, Minnesota
in their present or similar capacities with Citizens Mutual
(and at not less than their current cash compensation
levels) after the date of the Closing, and, during the
period beginning on such Closing date through December 31,
1997, the employment of such Citizens Employees may not be
terminated except for failure to meet reasonable performance
expectations consistent with their respective job
descriptions, failure to comply with applicable employment
policies, or misconduct. Such employment shall continue to
be in Red Wing, Minnesota throughout such period.
(c) The Citizens Employees listed on Schedule 5.4(c)
will be offered continued employment in Red Wing, Minnesota
in their present or similar capacities with Citizens Mutual
(and at not less than their current cash compensation
levels) after the date of the Closing, and, during the
period beginning on such Closing date through December 31,
1998, the employment of such Citizens Employees may not be
terminated except for failure to meet reasonable performance
expectations consistent with their respective job
description, failure to comply with applicable employment
policies, or misconduct. Such employment shall continue to
be in Red Wing, Minnesota throughout such period.
(d) Continued employment following the Closing is not
contemplated with respect to the Citizens Employees listed
on Schedule 5.4(d). In the event the employment of any such
Citizens Employee is terminated on or after the date of the
Closing, such terminated Citizens Employee will be offered a
severance package, substantially as follows: (i) supervisory
employees would be offered their then current salary and
benefits for a period of eight weeks, plus an additional
week for each full year of service with Citizens Mutual as
of the time of termination of employment, and (ii) non-
supervisory employees would be offered their then current
salary and benefits for a period of four weeks, plus an
additional week for each full year of service with Citizens
Mutual as of the date of termination of employment.
(e) No severance package (other than existing
arrangements or agreements contemplated by this Agreement)
or offer of continued employment will be made to the
Citizens Employees and other persons listed on Schedule
5.4(e). Citizens and Citizens Mutual represent and warrant
that the Schedules provided for in this Section 5.4 include
all of the Citizens Employees.
(f) All employment policies and benefit plans for
continuing employees of Citizens Mutual will continue in
full force and effect until December 31, 1996. Effective
January 1, 1997, all existing Citizens Mutual employee
benefit plans will be terminated or merged into or amended
to be consistent with Meridian employee benefit plans, and
all other existing Citizens Mutual employment policies and
practices will be changed to be consistent with Meridian
employment policies and practices. For purposes of
determining participation and vesting (but not for
calculating benefits) under the employee benefit plans of
Meridian, each Citizens Employee will be credited with his
or her length of service while employed by Citizens Mutual.
After December 31, 1996, and except as otherwise provided in
this Section 5.4, Citizens Employees will be governed by
Meridian's employment policies and practices as they may be
changed from time to time.
(g) The provisions of this Section 5.4 are not
intended and shall not be construed to give any Citizens
Employee or any person other than the parties to this
Agreement any legal or equitable right, remedy or claim
under or in respect of this Agreement. Any rights of the
Citizens Employees contemplated by this Section 5.4 shall be
established by and arise under the separate joint letter to
be provided to each of the Citizens Employees, as
contemplated by this Section 5.4 and by Section 7.10.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF MERIDIAN
The obligations of Meridian under this Agreement shall,
at the option of Meridian, be subject to the satisfaction,
at or prior to the time of the Closing, of the following
conditions:
Section 6.1. No Misrepresentation or Breach of
Covenants or Warranties. As of the time of Closing, (a)
there shall have been no material breach by Citizens or
Citizens Mutual in the performance of any of its covenants
and agreements herein, (b) each of the representations and
warranties of Citizens and Citizens Mutual contained in this
Agreement shall have been true and correct as of the date of
execution of this Agreement, and (c) each of the
representations and warranties of Citizens and Citizens
Mutual contained in this Agreement, without regard to any
qualification, materiality threshold or reference to
immateriality or a Citizens Material Adverse Effect, shall
be true and correct as of the date of the Closing as though
made on and as of such date (provided, that each of the
representations and warranties made as of a particular date
need only be true and correct as of that date), except for
any inaccuracies which, individually or in the aggregate,
have not had a Citizens Material Adverse Effect; provided,
however, that there shall be deemed not to be such a
Citizens Material Adverse Effect to the extent that such
effect is the result of the announcement of the Merger or
the result of transactions contemplated by this Agreement.
