AGREEMENT AND PLAN OF MERGER
dated as of November 10, 1996
by and among
HFS INCORPORATED,
MERCURY ACQ. CORP.
and
PHH CORPORATION
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience only.
Page
No.
ARTICLE I
THE MERGER
1.01 The Merger................................................... 1
1.02 Closing...................................................... 2
1.03 Effective Time............................................... 2
1.04 Restated Articles and Bylaws of the Surviving
Corporation.......................................... 2
1.05 Directors and Officers of the Surviving
Corporation.......................................... 2
1.06 Effects of the Merger........................................ 3
1.07 Further Assurances........................................... 3
ARTICLE II
CONVERSION OF SHARES
2.01 Conversion of Capital Stock.................................. 3
2.02 Exchange of Certificates..................................... 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01 Organization and Qualification............................... 8
3.02 Capital Stock................................................ 9
3.03 Authority Relative to this Agreement......................... 10
3.04 Non-Contravention; Approvals and Consents.................... 11
3.05 SEC Reports and Financial Statements......................... 12
3.06 Absence of Certain Changes or Events......................... 13
3.07 Absence of Undisclosed Liabilities........................... 13
3.08 Legal Proceedings............................................ 13
3.09 Information Supplied......................................... 14
3.10 Compliance with Laws and Orders.............................. 14
3.11 Compliance with Agreements; Certain Agreements............... 15
3.12 Taxes. ..................................................... 16
3.13 Employee Benefit Plans; ERISA................................ 18
3.14 Labor Matters................................................ 20
3.15 Environmental Matters........................................ 20
3.16 Intellectual Property Rights................................. 22
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No.
3.17 Vote Required................................................ 23
3.18 Opinion of Financial Advisor................................. 23
3.19 Company Rights Agreement..................................... 23
3.20 Ownership of Parent Common Stock............................. 24
3.21 Sections 3-602 and 3-702 of the MGCL Not
Applicable........................................... 24
3.22 Accounting Matters........................................... 24
3.23 Insurance.................................................... 24
3.24 Records...................................................... 25
3.25 Mortgage Banking Licenses and Qualifications................. 25
3.26 Loan Portfolio............................................... 25
3.27 Loan Documents............................................... 27
3.28 No Recourse.................................................. 28
3.29 Mortgage Servicing Agreements................................ 29
3.30 Compliance with Mortgage Banking Regulations................. 29
3.31 Custodial Accounts........................................... 31
3.32 Inquiries.................................................... 31
3.33 Advances..................................................... 32
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
4.01 Organization and Qualification............................... 32
4.02 Capital Stock................................................ 33
4.03 Authority Relative to this Agreement......................... 34
4.04 Non-Contravention; Approvals and Consents.................... 34
4.05 SEC Reports and Financial Statements......................... 36
4.06 Absence of Certain Changes or Events......................... 36
4.07 Absence of Undisclosed Liabilities........................... 36
4.08 Legal Proceedings............................................ 37
4.09 Information Supplied......................................... 37
4.10 Compliance with Laws and Orders.............................. 38
4.11 Compliance with Agreements; Certain Agreements............... 38
4.12 Taxes. ..................................................... 39
4.13 Employee Benefit Plans; ERISA................................ 39
4.14 Labor Matters................................................ 41
4.15 Environmental Matters........................................ 41
4.16 Intellectual Property Rights................................. 42
4.17 Opinion of Financial Advisor................................. 43
4.18 Ownership of Company Common Stock............................ 43
4.19 Accounting Matters........................................... 44
4.20 Vote Required................................................ 44
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No.
ARTICLE V
COVENANTS
5.01 Covenants of the Company and Parent.......................... 44
5.02 No Solicitations............................................. 48
5.03 Company Rights Agreement..................................... 49
5.04 Conduct of Business of Sub................................... 50
5.05 Third Party Standstill Agreements............................ 50
5.06 Purchases of Common Stock of the Other Party................. 50
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 Access to Information; Confidentiality....................... 50
6.02 Preparation of Registration Statement and Proxy
Statement............................................ 52
6.03 Approval of Stockholders..................................... 52
6.04 Company Affiliates........................................... 53
6.05 Stock Exchange Listing....................................... 53
6.06 Certain Tax Matters.......................................... 54
6.07 Regulatory and Other Approvals............................... 54
6.08 Employee Benefit Plans....................................... 54
6.09 Company Option Plans......................................... 55
6.10 Directors' and Officers' Indemnification and
Insurance............................................ 55
6.11 Appointment of Director...................................... 57
6.12 Expenses..................................................... 57
6.13 Brokers or Finders........................................... 57
6.14 Takeover Statutes............................................ 58
6.15 Conveyance Taxes............................................. 58
6.16 Pooling of Interests......................................... 58
ARTICLE VII
CONDITIONS
7.01 Conditions to Each Party's Obligation to Effect
the Merger........................................... 59
7.02 Conditions to Obligation of Parent and Sub to
Effect the Merger.................................... 60
7.03 Conditions to Obligation of the Company to Effect
the Merger........................................... 63
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No.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 Termination.................................................. 65
8.02 Effect of Termination........................................ 66
8.03 Amendment.................................................... 67
8.04 Waiver. ..................................................... 68
ARTICLE IX
GENERAL PROVISIONS
9.01 Non-Survival of Representations, Warranties,
Covenants and Agreements............................. 68
9.02 Notices...................................................... 68
9.03 Entire Agreement; Incorporation of Exhibits.................. 70
9.04 Public Announcements......................................... 70
9.05 No Third Party Beneficiary................................... 70
9.06 No Assignment; Binding Effect................................ 70
9.07 Headings..................................................... 71
9.08 Invalid Provisions........................................... 71
9.09 Governing Law................................................ 71
9.10 Enforcement of Agreement..................................... 71
9.11 Certain Definitions.......................................... 71
9.12 Counterparts................................................. 73
EXHIBITS
EXHIBIT A Form of Affiliate Agreement
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GLOSSARY OF DEFINED TERMS
The following terms, when used in this Agreement, have the
meanings ascribed to them in the corresponding Sections of this Agreement listed
below:
"affiliate" -- Section 9.11(a)
"Affiliate Agreement" -- Section 6.04
"Agency" -- Section 3.28
"Agreement" -- Preamble
"Alternative Proposal" -- Section 5.02
"Antitrust Division" -- Section 6.07
"Articles of Merger" -- Section 1.03
"Audits" -- Section 3.12
"Average Price" -- Section 2.01(c)(i)
"beneficially" -- Section 9.11(b)
"business day" -- Section 9.11(c)
"CERCLA" -- Section 3.15(d)
"Certificates" -- Section 2.02(b)
"Closing" -- Section 1.02
"Closing Date" -- Section 1.02
"Code" -- Preamble
"Company" -- Preamble
"Company Affiliates" -- Section 6.04
"Company Common Stock" -- Section 2.01(b)
"Company Disclosure Letter" -- Section 3.01
"Company Employee Benefit Plans" -- Section 3.13(b)(i)
"Company Financial Statements" -- Section 3.05
"Company Option Plans" -- Section 2.01(d)
"Company Permits" -- Section 3.10
"Company Preferred Stock" -- Section 3.02
"Company Rights" -- Section 3.02
"Company Rights Agreement" -- Section 3.02
"Company SEC Reports" -- Section 3.05
"Company Series A Preferred Stock" -- Section 3.02
"Company Stock Option" -- Section 6.09
"Company Stockholders' Approval" -- Section 6.03
"Company Stockholders' Meeting" -- Section 6.03
"Company Tax Certificate" -- Section 7.02(d)
"Confidentiality Agreement" -- Section 6.01(b)
"Constituent Corporations" -- Section 1.01
"Contracts" -- Section 3.04(a)
"control," "controlling," "controlled
by" and "under common control with" -- Section 9.11(a)
"Conversion Number" -- Section 2.01(c)
"Custodial Accounts" -- Section 3.31
"Department" -- Section 1.03
"Effective Time" -- Section 1.03
"Environmental Claim" -- Section 3.15(g)
"Environmental Law" -- Section 3.15(g)
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"Environmental Permits" -- Section 3.15(a)
"ERISA" -- Section 3.13(d)(i)
"ERISA Affiliate" -- Section 3.13(d)
"Exchange Act" -- Section 3.04(b)
"Exchange Agent" -- Section 2.02(a)
"Exchange Fund" -- Section 2.02(a)
"FHA" -- Section 3.25
"FHA Loan" -- Section 3.25
"FHLMA" -- Section 3.25
"FNMA" -- Section 3.25
"GNMA" -- Section 3.25
"FTC" -- Section 6.07
"Governmental or Regulatory Authority" -- Section 3.04(a)
"group" -- Section 9.11(f)
"Hazardous Material" -- Section 3.15(g)
"HSR Act" -- Section 3.04(b)
"HUD" -- Section 3.30
"Indemnified Liabilities" -- Section 6.10(a)
"Indemnified Parties" -- Section 6.10(a)
"Indemnifying Party" -- Section 6.10(a)
"Insurer" -- Section 3.27
"Intellectual Property" -- Section 3.16
"knowledge" -- Section 9.11(d)
"laws" -- Section 3.04(a)
"Lien" -- Section 3.02(b)
"Licenses" -- Section 3.25
"Loan Documents" -- Section 3.27
"Loss" -- Section 3.28
"material", "material adverse
effect" and "materially adverse" -- Section 9.11(e)
"Merger" -- Preamble
"MGCL" -- Section 1.01
"Minimum Average Price" -- Section 7.03(f)
"Mortgage Loan" -- Section 3.26
"Mortgage Servicing Agreement" -- Section 3.26
"Mortgage Servicing Portfolio" -- Section 3.26
"NYSE" -- Section 2.01(c)
"Options" -- Section 3.02
"orders" -- Section 3.04(a)
"Parent" -- Preamble
"Parent Common Stock" -- Section 2.01(c)
"Parent Disclosure Letter" -- Section 4.01
"Parent Employee Benefit Plans" -- Section 4.13(c)
"Parent Financial Statements" -- Section 4.05
"Parent Permits" -- Section 4.10
"Parent Preferred Stock" -- Section 4.02(a)
"Parent SEC Reports" -- Section 4.05
"Parent Stockholders' Approval" -- Section 6.03(b)
"Parent Stockholders' Meeting" -- Section 6.03(b)
"Parent Tax Certificate" -- Section 7.02(d)
"PBGC" -- Section 3.13(c)
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"person"
"Plan" -- Section 3.13(d)(ii)
"Proxy Statement" -- Section 3.09
"Recent Company SEC Reports" -- Section 9.11(j)
"Recent Parent SEC Reports" -- Section 9.11(k)
"Recourse Loan" -- Section 3.28
"Registration Statement" -- Section 4.09
"Regulations" -- Section 3.27
"Representatives" -- Section 9.11(g)
"Sales Price" -- Section 2.01(c)(i)
"SEC" -- Section 3.04(b)
"Securities Act" -- Section 3.04(b)
"Servicing Released Loans" -- Section 3.28
"Servicing Sale Loan" -- Section 3.28
"Significant Subsidiaries" -- Section 9.11(h)
"Stockholders' Meeting" -- Section 6.03(a)
"Sub" -- Preamble
"Sub Common Stock" -- Section 2.01(a)
"Subsidiary" -- Section 9.11(i)
"Surviving Corporation" -- Section 1.01
"Surviving Corporation Common Stock" -- Section 2.01(a)
"tax return" -- Section 3.12(c)
"taxes" -- Section 3.12(c)
"Trading Day" -- Section 2.01(c)(i)
"VA" -- Section 3.25
"VA Loans" -- Section 3.25
"VA No Bids" -- Section 3.28
"Warehouse Loans" -- Section 3.26
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This AGREEMENT AND PLAN OF MERGER dated as of November 10,
1996 (this "Agreement") is made and entered into by and among HFS INCORPORATED,
a Delaware corporation ("Parent"), MERCURY ACQ. CORP., a Maryland corporation
wholly owned by Parent ("Sub"), and PHH CORPORATION, a Maryland corporation (the
"Company").
WHEREAS, the Boards of Directors of Parent, Sub and the
Company have each determined that it is advisable and in the best interests of
their respective stockholders to consummate, and have approved, the business
combination transaction provided for herein in which Sub would merge with and
into the Company and the Company would become a wholly-owned subsidiary of
Parent (the "Merger");
WHEREAS, the respective Boards of Directors of Parent and the
Company have determined that the Merger is in furtherance of and consistent with
their respective long-term business strategies and is fair to and in the best
interests of their respective stockholders, and Parent has approved this
Agreement and the Merger as the sole stockholder of Sub;
WHEREAS, for federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, it is intended that the Merger shall be recorded for
accounting purposes as a pooling of interests;
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time, upon the terms and subject
to the conditions of this Agreement, Sub shall be merged with and into the
Company in accordance with the Maryland General Corporation Law (the "MGCL"). At
the Effective
Time, the separate existence of Sub shall cease and the Company shall continue
as the surviving corporation in the Merger (the "Surviving Corporation"). Sub
and the Company are sometimes referred to herein as the "Constituent
Corporations". As a result of the Merger, the outstanding shares of capital
stock of the Constituent Corporations shall be converted or cancelled in the
manner provided in Article II.
1.02 Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 8.01, and subject to the satisfaction or waiver (where applicable) of
the conditions set forth in Article VII, the closing of the Merger (the
"Closing") will take place at the offices of Skadden, Arps, Slate, Xxxxxxx &
Xxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, at 10:00 a.m., local time,
on the second business day following satisfaction of the condition set forth in
Section 7.01(a), unless another date, time or place is agreed to in writing by
the parties hereto (the "Closing Date"). At the Closing there shall be delivered
to Parent, Sub and the Company the certificates and other documents and
instruments required to be delivered under Article VII.
1.03 Effective Time. On the Closing Date, articles of merger
(the "Articles of Merger") shall be executed by the Constituent Corporations and
thereafter delivered to the Department of Assessments and Taxation of the State
of Maryland (the "Department") for filing, as provided in Section 3-107 of the
MGCL, as soon as practicable on the Closing Date. The Merger shall become
effective at the time of the filing of the Articles of Merger with the
Department (the date and time of such filing being referred to herein as the
"Effective Time").
1.04 Restated Articles and Bylaws of the Surviving
Corporation. At the Effective Time, (i) the Restated Articles of the Company as
in effect immediately prior to the Effective Time shall be the Restated Articles
of the Surviving Corporation until thereafter amended as provided by law and
such Restated Articles, and (ii) the Bylaws of Sub as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by law, the Restated Articles of the
Surviving Corporation and such Bylaws.
1.05 Directors and Officers of the Surviving Corporation. The
directors and the officers of Sub immediately prior to the Effective Time shall,
from and after the Effective Time, be the directors and officers, respectively,
of the Surviving Corporation until their successors shall have been duly elected
or appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Restated Articles and Bylaws.
Upon the reasonable
2
request of Parent, the Company will use reasonable efforts to cause the
directors of Company as of the Effective Time to resign as directors of Company,
and will cause any directors of the Company's Subsidiaries to resign.
1.06 Effects of the Merger. Subject to the foregoing, the
effects of the Merger shall be as provided in the applicable provisions of the
MGCL.
1.07 Further Assurances. Each party hereto will, either prior
to or after the Effective Time, execute such further documents, instruments,
deeds, bills of sale, assignments and assurances and take such further actions
as may reasonably be requested by one or more of the others to consummate the
Merger, to vest the Surviving Corporation with full title to all assets,
properties, privileges, rights, approvals, immunities and franchises of either
of the Constituent Corporations or to effect the other purposes of this
Agreement.
ARTICLE II
CONVERSION OF SHARES
2.01 Conversion of Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder thereof:
(a) Capital Stock of Sub. Each issued and outstanding share of
the common stock, par value $.01 per share, of Sub ("Sub Common Stock") shall be
converted into and become one (1) fully paid and nonassessable share of common
stock, without par value, of the Surviving Corporation ("Surviving Corporation
Common Stock"). Each certificate representing outstanding shares of Sub Common
Stock shall at the Effective Time represent an equal number of shares of
Surviving Corporation Common Stock.
(b) Cancellation of Treasury Stock and Stock Owned by Parent
and Subsidiaries. All shares of common stock, without par value, of the Company
("Company Common Stock"), together with the associated Company Rights, that are
owned by the Company as treasury stock and any shares of Company Common Stock,
together with the associated Company Rights owned by Parent, Sub or any other
wholly-owned Subsidiary of Parent shall be canceled and retired and shall cease
to exist and no stock of Parent or other consideration shall be delivered in
exchange therefor.
(c) Exchange Ratio for Company Common Stock. (i) Each issued
and outstanding share of Company Common Stock (other than shares to be canceled
in accordance with Section 2.01(b)), together with the associated Company Right,
3
shall be converted into the right to receive the number (the "Conversion
Number") of fully paid and nonassessable shares of common stock, par value $.01
per share, of Parent ("Parent Common Stock") represented by a quotient (rounded
upward, if necessary, to the nearest one-thousandth) determined by dividing
$49.50 by the Average Price with respect to the date of the Company
Stockholders' Meeting; provided, however, that in no event will such quotient be
greater than .8250 or less than .6111, subject to adjustment in accordance with
the next following subsection.
The "Average Price", with respect to any date, shall be equal
to the arithmetic average of the Sales Price on each of the last twenty (20)
Trading Days preceding the fifth Trading day before such date. The term "Sales
Price" shall mean, on any Trading Day, the closing sales price of Parent Common
Stock reported on the New York Stock Exchange, Inc. ("NYSE") Composite Tape on
such day. The term "Trading Day" shall mean any day on which securities are
traded on the NYSE.
(ii) If, prior to the Effective Time, Parent shall pay a dividend
in, subdivide, combine into a smaller number of shares or issue by
reclassification of its shares, any shares of Parent Common Stock, the
Conversion Number or the Minimum Average Price, as applicable, shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Parent Common Stock outstanding immediately after, and the denominator of
which shall be the number of such shares outstanding immediately before, the
occurrence of such event, and the resulting product shall from and after the
date of such event be the Conversion Number or the Minimum Average Price, as
applicable, subject to further adjustment in accordance with this sentence.
(iii) All shares of Company Common Stock converted in accordance
with paragraph (i) of this Section 2.01(c) and associated Company Rights shall
no longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive the shares of Parent Common Stock and any cash in lieu of fractional
shares of Parent Common Stock to be issued or paid in consideration therefor
(determined in accordance with Section 2.02(e)), upon the surrender of such
certificate in accordance with Section 2.02, without interest.
(d) Stock Option Plans. The Company stock option plans set forth in
Section 2.01(d) of the Company Disclosure Letter (the "Company Option Plans")
and each option to purchase Company Common Stock granted thereunder that is
outstanding at the Effective Time shall be converted as described in Section
6.09, subject to receipt of required consents, if any,
4
necessary in order to avoid a violation of any Company Option Plan or agreement
thereunder.