Section 6.2. Officers' Certificates. Citizens and
Citizens Mutual shall have delivered to Meridian a
certificate, dated the date of the Closing and executed by
the chief executive officer and by the chief financial
officer or an executive vice president of Citizens and
Citizens Mutual, certifying that the conditions set forth in
Section 6.1 hereof have been fulfilled. In addition,
Citizens and Citizens Mutual shall have delivered to
Meridian a certificate, dated the date of the Closing and
executed by the corporate secretary or assistant corporate
secretary of Citizens and Citizens Mutual, certifying as to:
the articles of incorporation, by-laws and corporate
existence of each of the Citizens Companies; that the
resolutions (true and complete copies of which shall be
attached to the certificate) of the Boards of Directors of
Citizens and Citizens Mutual with respect to this Agreement
and the transactions contemplated hereby have been duly and
validly adopted and are in full force and effect; that the
resolutions (true and complete copies of which shall be
attached to the certificate) of the shareholders of Citizens
with respect to this Agreement and the transactions
contemplated hereby have been duly and validly adopted and
are in full force and effect; that any resolutions (true
and complete copies of which shall be attached to the
certificate) of the policyholders or members of Citizens
Mutual with respect to this Agreement and the transactions
contemplated hereby, if any such resolutions are required,
have been duly and validly adopted and are in full force and
effect; and as to the incumbency and signatures of certain
officers of Citizens and Citizens Mutual.
Section 6.3. Letter as to Transaction Cost. Citizens
and Citizens Mutual shall have delivered to Meridian a
letter, dated the date of the Closing and executed by the
chief financial officer and the treasurer of Citizens and
Citizens Mutual, setting forth all Transaction Costs (as
defined in Section 10.2) paid or incurred by the Citizens
Companies (whether paid or payable before or after the
Effective Time), in connection with this Agreement or the
transactions contemplated hereby, and specifying in
reasonable detail the amount of such Transaction Costs in a
manner that will enable the parties to determine the amount
of the Transaction Costs Adjustment, if any, as that term is
defined in Section 10.2. Such letter shall be based upon
facts and such good faith estimates as may be reasonable
under the circumstances; provided, however, that the letter
shall clearly indicate the amounts that are estimated and
the basis for the estimates.
Section 6.4. Approval of Citizens' Shareholders and
Citizens Mutual's Policyholders. (a) The Merger shall have
been approved and adopted at a duly called meeting of the
shareholders of Citizens by the requisite vote of the issued
and outstanding shares of Citizens Common Stock and Citizens
Preferred Stock entitled to vote thereon, voting as separate
classes.
(b) This Agreement and the reconstitution of the Board
of Directors of Citizens Mutual, as contemplated by Section
1.7 of this Agreement, shall have been approved at a duly
called meeting of the policyholders of Citizens Mutual by
the requisite vote of policyholders entitled to vote
thereon.
Section 6.5. Dissenting Shares. The holders of not
more than 5% of the issued and outstanding shares of
Citizens Common Stock at the Effective Time shall have
delivered written notice of intent to demand payment of the
fair value of their shares of Citizens Common Stock pursuant
to the Minnesota Dissenters' Rights Statute, and Citizens
Mutual shall not have delivered written notice of intent to
demand payment of the fair value of the shares of Citizens
Preferred Stock pursuant to the Minnesota Dissenters' Rights
Statute.
Section 6.6. Regulatory Approval. All approvals,
authorizations and consents from governmental and regulatory
bodies required for the transactions contemplated by this
Agreement and to permit the business currently carried on by
the Citizens Companies to continue to be carried on
substantially in the same manner following the Effective
Time, shall have been obtained and shall be in full force
and effect (including, without limitation, approvals by
appropriate insurance regulators in the states of Minnesota,
Indiana and Ohio), and Meridian shall have been furnished
with appropriate evidence, reasonably satisfactory to it and
its counsel, of the granting of such approvals,
authorizations and consents. There shall not have been any
action taken by any court, arbitration tribunal or any
governmental or regulatory body prohibiting or making
illegal at the time of the Closing or the Effective Time any
of the transactions contemplated by this Agreement.
Section 6.7. ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. The waiting period
required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, including any
extension thereof, shall have terminated or expired prior to
the time of the Closing.