2.02 Exchange of Certificates.
(a) Exchange Agent. Promptly following the Effective Time,
Parent shall make available to the Surviving Corporation for deposit with a bank
or trust company designated before the Closing Date by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), certificates representing the
number of duly authorized whole shares of Parent Common Stock issuable in
connection with the Merger plus an amount of cash equal to the aggregate amount
payable in lieu of fractional shares in accordance with Section 2.02(e), to be
held for the benefit of and distributed to such holders in accordance with this
Section. The Exchange Agent shall agree to hold such shares of Parent Common
Stock and funds (such shares of Parent Common Stock and funds, together with
earnings thereon, being referred to herein as the "Exchange Fund") for delivery
as contemplated by this Section 2.02 and upon such additional terms as may be
agreed upon by the Exchange Agent, the Company and Parent.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, the Surviving Corporation shall cause the Exchange
Agent to mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock and associated Company Rights (the "Certificates") whose
shares and associated Company Rights are converted pursuant to Section 2.01(c)
into the right to receive shares of Parent Common Stock (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as the Surviving Corporation may reasonably specify (including, but
not limited to, a request that each holder surrendering a Certificate state its
adjusted tax basis, as determined for United States federal income tax purposes,
in such surrendered Certificate) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock and cash in lieu of fractional shares. Upon surrender of
a Certificate for cancellation to the Exchange Agent, together with such letter
of transmittal duly executed and completed in accordance with its terms, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Common Stock,
plus the cash amount payable in lieu of fractional shares in accordance with
Section 2.02(e), which such holder has the right to receive pursuant to the
provisions of this Article II, and the
5
Certificate so surrendered shall forthwith be canceled. In no event shall the
holder of any Certificate be entitled to receive interest on any funds to be
received in the Merger. In the event of a transfer of ownership of Company
Common Stock which is not registered in the transfer records of the Company, a
certificate representing that number of whole shares of Parent Common Stock,
plus the cash amount payable in lieu of fractional shares in accordance with
Section 2.02(e), may be issued to a transferee if the Certificate representing
such Company Common Stock is presented to the Exchange Agent accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.02(b), each Certificate shall be deemed at any
time after the Effective Time for all corporate purposes of Parent, except as
limited by paragraph (c) below, to represent ownership of the number of shares
of Parent Common Stock into which the number of shares of Company Common Stock
shown thereon have been converted as contemplated by this Article II.
Notwithstanding the foregoing, Certificates representing Company Common Stock
surrendered for exchange by any person constituting an "affiliate" of the
Company for purposes of Section 6.04 shall not be exchanged until Parent has
received an Affiliate Agreement as provided in Section 6.04.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Common Stock with a record date on or after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.02(e)
until the holder of record of such Certificate shall surrender such Certificate
in accordance with this Section. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions, if any, with a record
date on or after the Effective Time which theretofore became payable, but which
were not paid by reason of the immediately preceding sentence, with respect to
such whole shares of Parent Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date on or
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued upon the surrender for exchange of
Certificates in accordance with the
6
terms hereof (including any cash paid pursuant to Section 2.02(e)) shall be
deemed to have been issued at the Effective Time in full satisfaction of all
rights pertaining to the shares of Company Common Stock represented thereby,
subject, however, to the Surviving Corporation's obligation to pay any dividends
which may have been declared by the Company on such shares of Company Common
Stock in accordance with the terms of this Agreement and which remained unpaid
at the Effective Time. From and after the Effective Time, the stock transfer
books of the Company shall be closed and there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Section 2.02.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Parent Common Stock will be issued in the Merger upon the
surrender for exchange of Certificates, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a stockholder of
Parent. In lieu of any such fractional shares, each holder of Certificates who
would otherwise have been entitled to a fraction of a share of Parent Common
Stock in exchange for such Certificates pursuant to this Section shall receive
from the Exchange Agent a cash payment in lieu of such fractional share
determined by multiplying (A) the Average Price with respect to the date of the
Company Stockholders' Meeting by (B) the fractional share interest to which such
holder would otherwise be entitled.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the former stockholders of the Company for
twelve (12) months after the Effective Time shall be delivered to the Surviving
Corporation, upon demand, and any former stockholders of the Company who have
not theretofore complied with this Article II shall thereafter look only to the
Surviving Corporation (subject to abandoned property, escheat and other similar
laws) as general creditors for payment of their claim for Parent Common Stock,
any cash in lieu of fractional shares of Parent Common Stock and any dividends
or distributions with respect to Parent Common Stock if entitled thereto under
this Agreement. Neither Parent nor the Surviving Corporation shall be liable to
any holder of shares of Company Common Stock for shares of Parent Common Stock
(or dividends or distributions with respect thereto) or cash payable in respect
of fractional share interests delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as
follows:
3.01 Organization and Qualification. Each of the Company and
its Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has full
corporate power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties, except for such
failures to be so incorporated, existing and in good standing or to have such
power and authority which, individually or in the aggregate, are not having and
are not reasonably expected to have a material adverse effect on the Company and
its Subsidiaries taken as a whole. Each of the Company and its Subsidiaries is
duly qualified, licensed or admitted to do business and is in good standing in
each jurisdiction in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for such failures to be so qualified,
licensed or admitted and in good standing which, individually or in the
aggregate, are not having and are not reasonably expected to have a material
adverse effect on the Company and its Subsidiaries taken as a whole. Section
3.01 of the letter dated the date hereof and delivered to Parent and Sub by the
Company concurrently with the execution and delivery of this Agreement (the
"Company Disclosure Letter") sets forth (i) the name and jurisdiction of
incorporation of each Significant Subsidiary of the Company, (ii) its authorized
capital stock, (iii) the number of issued and outstanding shares of capital
stock and (iv) the record and beneficial owners of such shares. The Subsidiaries
of the Company (other than its Significant Subsidiaries) represent in the
aggregate less than 1% of each of the consolidated assets and earnings of the
Company. All such Subsidiaries are wholly-owned, directly or indirectly, by the
Company. Except for interests in the Subsidiaries of the Company and as
disclosed in Section 3.01 of the Company Disclosure Letter, the Company does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity (other than non-controlling investments in the ordinary
course of business and corporate partnering, development, cooperative marketing
and similar undertakings and arrangements entered into in the ordinary course of
business which, in the aggregate, are less than $25,000,000). The Company has
previously delivered to Parent correct and complete copies of the certificate or
articles
8
of incorporation and bylaws (or other comparable charter documents) of the
Company and its Significant Subsidiaries.
3.02 Capital Stock. (a) The authorized capital stock of the
Company consists solely of 75,000,000 shares of Company Common Stock and
3,000,000 shares of preferred stock, without par value ("Company Preferred
Stock"). As of November 7, 1996, 34,884,299 shares of Company Common Stock were
issued and outstanding and no shares were held in the treasury of the Company
and 4,045,738 shares were held in reserve pursuant to the Company Option Plans
or Company Benefit Plans as set forth in the Company SEC Reports and of which,
on the date hereof, options for 3,371,194 shares of Company Common Stock were
outstanding. Since such date, except as set forth in Section 3.02 of the Company
Disclosure Letter, there has been no change in the number of issued and
outstanding shares of Company Common Stock or shares of Company Common Stock
held in treasury or reserved for issuance. As of the date hereof, no shares of
Company Preferred Stock are issued and outstanding and 375,000 shares are
designated Series A Junior Participating Preferred Stock ("Company Series A
Preferred Stock") and are reserved for issuance in accordance with the Rights
Agreement dated as of March 15, 1996, by and between the Company and First
Chicago Trust Company of New York, as Rights Agent (the "Company Rights
Agreement"), pursuant to which the Company has issued rights (the "Company
Rights") to purchase shares of Company Series A Preferred Stock. All of the
issued and outstanding shares of Company Common Stock are, and all shares
reserved for issuance will be, upon issuance in accordance with the terms
specified in the instruments or agreements pursuant to which they are issuable,
duly authorized, validly issued, fully paid and nonassessable. Except pursuant
to this Agreement and the Company Rights Agreement and except as set forth in
Section 3.02 of the Company Disclosure Letter, there are no outstanding
subscriptions, options, warrants, rights (including "phantom" stock rights),
preemptive rights or other contracts, commitments, understandings or
arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement (together, "Options"), obligating
the Company or any of its Subsidiaries to issue or sell any shares of capital
stock of the Company or to grant, extend or enter into any Option with respect
thereto.
(b) Except as disclosed in Section 3.02 of the Company
Disclosure Letter, all of the outstanding shares of capital stock of each
Significant Subsidiary of the Company are duly authorized, validly issued, fully
paid and nonassessable and are owned, beneficially and of record, by the Company
or a Subsidiary wholly owned, directly or indirectly, by the Company, free and
clear of any liens, claims, mortgages, encumbrances, pledges, security
interests, equities and charges of any kind (each a
9
"Lien"). Except as disclosed in Section 3.02 of the Company Disclosure Letter,
there are no (i) outstanding Options obligating the Company or any of its
Significant Subsidiaries to issue or sell any shares of capital stock of any
Significant Subsidiary of the Company or to grant, extend or enter into any such
Option or (ii) voting trusts, proxies or other commitments, understandings,
restrictions or arrangements in favor of any person other than the Company or a
Subsidiary wholly owned, directly or indirectly, by the Company with respect to
the voting of or the right to participate in dividends or other earnings on any
capital stock of any Significant Subsidiary of the Company.
(c) Except as disclosed in Section 3.02 of the Company
Disclosure Letter, there are no outstanding contractual obligations of the
Company or any Significant Subsidiary of the Company to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or any capital stock of any
Significant Subsidiary of the Company or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
Subsidiary of the Company or any other person.
3.03 Authority Relative to this Agreement. The Company has
full corporate power and authority to enter into this Agreement and to perform
its obligations hereunder (subject to, in the case of consummation of the
Merger, obtaining the Company Stockholders' Approval) and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the Company; the Board of Directors of the Company has
recommended adoption and approval of this Agreement by the stockholders of the
Company and directed that this Agreement be submitted to the stockholders of the
Company for their consideration; and no other corporate proceedings on the part
of the Company or its stockholders are necessary to authorize the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby, other than obtaining the
Company Stockholders' Approval. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms (subject to, in the case of consummation of the Merger, obtaining the
Company Stockholders' Approval), except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
10
3.04 Non-Contravention; Approvals and Consents. (a) Except
as disclosed in Section 3.04 of the Company Disclosure Letter, the execution and
delivery of this Agreement by the Company do not, and the performance by the
Company of its obligations hereunder and the consummation of the transactions
contemplated hereby will not, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or properties of the
Company or any of its Significant Subsidiaries under, any of the terms,
conditions or provisions of (i) the certificates or articles of incorporation or
bylaws (or other comparable charter documents) of the Company or any of its
Significant Subsidiaries, or (ii) (x) subject to the obtaining of the Company
Stockholders' Approval and the taking of the actions described in paragraph (b)
of this Section, any statute, law, rule, regulation or ordinance (together,
"laws"), or any judgment, decree, order, writ, permit or license (together,
"orders"), of any court, tribunal, arbitrator, authority, agency, commission,
official or other instrumentality of the United States, any foreign country or
any domestic or foreign state, county, city or other political subdivision (a
"Governmental or Regulatory Authority") applicable to the Company or any of its
Subsidiaries or any of their respective assets or properties, or (y) any note,
bond, mortgage, security agreement, indenture, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind (together, "Contracts") to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries or any of their
respective assets or properties is bound, excluding from the foregoing clauses
(x) and (y) conflicts, violations, breaches, defaults, terminations,
modifications, accelerations and creations and impositions of Liens which,
individually or in the aggregate, are not reasonably expected to have a material
adverse effect on the Company and its Subsidiaries taken as a whole or on the
ability of the Company to consummate the transactions contemplated by this
Agreement.
(b) Except (i) for the filing of a premerger notification
report by the Company under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the "HSR Act"), (ii)
for the filing of the Proxy Statement and the Registration Statement with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), the declaration of the
effectiveness of the Registration Statement by the SEC and filings with various
11
state securities authorities that are required in connection with the
transactions contemplated by this Agreement, (iii) for the filing of the
Articles of Merger and other appropriate merger documents required by the MGCL
with the Department and appropriate documents with the relevant authorities of
other states in which the Constituent Corporations are qualified to do business
and (iv) as disclosed in Section 3.04 of the Company Disclosure Letter, no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other public or private third party is necessary or
required under any of the terms, conditions or provisions of any law or order of
any Governmental or Regulatory Authority or any Contract to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective assets or properties is bound for the
execution and delivery of this Agreement by the Company, the performance by the
Company of its obligations hereunder or the consummation of the transactions
contemplated hereby, other than such consents, approvals, actions, filings and
notices which the failure to make or obtain, as the case may be, individually or
in the aggregate, are not reasonably expected to have a material adverse effect
on the Company and its Subsidiaries taken as a whole or on the ability of the
Company to consummate the transactions contemplated by this Agreement.
3.05 SEC Reports and Financial Statements. The Company
delivered to Parent prior to the execution of this Agreement a true and complete
copy of each form, report, schedule, registration statement, definitive proxy
statement and other document (together with all amendments thereof and
supplements thereto) filed by the Company or any of its Subsidiaries with the
SEC since April 30, 1994 (as such documents have since the time of their filing
been amended or supplemented, the "Company SEC Reports"), which are all the
documents (other than preliminary material) that the Company and its
Subsidiaries were required to file or did file with the SEC since such date. As
of their respective dates, the Company SEC Reports (i) complied as to form in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim consolidated financial
statements (including, in each case, the notes, if any, thereto) included in the
Company SEC Reports (the "Company Financial Statements") complied as to form in
all material respects with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the
12
periods involved (except as may be indicated therein or in the notes thereto and
except with respect to unaudited statements as permitted by Form 10-Q of the
SEC) and fairly present (subject, in the case of the unaudited interim financial
statements, to normal, recurring year-end audit adjustments (which are not
expected to be, individually or in the aggregate, materially adverse to the
Company and its Subsidiaries taken as a whole)) the consolidated financial
position of the Company and its consolidated subsidiaries as at the respective
dates thereof and the consolidated results of their operations and cash flows
for the respective periods then ended. Except as set forth in Section 3.05 of
the Company Disclosure Letter, each Significant Subsidiary of the Company is
treated as a consolidated subsidiary of the Company in the Company Financial
Statements for all periods covered thereby.
3.06 Absence of Certain Changes or Events. Except as disclosed
in the Recent Company SEC Reports filed prior to the date of this Agreement, (a)
since July 31, 1996 there has not been any change, event or development having,
or that is reasonably expected to have, individually or in the aggregate, a
material adverse effect on the Company and its Subsidiaries taken as a whole,
and (b) except as disclosed in Section 3.06 of the Company Disclosure Letter,
between such date and the date hereof (i) the Company and its Subsidiaries have
conducted their respective businesses only in the ordinary course consistent
with past practice and (ii) neither the Company nor any of its Subsidiaries has
taken any action which, if taken after the date hereof, would constitute a
breach of any provision of clause (ii) of Section 5.01(b).
3.07 Absence of Undisclosed Liabilities. Except for matters
reflected or reserved against in the balance sheet for the period ended July 31,
1996 included in the Company Financial Statements or as disclosed in Section
3.07 of the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries had at such date, or has incurred since that date, any liabilities
or obligations (whether absolute, accrued, contingent, fixed or otherwise, or
whether due or to become due) of any nature that would be required by generally
accepted accounting principles to be reflected on a consolidated balance sheet
of the Company and its consolidated subsidiaries (including the notes thereto),
except liabilities or obligations (i) which were incurred in the ordinary course
of business consistent with past practice or (ii) which have not been, and are
not reasonably expected to be, individually or in the aggregate, materially
adverse to the Company and its Subsidiaries taken as a whole.
3.08 Legal Proceedings. Except as disclosed in the Recent
Company SEC Reports or in Section 3.08 of the Company Disclosure Letter, (i)
there are no actions, suits, arbitrations
13
or proceedings pending or, to the knowledge of the Company, threatened against,
relating to or affecting, nor to the knowledge of the Company are there any
Governmental or Regulatory Authority investigations or audits pending or
threatened against, relating to or affecting, the Company or any of its
Subsidiaries or any of their respective assets and properties which,
individually or in the aggregate, are reasonably expected to have a material
adverse effect on the Company and its Subsidiaries taken as a whole or on the
ability of the Company to consummate the transactions contemplated by this
Agreement, and (ii) neither the Company nor any of its Subsidiaries is subject
to any order of any Governmental or Regulatory Authority which, individually or
in the aggregate, is having or is reasonably expected to have a material adverse
effect on the Company and its Subsidiaries taken as a whole or on the ability of
the Company to consummate the transactions contemplated by this Agreement.
3.09 Information Supplied. The proxy statement relating to the
Stockholders' Meetings, as amended or supplemented from time to time (as so
amended and supplemented, the "Proxy Statement"), and any other documents to be
filed by the Company with the SEC or any other Governmental or Regulatory
Authority in connection with the Merger and the other transactions contemplated
hereby will (in the case of the Proxy Statement and any such other documents
filed with the SEC under the Exchange Act or the Securities Act) comply as to
form in all material respects with the requirements of the Exchange Act and the
Securities Act, respectively, and will not, on the date of its filing or, in the
case of the Proxy Statement, at the date it is mailed to stockholders of the
Company and of Parent and at the times of the Stockholders' Meetings, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by the Company with respect to
information supplied in writing by or on behalf of Parent or Sub expressly for
inclusion therein and information incorporated by reference therein from
documents filed by Parent or any of its Subsidiaries with the SEC.
3.10 Compliance with Laws and Orders. The Company and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental and Regulatory Authorities necessary for the
lawful conduct of their respective businesses (the "Company Permits"), except
for failures to hold such permits, licenses, variances, exemptions, orders and
approvals which, individually or in the aggregate, are not having and are not
reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole. The Company and its Subsidiaries are in
compliance with the terms of the Company Permits, except failures so to comply
14
which, individually or in the aggregate, are not having and are not reasonably
expected to have a material adverse effect on the Company and its Subsidiaries
taken as a whole. Except as disclosed in the Recent Company SEC Reports, the
Company and its Subsidiaries are not in violation of or default under any law or
order of any Governmental or Regulatory Authority, except for such violations or
defaults which, individually or in the aggregate, are not having and are not
reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
3.11 Compliance with Agreements; Certain Agreements. (a)
Except as disclosed in Section 3.11 of the Company Disclosure Letter or in the
Recent Company SEC Reports, neither the Company nor any of its Subsidiaries nor,
to the knowledge of the Company, any other party thereto is in breach or
violation of, or in default in the performance or observance of any term or
provision of, and no event has occurred which, with notice or lapse of time or
both, is reasonably expected to result in a default under, (i) the certificates
or articles of incorporation or bylaws (or other comparable charter documents)
of the Company or any of its Significant Subsidiaries or (ii) any Contract to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries or any of their respective assets or properties is
bound, except in the case of clause (ii) for breaches, violations and defaults
which, individually or in the aggregate, are not having and are not reasonably
expected to have a material adverse effect on the Company and its Subsidiaries
taken as a whole.
(b) Except as disclosed in Section 3.11 of the Company
Disclosure Letter or in the Recent Company SEC Reports or as provided for in
this Agreement, as of the date hereof, neither the Company nor any of its
Subsidiaries is a party to any oral or written (i) consulting agreement not
terminable on thirty (30) days' or less notice, (ii) union or collective
bargaining agreement, (iii) agreement with any executive officer or other key
employee of the Company or any of its Subsidiaries the benefits of which are
contingent or vest, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company or any of its Subsidiaries of
the nature contemplated by this Agreement, (iv) agreement with respect to any
executive officer or other key employee of the Company or any of its
Subsidiaries providing any term of employment or compensation guarantee or (v)
agreement or plan, including any stock option, stock appreciation right,
restricted stock or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be
15
calculated on the basis of any of the transactions contemplated by this
Agreement.
3.12 Taxes. (a) Except as disclosed in Section 3.12 of the
Company Disclosure Letter, each of the Company and its Subsidiaries has filed or
caused to be filed with the appropriate Governmental or Regulatory Authority all
tax returns required to be filed by it, or requests for extensions to file such
tax returns have been timely filed or granted and have not expired, and all such
tax returns are true, complete and accurate in all respects, except to the
extent that such failures to file, have extensions granted that remain in effect
or be complete and accurate in all respects, as applicable, individually or in
the aggregate, would not have a material adverse effect on the Company and its
Subsidiaries taken as a whole. The Company and each of its Subsidiaries has paid
(or the Company has paid on its behalf) all taxes shown as due on such tax
returns or otherwise due or claimed to be due by any Governmental or Regulatory
Authority. The most recent financial statements contained in the Company SEC
Reports reflect an adequate reserve for all taxes payable by the Company and its
Subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements, and no deficiencies for any taxes have been
proposed, asserted or assessed against the Company or any of its Subsidiaries
that are not adequately reserved for, except for inadequately reserved taxes and
inadequately reserved deficiencies that would not, individually or in the
aggregate, have a material adverse effect on the Company and its Subsidiaries
taken as a whole. No requests for waivers or comparable consents with respect to
the time to assess any taxes against the Company or any of its Subsidiaries have
been granted or are pending, except for requests with respect to such taxes that
have been adequately reserved for in the most recent financial statements
contained in the Company SEC Reports, or, to the extent not adequately reserved,
the assessment of which would not, individually or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries taken as a whole.
The Company and its Subsidiaries have complied in all respects with all
applicable laws, rules and regulations relating to the payment and withholding
of taxes (including, without limitation, withholding of taxes pursuant to
Sections 1441 and 1442 of the Code or similar provisions under any foreign laws
and withholding with respect to employee wages) and have, within the time and
manner prescribed by law, withheld and paid over to the proper Governmental or
Regulatory Authority all amounts required to be withheld and paid over under all
applicable laws. No federal, state, local or foreign audits or other
administrative proceedings or court proceedings ("Audits") exist or have been
initiated with regard to any taxes or tax returns of the Company or any of its
Subsidiaries, and none of the Company or any of its Subsidiaries has received
any notice that such an Audit is
16
pending or threatened with respect to any taxes due from or with respect to the
Company or any of its Subsidiaries or any tax return filed by or with respect to
the Company or any of its Subsidiaries. The tax returns of the Company and its
Subsidiaries for the taxable periods ending before April 30, 1993 have been
examined by the appropriate Governmental or Regulatory Authority (or the
applicable statute of limitations for the assessment of taxes for such periods
has expired). None of the Company or any of its Subsidiaries is a party to, is
bound by, or has any obligation under, any tax sharing agreement, tax
indemnification agreement or similar contract or arrangement.
The Company is not and since November 1991 has not been a
United States real property holding company as defined in Section 897(c)(2) of
the Code. Neither the Company nor any Subsidiary is a party to any agreement,
plan, contract or arrangement that could result in the payment of any amount of
compensation the deduction of which would be prohibited pursuant to Section
162(m) of the Code.
The Company and its Subsidiaries have previously delivered or
made available to the Parent complete and accurate copies of each of (i) all
audit reports, letter rulings, technical advice memoranda and similar documents
issued by a Governmental or Regulatory Authority relating to the United States
federal, state, local or foreign taxes due from or with respect to the Company
and its Subsidiaries, (ii) the United States federal income tax returns, and
those state, local and foreign income tax returns filed by the Company and its
Subsidiaries and (iii) any closing agreements entered into by the Company or any
of its Subsidiaries with any taxing authority in each case existing on the date
hereof. The Company will deliver to Parent all materials with respect to the
foregoing for all matters arising after the date hereof.
(b) Neither the Company nor any of its Subsidiaries has taken
any action or has any knowledge of any fact or circumstance that is reasonably
likely to prevent the Merger from qualifying as a tax-free reorganization within
the meaning of Section 368(a) of the Code.
(c) As used in this Section 3.12 and in Section 4.12, (i)
"taxes" shall include all federal, state, local and foreign income, franchise,
property, sales, use, excise and other taxes, including obligations for
withholding taxes from payments due or made to any other person and any
interest, penalties or additions to tax and (ii) "tax return" shall mean any
return, report, information return or other document (including any related or
supporting information) with respect to taxes.
17
3.13 Employee Benefit Plans; ERISA. (a) Except as described in
the Recent Company SEC Reports or as would not have a material adverse effect on
the Company and its Subsidiaries taken as a whole, (i) all Company Employee
Benefit Plans are in compliance with all applicable requirements of law,
including ERISA and the Code, and (ii) neither the Company nor any of its
Subsidiaries nor any ERISA Affiliate has any liabilities or obligations with
respect to any such Company Employee Benefit Plans, whether accrued, contingent
or otherwise, nor to the knowledge of the Company are any such liabilities or
obligations expected to be incurred. Except as described in the Company SEC
Reports or as described in Section 3.13 of the Company Disclosure Letter, the
execution of, and performance of the transactions contemplated in, this
Agreement will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any Company Employee Benefit Plan
that will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee. The only
severance agreements or severance policies applicable to the Company or any of
its Subsidiaries are the agreements and policies specifically referred to in
Section 3.13 of the Company Disclosure Letter.
(b) With respect to each of its Plans, the Company has
heretofore delivered to Parent true and complete copies of each of the following
documents, as applicable: (i) a copy of the Plan; (ii) a copy of the most recent
annual report; (iii) a copy of the most recent actuarial report; (iv) a copy of
the most recent Summary Plan Description; (v) a copy of the trust or other
funding agreement; and (vi) the most recent determination letter received from
the Internal Revenue Service with respect to each Plan that is intended to be
qualified under section 401 of the Code.
(c) No liability under Title IV of ERISA has been incurred by
the Company or any ERISA Affiliate within the past six years that has not been
satisfied in full. To the knowledge of the Company, no condition exists that
presents a material risk to the Company, any of the Subsidiaries or any ERISA
Affiliate of incurring a liability under such Title. The Pension Benefit
Guaranty Corporation established under ERISA ("PBGC") has not instituted
proceedings to terminate any of the Plans and no condition exists that presents
a material risk that such proceedings will be instituted. With respect to each
of the Plans that is subject to Title IV of ERISA, the present value of accrued
benefits under such plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such plan's actuary
with respect to such plan, did not, as of its latest valuation date, exceed the
then current value of the assets of such plan allocable to such
18
accrued benefits. None of the Plans or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in section 302 of
ERISA and section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of each of the Plans ended prior to the date of this
Agreement. None of the Plans is a "multiemployer plan," as such term is defined
in section 3(37) of ERISA. Each of the Plans that is intended to be "qualified"
within the meaning of section 401(a) of the Code is so qualified and the trusts
maintained thereunder are exempt from taxation under section 501(a) of the Code.
Except as set forth in Section 3.13(c) of the Company Disclosure Letter, no Plan
provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees after
retirement or other termination of service (other than coverage mandated by
applicable law or benefits, the full cost of which is borne by the current or
former employee). There are no pending or threatened claims by or on behalf of
any Plan, by any employee or beneficiary covered under any such Plan, or
otherwise involving any such Plan (other than routine claims for benefits).
(d) As used herein:
(i) "Company Employee Benefit Plan" means any Plan entered
into, established, maintained, sponsored, contributed to or required to
be contributed to by the Company, any of its Subsidiaries or ERISA
Affiliates for the benefit of the current or former employees or
directors of the Company or any of its Subsidiaries and existing on the
date of this Agreement or at any time subsequent thereto and on or
prior to the Effective Time and, in the case of a Plan which is subject
to Part 3 of Title I of the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations thereunder ("ERISA"),
Section 412 of the Code or Title IV of ERISA, at any time during the
five-year period preceding the date of this Agreement;
(ii) "Plan" means any employment, bonus, incentive
compensation, deferred compensation, pension, profit sharing,
retirement, stock purchase, stock option, stock ownership, stock
appreciation rights, phantom stock, leave of absence, layoff, vacation,
day or dependent care, legal services, cafeteria, life, health,
medical, accident, disability, workmen's compensation or other
insurance, severance, separation, termination, change of control or
other benefit plan, agreement, practice, policy, program or arrangement
of any kind, whether written or oral, including, but not limited to any
"employee benefit plan" within the meaning of Section 3(3) of ERISA;
and
19
(iii) "ERISA Affiliate" means, with respect to any person, any
person in the same controlled group as such person (within the meaning
of Section 414(b) and (c) of the Code).
3.14 Labor Matters. Except as disclosed in the Recent Company
SEC Reports or in Section 3.14 of the Company Disclosure Letter, there are no
material controversies pending or, to the knowledge of the Company, threatened
between the Company or any of its Subsidiaries and any representatives of its
employees, except as would not, individually or in the aggregate, have a
material adverse effect on the Company and its Subsidiaries taken as a whole,
and, to the knowledge of the Company, there are no material organizational
efforts presently being made involving any of the now unorganized employees of
the Company or any of its Subsidiaries. Since April 30, 1994, there has been no
work stoppage, strike or other concerted action by employees of the Company or
any of its Subsidiaries except as have not, individually or in the aggregate,
had a material adverse effect on the Company and its Subsidiaries taken as a
whole.
3.15 Environmental Matters. (a) Each of the Company and its
Subsidiaries has obtained all licenses, permits, authorizations, approvals and
consents from Governmental or Regulatory Authorities which are required under
any applicable Environmental Law in respect of its business or operations
("Environmental Permits"), except for such failures to have Environmental
Permits which, individually or in the aggregate, are not reasonably expected to
have a material adverse effect on the Company and its Subsidiaries taken as a
whole. Each of such Environmental Permits is in full force and effect and each
of the Company and its Subsidiaries is in compliance with the terms and
conditions of all such Environmental Permits and with any applicable
Environmental Law, except for such failures to be in compliance which,
individually or in the aggregate, are not reasonably expected to have a material
adverse effect on the Company and its Subsidiaries taken as a whole.
(b) There is no Environmental Claim pending or to the
knowledge of the Company threatened against the Company or any of its
Subsidiaries or to the knowledge of the Company, against any person or entity
whose liability for any Environmental Claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law that is reasonably expected to have a material adverse effect
on the Company and its Subsidiaries taken as a whole.
(c) Except as set forth in Section 3.15 of the Company
Disclosure Letter, to the knowledge of the Company, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release,
20
threatened release or presence of any Hazardous Material which could form the
basis of any Environmental Claim against the Company or any of its Subsidiaries,
or to the knowledge of the Company, against any person or entity whose liability
for any Environmental Claim the Company or any of its Subsidiaries has or may
have retained or assumed either contractually or by operation of law, except for
such liabilities which, individually or in the aggregate, are not reasonably
expected to have a material adverse effect on the Company and its Subsidiaries
taken as a whole.
(d) To the knowledge of the Company, no site or facility now
or previously owned, operated or leased by the Company or any of its
Subsidiaries is listed or proposed for listing on the National Priorities List
promulgated pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and the rules and regulations thereunder
("CERCLA").
(e) No Liens have arisen under or pursuant to any
Environmental Law on any site or facility owned, operated or leased by the
Company or any of its Subsidiaries, other than any such real property not
individually or in the aggregate material to the Company and its Subsidiaries
taken as a whole, and no action of any Governmental or Regulatory Authority has
been taken or, to the knowledge of the Company, is in process which could
subject any of such properties to such Liens.
(f) The Company has delivered or otherwise made available for
inspection to the Parent true, complete and correct copies and results of any
material reports, studies, analyses, tests or monitoring possessed or initiated
by the Company or any of its Subsidiaries pertaining to Hazardous Materials in,
on, beneath or adjacent to any property currently or formerly owned, operated or
leased by the Company or any of its Subsidiaries, or regarding the Company's or
any of its Subsidiaries' compliance with applicable Environmental Laws.
(g) As used herein:
(i) "Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any person or
entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or
resulting from (a) the presence, or release or threatened release, of
any Hazardous Materials at any location, whether or not owned or
operated by the Company or any of its Subsidiaries, or (b)
circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law.
21
(ii) "Environmental Law" means any law or order of any Governmental
or Regulatory Authority relating to the regulation or protection of
human health, safety or the environment or to emissions, discharges,
releases or threatened releases of Hazardous Material, pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes into the environment; and
(iii) "Hazardous Material" means (A) any petroleum or petroleum
products, flammable materials, radioactive materials, friable asbestos,
urea formaldehyde foam insulation and transformers or other equipment
that contain dielectric fluid containing regulated levels of
polychlorinated biphenyls (PCBs); (B) any chemicals or other materials
or substances which are now or hereafter become defined as or included
in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants" or words of
similar import under any Environmental Law; and (C) any other chemical
or other material or substance, exposure to which is now or hereafter
prohibited, limited or regulated by any Governmental or Regulatory
Authority under any Environmental Law.
3.16 Intellectual Property Rights. (a) The Company and its
Subsidiaries own or have the right to use, all Intellectual Property
individually or in the aggregate material to the conduct of the businesses of
the Company and its Subsidiaries taken as a whole. To the knowledge of the
Company, neither the Company nor any Subsidiary of the Company is in default (or
with the giving of notice or lapse of time or both, would be in default) under
any license to use such Intellectual Property, such Intellectual Property is not
being infringed by any third party, and neither the Company nor any Subsidiary
of the Company is infringing any intellectual property of any third party,
except for such defaults and infringements which, individually or in the
aggregate, are not having and are not reasonably expected to have a material
adverse effect on the Company and its Subsidiaries taken as a whole. For
purposes of this Agreement, "Intellectual Property" means patents and patent
rights, trademarks and trademark rights, trade names and trade name rights,
service marks and service xxxx rights, service names and service name rights,
copyrights and copyright rights and other proprietary intellectual property
rights and all pending applications for and registrations of any of the
foregoing that the Company or its Subsidiaries (or as applicable the Parent and
its Subsidiaries) own, license or otherwise have the right to use. An accurate
schedule of all Intellectual Property is set forth in Section 3.16 of the
Company Disclosure Letter.
22
(b) Either the Company or one of its Subsidiaries currently is
listed in the records of the appropriate United States, state or foreign agency
as the sole owner of record for each application and registration included in
the Intellectual Property, except for any such failure which, individually or in
the aggregate, is not reasonably expected to have a material adverse effect on
the Company and its Subsidiaries taken as a whole.
(c) The Company and its Subsidiaries, with respect to all
Intellectual Property owned thereby, have taken or caused to be taken all
reasonable steps to obtain and retain valid and enforceable Intellectual
Property rights therein, including the submission of all necessary filings in
accordance with the legal and administrative requirements of the appropriate
jurisdictions. No application or registration listed in Section 3.16 of the
Company Disclosure Schedule is the subject of any pending, existing or, to the
Company's knowledge, threatened, opposition, interference, cancellation
proceeding or other legal or governmental proceeding before any registration
authority in any jurisdiction.
(d) The consummation of the transaction contemplated hereby
will not result in the loss or impairment of the Company's or any of its
Subsidiaries' right to own or use any of the material Intellectual Property nor
will it require the consent of any Governmental or Regulatory Authority or third
party except for any such loss, improvement or non-consent which, individually
or in the aggregate, is not reasonably expected to have a material adverse
effect on the Company and its Subsidiaries taken as a whole.
3.17 Vote Required. Assuming the accuracy of the
representation and warranty contained in Section 4.18, the affirmative vote of
the holders of record of at least two-thirds of the outstanding shares of
Company Common Stock with respect to the adoption and approval of this Agreement
is the only vote of the holders of any class or series of the capital stock of
the Company required to adopt this Agreement and approve the Merger and the
other transactions contemplated hereby.
3.18 Opinion of Financial Advisor. The Company has received
the oral opinion of each of Xxxxxxx, Sachs & Co. and The Beacon Group to the
effect that, the consideration to be received in the Merger by the stockholders
of the Company is fair from a financial point of view to the stockholders of the
Company.
3.19 Company Rights Agreement. As of the date hereof and
after giving effect to the execution and delivery of this Agreement, each
Company Right is represented by the certificate representing the associated
share of Company Common Stock and is
23
not exercisable or transferable apart from the associated share of Company
Common Stock, and the Company has (i) taken all necessary actions so that the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in a "Distribution Date" or a
"Triggering Event" (as defined in the Company Rights Agreement) and (ii)
authorized an amendment to the Company Rights Agreement to render it
inapplicable to this Agreement, the Merger and the other transactions
contemplated hereby, which shall be executed as promptly as practical after the
date hereof.
3.20 Ownership of Parent Common Stock. Neither the Company
nor any of its Subsidiaries or other affiliates beneficially owns any shares of
Parent Common Stock.
3.21 Sections 3-602 and 3-702 of the MGCL Not Applicable. The
Company has taken all necessary actions so that the provisions of Sections 3-602
and 3-702 of the MGCL will not, before the termination of this Agreement, apply
to this Agreement, the Merger or the other transactions contemplated hereby.
3.22 Accounting Matters. To the knowledge of the Company,
neither the Company nor any of its affiliates has taken or agreed or failed to
take any action that (without giving effect to any action taken or agreed to be
taken by Parent or any of its affiliates) would disqualify the treatment of the
business combination to be effected by the Merger as a pooling of interests for
accounting purposes. The Company has received written advice from KPMG Peat
Marwick (addressed to both the Company and Parent) that, with respect to the
Company, the Merger will qualify as a pooling of interests transaction under
Opinion 16 of the Accounting Principles Board.
3.23 Insurance. Section 3.23 of the Company Disclosure Letter
sets forth a complete and accurate list of all primary, excess and umbrella
policies, bonds and other forms of insurance currently owned or held by or on
behalf of and/or providing insurance coverage to the Company and each of its
Subsidiaries and their respective businesses, properties and assets (or its
directors, officers, salespersons, agents or employees). All such policies are
in full force and effect. Neither the Company nor any of its Subsidiaries has
received notice of default under any such policy, and has not received written
notice of any pending or threatened termination or cancellation, coverage
limitation or reduction, or material premium increase with respect to any such
policy the failure of which to maintain, has a material adverse effect on the
Company and its Subsidiaries taken as a whole. Section 3.23 of the Company
Disclosure Letter sets forth a complete and accurate summary of all of the
self-insurance coverage provided by the
24
Company and its Subsidiaries and except as set forth in such Section 3.23 of the
Company Disclosure Letter, no letters of credit have been posted.
3.24 Records. (a) The respective corporate record books of the
Company and each of its Subsidiaries contain accurate and complete records of
all material meetings and accurately reflect all other actions taken by the
stockholders, Board of Directors and all material committees of the Board of
Directors of the Company and its Subsidiaries. Complete and accurate copies of
all such record books have been made available by the Company to Parent.
(b) The books, records and work papers of the Company and its
Subsidiaries are complete and correct, have been maintained in all material
respects in accordance with applicable federal, foreign, state and local laws
and regulations and good business practices.
3.25 Mortgage Banking Licenses and Qualifications. The Company
(to the extent applicable) and each of its Subsidiaries engaged in the business
of originating or servicing loans (i) is qualified (A) by the Federal Housing
Administration ("FHA") as a mortgagee and servicer for Mortgage Loans which
satisfy all applicable rules and requirements to be insured by FHA and which are
insured by FHA ("FHA Loans"), (B) by The Veteran's Administration ("VA") as a
lender and servicer for Mortgage Loans which satisfy all applicable rules and
regulations to be guaranteed by the VA and which are guaranteed by the VA ("VA
Loans"), (C) by the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC") as a seller/servicer of first
mortgages to FNMA and FHLMC and (D) by the Government National Mortgage
Association ("GNMA") as an authorized issuer and servicer of GNMA-guaranteed
mortgage-backed securities; and (ii) has all other certifications,
authorizations, franchises, licenses, permits and other approvals (together with
the items set forth in clause (i) above, the "Licenses") necessary to conduct
its current mortgage banking business, and is in good standing under all
applicable federal, state and local laws and regulations thereunder as a
mortgage lender and servicer. Section 3.25 of the Company Disclosure Letter sets
forth a true and complete list of all Licenses. The Company and each of its
Subsidiaries has complied with all such Licenses, and to the knowledge of the
Company there is no threatened suspension, cancellation or invalidation of, or
penalties (including fines or refunds) under, any such Licenses.