Section 6.8. Third Party Consents. All consents,
permits and approvals from parties to material contracts or
other material agreements with the Citizens Companies
required in connection with the transactions contemplated
hereby shall have been obtained (including, without
limitation, any consents required for the continued use by
the Citizens Companies of computer software or hardware
material to the business of the Citizens Companies licensed
or leased to Citizens Mutual for use by any of the other the
Citizens Companies).
Section 6.9. Boards of Directors. The respective
Boards of Directors of the Citizens Companies shall be
reconstituted as follows:
(a) Citizens Subsidiaries: The six current
directors of Meridian Security, plus the current
President and the current Vice President of Marketing
of Citizens.
(b) Citizens Mutual: The six current directors
of Meridian Security, plus the current Vice President
of Marketing of Citizens Mutual and the current
President of Citizens Mutual.
(c) Mississippi Valley Corporation: Such persons
as may be designated by Meridian not less than five
days prior to the Closing.
In addition, any amendments to the articles or certificate
of incorporation or bylaws of any of the Citizens Companies
necessary for the foregoing shall have been adopted and
become effective.
Section 6.10. Officers. Each officer of each of the
Citizens Insurance Companies shall have tendered his or her
resignation as an officer, effective as of the Effective
Time, and arrangements reasonably satisfactory to Meridian
shall have been made providing for the appointment of the
Chief Executive Officer of Meridian as the Chairman of the
Board, President and Chief Executive Officer of each of the
Citizens Insurance Companies, effective at the Effective
Time. In addition, each officer of each other Citizens
Company shall have tendered his or her resignation as an
officer, effective as of the Effective Time.
Section 6.11. Reinsurance Pooling Agreement. All
regulatory approvals necessary for the execution of the
Reinsurance Pooling Agreement, substantially in the form of
Exhibit B, by all parties thereto shall have been obtained,
and the Citizens Insurance Companies shall have entered into
that Pooling Reinsurance Agreement, effective as of the
Effective Time.
Section 6.12. Management Services Agreements. All
regulatory approvals necessary for the execution of the
Management Services Agreements, substantially in the forms
of Exhibits C-1 and C-2, by all parties thereto shall have
been obtained, and the Citizens Insurance Companies shall
have entered into those Management Services Agreements,
effective as of the Effective Time.
Section 6.13. No Material Adverse Change. Since
December 31, 1995, there shall have been no material adverse
change in the business of the Citizens Companies (considered
as a whole) or in the consolidated results of operations or
consolidated financial condition of either Citizens
(considered as a whole) or Citizens Mutual (considered as a
whole); provided, however, that there shall be deemed not to
be such a material adverse change to the extent that such
change is the result of the announcement of the Merger or
the result of transactions contemplated by this Agreement.
Section 6.14. Certain Personnel Matters. (a) ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ shall have entered into the Consulting Services
Agreement, substantially in the form of Exhibit D.
(b) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall have entered into the
Employment Agreement, substantially in the form of
Exhibit E.
Section 6.15. Vis'n Matters. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇, Meridian and Citizens Mutual shall have entered
into a letter agreement (the "Vis'n Letter") regarding a
corporation to be organized by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇▇▇ ("Vis'n"). The Vis'n Letter shall provide among
other matters that, upon Vis'n's formation and Meridian's
reasonable satisfaction that Vis'n is then or will be
authorized to conduct business and to enter into the
contracts and transactions contemplated by this Section
6.15, Vis'n or Vis'n and Citizens Mutual, as the case may
be, will do the following:
(a) Vis'n will offer employment, with at least
substantially the same compensation as provided by Citizens
Mutual, to the Citizen employees listed on Schedule 5.4(a),
such employment to be effective on or about the commencement
date of the Claims Administration Agreement and Software and
Hardware Systems Agreement referred to in Sections 6.15(c)
and (d) hereof; and Vis'n will immediately reimburse
Citizens Mutual or Meridian for any required payments in
respect of unused vacation time or personal leave time made
to such Citizens Employees who accept Visn's employment
offer (or will allow Citizens Mutual or Meridian to deduct
such payments from amounts otherwise payable to Vis'n under
the Claims Administration Agreement and Software and
Hardware Support Agreement referred to in Sections 6.15(c)
and (d) hereof);
(b) Vis'n and Citizens Mutual will enter into the
Real Estate Sublease Agreement, substantially in the form of
Exhibit F.
(c) Vis'n and Citizens Mutual will enter into the
Claims Administration Agreement, substantially in the form
of Exhibit G.
(d) Vis'n and Citizens Mutual will enter into the
Software and Hardware Support Agreement, substantially in
the form of Exhibit H.
(e) Vis'n and Citizens Mutual will enter into the
Office Equipment Lease Agreement, substantially in the form
of Exhibit I.
(f) Vis'n will pay $3,000 of the monthly
consulting fees payable by Citizens Mutual to ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ under a certain Independent Consultant Agreement
with Citizens Mutual.
Section 6.16. ESOP and Plan Matters. The actions to
be taken by or in respect of the ESOP described in Section
1.5 shall have been taken.
Section 6.17. Opinion of Counsel for Citizens and
Citizens Mutual. Meridian shall have received from separate
counsel for Citizens and for Citizens Mutual, opinions dated
the date of the Closing, in form and substance reasonably
satisfactory to Meridian.
Section 6.18. Fairness Opinion. The fairness opinion
Meridian has received from the investment banking firm of
▇▇▇▇▇▇▇▇ & Company Securities, Inc., to the effect that the
consideration to be paid by Meridian to the shareholders of
Citizens pursuant to the Merger is fair, from a financial
point of view, to the shareholders of Meridian, shall have
been updated to the time of Closing in form and substance
reasonably satisfactory to the Board of Directors of
Meridian.
Section 6.19. ▇▇▇▇▇▇▇▇▇ Arrangements. The First
Amended Software Agreement, dated March 21, 1996, between
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and Citizens Mutual shall be in effect.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF
CITIZENS AND CITIZENS MUTUAL
The obligations of Citizens and Citizens Mutual under
this Agreement shall, at the option of Citizens and
Citizens Mutual, be subject to the satisfaction, at or prior
to the time of the Closing, of the following conditions:
Section 7.1. No Misrepresentation or Breach of
Covenants or Warranties. As of the time of the Closing, (a)
there shall have been no material breach by Meridian in the
performance of any of its covenants herein, (b) each of the
representations and warranties of Meridian contained in this
Agreement shall have been true and correct as of the date of
the execution of this Agreement, and (c) each of the
representations and warranties of Meridian contained in this
Agreement, without regard to any qualification, materiality
threshold or reference to immateriality or a Meridian
Material Adverse Effect, shall be true and correct as of the
date of the Closing as though made on and as of such date
(provided, that each of the representations and warranties
made as of a particular date need only be true and correct
as of that date), except for any inaccuracies which,
individually or in the aggregate, have not had a Meridian
Material Adverse Effect; provided, however, that there shall
be deemed not to be such a Meridian Material Adverse Effect
to the extent that such effect is the result of the
announcement of the Merger or the result of transactions
contemplated by this Agreement.
Section 7.2. Shareholder and Policyholder Approval.
(a) The Merger shall have been approved and adopted at a
duly called meeting of the shareholders of Citizens by the
requisite vote of the issued and outstanding shares of
Citizens Common Stock and Citizens Preferred Stock entitled
to vote thereon, voting as separate classes.
(b) This Agreement and the reconstitution of the Board
of Directors of Citizens Mutual, as contemplated by Section
1.7 of this Agreement, shall have been approved at a duly
called meeting of the policyholders of Citizens Mutual by
the requisite vote of such policyholders entitled to vote
thereon.
Section 7.3. Officers' Certificates. Meridian shall
have delivered to Citizens and Citizens Mutual a
certificate, dated the date of the Closing and executed by
the chief executive officer and by the chief financial
officer or an executive vice president of Meridian,
certifying that the conditions set forth in Section 7.1
hereof have been fulfilled. In addition, Meridian shall
have delivered to Citizens and Citizens Mutual a
certificate, dated the date of the Closing and executed by
the corporate secretary or assistant corporate secretary of
Meridian and Merger Company, certifying as to: the articles
of incorporation, by-laws and corporate existence of
Meridian and Merger Company; that the resolutions (true and
complete copies of which shall be attached to the
certificate) of the Boards of Directors of Meridian and
Merger Company with respect to this Agreement and the
transactions contemplated hereby have been duly and validly
adopted and are in full force and effect; and as to the
incumbency and signatures of certain officers of Meridian
and Merger Company.