3.26 Loan Portfolio. The Company has previously delivered to
Parent a tape (magnetic media) which sets forth the following information, as of
September 30, 1996 with respect to each Mortgage Loan in the Mortgage Servicing
Portfolio as of such
25
date (other than those loans set forth in Section 3.26 of the Company Disclosure
Letter): (a) the loan number of each such Mortgage Loan, (b) the unpaid
principal balance of each such Mortgage Loan, (c) the payment status of each
such Mortgage Loan, (d) the monthly principal and interest payment for each such
Mortgage Loan, (e) the monthly escrow payment for each such Mortgage Loan, (f)
the interest rate of each such Mortgage Loan, and whether such rate is
adjustable, and (g) the state in which the property securing each such Mortgage
Loan is located. All information contained in such tape is true and correct as
of such date in all material respects. To the knowledge of the Company, each
Mortgage Loan is (i) evidenced by a note with such terms as are customary in the
business, (ii) duly secured by a mortgage or deed of trust with such terms as
are customary in the business and which grants the holder thereof a first
priority lien on the subject property (including any improvements thereon), each
such mortgage or deed of trust constituting a security interest that has been
duly perfected and maintained (or is in the process of perfection in due course)
as a first lien subject only to taxes and assessments not yet delinquent as
evidenced by a lender's title insurance policy, and is in full force and effect
and (iii) accompanied by a hazard insurance policy (and a flood insurance policy
where required under the terms of the Flood Disaster Protection Act) covering
improvements on the premises subject to such mortgage or deed of trust, with a
loss payee clause in favor of the Company or a Subsidiary of the Company or an
assignee of the Company or such Subsidiary, such insurance policy covering such
risks as are customarily insured against in accordance with industry practice
and which are required to be insured against pursuant to Investor requirements.
For the purposes of this Agreement:
"Investor" means any Person who owns a Mortgage Loan, or the
servicing rights or master servicing rights to a Mortgage Loan, subserviced,
serviced or master serviced by the Company or any Subsidiary of the Company
pursuant to a Mortgage Servicing Agreement.
"Mortgage Loan" means any closed 1-4 family residential
mortgage (including all Warehouse Loans), whether or not such mortgage is
included in a securitized portfolio, in the Mortgage Servicing Portfolio, as
evidenced by notes duly secured by mortgages or deeds of trust.
"Mortgage Servicing Agreements" means all contracts or
arrangements (written or oral) between the Company or any of its Subsidiaries
and an Investor pursuant to which the Company or any of its Subsidiaries
subservices, services or master services mortgage loans for such Investor.
26
"Mortgage Servicing Portfolio" means the portfolio of mortgage
loans subserviced, serviced or master serviced by the Company or any of its
Subsidiaries pursuant to Mortgage Servicing Agreements, together with all
Warehouse Loans.
"Warehouse Loans" means Mortgage Loans owned by the Company or
one of its Subsidiaries and held for sale.
3.27 Loan Documents. The Loan Documents were in compliance
with applicable Regulations upon origination of the underlying Mortgage Loan and
are complete in all material respects. All insertions in any Loan Documents were
correct when made. All required adjustments for those Mortgage Loans that are
adjustable rate Mortgage Loans have been timely and properly made in accordance
with the underlying Loan Documents and all such adjustments are recorded
accurately and completely in the Loan Documents.
For the purposes of this Agreement:
"Agency" means FHA, VA, GNMA, FNMA, FHLMC or a state agency.
"Insurer" means a Person who insures or guarantees all or any
portion of the risk of loss upon borrower default on any of the Mortgage Loans,
including, without limitation, the FHA, the VA and any private mortgage insurer,
and providers of life, hazard, disability, title or other insurance with respect
to any of the Mortgage Loans or the property securing a Mortgage Loan.
"Loan Documents" means the credit and closing packages,
custodial documents, escrow documents, and all other documents: (i) in the
possession of the Company or its Subsidiaries specifically pertaining to a
Mortgage Loan, (ii) reasonably necessary for prudent servicing of a Mortgage
Loan or (iii) necessary to establish the eligibility of the Mortgage Loan for
insurance by an Insurer or sale to an Investor; in each case as required by
applicable Regulations.
"Regulations" means (i) federal, state and local laws, rules
and regulations with respect to the origination, insuring, purchase, sale,
pooling, servicing, subservicing, master servicing or filing of claims in
connection with a Mortgage Loan, (ii) the responsibilities and obligations set
forth in any agreement between the Company or any of its Subsidiaries and an
Investor or Insurer (including, without limitation, any Mortgage Servicing
Agreement and selling and servicing guides), (iii) the laws, rules, regulations,
guidelines, handbooks and other requirements of (A) an Investor, (B) an Agency,
(C) an Insurer, (D) a public housing program or (E) an Investor program with
respect to the origination, insuring, purchase, sale, pooling,
27
servicing, subservicing, master servicing or filing of claims in connection with
a Mortgage Loan, and (iv) the terms and provisions of the Loan Documents.
3.28 No Recourse. Except as set forth in Section 3.28 of the
Company Disclosure Letter and except with respect to delinquent Mortgage Loans
with respect to which the VA has notified the Company or one of its Subsidiaries
that it intends to exercise its option to pay the amount guaranteed by the VA
and relinquish all rights in the collateral securing such Mortgage Loan to the
Company or one of its Subsidiaries ("VA No-Bids"), neither the Company nor any
of its Subsidiaries is a party to: (i) any agreement or arrangement with (or
otherwise obligated to) any Person, including an Investor or Insurer, to
repurchase from any such Person (or effect any substitution with respect to) any
Mortgage Loan, mortgaged property serviced for others, mortgage loan sold by the
Company or any of its Subsidiaries with servicing released ("Servicing Released
Loans") or mortgage loan the servicing rights with respect to which were sold on
a bulk or flow basis by the Company or any of its Subsidiaries ("Servicing Sale
Loan") or (ii) any agreement, arrangement or understanding to reimburse,
indemnify, effect a substitution, "make whole" or hold harmless any Person or
otherwise assume any liability with respect to any Loss suffered or incurred as
a result of any default under or the foreclosure or sale of any Mortgage Loan,
mortgaged property serviced for others, Servicing Released Loans or Servicing
Sale Loans, except with respect to any of the Mortgage Loans, mortgaged property
serviced for others, Servicing Released Loans or Servicing Sale Loans, described
in clause (i) or (ii) above, insofar as (A) such obligation to repurchase,
reimburse, indemnify, substitute, "make whole," hold harmless or otherwise
assume liability is (x) based upon a breach by the Company or any of its
Subsidiaries of a contractual representation, warranty or undertaking, or the
misfeasance or malfeasance of the Company or any such Subsidiary, and not (y)
based solely upon the default under or foreclosure or sale of any such Mortgage
Loan, mortgaged property, Servicing Released Loan or Servicing Sale Loan without
regard to the occurrence of any such breach, misfeasance or malfeasance or (B)
the Company or any such Subsidiary incurs expenses such as legal fees in excess
of the reimbursement limits, if any, set forth in the applicable Mortgage
Servicing Agreement.
For purposes of this Agreement:
"Loss" means any liability, loss, cost, damage, penalty, fine,
obligation or expense of any kind whatsoever (including, without limitation,
reasonable attorneys', accountants', consultants' or experts' fees and
disbursements).
28
3.29 Mortgage Servicing Agreements. Section 3.29 of the
Company Disclosure Letter contains a list of the investors and all Mortgage
Servicing Agreements to which the Company or any of its Subsidiaries is a party
as of the date hereof. The Mortgage Servicing Agreements and the Regulations set
forth all the terms and conditions of the Company and any of its Subsidiaries'
rights against and obligations to the Agencies and Investors and, except as set
forth in Section 3.29 of the Company Disclosure Letter, there are no written or
oral agreements that modify or amend any such Mortgage Servicing Agreement in
any material respect. All of the Mortgage Servicing Agreements are valid and
binding obligations of the Company or the applicable Subsidiary of the Company
and, to the knowledge of the Company, all of the other parties thereto, are in
full force and effect, and are enforceable in accordance with their terms,
except as enforcement thereof may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors, rights and remedies generally.
Except as set forth in Section 3.29 of the Company Disclosure Letter, there is
no default or breach under, or dispute regarding the material terms of, or to
the knowledge of the Company, claim of default or breach by any party under any
such Mortgage Servicing Agreement, and, to the knowledge of the Company, no
event has occurred which with the passage of time or the giving of notice or
both would constitute a default or breach by any party under any such Mortgage
Servicing Agreement or would permit termination, modification or acceleration of
any such Mortgage Servicing Agreement.
3.30 Compliance with Mortgage Banking Regulations.
(a) Except as disclosed in Section 3.30 of the Company
Disclosure Letter, the Company and each of its Subsidiaries engaged in the
business of originating or servicing loans and, with respect to each Mortgage
Loan, and, to the knowledge of the Company, each prior servicer and originator
of any such loan, has been and is (including, without limitation, with respect
to (i) the ownership and operation of its properties and (ii) the documentation,
underwriting, origination, purchase, assumption, modification, sale, pooling and
servicing of Mortgage Loans by the Company and such Subsidiaries and such prior
servicers and originators) in compliance with all Regulations, orders, writs,
decrees, injunctions and other requirements of any court or Governmental
Entities applicable to it, its properties and assets and its conduct of business
(including, without limitation, (x) the rules, regulations and requirements of
FHA, VA, FNMA, the United States Department of Housing and Urban Development
("HUD"), FHLMC and GNMA, (y) any applicable local, state or federal law or
ordinance, and any regulations or orders issued thereunder, governing or
pertaining to fair housing or unlawful discrimination in residential lending
(including without
29
limitation anti-redlining, equal credit opportunity, and fair credit reporting),
truth-in-lending, real estate settlement procedures, adjustable rate mortgages,
adjustable rate mortgage disclosures or consumer credit (including, without
limitation, the federal Consumer Credit Protection Act, the federal
Truth-in-Lending Act and Regulation Z thereunder, the federal Real Estate
Settlement Procedures Act of 1974 and Regulation X thereunder, and the federal
Equal Credit Opportunity Act and Regulation B thereunder) or with respect to the
Flood Disaster Protection Act and (z) all applicable usury and interest
limitations laws). Without limiting the generality of the foregoing, except as
set forth in Section 3.30(a) of the Company Disclosure Letter, each of the
Company and each such Subsidiary of the Company has been and is in compliance in
all material respects with all servicer and other requirements of the FHA, VA,
FNMA, FHLMC, GNMA, Investors and any Insurer (including, without limitation, any
applicable net worth requirements) which are applicable to it, and all
applicable underwriting standards of such Agencies, Investors or Insurers, and
each correspondent or broker from whom the Company or a Subsidiary of the
Company has purchased FHA Loans or VA Loans had all FHA and VA approvals
necessary to enable it to take applications and close FHA Loans and/or VA Loans.
(b) Except as set forth in Section 3.30(b) of the Company
Disclosure Letter, the Company and each Subsidiary of the Company, as the case
may be, has timely filed, or will have timely filed by the Effective Time, all
reports required to be filed by any Agency, Investor or Insurer or by any
federal, state or municipal law, regulation or ordinance. Except as set forth in
Section 3.30(b) of the Company Disclosure Letter, neither the Company nor any
Subsidiary of the Company has done or failed to do, or has caused to be done or
omitted to be done, any act, the effect of which would operate to invalidate or
materially impair (i) any approvals of the FHA, VA, FNMA, FHLMC, GNMA, HUD or
any Investor, (ii) any FHA insurance or commitment of the FHA to insure, (iii)
any VA guarantee or commitment of the VA to guarantee, (iv) any private mortgage
insurance or commitment of any private mortgage insurer to insure, (v) any title
insurance policy, (vi) any hazard insurance policy, (vii) any flood insurance
policy required by the National Flood Insurance Act of 1968, as amended, (viii)
any fidelity bond, direct surety bond, or errors and omissions insurance policy
required by HUD, GNMA, FNMA, FHA, FHLMC, VA or private mortgage insurers, (ix)
any surety or guaranty agreement or (x) any guaranty issued by GNMA to the
Company or any Subsidiary of the Company respecting mortgage-backed securities
issued or serviced by the Company or any Subsidiary of the Company and other
like guaranties.
(c) Except as set forth in Section 3.30(c) of the Company
Disclosure Letter, since January 1, 1994, no Agency,
30
Investor or Insurer has (y) to the knowledge of the Company, claimed that the
Company or any Subsidiary of the Company has violated or not complied with the
applicable underwriting standards with respect to mortgage loans sold by the
Company or any Subsidiary of the Company to an Investor or (z) imposed
restrictions on the activities (including commitment authority) of the Company
or any Subsidiary of the Company. To the knowledge of the Company, as of the
date of this Agreement, there exist no facts or circumstances which would
entitle an Investor or other Person to demand repurchase of a Mortgage Loan,
Servicing Released Loan or Servicing Sale Loan or which would entitle an Insurer
to demand indemnification from the Company or any Subsidiary of the Company, to
cancel any mortgage insurance held for any such Subsidiary's benefit or to
reduce any mortgage insurance benefits payable to the Company or any such
Subsidiary, or would lead GNMA to require a letter of credit from the Company or
any Subsidiary of the Company.
3.31 Custodial Accounts. Each of the Company and its
Subsidiaries so required has full power and authority to maintain escrow
accounts ("Custodial Accounts") for certain of the Mortgage Loans, has
established Custodial Accounts for all escrow deposits relating to the Mortgage
Loans, and is the lawful fiduciary of all Custodial Accounts related to the
Mortgage Loans. Such Custodial Accounts comply in all material respects with (i)
all applicable Regulations (including without limitation Regulations governing
the appropriate identification of such accounts and the calculation of the
amount of the monthly payments for deposit into Custodial Accounts that
mortgagors are required to make) and (ii) any terms of the Mortgage Loans (and
Mortgage Servicing Agreements) relating thereto, and all such Custodial Accounts
have been maintained in all material respects in accordance with usual and
customary industry practice.
3.32 Inquiries. Section 3.32 of the Company Disclosure Letter
contains a true and correct list of all of the audits, investigations,
complaints and inquiries of the Company or any of its Subsidiaries by any
Agency, Investor or private mortgage insurer or HUD commenced since January 1,
1994, the result of which audits and investigations claimed a material failure
to comply with applicable Regulations and resulted in (i) a repurchase of
Mortgage Loans or related mortgage properties by the Company or any Subsidiary
of the Company, (ii) indemnification by the Company or any Subsidiary of the
Company in connection with Mortgage Loans or related mortgage properties, (iii)
rescission of an insurance or guaranty contract or agreement or (iv) payment of
a penalty to an Agency, HUD, an Investor or Insurer. Except for customary
ongoing quality control reviews, no such audit or investigation is pending or,
to the knowledge of the Company, threatened. The Company has made available to
Parent copies of all written reports, letters and
31
materials received or sent by the Company or a Subsidiary of the Company in
connection with such audits, investigations, complaints and inquiries.
3.33 Advances. Except as set forth in Section 3.33 of the
Company Disclosure Letter, there are no pooling, participation, servicing or
other agreements to which the Company or any of its Subsidiaries is a party
which obligate it to make advances with respect to defaulted or delinquent
Mortgage Loans, other than as provided in GNMA, FNMA, FHLMC or other pooling and
servicing agreements.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as
follows:
4.01 Organization and Qualification. Each of Parent and its
Subsidiaries (including Sub) is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has full corporate power and authority to conduct its business
as and to the extent now conducted and to own, use and lease its assets and
properties, except for such failures to be so incorporated, existing and in good
standing or to have such power and authority which, individually or in the
aggregate, are not having and are not reasonably expected to have a material
adverse effect on Parent and its Subsidiaries taken as a whole. Sub was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement, has engaged in no other business activities and has conducted its
operations only as contemplated hereby. Each of Parent and its Subsidiaries is
duly qualified, licensed or admitted to do business and is in good standing in
each jurisdiction in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for such failures to be so qualified,
licensed or admitted and in good standing which, individually or in the
aggregate, are not having and are not reasonably expected to have a material
adverse effect on Parent and its Subsidiaries taken as a whole. Except as set
forth in Section 4.01 of the Parent Disclosure Letter, as of the date hereof,
all of Parent's Significant Subsidiaries are wholly-owned, directly or
indirectly, by Parent. Parent has previously delivered or made available to the
Company correct and complete copies of the certificate or articles of
incorporation and bylaws (or other comparable charter documents) of Parent and
its Significant Subsidiaries as of the date hereof.
32
4.02 Capital Stock. (a) Prior to Parent Stockholders' Meeting,
the authorized capital stock of Parent consists solely of 300,000,000 shares of
Parent Common Stock and 10,000,000 shares of preferred stock, par value $1.00
per share ("Parent Preferred Stock"). As of November 7, 1996, 128,624,074 shares
of Parent Common Stock were issued and outstanding, 141,000 shares were held in
the treasury of Parent and 31,155,094 shares were reserved for issuance pursuant
to Parent's 1992 Stock Option Plan and 1993 Stock Option Plan. Since such date,
except as set forth in Section 4.02 of the letter dated the date hereof and
delivered by Parent and Sub to the Company concurrently with the execution and
delivery of this Agreement (the "Parent Disclosure Letter"), there has been no
change in the number of issued and outstanding shares of Parent Common Stock or
shares of Parent Common Stock held in treasury or reserved for issuance since
such date other than upon the exercise of stock options or the conversion of
convertible debt outstanding as of the date hereof, or as otherwise issued after
the date hereof by Parent not in violation of this Agreement. As of the date
hereof, no shares of Parent Preferred Stock are issued and outstanding. All of
the issued and outstanding shares of Parent Common Stock are, and all shares
reserved for issuance will be, upon issuance in accordance with the terms
specified in the instruments or agreements pursuant to which they are issuable,
duly authorized, validly issued, fully paid and nonassessable. Except pursuant
to this Agreement and except as set forth in Section 4.02 of the Parent
Disclosure Letter, as of the date hereof there are no outstanding Options
obligating Parent or any of its Subsidiaries to issue or sell any shares of
capital stock of Parent or to grant, extend or enter into any Option with
respect thereto.
(b) Except as disclosed in Section 4.02 of the Parent
Disclosure Letter, as of the date hereof, all of the outstanding shares of
capital stock of each Significant Subsidiary of Parent are duly authorized,
validly issued, fully paid and nonassessable and are owned, beneficially and of
record, by Parent or a Subsidiary wholly owned, directly or indirectly, by
Parent, free and clear of any Liens. Except as disclosed in Section 4.02 of the
Parent Disclosure Letter, as of the date hereof, there are no (i) outstanding
Options obligating Parent or any of its Significant Subsidiaries to issue or
sell any shares of capital stock of any Subsidiary of Parent or to grant, extend
or enter into any such Option or (ii) voting trusts, proxies or other
commitments, understandings, restrictions or arrangements in favor of any person
other than Parent or a Significant Subsidiary wholly owned, directly or
indirectly, by Parent with respect to the voting of or the right to participate
in dividends or other earnings on any capital stock of any Significant
Subsidiary of Parent.
33
(c) Except as disclosed in Section 4.02 of the Parent
Disclosure Letter, as of the date hereof, there are no outstanding contractual
obligations of Parent or any Significant Subsidiary of Parent to repurchase,
redeem or otherwise acquire any shares of Parent Common Stock or any capital
stock of any Subsidiary of Parent or to provide funds to, or make any investment
(in the form of a loan, capital contribution or otherwise) in, any Significant
Subsidiary of Parent or any other person.
4.03 Authority Relative to this Agreement. Each of Parent and
Sub has full corporate power and authority to enter into this Agreement and to
perform its obligations hereunder (subject to, in the case of consummation of
the Merger, the issuance of Parent Common Stock and the increase in the Board of
Directors of Parent in connection therewith, obtaining the Parent Stockholders'
Approval, if required) and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by each of Parent and
Sub and the consummation by each of Parent and Sub of the transactions
contemplated hereby have been duly and validly approved by its Board of
Directors and by Parent in its capacity as the sole stockholder of Sub; and no
other corporate proceedings on the part of either of Parent or Sub or their
stockholders are necessary to authorize the execution, delivery and performance
of this Agreement by Parent and Sub and the consummation by Parent and Sub of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Parent and Sub and constitutes a legal, valid
and binding obligation of each of Parent and Sub enforceable against each of
Parent and Sub in accordance with its terms (subject to, in the case of
consummation of the Merger, and the issuance of Parent Common Stock and the
increase in the Board of Directors of Parent in connection therewith, obtaining
the Parent Stockholders' Approval, if required), except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.04 Non-Contravention; Approvals and Consents. (a) The
execution and delivery of this Agreement by each of Parent and Sub do not, and
the performance by each of Parent and Sub of its obligations hereunder and the
consummation of the transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or without notice or lapse
of time or both) a default under, result in or give to any person any right of
payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any of
the assets or
34
properties of Parent or any of its Significant Subsidiaries under, any of the
terms, conditions or provisions of (i) the certificates or articles of
incorporation or bylaws (or other comparable charter documents) of Parent or any
of its Significant Subsidiaries, or (ii) except as disclosed in Section 4.04 of
the Parent Disclosure Letter, (x) subject to the obtaining of the Parent
Stockholders' Approval and taking of the actions described in paragraph (b) of
this Section any laws or orders of any Governmental or Regulatory Authority
applicable to Parent or any of its Subsidiaries or any of their respective
assets or properties, or (y) any Contracts to which Parent or any of its
Subsidiaries is a party or by which Parent or any of its Subsidiaries or any of
their respective assets or properties is bound, excluding from the foregoing
clauses (x) and (y) conflicts, violations, breaches, defaults, terminations,
modifications, accelerations and creations and impositions of Liens which,
individually or in the aggregate, are not reasonably expected to have a material
adverse effect on Parent and its Subsidiaries taken as a whole or on the ability
of Parent and Sub to consummate the transactions contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification
report by Parent under the HSR Act, (ii) for the filing of the Proxy Statement
and Registration Statement with the SEC pursuant to the Exchange Act and the
Securities Act, the declaration of the effectiveness of the Registration
Statement by the SEC and filings with various state securities authorities that
are required in connection with the transactions contemplated by this Agreement,
(iii) for the filing of the Articles of Merger and other appropriate merger
documents required by the MGCL with the Department and appropriate documents
with the relevant authorities of other states in which the Constituent
Corporations are qualified to do business and (iv) as disclosed in Section 4.04
of the Parent Disclosure Letter, no consent, approval or action of, filing with
or notice to any Governmental or Regulatory Authority or other public or private
third party is necessary or required under any of the terms, conditions or
provisions of any law or order of any Governmental or Regulatory Authority or
any Contract to which Parent or any of its Subsidiaries is a party or by which
Parent or any of its Subsidiaries or any of their respective assets or
properties is bound for the execution and delivery of this Agreement by each of
Parent and Sub, the performance by each of Parent and Sub of its obligations
hereunder or the consummation of the transactions contemplated hereby, other
than such consents, approvals, actions, filings and notices which the failure to
make or obtain, as the case may be, individually or in the aggregate, are not
reasonably expected to have a material adverse effect on Parent and its
Subsidiaries taken as a whole or on the ability of Parent and Sub to consummate
the transactions contemplated by this Agreement.
35
4.05 SEC Reports and Financial Statements. Parent delivered to
the Company prior to the execution of this Agreement a true and complete copy of
each form, report, schedule, registration statement, definitive proxy statement
and other document (together with all amendments thereof and supplements
thereto) filed by Parent or any of its Subsidiaries with the SEC since January
1, 1994 (as such documents have since the time of their filing been amended or
supplemented, the "Parent SEC Reports"), which are all the documents (other than
preliminary material) that Parent and its Subsidiaries were required to file or
did file with the SEC since such date. As of their respective dates, the Parent
SEC Reports (i) complied as to form in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim consolidated financial statements (including, in each case, the notes,
if any, thereto) included in the Parent SEC Reports (the "Parent Financial
Statements") complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated therein or in the
notes thereto and except with respect to unaudited statements as permitted by
Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited
interim financial statements, to normal, recurring year-end audit adjustments
(which are not expected to be, individually or in the aggregate, materially
adverse to Parent and its Subsidiaries taken as a whole)) the consolidated
financial position of Parent and its consolidated subsidiaries as at the
respective dates thereof and the consolidated results of their operations and
cash flows for the respective periods then ended. Except as set forth in Section
4.05 of the Parent Disclosure Letter, each Significant Subsidiary of Parent is
treated as a consolidated subsidiary of Parent in the Parent Financial
Statements for all periods covered thereby.
4.06 Absence of Certain Changes or Events. Except as disclosed
in the Recent Parent SEC Reports filed prior to the date of this Agreement, (a)
since June 30, 1996 there has not been any change, event or development having,
or that is reasonably expected to have, individually or in the aggregate, a
material adverse effect on Parent and its Subsidiaries taken as a whole.
4.07 Absence of Undisclosed Liabilities. Except for matters
reflected or reserved against in the balance sheet for
36
the period ended June 30, 1996 or in the Recent Parent SEC Reports included in
the Parent Financial Statements or as disclosed in Section 4.07 of the Parent
Disclosure Letter, neither Parent nor any of its Subsidiaries had at such date,
or has incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent, fixed or otherwise, or whether due or to become
due) of any nature that would be required by generally accepted accounting
principles to be reflected on a consolidated balance sheet of Parent and its
consolidated subsidiaries (including the notes thereto), except liabilities or
obligations (i) which were incurred in the ordinary course of business
consistent with past practice or (ii) which have not been, and are not
reasonably expected to be, individually or in the aggregate, materially adverse
to Parent and its Subsidiaries taken as a whole.
4.08 Legal Proceedings. Except as disclosed in the Recent
Parent SEC Reports or in Section 4.08 of the Parent Disclosure Letter, (i) there
are no actions, suits, arbitrations or proceedings pending or, to the knowledge
of Parent, threatened against, relating to or affecting, nor to the knowledge of
Parent are there any Governmental or Regulatory Authority investigations or
audits pending or threatened against, relating to or affecting, Parent or any of
its Subsidiaries or any of their respective assets and properties which,
individually or in the aggregate, are reasonably expected to have a material
adverse effect on Parent and its Subsidiaries taken as a whole or on the ability
of Parent and Sub to consummate the transactions contemplated by this Agreement,
and (ii) neither Parent nor any of its Subsidiaries is subject to any order of
any Governmental or Regulatory Authority which, individually or in the
aggregate, is having or is reasonably expected to have a material adverse effect
on Parent and its Subsidiaries taken as a whole or on the ability of Parent and
Sub to consummate the transactions contemplated by this Agreement.
4.09 Information Supplied. The registration statement on Form
S-4 to be filed with the SEC by Parent in connection with the issuance of shares
of Parent Common Stock in the Merger or pursuant to Section 6.09, as amended or
supplemented from time to time (as so amended and supplemented, the
"Registration Statement"), and any other documents to be filed by Parent with
the SEC or any other Governmental or Regulatory Authority in connection with the
Merger and the other transactions contemplated hereby will (in the case of the
Registration Statement and any such other documents filed with the SEC under the
Securities Act or the Exchange Act) comply as to form in all material respects
with the requirements of the Exchange Act and the Securities Act, respectively,
and will not, on the date of its filing or, in the case of the Registration
Statement, at the time it becomes effective under the Securities Act, at the
date
37
the Proxy Statement is mailed to stockholders of the Company and of Parent and
at the times of the Stockholders' Meetings, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by Parent or Sub with respect to information supplied in
writing by or on behalf of the Company expressly for inclusion therein and
information incorporated by reference therein from documents filed by the
Company or any of its Subsidiaries with the SEC.
4.10 Compliance with Laws and Orders. Parent and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental and Regulatory Authorities necessary for the
lawful conduct of their respective businesses (the "Parent Permits"), except for
failures to hold such permits, licenses, variances, exemptions, orders and
approvals which, individually or in the aggregate, are not having and are not
reasonably expected to have a material adverse effect on Parent and its
Subsidiaries taken as a whole. Parent and its Subsidiaries are in compliance
with the terms of the Parent Permits, except failures so to comply which,
individually or in the aggregate, are not having and are not reasonably expected
to have a material adverse effect on Parent and its Subsidiaries taken as a
whole. Except as disclosed in the Recent Parent SEC Reports, Parent and its
Subsidiaries are not in violation of or default under any law or order of any
Governmental or Regulatory Authority, except for such violations or defaults
which, individually or in the aggregate, are not having and are not reasonably
expected to have a material adverse effect on Parent and its Subsidiaries taken
as a whole.
4.11 Compliance with Agreements; Certain Agreements. Except as
disclosed in the Recent Parent SEC Reports, neither Parent nor any of its
Subsidiaries nor, to the knowledge of Parent, any other party thereto is in
breach or violation of, or in default in the performance or observance of any
term or provision of, and no event has occurred which, with notice or lapse of
time or both, is reasonably expected to result in a default under, (i) the
certificates or articles of incorporation or bylaws (or other comparable charter
documents) of Parent or any of its Significant Subsidiaries or (ii) any Contract
to which Parent or any of its Subsidiaries is a party or by which Parent or any
of its Subsidiaries or any of their respective assets or properties is bound,
except in the case of clause (ii) for breaches, violations and defaults which,
individually or in the aggregate, are not having and are not reasonably expected
to have a material adverse effect on Parent and its Subsidiaries taken as a
whole.
38
4.12 Taxes. (a) Except as disclosed in Section 4.12 of the
Parent Disclosure Letter, each of Parent and its Subsidiaries has filed or
caused to be filed with the appropriate Governmental or Regulatory Authority all
tax returns required to be filed by it, or requests for extensions to file such
tax returns have been timely filed or granted and have not expired, and all such
tax returns are true, complete and accurate in all respects, except to the
extent that such failures to file, have extensions granted that remain in effect
or be complete and accurate in all respects, as applicable, individually or in
the aggregate, would not have a material adverse effect on Parent and its
Subsidiaries taken as a whole. Parent and each of its Subsidiaries has paid (or
Parent has paid on its behalf) all taxes shown as due on such tax returns or
otherwise due or claimed to be due by any Governmental or Regulatory Authority.
The most recent financial statements contained in the Parent SEC Reports reflect
an adequate reserve for all taxes payable by Parent and its Subsidiaries for all
taxable periods and portions thereof accrued through the date of such financial
statements, and no deficiencies for any taxes have been proposed, asserted or
assessed against Parent or any of its Subsidiaries that are not adequately
reserved for, except for inadequately reserved taxes and inadequately reserved
deficiencies that would not, individually or in the aggregate, have a material
adverse effect on Parent and its Subsidiaries taken as a whole. No requests for
waivers or comparable consents with respect to the time to assess any taxes
against Parent or any of its Subsidiaries have been granted or are pending,
except for requests with respect to such taxes that have been adequately
reserved for in the most recent financial statements contained in the Parent SEC
Reports, or, to the extent not adequately reserved, the assessment of which
would not, individually or in the aggregate, have a material adverse effect on
Parent and its Subsidiaries taken as a whole. Parent and its Subsidiaries have
complied in all respects with all applicable laws, rules and regulations
relating to the payment and withholding of taxes (including, without limitation,
withholding of taxes pursuant to Sections 1441 and 1442 of the Code or similar
provisions under any foreign laws and withholding with respect to employee
wages) and have, within the time and manner prescribed by law, withheld and paid
over to the proper Governmental or Regulatory Authority all amounts required to
be withheld and paid over under all applicable laws.
(b) Neither Parent nor any of its Subsidiaries has taken any
action or has any knowledge of any fact or circumstance that is reasonably
likely to prevent the Merger from qualifying as a tax-free reorganization within
the meaning of Section 368(a) of the Code.
4.13 Employee Benefit Plans; ERISA. (a) Except as described
in the Recent Parent SEC Reports or as would not have a
39
material adverse effect on Parent and its Subsidiaries taken as a whole, (i) all
Parent Employee Benefit Plans are in compliance with all applicable requirements
of law, including ERISA and the Code, and (ii) neither Parent nor any of its
Subsidiaries nor any Parent ERISA Affiliate has any liabilities or obligations
with respect to any such Parent Employee Benefit Plans, whether accrued,
contingent or otherwise, nor to the knowledge of Parent are any such liabilities
or obligations expected to be incurred. The execution of, and performance of the
transactions contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under any
Parent Employee Benefit Plan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any employee.
(b) No liability under Title IV of ERISA has been incurred by
Parent or any Parent ERISA Affiliate within the past six years that has not been
satisfied in full. To the knowledge of Parent, no condition exists that presents
a material risk to Parent, any of the Subsidiaries or any Parent ERISA Affiliate
of incurring a liability under such Title. The PBGC has not instituted
proceedings to terminate any of the Plans and no condition exists that presents
a material risk that such proceedings will be instituted. With respect to each
of the Plans that is subject to Title IV of ERISA, the present value of accrued
benefits under such plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such plan's actuary
with respect to such plan, did not, as of its latest valuation date, exceed the
then current value of the assets of such plan allocable to such accrued benefits
by an amount which would have, or could reasonably be expected to have, a
material adverse effect on Parent and its Subsidiaries taken as a whole. None of
the Plans or any trust established thereunder has incurred any "accumulated
funding deficiency" (as defined in section 302 of ERISA and section 412 of the
Code), whether or not waived, as of the last day of the most recent fiscal year
of each of the Plans ended prior to the date of this Agreement. No withdrawal by
Parent or any Parent ERISA Affiliate from any Parent Employee Benefit Plan that
is a "multiemployer plan," as such term is defined in section 3(37) of ERISA,
would result in a withdrawal liability having a material adverse effect on
Parent and its Subsidiaries taken as a whole. Each of the Plans that is intended
to be "qualified" within the meaning of section 401(a) of the Code is so
qualified and the trusts maintained thereunder are exempt from taxation under
section 501(a) of the Code. No liability under any Plan which provides benefits,
including without limitation death or medical benefits (whether or not insured),
with respect to current or former employees after retirement or other
40
termination of service (other than coverage mandated by applicable law or
benefits, the full cost of which is borne by the current or former employee)
would, or would reasonably be likely to, have a material adverse effect on
Parent and its Subsidiaries taken as a whole. There are no pending or threatened
claims by or on behalf of any Plan, by any employee or beneficiary covered under
any such Plan, or otherwise involving any such Plan (other than routine claims
for benefits).
(c) As used herein "Parent Employee Benefit Plan" means any
Plan entered into, established, maintained, sponsored, contributed to or
required to be contributed to by Parent or any of its Subsidiaries or ERISA
Affiliates for the benefit of the current or former employees or directors of
Parent or any of its Subsidiaries and existing on the date of this Agreement or
at any time subsequent thereto and on or prior to the Effective Time and, in the
case of a Plan which is subject to Part 3 of Title I of ERISA, Section 412 of
the Code or Title IV of ERISA, at any time during the five-year period preceding
the date of this Agreement.
4.14 Labor Matters. Except as disclosed in the Recent Parent
SEC Reports or in Section 4.14 of the Parent Disclosure Letter, there are no
material controversies pending or, to the knowledge of Parent, threatened
between Parent or any of its Subsidiaries and any representatives of its
employees, except as would not, individually or in the aggregate, have a
material adverse effect on Parent and its Subsidiaries taken as a whole, and, to
the knowledge of Parent, there are no material organizational efforts presently
being made involving any of the now unorganized employees of Parent or any of
its Subsidiaries. Since January 1, 1994, there has been no work stoppage, strike
or other concerted action by employees of Parent or any of its Subsidiaries
except as have not, individually or in the aggregate, had a material adverse
effect on Parent and its Subsidiaries taken as a whole.
4.15 Environmental Matters. (a) Each of Parent and its
Subsidiaries has obtained all Environmental Permits which are required under any
applicable Environmental Law in respect of its business or operations, except
for such failures to have Environmental Permits which, individually or in the
aggregate, are not reasonably expected to have a material adverse effect on
Parent and its Subsidiaries taken as a whole. Each of such Environmental Permits
is in full force and effect and each of Parent and its Subsidiaries is in
compliance with the terms and conditions of all such Environmental Permits and
with any applicable Environmental Law, except for such failures to be in
compliance which, individually or in the aggregate, are not reasonably expected
to have a material adverse effect on Parent and its Subsidiaries taken as a
whole.
41
(b) There is no Environmental Claim pending or to the
knowledge of Parent threatened against Parent or any of its Subsidiaries or to
the knowledge of Parent, against any person or entity whose liability for any
Environmental Claim Parent or any of its Subsidiaries has or may have retained
or assumed either contractually or by operation of law that is reasonably
expected to have a material adverse effect on Parent and its Subsidiaries taken
as a whole.
(c) Except as set forth in Section 4.15 of the Parent
Disclosure Letter, to the knowledge of Parent, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release, threatened release or presence of any Hazardous
Material which could form the basis of any Environmental Claim against Parent or
any of its Subsidiaries, or to the knowledge of Parent, against any person or
entity whose liability for any Environmental Claim Parent or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law, except for such liabilities which, individually or in the
aggregate, are not reasonably expected to have a material adverse effect on
Parent and its Subsidiaries taken as a whole.
(d) To the knowledge of Parent, no site or facility now or
previously owned, operated or leased by Parent or any of its Subsidiaries is
listed or proposed for listing on the National Priorities List promulgated
pursuant to CERCLA.
(e) No Liens have arisen under or pursuant to any
Environmental Law on any site or facility owned, operated or leased by Parent or
any of its Subsidiaries, other than any such real property not individually or
in the aggregate material to Parent and its Subsidiaries taken as a whole, and
no action of any Governmental or Regulatory Authority has been taken or, to the
knowledge of Parent, is in process which could subject any of such properties to
such Liens.
(f) Prior to Closing, Parent shall have made available for
inspection to the Company true, complete and correct copies and results of any
material reports, studies, analyses, tests or monitoring possessed or initiated
by Parent or any of its Subsidiaries pertaining to Hazardous Materials in, on,
beneath or adjacent to any property currently or formerly owned, operated or
leased by Parent or any of its Subsidiaries, or regarding Parent's or any of its
Subsidiaries' compliance with applicable Environmental Laws.
4.16 Intellectual Property Rights. (a) Parent and its
Subsidiaries own or have the right to use, all Intellectual Property
individually or in the aggregate material to the conduct of the businesses of
Parent and its Subsidiaries as currently
42
conducted taken as a whole. To the knowledge of Parent, neither Parent nor any
Subsidiary of Parent is in default (or with the giving of notice or lapse of
time or both, would be in default) under any license to use such Intellectual
Property, such Intellectual Property is not being infringed by any third party,
and neither Parent nor any Subsidiary of Parent is infringing any intellectual
property of any third party, except for such defaults and infringements which,
individually or in the aggregate, are not having and are not reasonably expected
to have a material adverse effect on Parent and its Subsidiaries taken as a
whole.