Section 7.4. Regulatory Approval. All approvals,
authorizations and consents from governmental and regulatory
bodies required for the transactions contemplated by this
Agreement shall have been obtained and shall be in full
force and effect (including, without limitation, approvals
by appropriate insurance regulators in the states of
Minnesota, Indiana and Ohio), and Citizens and Citizens
Mutual shall have been furnished with appropriate evidence,
reasonably satisfactory to it and its counsel, of the
granting of such approvals, authorizations and consents.
There shall not have been any action taken by any court,
arbitration tribunal or any governmental or regulatory body
prohibiting or making illegal at the time of the Closing or
the Effective Time any of the transactions contemplated by
this Agreement.
Section 7.5. ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. The waiting period
required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, including any
extension thereof, shall have terminated or expired prior to
the time of the Closing.
Section 7.6. Boards of Directors. Arrangements
reasonably satisfactory to Citizens and Citizens Mutual
shall have been made providing for: (a) the Boards of
Directors of each of the Citizens Subsidiaries to include
the current President and the current Vice President of
Marketing of Citizens, (b) for the Board of Directors of
Citizens Mutual to include the current Vice President of
Marketing of Citizens Mutual and the current President of
Citizens Mutual, and (c) for the Board of Directors of
Meridian to include the current President of Citizens and
Citizens Mutual; in each case, as of immediately following
the Effective Time.
Section 7.7. Third Party Consents. All consents,
permits and approvals from parties to material contracts or
other material agreements with the Meridian Companies
required in connection with the transactions contemplated
hereby shall have been obtained.
Section 7.8. Reinsurance Pooling Agreement. All
corporate and regulatory approvals necessary for the
execution of the Reinsurance Pooling Agreement substantially
in the form of Exhibit B, by all parties thereto, shall have
been obtained; and Meridian Mutual and Meridian Security
shall have entered into that Reinsurance Pooling Agreement,
effective as to the Effective Time.
Section 7.9. Management Services Agreements. All
corporate and regulatory approvals necessary for the
execution of the Management Services Agreements
substantially in the forms of Exhibit C-1 and C-2, by the
respective parties thereto, shall have been obtained; and
Meridian, Meridian Mutual and Meridian Security shall have
entered into those Management Services Agreements, effective
as of the Effective Time.
Section 7.10. Certain Personnel Matters.
(a) Meridian shall have entered into the
Consulting Services Agreement with ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
substantially in the form of Exhibit D.
(b) Meridian shall have entered into the
Employment Agreement with ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, substantially in
the form of Exhibit E.
(c) The letter or letters to Citizens Employees
referred to in Section 5.4, in a form or forms reasonably
satisfactory to Citizens and Citizens Mutual, shall have
been provided to such Citizens Employees, or arrangements
therefor reasonably satisfactory to Citizens and Citizens
Mutual shall have been made.
Section 7.11. Vis'n Matters. The Vis'n Letter
referred to in Section 6.15 shall have been entered into.
Section 7.12. No Material Adverse Change. Since
December 31, 1995, there shall have been no material adverse
change in the business, results of operations or financial
condition of the Meridian Companies (considered as a whole);
provided, however, that there shall be deemed not to be such
a material adverse change to the extent that such change is
the result of the announcement of the Merger or the result
of transactions contemplated by this Agreement.
Section 7.13. Opinion of Counsel for Meridian.
Citizens and Citizens Mutual shall have received from
counsel for Meridian, an opinion dated the date of the
Closing, in form and substance reasonably satisfactory to
Citizens and Citizens Mutual.
Section 7.14. Fairness Opinions. The fairness opinion
Citizens has received from the investment banking firm of
▇▇▇▇▇▇▇▇▇, Agio, ▇▇▇▇▇ Securities, Inc., to the effect that
the consideration to be received in the Merger by the
holders of Citizens Common Stock and Citizens Preferred
Stock is fair to such holders from a financial point of
view, shall have been updated to the date of the proxy
statement referred to in Section 4.5(a) and to the time of
Closing, in form and substance reasonably satisfactory to
the Board of Directors of Citizens.
Section 7.15. Payment of ESOP Note. The ESOP note
shall have been repaid as contemplated by Section 1.5(b).