(b) Either Parent or one of its Subsidiaries currently is
listed in the records of the appropriate United States, state or foreign agency
as the sole owner of record for each application and registration included in
the Intellectual Property, except for any such failure which, individually or in
the aggregate, is not reasonably expected to have a material adverse effect on
Parent and its Subsidiaries taken as a whole.
(c) Parent and its Subsidiaries, with respect to all
Intellectual Property owned thereby, have taken or caused to be taken all
reasonable steps to obtain and retain valid and enforceable Intellectual
Property rights therein, including the submission of all necessary filings in
accordance with the legal and administrative requirements of the appropriate
jurisdictions, except where the failure to do so is not reasonably expected to
have a material adverse effect on Parent and its Subsidiaries taken as a whole.
(d) The consummation of the transaction contemplated hereby
will not result in the loss or impairment of Parent's or any of its
Subsidiaries' right to own or use any of the material Intellectual Property nor
will it require the consent of any Governmental or Regulatory Authority or third
party except for any such loss, impairment or non-consent which, individually or
in the aggregate, is not reasonably expected to have a material adverse effect
on Parent and its Subsidiaries taken as a whole.
4.17 Opinion of Financial Advisor. Parent has received the
oral opinion of Xxxxxx Brothers Inc., dated the date hereof, to the effect that,
from a financial point of view, the consideration to be paid by Parent in the
Merger is fair to Parent.
4.18 Ownership of Company Common Stock. Neither Parent nor any
of its Subsidiaries owns any shares of Company Common Stock. No other affiliates
of Parent beneficially own in the aggregate more than 1 percent of the shares of
Company Common Stock.
43
4.19 Accounting Matters. (a) To the knowledge of Parent,
neither Parent nor any of its affiliates has taken or agreed or failed to take
any action that (without giving effect to any action taken or agreed to be taken
by the Company or any of its affiliates) would disqualify the treatment of the
business combination to be effected by the Merger as a pooling of interests for
accounting purposes.
(b) Parent (i) believes, based on discussions with the SEC (as
and to the extent previously disclosed to the Company), that with respect to
Parent, the SEC currently would not object to accounting for the Merger as a
pooling of interests transaction and (ii) has received written advice from
Deloitte & Touche LLP (addressed to both Parent and the Company) that, with
respect to Parent, the Merger will qualify as a pooling of interests transaction
under Opinion 16 of the Accounting Principles Board.
4.20 Vote Required. The affirmative vote of at least a
majority of the votes cast by the holders of record of shares of Parent Common
Stock represented in person or by proxy at a meeting in which a quorum of
stockholders is present with respect to the approval of the issuance of Parent
Common Stock in connection with the Merger and the increase in the size of the
Board of Directors of Parent in connection with Section 6.11 is the only vote of
the holders of any class or series of the capital stock of Parent that may be
required to approve such issuance.
ARTICLE V
COVENANTS
5.01 Covenants of the Company and Parent. At all times from
and after the date hereof until the Effective Time, the Company and Parent each
covenants and agrees as to itself and its Subsidiaries that (except as disclosed
in Section 5.01 of the Company Disclosure Letter or the Parent Disclosure
Letter, as applicable, or as expressly contemplated or permitted by this
Agreement, or to the extent that Parent shall otherwise previously consent in
writing):
(a) Ordinary Course. The Company and its Subsidiaries shall
conduct their businesses only in, and the Company and its Subsidiaries, shall
not take any action except in the ordinary course consistent with past practice.
(b) Without limiting the generality of paragraph (a) of this
Section, (i) the Company and its Subsidiaries shall use all commercially
reasonable efforts to preserve intact in all
44
material respects their present business organizations and reputation, to keep
available the services of their key officers and employees, to maintain their
assets and properties in good working order and condition, ordinary wear and
tear excepted, to maintain insurance on their tangible assets and businesses in
such amounts and against such risks and losses as are currently in effect, to
preserve their relationships with significant customers and suppliers and others
having significant business dealings with them and to comply in all material
respects with all laws and orders of all Governmental or Regulatory Authorities
applicable to them, and (ii) the Company shall, and shall not permit any of its
Subsidiaries to, except as otherwise expressly provided for in this Agreement:
(A) amend or propose to amend its certificate or articles of
incorporation or bylaws (or other comparable corporate charter
documents);
(B) (w) declare, set aside or pay any dividends on or make
other distributions in respect of any of its capital stock, except that
the Company may continue the declaration and payment of regular
quarterly cash dividends (including increases consistent with past
practice) on Company Common Stock, with usual record and payment dates
for such dividends in accordance with past dividend practice, and
except for the declaration and payment of dividends by a wholly-owned
Subsidiary solely to its parent corporation, (x) split, combine,
reclassify or take similar action with respect to any of its capital
stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock, (y) adopt a plan of complete or partial liquidation
or resolutions providing for or authorizing such liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization or (z) directly or indirectly redeem, repurchase
or otherwise acquire any shares of its capital stock or any Option with
respect thereto;
(C) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any
Option with respect thereto (other than (w) the issuance of Company
Common Stock or stock appreciation or similar rights, as the case may
be, pursuant to Company Option Plans or Company Employee Benefit Plans,
in each case outstanding on the date of this Agreement and in
accordance with their present terms, (x) the issuance of options
pursuant to Company Option Plans in accordance with their present terms
and only in connection with the hiring of new employees, and the
issuance of shares of Company Common Stock upon exercise of such
options, (y) the issuance by a
45
wholly-owned Subsidiary of its capital stock to its parent corporation
and (z) the issuance of Company Rights and reservation of Company
Series A Preferred Stock pursuant to the Company Rights Agreement in
accordance with the terms thereof) or modify or amend any right of any
holder of outstanding shares of capital stock or Options with respect
thereto;
(D) acquire (by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner) any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets other than
in the ordinary course of its business consistent with past practice;
(E) other than dispositions in the ordinary course of its
business consistent with past practice, sell, lease, grant any security
interest in or otherwise dispose of or encumber any of its assets or
properties;
(F) except to the extent required by applicable law, (x)
permit any material change in (A) any pricing, marketing, purchasing,
investment, accounting, financial reporting, inventory, credit,
allowance or tax practice or policy or (B) any method of calculating
any bad debt, contingency or other reserve for accounting, financial
reporting or tax purposes or (y) make any material tax election or
settle or compromise any material income tax liability with any
Governmental or Regulatory Authority;
(G) (x) incur (which shall not be deemed to include entering
into credit agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements) any indebtedness for
borrowed money or guarantee any such indebtedness other than in the
ordinary course of its business consistent with past practice, or (y)
voluntarily purchase, cancel, prepay or otherwise provide for a
complete or partial discharge in advance of a scheduled repayment date
with respect to, or waive any right under, any indebtedness for
borrowed money other than in the ordinary course of its business
consistent with past practice;
(H) enter into, adopt, amend in any material respect (except
as may be required by applicable law) or terminate any Company Employee
Benefit Plan or other agreement, arrangement, plan or policy between
the Company or one of its Subsidiaries and one or more of its
directors, officers or employees, or, except for normal increases in
the
46
ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or
compensation expense to the Company and its Subsidiaries taken as a
whole, increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by
any plan or arrangement in effect as of the date hereof;
(I) enter into any Contract or amend or modify any existing
Contract, or engage in any new transaction outside the ordinary course
of business consistent with past practice or not on an arm's length
basis, with any affiliate of such party or any of its Subsidiaries;
(J) make any capital expenditures or commitments for additions
to plant, property or equipment constituting capital assets except in
the ordinary course of business consistent with past practice;
(K) make any change in the lines of business in which it
participates or is engaged; or
(L) enter into any Contract, commitment or arrangement to do
or engage in any of the foregoing.
(c) Parent shall, and shall not permit any of its Subsidiaries
to, except as otherwise expressly provided for in this Agreement, announce,
enter into or commit to enter into any transaction, which entry into, commitment
or announcement would reasonably be expected to cause a significant delay of the
date of the mailing of the Proxy Statement or of the scheduled date of either of
the Stockholders' Meetings.
(d) Advice of Changes. Each party shall confer on a regular
and frequent basis with the other with respect to its business and operations
and other matters relevant to the Merger, and shall promptly advise the other,
orally and in writing, of any change or event, including, without limitation,
any complaint, investigation or hearing by any Governmental or Regulatory
Authority (or communication indicating the same may be contemplated) or the
institution or threat of litigation, having, or which, is reasonably expected to
have a material adverse effect on the Company or Parent, as the case may be, and
its Subsidiaries taken as a whole or on the ability of the Company or Parent, as
the case may be, to consummate the transactions contemplated hereby; provided
that no party shall be required to make any disclosure to the extent such
disclosure would constitute a violation of any applicable law.
(e) Notice and Cure. Each of Parent and the Company will
notify the other of, and will use all commercially
47
reasonable efforts to cure before the Closing, any event, transaction or
circumstance, as soon as practical after it becomes known to such party, that
causes or will cause any covenant or agreement of Parent or the Company under
this Agreement to be breached or that renders or will render untrue any
representation or warranty of Parent or the Company contained in this Agreement.
Each of Parent and the Company also will notify the other in writing of, and
will use all commercially reasonable efforts to cure, before the Closing, any
violation or breach, as soon as practical after it becomes known to such party,
of any representation, warranty, covenant or agreement made by Parent or the
Company. No notice given pursuant to this paragraph shall have any effect on the
representations, warranties, covenants or agreements contained in this Agreement
for purposes of determining satisfaction of any condition contained herein.
(f) Fulfillment of Conditions. Subject to the terms and
conditions of this Agreement, each of Parent and the Company will take or cause
to be taken all commercially reasonable steps necessary or desirable and proceed
diligently and in good faith to satisfy each condition to the other's
obligations contained in this Agreement and to consummate and make effective the
transactions contemplated by this Agreement, and neither Parent nor the Company
will, nor will it permit any of its Subsidiaries to, take or fail to take any
action that could be reasonably expected to result in the nonfulfillment of any
such condition. In addition, Parent will use commercially reasonable efforts to
cause the conditions set forth in Section 7.02(g) and the Company will use
commercially reasonable efforts to cause the conditions set forth in Section
7.02(h) to be satisfied promptly after the date hereof, and in any event no
later than the date of the mailing of the Proxy Statement.
5.02 No Solicitations. Prior to the Effective Time, the
Company agrees (a) that neither it nor any of its affiliates or Subsidiaries
shall, and it shall cause its Representatives not to, initiate, solicit or
encourage (including by way of furnishing information), directly or indirectly,
any inquiries or the making or implementation of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders) with
respect to a merger, consolidation or other business combination including the
Company or any of its Significant Subsidiaries or any acquisition or similar
transaction (including, without limitation, a tender or exchange offer)
involving the purchase of (i) all or any significant portion of the assets of
the Company and its Subsidiaries taken as a whole, (ii) 15% or more of the
outstanding shares of Company Common Stock or (iii) 15% of the outstanding
shares of the capital stock of any Significant Subsidiary of the Company (any
such proposal or offer being hereinafter referred to as an "Alternative
48
Proposal"), or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person or
group relating to an Alternative Proposal (excluding the transactions
contemplated by this Agreement), or otherwise facilitate any effort or attempt
to make or implement an Alternative Proposal; (b) that it will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties with respect to any of the foregoing, and it will take the
necessary steps to inform such parties of its obligations under this Section;
and (c) that it will notify Parent immediately if any such inquiries, proposals
or offers are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, it or
any of such persons; provided, however, that nothing contained in this Section
5.02 shall prohibit the Board of Directors of the Company from (i) furnishing
information to (but only pursuant to a confidentiality agreement in customary
form and having terms and conditions substantially comparable to the
Confidentiality Agreement) or entering into discussions or negotiations with any
person or group that makes an unsolicited bona fide Alternative Proposal, if,
and only to the extent that, (A) the Board of Directors of the Company, based
upon the written opinion of outside counsel (a copy of which shall be provided
promptly to Parent), determines in good faith that such action is required for
the Board of Directors to comply with its fiduciary duties to stockholders
imposed by law, (B) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or group, the Company provides
written notice to Parent to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person or group, and (C)
the Company keeps Parent informed of the status and all material information
including the identity of such person or group with respect to any such
discussions or negotiations to the extent such disclosure would not constitute a
violation of any applicable law; and (ii) to the extent required, complying with
Rule 14e-2 promulgated under the Exchange Act with regard to an Alternative
Proposal.
5.03 Company Rights Agreement. The Board of Directors of the
Company shall take all further action (in addition to that referred to in
Section 3.19) reasonably requested in writing by Parent (including redeeming the
Company Rights immediately prior to the Effective Time or amending the Company
Rights Agreement) in order to render the Company Rights inapplicable to this
Agreement, the Merger and the other transactions contemplated hereby. Prior to
the Effective Time, without the prior written consent of Parent, the Company
will not take any action to amend the Company Rights Agreement or to redeem the
Company Rights.
49
5.04 Conduct of Business of Sub. Prior to the Effective Time,
except as may be required by applicable law and subject to the other provisions
of this Agreement, Parent shall cause Sub to (a) perform its obligations under
this Agreement in accordance with its terms, (b) not incur directly or
indirectly any liabilities or obligations other than those incurred in
connection with the Merger and the other transactions contemplated hereby, (c)
not engage directly or indirectly in any business or activities of any type or
kind and not enter into any agreements or arrangements with any person, or be
subject to or bound by any obligation or undertaking, which is not contemplated
by this Agreement and (d) not create, grant or suffer to exist any Lien upon its
properties or assets which would attach to any properties or assets of the
Surviving Corporation after the Effective Time.
5.05 Third Party Standstill Agreements. During the period from
the date of this Agreement through the Effective Time, neither the Company nor
any of its Subsidiaries shall terminate, amend, modify or waive any provision of
any confidentiality or standstill agreement to which it is a party. During such
period, the Company shall enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreement, including, but not limited
to, by obtaining injunctions to prevent any breaches of such agreements and to
enforce specifically the terms and provisions thereof in any court having
jurisdiction.
5.06 Purchases of Common Stock of the Other Party. During the
period from the date hereof through the Effective Time, neither Parent nor any
of its Subsidiaries or other affiliates will purchase any shares of Company
Common Stock, and neither the Company nor any of its Subsidiaries or other
affiliates will purchase any shares of Parent Common Stock.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 Access to Information; Confidentiality. (a) Each of the
Company and Parent shall, and shall cause each of its Subsidiaries to,
throughout the period from the date hereof to the Effective Time, (i) provide
the other party and its Representatives with full access, upon reasonable prior
notice and during normal business hours, to all officers, employees, agents and
accountants of the Company or Parent, as the case may be, and its Subsidiaries
and their respective assets, properties, books and records, but only to the
extent that such access does not unreasonably interfere with the business and
operations of the Company or Parent, as the case may be, and its Subsidiaries,
50
and (ii) furnish promptly to such persons (x) a copy of each report, statement,
schedule and other document filed or received by the Company or Parent, as the
case may be, or any of its Subsidiaries pursuant to the requirements of federal
or state securities laws and each material report, statement, schedule and other
document filed with any other Governmental or Regulatory Authority, and (y) all
other information and data (including, without limitation, copies of Contracts,
Company Employee Benefit Plans or Parent Employee Benefit Plans, as the case may
be, and other books and records) concerning the business and operations of the
Company or Parent, as the case may be, and its Subsidiaries as the other party
or any of such other persons reasonably may request. No investigation pursuant
to this paragraph or otherwise shall affect any representation or warranty
contained in this Agreement or any condition to the obligations of the parties
hereto. Any such information or material obtained pursuant to this Section 6.01
that constitutes "Evaluation Material" (as such term is defined in the letter
agreement dated as of July 9, 1996 between the Company and Parent (the
"Confidentiality Agreement")) shall be governed by the terms of the
Confidentiality Agreement.
(b) Each party will hold, and will use its best efforts to
cause its Representatives to hold, in strict confidence, unless (i) compelled to
disclose by judicial or administrative process or by other requirements of
applicable laws of Governmental or Regulatory Authorities (including, without
limitation, in connection with obtaining the necessary approvals of this
Agreement or the transactions contemplated hereby of Governmental or Regulatory
Authorities), or (ii) disclosed in an action or proceeding brought by a party
hereto in pursuit of its rights or in the exercise of its remedies hereunder,
all documents and information concerning the other party and its Subsidiaries
furnished to it by such other party or its Representatives in connection with
this Agreement or the transactions contemplated hereby, except to the extent
that such documents or information are not included in the term Evaluation
Material pursuant to the third paragraph of the Confidentiality Agreement. In
the event that this Agreement is terminated without the transactions
contemplated hereby having been consummated, upon the request of the Company or
Parent, as the case may be, the other party will, and will cause its
Representatives to, promptly redeliver or cause to be redelivered all copies of
documents and information furnished by the Company or Parent, as the case may
be, or its Representatives to such party and its Representatives in connection
with this Agreement or the transactions contemplated hereby and destroy or cause
to be destroyed all notes, memoranda, summaries, analyses, compilations and
other writings related thereto or based thereon prepared by the Company or
Parent, as the case may be, or its Representatives.
51
6.02 Preparation of Registration Statement and Proxy
Statement. The Company and Parent shall prepare and file with the SEC as soon as
reasonably practicable after the date hereof but, in any event no later than
December 31, 1996, the Proxy Statement and Parent shall prepare and file with
the SEC as soon as reasonably practicable after such date, the Registration
Statement, in which the Proxy Statement will be included as the prospectus.
Parent and the Company shall use their best efforts to have the Registration
Statement declared effective by the SEC as promptly as practicable after such
filing. Parent shall also take any action (other than qualifying as a foreign
corporation or taking any action which would subject it to service of process in
any jurisdiction where Parent is not now so qualified or subject) required to be
taken under applicable state blue sky or securities laws in connection with the
issuance of Parent Common Stock in connection with the Merger. If at any time
prior to the Effective Time any event shall occur that should be set forth in an
amendment of or a supplement to the Registration Statement, Parent shall prepare
and file with the SEC such amendment or supplement as soon thereafter as is
reasonably practicable. Parent, Sub and the Company shall cooperate with each
other in the preparation of the Registration Statement and the Proxy Statement
and any amendment or supplement thereto, and each shall notify the other of the
receipt of any comments of the SEC with respect to the Registration Statement or
the Proxy Statement and of any requests by the SEC for any amendment or
supplement thereto or for additional information, and shall provide to the other
promptly copies of all correspondence between Parent or the Company, as the case
may be, or any of its Representatives with respect to the Registration Statement
or the Proxy Statement. Parent shall give the Company and its counsel the
opportunity to review the Registration Statement and all responses to requests
for additional information by and replies to comments of the SEC before their
being filed with, or sent to, the SEC. Each of the Company, Parent and Sub
agrees to use its best efforts, after consultation with the other parties
hereto, to respond promptly to all such comments of and requests by the SEC and
to cause (x) the Registration Statement to be declared effective by the SEC at
the earliest practicable time and to be kept effective as long as is necessary
to consummate the Merger, and (y) the Proxy Statement to be mailed to the
holders of Company Common Stock and Parent Common Stock entitled to vote at the
meetings of the stockholders of the Company and Parent at the earliest
practicable time.
6.03 Approval of Stockholders. (a) The Company shall, through
its Board of Directors, duly call, give notice of, convene and hold a meeting of
its stockholders (the "Company Stockholders' Meeting" and, together with the
Parent Stockholders' Meeting, the "Stockholders' Meetings") for the purpose of
voting on the adoption of this Agreement (the "Company
52
Stockholders' Approval") as soon as reasonably practicable after the date
hereof. Subject to the exercise of fiduciary obligations under applicable law as
advised in writing by outside counsel (a copy of which will be provided promptly
to Parent), the Company shall, through its Board of Directors, include in the
Proxy Statement the recommendation of the Board of Directors of the Company that
the stockholders of the Company adopt this Agreement, and shall use its best
efforts to obtain such adoption. At such meeting, Parent shall, and shall cause
its Subsidiaries to, cause all shares of Company Common Stock then owned by
Parent or any such Subsidiary to be voted in favor of the adoption of this
Agreement.
(b) Parent shall, through its Board of Directors, duly call,
give notice of, convene and hold a meeting of its stockholders (the "Parent
Stockholders' Meeting") for the purpose of voting on the issuance of Parent
Common Stock in the Merger (the "Parent Stockholders' Approval"). Parent shall,
through its Board of Directors, include in the Proxy Statement the
recommendation of the Board of Directors of Parent that the stockholders of
Parent approve such issuances of Parent Common Stock, and shall use its best
efforts to obtain such approval. At the Parent Stockholders' Meeting, Parent may
seek such other action by its stockholders as set forth in connection with the
execution of this agreement a letter of even date herewith delivered to the
Company.
(c) Parent and the Company shall coordinate and cooperate with
respect to the timing of the Stockholders' Meetings and shall use their best
efforts to cause the Stockholders' Meetings to be held on the same day and as
soon as practicable after the date hereof.
6.04 Company Affiliates. At least thirty (30) days prior to
the Closing Date the Company shall deliver a letter to Parent identifying all
persons who, at the time of the Company Stockholders' Meeting, may, in the
Company's reasonable judgment, be deemed to be "affiliates" (as such term is
used in Rule 145 under the Securities Act) of the Company ("Company
Affiliates"). The Company shall use its best efforts to cause each Company
Affiliate to deliver to Parent on or prior to the Closing Date a written
agreement substantially in the form and to the effect of Exhibit A hereto (an
"Affiliate Agreement"). Parent shall be entitled to issue appropriate stop
transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of such Affiliate Agreements.
6.05 Stock Exchange Listing. Parent shall use its best
efforts to cause the shares of Parent Common Stock to be issued in the Merger
and under the Company Option Plans after the Merger in accordance with this
Agreement to be approved for
53
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date.
6.06 Certain Tax Matters. Each of Parent and the Company shall
not take or fail to take any action which would cause Parent, the Company or
their respective stockholders (except to the extent that any stockholder of the
Company may receive cash in lieu of fractional shares) to recognize gain or loss
for federal income tax purposes as a result of the exchange of Parent Common
Stock for Company Common Stock in the Merger.
6.07 Regulatory and Other Approvals. (a) Subject to the terms
and conditions of this Agreement and without limiting the provisions of Sections
6.02 and 6.03, each of the Company and Parent will proceed diligently and in
good faith to, as promptly as practicable, (a) obtain all consents, approvals or
actions of, make all filings with and give all notices to Governmental or
Regulatory Authorities or any other public or private third parties required of
Parent, the Company or any of their Subsidiaries to consummate the Merger and
the other matters contemplated hereby, and (b) provide such other information
and communications to such Governmental or Regulatory Authorities or other
public or private third parties as the other party or such Governmental or
Regulatory Authorities or other public or private third parties may reasonably
request in connection therewith. In addition to and not in limitation of the
foregoing, each of the parties will (x) take promptly all actions necessary to
make the filings required of Parent and the Company or their affiliates under
the HSR Act no later than fifteen business days after the date hereof, (y)
comply at the earliest practicable date with any request for additional
information received by such party or its affiliates from the Federal Trade
Commission (the "FTC") or the Antitrust Division of the Department of Justice
(the "Antitrust Division") pursuant to the HSR Act, and (z) cooperate with the
other party in connection with such party's filings under the HSR Act and in
connection with resolving any investigation or other inquiry concerning the
Merger or the other matters contemplated by this Agreement commenced by either
the FTC or the Antitrust Division or state attorneys general.
6.08 Employee Benefit Plans. (a) Parent shall cause the
Company Employee Benefit Plans (other than the Company Option Plans) in effect
at the date of this Agreement to remain in effect until the first anniversary of
the Effective Time or, to the extent such Company Employee Benefit Plans are not
continued, Parent will maintain until such date benefit plans which are no less
favorable, in the aggregate, to the employees covered by such Company Employee
Benefit Plans. In the case of Company Employee Benefit Plans which are continued
and under which the employees' interests are based on Company Common Stock, such
interests shall be based on Parent Common Stock in an equitable
54
manner; provided, however, that nothing contained herein shall be construed as
requiring the Company or the Surviving Corporation to continue any specific
plan.
(b) Notwithstanding the provisions of Section 6.08(a), Parent
will, and will cause the Surviving Corporation to, honor without modification
the PHH Corporation Corporate Incentive Plan FY 1997 which terminates on April
30, 1997 provided that the payments pursuant to such plan are (i) consistent
with past practice, (ii) properly accrued for under generally accepted
accounting principles and (iii) in the aggregate, less than $10,000,000, and all
employee severance plans (or policies) and employment and severance agreements
of the Company or any of its Subsidiaries in existence on the date hereof as
such agreements shall be in effect in accordance with the terms of this
Agreement at the Effective Time, as such plans and agreements are specified in
Section 6.08 of the Company Disclosure Letter.
6.09 Company Option Plans. At the Effective Time, each holder
of an outstanding option to purchase shares of Company Common Stock (a "Company
Stock Option") under the Company Option Plans, whether vested or unvested, shall
be entitled to receive in exchange for all of such holder's Company Stock
Options a number of shares of Parent Common Stock equal to the quotient obtained
by dividing (a) the excess, if any, of (i) the product of (A) the Average Price
as of the Company Stockholders' Meeting, (B) the Conversion Number and (C) the
number of shares of Company Common Stock subject to such Company Stock Options,
over (ii) the aggregate exercise price of such Company Stock Options less any
applicable withholding taxes required by any Governmental or Regulatory
Authority in connection with payment of the foregoing amount by (b) the Average
Price as of the Company Stockholders' Meeting. The provisions of Section 2.02
shall apply mutatis mutandis with respect to the foregoing. The Company shall
obtain prior to the Closing Date all consents, if any, required from each holder
of Company Stock Options to permit the exchange contemplated by this Section
6.09.
6.10 Directors' and Officers' Indemnification and Insurance.
(a) The Company, and from and after the Effective Time Parent and the Surviving
Corporation (each, an "Indemnifying Party"), shall indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, a director or officer of the
Company or any of its Subsidiaries (the "Indemnified Parties") against (i) all
losses, claims, damages, costs and expenses (including reasonable attorneys'
fees), liabilities, judgments and settlement amounts that are paid or incurred
in connection with any claim, action, suit, proceeding or investigation (whether
civil, criminal, administrative or investigative and whether asserted or claimed
prior to, at or
55
after the Effective Time) that is based in whole or in part on, or arises in
whole or in part out of, the fact that such Indemnified Party is or was a
director or officer of the Company or any of its Subsidiaries and relates to or
arises out of any action or omission occurring at or prior to the Effective Time
("Indemnified Liabilities"), and (ii) all Indemnified Liabilities based in whole
or in part on, or arising in whole or in part out of, or pertaining to this
Agreement or the transactions contemplated hereby, in each case to the full
extent a corporation is permitted under applicable law to indemnify its own
directors or officers, as the case may be; provided that no Indemnifying Party
shall be liable for any settlement of any claim effected without its written
consent, which consent shall not be unreasonably withheld; and provided,
further, that no Indemnifying Party shall be liable for any Indemnified
Liabilities which occur as a result of the gross negligence or willful
misconduct of the Indemnified Party. Without limiting the foregoing, in the
event that any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Party (whether arising prior to or after the Effective
Time), (w) the Indemnifying Parties will pay expenses in advance of the final
disposition of any such claim, action suit, proceeding or investigation to each
Indemnified Party to the full extent permitted by applicable law; provided that
the person to whom expenses are advanced provides any undertaking required by
applicable law to repay such advance if it is ultimately determined that such
person is not entitled to indemnification; (x) the Indemnified Parties shall
retain counsel reasonably satisfactory to the Indemnifying Parties; (y) the
Indemnifying Parties shall pay all reasonable fees and expenses of such counsel
for the Indemnified Parties (subject to the final sentence of this paragraph)
promptly as statements therefor are received; and (z) the Indemnifying Parties
shall use all commercially reasonable efforts to assist in the defense of any
such matter. Any Indemnified Party wishing to claim indemnification under this
Section, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Indemnifying Parties, but the failure so to
notify an Indemnifying Party shall not relieve it from any liability which it
may have under this paragraph except to the extent such failure materially
prejudices such Indemnifying Party. The Indemnified Parties as a group may
retain only one law firm to represent them with respect to each such matter
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties.
(b) Except to the extent required by law, Parent will keep in
effect and guarantee performance of the provisions for indemnification of
directors or officers contained in the certificates or articles of incorporation
or bylaws (or other
56
comparable charter documents) of the Surviving Corporation and its Subsidiaries
(which as of the Effective Time shall be those maintained by the Company and its
Subsidiaries on the date hereof) in such a manner as would not adversely affect
the rights of any individual who shall have served as a director or officer of
the Company or any of its Subsidiaries prior to the Effective Time to be
indemnified by such corporations in respect of their serving in such capacities
prior to the Effective Time.
(c) Parent and the Surviving Corporation shall, until the
sixth anniversary of the Effective Time, cause to be maintained in effect, to
the extent available, the policies of directors' and officers' liability
insurance maintained by the Company and its Subsidiaries as of the date hereof
(or policies of at least the same coverage and amounts containing terms that are
no less advantageous to the insured parties) with respect to claims arising from
facts or events that occurred on or prior to the Effective Time; provided that
in no event shall Parent or the Surviving Corporation be obligated to expend in
order to maintain or procure insurance coverage pursuant to this paragraph any
amount per annum in excess of two hundred percent (200%) of the aggregate
premiums payable by the Company and its Subsidiaries in 1996 (on an annualized
basis) for such purpose.
(d) The provisions of this Section are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and each party
entitled to insurance coverage under paragraph (c) above, respectively, and his
or her heirs and legal representatives, and shall be in addition to any other
rights an Indemnified Party may have under the certificate or articles of
incorporation or bylaws of the Surviving Corporation or any of its Subsidiaries,
under the MGCL or otherwise.
6.11 Appointment of Director. Parent shall use its best
efforts to cause the Board of Directors of Parent to invite Xx. Xxxxxx X.
Xxxxxxx to become a member of the Board of Directors of Parent following the
Closing, subject to an increase in the size of the Board of Directors of Parent.
6.12 Expenses. Except as set forth in Section 8.02, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such cost or expense.
6.13 Brokers or Finders. Each of Parent and the Company
represents, as to itself and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement except Goldman,
57
Sachs & Co. and the Beacon Group, whose fees and expenses will be paid by the
Company in accordance with the Company's agreements with such firms which have
previously been provided to Parent, and Xxxxxx Brothers Inc., whose fees and
expenses will be paid by Parent in accordance with Parent's agreement with such
firm, and each of Parent and the Company shall indemnify and hold the other
harmless from and against any and all claims, liabilities or obligations with
respect to any other such fee or commission or expenses related thereto asserted
by any person on the basis of any act or statement alleged to have been made by
such party or its affiliate.
6.14 Takeover Statutes. If any "fair price", "moratorium",
"control share acquisition" or other form of antitakeover statute or regulation
shall become applicable to the transactions contemplated hereby, the Company and
the members of the Board of Directors of the Company shall grant such approvals
and take such actions as are reasonably necessary so that the transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and thereby and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated hereby
and thereby.
6.15 Conveyance Taxes. The Company and Parent shall cooperate
in the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated by this Agreement that
are required or permitted to be filed on or before the Effective Time. The
Company shall pay, without deduction or withholding from any amount payable to
the holders of Company Common Stock, any such taxes or fees imposed by any
Governmental or Regulatory Authority (and any penalties and interest with
respect to such taxes and fees), which become payable in connection with the
transactions contemplated by this Agreement, on behalf of the stockholders of
the Company.
6.16 Pooling of Interests. (a) From and after the date hereof
and until the Effective Time, neither Parent nor the Company nor any of their
respective Subsidiaries or other affiliates shall take any action, or fail to
take any action, that would disqualify the treatment of the business combination
to be effected by the Merger as a "pooling of interests" for accounting
purposes. Following the Effective Time, Parent shall use all commercially
reasonable efforts to conduct the business of the Surviving Corporation, and
shall cause the Surviving Corporation to use all commercially reasonable efforts
to conduct its business, in a manner that would not jeopardize the
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characterization of the Merger as a "pooling of interests" for accounting
purposes.
(b) Promptly following the Effective Time, and in any event
within thirty (30) business days following the end of the first calendar month
beginning thereafter, Parent will publish results covering at least thirty (30)
days of post-merger combined operations of the Company and Parent, in the form
of a quarterly earnings report, an effective registration statement filed with
the Commission, a report to the Commission on Form 10- K, 10-Q, or 8-K, or any
other public filing or announcement which includes the combined results of
operations including sales and net income.
ARTICLE VII
CONDITIONS
7.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been
adopted by the requisite vote of the stockholders of the Company under the MGCL.
The stockholders of Parent shall have approved the issuance of Parent Common
Stock in the Merger by the requisite vote under applicable law and under the
applicable regulations of the NYSE, as the case may be.
(b) Registration Statement; State Securities Laws. The
Registration Statement shall have become effective in accordance with the
provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect and no proceeding
seeking such an order shall be pending or threatened. Parent shall have received
all state securities or "Blue Sky" permits and other authorizations necessary to
issue the Parent Common Stock pursuant to this Agreement and under the Company
Option Plans after the Merger.
(c) Exchange Listing. The shares of Parent Common Stock
issuable to the Company's stockholders in the Merger and under the Company
Option Plans after the Merger in accordance with this Agreement shall have been
authorized for listing on the NYSE, upon official notice of issuance.
(d) HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
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(e) No Injunctions or Restraints. No court of competent
jurisdiction or other competent Governmental or Regulatory Authority shall have
enacted, issued, promulgated, enforced or entered any law or order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making illegal or otherwise restricting, preventing or prohibiting
consummation of the Merger or the other transactions contemplated by this
Agreement.
(f) Governmental and Regulatory and Other Consents and
Approvals. Other than the filing provided for by Section 1.03, all consents,
approvals and actions of, filings with and notices to any Governmental or
Regulatory Authority or any other public or private third parties required of
Parent, the Company or any of their Subsidiaries to consummate the Merger and
the other matters contemplated hereby, the failure of which to be obtained or
taken (i) is reasonably expected to have a material adverse effect on Parent and
its Subsidiaries or the Surviving Corporation and its Subsidiaries, in each case
taken as a whole, or (ii) will result in a violation of any criminal laws, shall
have been obtained, all in form and substance reasonably satisfactory to Parent
and the Company.
(g) Pooling Letters. Parent and the Company shall have
received letters from Deloitte & Touche LLP and KPMG Peat Marwick, each dated
the date of the Proxy Statement and confirmed in writing at the Effective Time
and addressed to Parent and the Company, respectively, stating that the Merger
will qualify as a pooling of interests transaction under Opinion 16 of the
Accounting Principles Board.
7.02 Conditions to Obligation of Parent and Sub to Effect the
Merger. The obligation of Parent and Sub to effect the Merger is further subject
to the fulfillment, at or prior to the Closing, of each of the following
additional conditions (all or any of which may be waived in whole or in part by
Parent and Sub in their sole discretion):
(a) Representations and Warranties. The representations and
warranties made by the Company in this Agreement shall be true and correct as of
the Closing Date as though made on and as of the Closing Date or, in the case of
representations and warranties made as of a specified date earlier than the
Closing Date, on and as of such earlier date, except as affected by the
transactions contemplated by this Agreement and except for such failures of
representations or warranties to be true and correct (without regard to any
materiality qualifiers contained therein) which, individually or in the
aggregate, are not having and are not reasonably expected to have a material
adverse effect on the Company and its Subsidiaries taken as a whole, and the
Company shall have
60
delivered to Parent a certificate, dated the Closing Date and executed in the
name and on behalf of the Company by its Chairman of the Board, President or any
Executive or Senior Vice President, to such effect.
(b) Performance of Obligations. The Company shall have
performed and complied with, in all material respects, each agreement, covenant
and obligation required by this Agreement to be so performed or complied with by
the Company at or prior to the Closing, and the Company shall have delivered to
Parent a certificate, dated the Closing Date and executed in the name and on
behalf of the Company by its Chairman of the Board, President or any Executive
or Senior Vice President, to such effect.
(c) Company Rights Agreement. On or prior to the Closing Date,
the Company Rights shall not have become exercisable or transferable apart from
the associated shares of Company Common Stock, no "Share Acquisition Date" or
"Distribution Date" (as defined in the Company Rights Agreement) shall have
occurred and the Company Rights shall not have become nonredeemable, in each
case other than as a result of actions by Parent or any of its affiliates.
(d) Tax Opinion. Parent and Sub shall have received the
opinion, based on appropriate representations of the Company and Parent, of
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP, special counsel to Parent, dated on or
about the date on which the Registration Statement (or the last amendment
thereto) shall have become effective, which opinion shall have been confirmed in
writing on and as of the Closing Date, to the effect that:
(i) The Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Code, and the Company, Sub
and Parent will each be a party to such reorganization within the
meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Parent or
the Company as a result of the Merger;
(iii) No gain or loss will be recognized by the
stockholders of the Company upon the exchange of their shares of
Company Common Stock solely for shares of Parent Common Stock pursuant
to the Merger, except with respect to cash, if any, received in lieu of
fractional shares of Parent Common Stock;
(iv) The aggregate tax basis of the shares of Parent
Common Stock received solely in exchange for shares of Company Common
Stock pursuant to the Merger (including fractional shares of Parent
Common Stock for which cash is
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received) will be the same as the aggregate tax basis of the shares of
Company Common Stock exchanged therefor;
(v) The holding period for shares of Parent Common
Stock received in exchange for shares of Company Common Stock pursuant
to the Merger will include the holding period of the shares of Company
Common Stock exchanged therefor, provided such shares of Company Common
Stock were held as capital assets by the stockholder at the Effective
Time; and
(vi) A stockholder of the Company who receives cash in
lieu of a fractional share of Parent Common Stock will recognize gain
or loss equal to the difference, if any, between such stockholder's tax
basis in such fractional share (as described in clause (iv) above) and
the amount of cash received.
In rendering such opinion, Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP may receive
and rely upon covenants, agreements, representations and warranties contained in
a certificate of the Company (the "Company Tax Certificate"), a certificate of
Parent (the "Parent Tax Certificate"), and other appropriate certificates of
Parent, the Company and others.
(e) Proceedings. All proceedings to be taken on the part of
the Company in connection with the transactions contemplated by this Agreement
and all documents incident thereto shall be reasonably satisfactory in form and
substance to Parent, and Parent shall have received copies of all such documents
and other evidences as Parent may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
(f) Average Price. The Average Price with respect to the
Closing Date shall be no less than $50.00 (the "Minimum Average Price"), subject
to adjustment in accordance with Section 2.01(c)(ii).