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 8.1. Survival of Representations and
Warranties. The representations and warranties made in this
Agreement by the parties hereto shall not survive the
Closing. Notwithstanding the foregoing, the covenants set
forth in Article V shall survive the Effective Time.
ARTICLE IX
TERMINATION
Section 9.1. Termination. This Agreement and the
transactions contemplated by this Agreement may be
terminated at any time prior to the filing of the Articles
of Merger with the Secretary of State of Minnesota, whether
before or after action by the shareholders of Citizens as
contemplated by Section 4.5(a), of this Agreement and
without further approval by the shareholders of Citizens:
(a) By mutual written consent of Meridian, Citizens
and Citizens Mutual;
(b) By Citizens and Citizens Mutual, by written notice
to Meridian, if the number of votes in favor of the Merger
and this Agreement cast by the shareholders of Citizens and
required for the consummation of the Merger shall not have
been obtained at the meeting of Citizens' shareholders or at
any adjournment thereof duly held for such purpose;
(c) By either Citizens and Citizens Mutual, on the one
hand, or by Meridian, on the other hand, by written notice
to the other, if the Minnesota Department fails by
September 30, 1996, to approve, or give its consent to any
of the material transactions contemplated by this Agreement
that the Minnesota Department is required to approve or
consent to under applicable law;
(d) By Meridian, in the event a condition set forth in
Article VI of this Agreement cannot be satisfied;
(e) By Citizens and Citizens Mutual, in the event a
condition set forth in Article VII of this Agreement cannot
be satisfied; or
(f) By either Meridian, on the one hand, or by
Citizens and Citizens Mutual, on the other hand, by written
notice to the other if the Merger is not consummated by
September 30, 1996.
Section 9.2. Termination Fee. (a) If Citizens and
Meridian fail to consummate the Merger and:
(i) Citizens enters into a letter of intent,
commitment letter or other written agreement with a
third party regarding a merger, consolidation, sale of
assets or other similar transaction involving Citizens
or Citizens Mutual prior to January 1, 1997; and
(ii) Meridian shall have complied with all of its
obligations under this Agreement required to be
performed by it through the date of the earliest
relevant event described in Section 9.2(a)(i); and
(iii) this Agreement shall not have been
terminated by mutual written consent of all of the
parties pursuant to Section 9.1(a);
then Citizens shall promptly pay to Meridian an amount equal
to $586,646 plus the amounts of all Transaction Costs paid
or incurred by Meridian or its affiliates, and Citizens and
Citizens Mutual shall have no further liability or
obligation to Meridian with respect to this Agreement.
(b) If Citizens and Meridian fail to consummate the
Merger and:
(i) either (A) the Board of Directors of Citizens
refuses or fails to make the recommendation to the
shareholders of Citizens contemplated by
Section 4.5(a), or withdraws, modifies or changes any
such recommendation in a manner adverse to Meridian or
to approval of the Merger, (B) any party terminates
this Agreement pursuant to Section 9.1(c) because the
Minnesota Department does not approve the Merger due to
the amount of consideration to be received by any
shareholders in the Merger, (C) Citizens Mutual shall
not have voted its shares of Citizens Common Stock or
Citizens Preferred Stock in favor of the Merger and
other transactions contemplated by this Agreement at
the meeting of the shareholders of Citizens
contemplated by Section 4.5(a) (it being understood
that Citizens Mutual is not obligated by this Agreement
or otherwise to vote in favor of the Merger and such
transactions) or (D) the First Amended Software
Agreement, dated March 21, 1996, between ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ and Citizens Mutual shall not have remained
in effect; and
(ii) Meridian shall have complied with all of its
obligations under this Agreement required to be
performed by it through the date of the earliest
relevant event described in Section 9.2(b)(i); and
(iii) this Agreement shall not have been
terminated by mutual written consent of all of the
parties pursuant to Section 9.1(a),
then Citizens shall pay and reimburse to Meridian all
Transaction Costs paid or incurred by Meridian or its
affiliates, promptly upon receipt from Meridian of a
reasonably detailed accounting thereof; and Citizens and
Citizens Mutual shall have no further liability or
obligations to Meridian with respect to this Agreement
except as may arise under Section 9.2(a).
Section 9.3. Survival of Rights. Except as otherwise
provided in Sections 9.1 and 9.2, nothing in this Article IX
or in this Agreement shall be construed as limiting the
rights of any party in the event of a breach by any party of
this Agreement.
ARTICLE X
MISCELLANEOUS
Section 10.1. Notices. All notices or other
communications required or permitted hereunder shall be in
writing and shall be given by confirmed telecopy or
registered mail addressed:
(a) If to Citizens or Citizens Mutual:
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
President, Chief Operating Officer and Chief
Financial Officer
Citizens Security Group Inc.
Citizens Security Mutual Insurance Company
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Citizens, a copy to:
▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ & Whitney LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Citizens Mutual, a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Brand
3300 Norwest Center
▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to Meridian:
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇
President and Chief Executive Officer
Meridian Insurance Group, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
J. ▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
General Counsel
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
All notices and other communications required or permitted
under this Agreement that are addressed as provided in this
Section 10. 01 will (i) if delivered personally, be deemed
given upon delivery, (ii) if delivered by facsimile
transmissions, be deemed given when sent and confirmation or
receipt is received, and (iii) if delivered by mail in the
manner described above, be deemed received on the date of
receipt. Any party from time to time may change its address
for the purpose of notices to that party by giving notice to
the other parties hereto specifying a new address, but no
such notice will be deemed to have been given until it is
actually received by the party sought to be charged with the
contents thereof.
Section 10.2. Expenses. (a) Except as otherwise
provided herein, each party hereto shall pay its own
expenses, including without limitation, legal and accounting
fees and expenses, incident to its negotiation and
preparation of this Agreement and to its performance and
compliance with the provisions contained herein
("Transaction Costs").
(b) In the event that the aggregate Transaction
Costs paid or incurred by the Citizens Companies exceed
$650,000, the excess over that amount (the "Transaction
Costs Adjustment") shall reduce the amount of cash payable
to the holders of Citizens Common Stock and Citizens
Preferred Stock, as provided in Section 1.3(a). The parties
acknowledge that the Transaction Costs Adjustment, if any,
may be based in part upon reasonable good faith estimates
and projections made immediately prior to the Closing and
shall be determined in the manner provided in Section 6.3.
Section 10.3. Titles and Headings. Titles and
headings to Articles and Sections herein are inserted for
convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this
Agreement.
Section 10.4. No Third-Party Beneficiaries. Except as
otherwise provided in Section 5.3 of this Agreement, nothing
in this Agreement or in any agreement attached hereto as an
exhibit is intended or shall be construed to give any
person, other than the parties hereto any legal or equitable
right, remedy or claim under or in respect of this Agreement
or any agreement attached hereto as an exhibit or any
provision contained herein or therein.
Section 10.5. Entire Agreement. This Agreement,
together with the contracts executed and delivered pursuant
hereto, supersedes all prior discussions and agreements
between the parties with respect to the subject matter of
this Agreement, and this Agreement, including documents,
certificates and contracts executed and delivered pursuant
hereto, contains the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
Notwithstanding the foregoing, the parties agree that the
terms and conditions of the Confidentiality and Non-
Disclosure Agreement shall continue to remain in full force
and effect.
Section 10.6. Public Announcements. At all times at
or before the Closing, Citizens and Citizens Mutual and
Meridian will consult with the other before issuing or
making any reports, statements, or releases to the public
with respect to this Agreement or the transactions
contemplated hereby and will use good faith efforts to
obtain the other party's approval of the text of any public
report, statement, or releases to be made on behalf of such
party. If either party is unable to obtain the approval of
its public report, statement, or release from the other
party and such report, statement, or release is, in the
opinion of legal counsel to such party, required by law in
order to discharge such party's disclosure obligations, then
such party may make or issue the legally required report,
statement, or release and promptly furnish the other party
with a copy thereof.
Section 10.7. Waiver. Any term or condition of this
Agreement may be waived at any time by the party that is
entitled to the benefit thereof. A waiver on one occasion
will not be deemed to be a waiver of the same or any other
breach on a future occasion. All remedies, either under
this Agreement, or by law or otherwise afforded, will be
cumulative and not alternative, but no such waiver shall be
effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such terms or
conditions.
Section 10.8. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
state of Indiana without giving effect to any choice or
conflicts of law provision or rule (whether of the State of
Indiana or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the
State of Indiana.
Section 10.9. Binding Effect. This Agreement is
binding upon and will inure to the benefit of the parties
and their respective successors and permitted assignees.
Section 10.10. No Assignment. This Agreement or any
right or obligation hereunder may not be assigned by any
party hereto without the prior written consent of the other
parties hereto and any attempt to do so will be void.
Section 10.11. Invalid Provisions. If any provision
of this Agreement is held to be illegal, invalid or
unenforceable under any present or future law, and if the
rights or obligations of the parties under this Agreement
will not be materially and adversely affected thereby: (a)
such provision will be fully severable; (b) this Agreement
will be construed and enforced as if such illegal, invalid
or unenforceable provision had never comprised a part
hereof; (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by
the illegal, invalid or unenforceable provision or by its
severance herefrom; and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added
automatically as a part of this Agreement a legal, valid and
enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
Section 10.12. Construction. The language used in
this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent, and no rule of
strict construction shall be applied against any party. Any
reference to any federal, state, local or foreign statute or
law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context
requires otherwise.
Section 10.13. Execution in Counterparts. This
Agreement may be executed in two or more counterparts, all
of which shall be considered one and the same agreement, and
shall become a binding agreement when one or more
counterparts have been signed by each of the parties and
delivered to each of the other parties.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement the day and year first above written.
MERIDIAN INSURANCE GROUP, INC.
By:___________________________
▇▇▇▇▇ ▇. ▇▇▇▇, President and
Chief Executive Officer
CITIZENS SECURITY GROUP INC.
By:___________________________
Name:_________________________
Title:________________________
CITIZENS SECURITY MUTUAL
INSURANCE COMPANY
By:___________________________
Name:_________________________
Title:________________________
LIST OF EXHIBITS ATTACHED TO THE ACQUISITION AND AFFILIATION
AGREEMENT BY AND AMONG CITIZENS SECURITY GROUP INC.,
CITIZENS SECURITY MUTUAL INSURANCE COMPANY, AND MERIDIAN
INSURANCE GROUP, INC.
Following is a description of the exhibits attached to the
Acquisition and Affiliation Agreement by and among Citizens
Security Group Inc., Citizens Security Mutual Insurance
Company, and Meridian Insurance Group, Inc.:
Exhibit A - Plan of Merger, copy of which follows this list
of Acquisition Agreement exhibits.
Exhibit B - Reinsurance Pooling Agreement Amended and
Restated as of August 1, 1996, copy of which is attached as
a separate exhibit to Form 10-K for the fiscal year ended
December 31, 1996.
Exhibit C - Management Services Agreement Between Meridian
Mutual Insurance
Company and its Affiliates, a copy of which is attached as a
separate exhibit to Form 10-K for the fiscal year ended
December 31, 1996.
Exhibit D - Consulting Services Agreement between the
Company and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, former Chairman and Chief
Executive Officer of Citizens Security Group Inc., with a
Stock Option Agreement granting ▇▇. ▇▇▇▇▇▇▇▇▇ the right to
purchase up to 20,000 Common Shares of the Company.
Exhibit E - Consulting Services Agreement and Stock Option
Agreement between the Company and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, with
copies of both agreements attached as separate exhibits to
Form 10-K for the fiscal year ended December 31, 1996.
Exhibit F - Sublease Agreement under which VIS'N, Inc.
subleases a portion of the office space leased by Citizens
Security Mutual Insurance Company.
Exhibit G - Claims Administration Agreement by and among
Citizens Security Mutual Insurance Company, Citizens Fund
Insurance Company, Insurance Company of Ohio and VIS'N,
Inc., a copy of which agreement is attached as a separate
exhibit to the Form 10-K for the fiscal year ended December
31, 1996.
Exhibit H - Software and Hardware Support Agreement by and
among Citizens Security Mutual Insurance Company, Citizens
Fund Insurance Company, Insurance Company of Ohio, and
VIS'N, Inc., a copy of which agreement is attached as a
separate exhibit to the Form 10K for the fiscal year ended
December 31, 1996.
Exhibit I - Office Equipment Lease Agreement between
Citizens Security Mutual Insurance Company as Lessor and
VIS'N, Inc. as Lessee.
Exhibit J - Representation Letter of ESOP Trustee.