(g) Bank Consent. Parent shall have received the required
consents from the required banks pursuant to (i) Parent's 364-Day Competitive
Advance and Revolving Credit Agreement, dated as of October 2, 1996, between
Parent, the Lenders (as defined therein) and The Chase Manhattan Bank, as
administrative agent, (ii) Parent's Five Year Competitive Advance and Revolving
Credit Agreement, dated as of October 2, 1996, between Parent, the Lenders (as
defined therein) and The Chase Manhattan Bank, as administrative agent, (iii)
Parent's guaranty of the Credit Agreement, dated as of August 28, 1996, by and
among Chartwell Leisure Inc., Chartwell Canada Corp., the Banks (as defined
therein), The Bank of Nova Scotia, as syndication agent, and The Chase Manhattan
Bank, as Administrative Agent and
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(iv) a Guaranty of a Credit Agreement, by and among Xxxxxxx Financial LLC, the
Lenders (as defined therein) and the Chase Manhattan Bank, as Administrative
Agent.
(h) Master Credit Agreements. The Company shall have received
the required consents under, or appropriately refinanced or replaced, the credit
agreements listed in paragraph 3 of Section 3.04 of the Company Disclosure
Letter.
7.03 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger is further subject to
the fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by the Company
in its sole discretion):
(a) Representations and Warranties. The representations and
warranties made by Parent and Sub in this Agreement shall be true and correct as
of the Closing Date as though made on and as of the Closing Date or, in the case
of representations and warranties made as of a specified date earlier than the
Closing Date, on and as of such earlier date, except as affected by the
transactions contemplated by this Agreement and except for such failures of
representations or warranties to be true and correct (without regard to any
materiality qualifiers contained therein) which, individually or in the
aggregate, are not having and are not reasonably expected to have a material
adverse effect on Parent and its Subsidiaries taken as a whole, and Parent and
Sub shall each have delivered to the Company a certificate, dated the Closing
Date and executed in the name and on behalf of Parent by its Chairman of the
Board, President or any Executive Vice President and in the name and on behalf
of Sub by its Chairman of the Board, President or any Vice President, to such
effect.
(b) Performance of Obligations. Parent and Sub shall have
performed and complied with, in all material respects, each agreement, covenant
and obligation required by this Agreement to be so performed or complied with by
Parent or Sub at or prior to the Closing, and Parent and Sub shall each have
delivered to the Company a certificate, dated the Closing Date and executed in
the name and on behalf of Parent by its Chairman of the Board, President or any
Executive Vice President and in the name and on behalf of Sub by its Chairman of
the Board, President or any Vice President, to such effect.
(c) Tax Opinion. The Company shall have received the opinion,
based on appropriate representations of the Company and Parent, of Piper &
Marbury L.L.P., special counsel to the Company, dated on or about the date on
which the Registration Statement (or the last amendment thereto) shall have
become
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effective, which opinion shall have been confirmed in writing on and as of the
Closing Date to the effect that:
(i) The Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Code, and the Company, Sub
and Parent will each be a party to such reorganization within the
meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Parent or
the Company as a result of the Merger;
(iii) No gain or loss will be recognized by the
stockholders of the Company upon the exchange of their shares of
Company Common Stock solely for shares of Parent Common Stock pursuant
to the Merger, except with respect to cash, if any, received in lieu of
fractional shares of Parent Common Stock;
(iv) The aggregate tax basis of the shares of Parent
Common Stock received solely in exchange for shares of Company Common
Stock pursuant to the Merger (including fractional shares of Parent
Common Stock for which cash is received) will be the same as the
aggregate tax basis of the shares of Company Common Stock exchanged
therefor;
(v) The holding period for shares of Parent Common
Stock received in exchange for shares of Company Common Stock pursuant
to the Merger will include the holding period of the shares of Company
Common Stock exchanged therefor, provided such shares of Company Common
Stock were held as capital assets by the stockholder at the Effective
Time; and
(vi) A stockholder of the Company who receives cash in
lieu of a fractional share of Parent Common Stock will recognize gain
or loss equal to the difference, if any, between such stockholder's tax
basis in such fractional share (as described in clause (iv) above) and
the amount of cash received.
In rendering such opinion, Piper & Marbury L.L.P. may receive and rely upon
covenants, agreements, representations and warranties contained in the Company
Tax Certificate, the Parent Tax Certificate, and other appropriate certificates
of Parent, the Company and others.
(d) Proceedings. All proceedings to be taken on the part of
Parent and Sub in connection with the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Company, and the Company shall have received copies of
all such
64
documents and other evidences as the Company may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
(e) Average Price. The Average Price with respect to the
Closing Date shall be no less than the Minimum Average Price, subject to
adjustment in accordance with Section 2.01(c)(ii).
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time, whether prior to or after the Company Stockholders' Approval:
(a) By mutual written agreement of the parties hereto duly
authorized by action taken by or on behalf of their respective Boards of
Directors;
(b) By either the Company or Parent upon notification to the
non-terminating party by the terminating party:
(i) at any time after June 16, 1997 if the Merger shall
not have been consummated on or prior to such date and such failure to
consummate the Merger is not caused by a breach of this Agreement by
the terminating party;
(ii) if (A) the Company Stockholders' Approval (under the
MGCL) or (B) Parent Stockholders' Approval (under applicable law and
under the applicable regulations of the NYSE), as the case may be,
shall not be obtained by reason of the failure to obtain the requisite
vote upon a vote held at a meeting of such stockholders, or any
adjournment thereof, called therefor;
(iii) if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the
non-terminating party set forth in this Agreement, which breach is not
curable or, if curable, has not been cured within thirty (30) days
following receipt by the non-terminating party of notice of such breach
from the terminating party; or
(iv) if any court of competent jurisdiction or other
competent Governmental or Regulatory Authority shall have issued an
order making illegal or otherwise restricting,
65
preventing or prohibiting the Merger and such order shall have become
final and nonappealable;
(c) By the Company if (i) the Board of Directors of the
Company determines in good faith, based upon the written opinion of outside
counsel (a copy of which shall be provided promptly to Parent), that termination
of the Agreement is required for the Board of Directors to comply with its
fiduciary duties to stockholders imposed by law by reason of an unsolicited bona
fide Alternative Proposal having been made; provided that the Company shall have
complied with the provisions of clauses (B) and (C) of Section 5.02 and shall
notify Parent at least 48 hours in advance of its intention to terminate this
Agreement or enter into a definitive agreement with respect to such Alternative
Proposal; (ii) if at any time after the Company Stockholders' Meeting, the
Average Price with respect to any date thereafter shall be less than the Minimum
Average Price, subject to adjustment in accordance with Section 2.01(c)(ii); or
(iii) the Board of Directors of Parent shall have withdrawn or modified in a
manner materially adverse to the Company its approval or recommendation of this
Agreement or the Merger;
(d) By Parent if the Board of Directors of the Company (or any
committee thereof) shall have withdrawn or modified in a manner materially
adverse to Parent its approval or recommendation of this Agreement or the Merger
or shall have recommended an Alternative Proposal to the stockholders of the
Company; or
(e) By Parent if at any time after the Company Stockholders'
Meeting, the Average Price with respect to any date thereafter shall be less
than the Minimum Average Price, subject to adjustment in accordance with Section
2.01(c)(ii).
8.02 Effect of Termination. (a) If this Agreement is validly
terminated by either the Company or Parent pursuant to Section 8.01, this
Agreement will forthwith become null and void and there will be no liability or
obligation on the part of either the Company or Parent (or any of their
respective Representatives or affiliates), except (i) that the provisions of
Sections 6.01(b), 6.12 and 6.13 and this Section 8.02 will continue to apply
following any such termination, (ii) that nothing contained herein shall relieve
any party hereto from liability for wilful breach of its representations,
warranties, covenants or agreements contained in this Agreement and (iii) as
provided in paragraph (b) below. The effectiveness of any termination under this
Agreement shall be subject to the payments required to be made pursuant to
paragraph (b) below being so made.
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(b)(i) If this Agreement is terminated by (x) the Company
pursuant to Section 8.01(c)(i) or (y) by Parent pursuant to Section 8.01(d),
then the Company shall pay or cause to be paid to Parent, by wire transfer of
same day funds on the day of such termination, a termination fee of $50,000,000.
(ii) In the event that (x) this Agreement is terminated by
either party pursuant to Section 8.01(b)(ii)(A) and (y) prior to such
termination any person or group shall have made an Alternative Proposal, then
the Company shall pay or cause to be paid to Parent, by wire transfer of same
day funds upon receipt of appropriate documentation therefor, Parent's
documented out-of-pocket expenses relating to this Agreement and the
transactions contemplated hereby; provided, however, that such expenses shall
not exceed $2,500,000. In the event that within one year after the date of such
termination the Company enters into an agreement with the person or group that
made such Alternative Proposal, then the Company will pay to Parent, by wire
transfer of same day funds on the closing date of such transaction, a
termination fee of $50,000,000 (less any amounts paid pursuant to the foregoing
sentence).
(iii) In the event that this Agreement is terminated by
either party pursuant to Section 8.01(b)(ii)(B), then Parent shall pay or cause
to be paid to the Company, by wire transfer of same day funds upon receipt of
appropriate documentation therefor, the Company's documented out-of-pocket
expenses relating to this Agreement and the transactions contemplated hereby;
provided, however, that such expenses shall not exceed $2,500,000.
(c) The parties acknowledges that the agreements contained in
this Section 8.02 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the parties hereto would not
enter into this Agreement; accordingly, if either party fails promptly to pay
the amount due pursuant to this Section 8.02, and in order to obtain such
payment, either party commences a suit which results in a judgment against the
non-paying party for the fee set forth in this Section 8.02, the non-paying
party shall pay to the other party as the case may be, its cost and expenses
(including reasonable attorney's fees and expenses) in connection with such
suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made.
8.03 Amendment. This Agreement may be amended, supplemented or
modified by action taken by or on behalf of the respective Boards of Directors
of the parties hereto at any time prior to the Effective Time, whether prior to
or after the Company Stockholders' Approval shall have been obtained, but
67
after such adoption and approval only to the extent permitted by applicable law.
No such amendment, supplement or modification shall be effective unless set
forth in a written instrument duly executed by or on behalf of each party
hereto.
8.04 Waiver. At any time prior to the Effective Time any party
hereto, by action taken by or on behalf of its Board of Directors, may to the
extent permitted by applicable law (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties of the other parties hereto
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any of the covenants, agreements or conditions of the other
parties hereto contained herein. No such extension or waiver shall be effective
unless set forth in a written instrument duly executed by or on behalf of the
party extending the time of performance or waiving any such inaccuracy or
non-compliance. No waiver by any party of any term or condition of this
Agreement, in any one or more instances, shall be deemed to be or construed as a
waiver of the same or any other term or condition of this Agreement on any
future occasion.
ARTICLE IX
GENERAL PROVISIONS
9.01 Non-Survival of Representations, Warranties, Covenants
and Agreements. The representations, warranties, covenants and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall not survive the Merger but shall terminate at the Effective
Time, except for the agreements contained in Article I and Article II, in
Sections 6.01(b), 6.06, 6.08, 6.09, 6.10, 6.11, 6.12, 6.13, 6.14 and 6.15 and
6.16, this Article IX, the covenants, agreements, representations and warranties
contained in the Company Tax Certificate and Parent Tax Certificate and the
agreements of the "affiliates" of the Company delivered pursuant to Section
6.04, which shall survive the Effective Time.
9.02 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
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If to Parent or Sub, to:
HFS INCORPORATED
0 Xxxxxx Xxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Facsimile No.: 000-000-0000
Attn: General Counsel
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: 000-000-0000
Attn: Xxxxx Xxx, Esq.
If to the Company, to:
PHH CORPORATION
00000 XxXxxxxxx Xxxx
Xxxx Xxxxxx, Xxxxxxxx 00000
Facsimile No.: 000-000-0000
Attn: General Counsel
with a copy to:
Piper & Marbury L.L.P.
Xxxxxxx Center South
00 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000-0000
Facsimile No.: 000-000-0000
Attn: Xxxxx X. Xxxxxxxxx, Esq.
and
Milbank, Tweed, Xxxxxx & XxXxxx
0 Xxxxx Xxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: 000-000-0000
Attn: Xxxxxxxx Xxxxxxxx, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section).
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Any party from time to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving notice specifying
such change to the other parties hereto.
9.03 Entire Agreement; Incorporation of Exhibits. (a) This
Agreement supersedes all prior discussions and agreements among the parties
hereto with respect to the subject matter hereof, other than the Confidentiality
Agreement, which shall survive the execution and delivery of this Agreement in
accordance with its terms, and contains, together with the Confidentiality
Agreement, the sole and entire agreement among the parties hereto with respect
to the subject matter hereof.
(b) The Company Disclosure Letter, the Parent Disclosure
Letter and any Exhibit attached to this Agreement and referred to herein are
hereby incorporated herein and made a part hereof for all purposes as if fully
set forth herein.
9.04 Public Announcements. Except as otherwise required by law
or the rules of any applicable securities exchange or national market system, so
long as this Agreement is in effect, Parent and the Company will not, and will
not permit any of their respective Representatives to, issue or cause the
publication of any press release or make any other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld. Parent and
the Company will cooperate with each other in the development and distribution
of all press releases and other public announcements with respect to this
Agreement and the transactions contemplated hereby, and will furnish the other
with drafts of any such releases and announcements as far in advance as
practicable.
9.05 No Third Party Beneficiary. The terms and provisions of
this Agreement are intended solely for the benefit of each party hereto and
their respective successors or permitted assigns, and except as provided in
Sections 6.08 and 6.10 (which are intended to be for the benefit of the persons
entitled to therein, and may be enforced by any of such persons) or as otherwise
expressly provided for herein, it is not the intention of the parties to confer
third-party beneficiary rights upon any other person.
9.06 No Assignment; Binding Effect. Neither this Agreement nor
any right, interest or obligation hereunder may 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, except that Sub may assign any or all of its rights,
interests and obligations hereunder to another direct or indirect wholly-owned
Subsidiary of Parent, provided that any such Subsidiary
70
agrees in writing to be bound by all of the terms, conditions and provisions
contained herein. Subject to the preceding sentence, this Agreement is binding
upon, inures to the benefit of and is enforceable by the parties hereto and
their respective successors and assigns.
9.07 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define, modify or limit
the provisions hereof.
9.08 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future law or
order, and if the rights or obligations of any party hereto under this Agreement
will not be materially and adversely affected thereby, (i) such provision will
be fully severable, (ii) this Agreement will be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
hereof, and (iii) 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.
9.09 Governing Law. Except to the extent that the MGCL is
mandatorily applicable to the Merger and the rights of the stockholders of the
Constituent Corporations, this Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
9.10 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specified terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
9.11 Certain Definitions. As used in this Agreement:
(a) except as provided in Section 6.04, the term "affiliate,"
as applied to any person, shall mean any other person directly or indirectly
controlling, controlled by, or under common control with, that person; for
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control with"), as
applied to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of
71
the management and policies of that person, whether through the ownership of
voting securities, by contract or otherwise;
(b) a person will be deemed to "beneficially" own securities
if such person would be the beneficial owner of such securities under Rule 13d-3
under the Exchange Act, including securities which such person has the right to
acquire (whether such right is exercisable immediately or only after the passage
of time);
(c) the term "business day" means a day other than Saturday,
Sunday or any day on which banks located in the States of Maryland and New York
are authorized or obligated to close;
(d) the term "knowledge" or any similar formulation of
"knowledge" shall mean, with respect to the Company, the knowledge of the
Company's senior executive officers, and with respect to Parent, the knowledge
of Parent's senior executive officers;
(e) any reference to any event, change or effect being
"material" or "materially adverse" or having a "material adverse effect" on or
with respect to an entity (or group of entities taken as a whole) means (i) such
event, change or effect is material or materially adverse, as the case may be,
to (A) the business, properties, assets, liabilities, financial condition or
results of operations of such entity (or of such group of entities) taken as a
whole, (B) the validity or enforceability of this Agreement, or (C) the ability
of the Company, Parent or any of their Subsidiaries to consummate the
transactions contemplated by this Agreement and (ii) any breach (other than an
insignificant breach) of the representation contained in the second sentence of
Section 3.02, or Section 4.02, as applicable;
(f) the term "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act);
(g) the "Representatives" of any entity means such entity's
directors, officers, employees, legal, investment banking and financial
advisors, accountants and any other agents and representatives;
(h) the term "Significant Subsidiaries" means, with respect to
any party, the Subsidiaries of such party which constitute "significant
subsidiaries" under Rule 405 promulgated by the SEC under the Securities Act;
(i) the term "Subsidiary" means, with respect to any party,
any corporation or other organization, whether
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incorporated or unincorporated, of which more than fifty percent (50%) of either
the equity interests in, or the voting control of, such corporation or other
organization is, directly or indirectly through Subsidiaries or otherwise,
beneficially owned by such party;
(j) the term "Recent Company SEC Reports" means the Company
SEC Reports set forth in Section 9.11(j) of the Company Disclosure Letter; and
(k) the term "Recent Parent SEC Reports" means the Parent SEC
Reports set forth in Section 9.11(k) of the Parent Disclosure Letter.
9.12 Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
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IN WITNESS WHEREOF, each party hereto has caused this
Agreement to be signed by its officer thereunto duly authorized as of the date
first above written.
Attest: HFS INCORPORATED
/s/ Xxxxx X. Xxxxxxx /s/ Xxxxx Xxxxxxxxx
_____________________ By:_______________________________
Secretary Name: Xxxxx Xxxxxxxxx
Title: Chairman and
Chief Executive Officer
Attest: MERCURY ACQ. CORP.
/s/ Xxxxxxxxxxx X. Xxxx /s/ Xxxxx X. Xxxxxxx
_____________________ By:_______________________________
Assistant Secretary Name: Xxxxx X. Xxxxxxx
Title: Vice President and Secretary
Attest: PHH CORPORATION
/s/ Xxxxxx X. Xxxxxx /s/ Xxxxxx X. Xxxxxxx
_____________________ By:_______________________________
Secretary Name: Xxxxxx X. Xxxxxxx
Title: Chairman and
Chief Executive Officer
74
EXHIBIT A
[Form of Affiliate's Agreement]
[Date]
[Name and address
of Parent]
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed
to be an "affiliate" of _________________________, a Maryland corporation (the
"Company"), as that term is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). Neither my entering into this agreement, nor
anything contained herein, shall be deemed an admission on my part that I am
such an "affiliate".
Pursuant to the terms of the Agreement and Plan of Merger
dated as of ___________, 1996 (the "Merger Agreement"), among HFS Incorporated,
a Delaware corporation ("Parent"), Mercury Acq. Corp., a Maryland corporation
("Sub"), and the Company providing for the merger of Sub with and into the
Company (the "Merger"), and as a result of the Merger, I may receive shares of
Parent's common stock, par value $____ per share (the "Parent Securities"), in
exchange for the shares of common stock, without par value, of the Company owned
by me at the Effective Time (as defined in the Merger Agreement) of the Merger.
I represent and warrant to Parent that in such event:
A. I shall not make any sale, transfer or other disposition of
the Parent Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Merger Agreement
and discussed its requirements and other applicable limitations upon my ability
to sell, transfer or otherwise dispose of Parent Securities, to the extent I
felt necessary, with my counsel or counsel for the Company.
C. I have been advised that the issuance of Parent Securities
to me pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form S-4. However, I have also been advised
that, since at the
2
time the Merger was submitted for a vote of the stockholders of the Company I
may have been deemed to have been an affiliate of the Company and a distribution
by me of Parent Securities has not been registered under the Act, the Parent
Securities must be held by me indefinitely unless (i) a distribution of Parent
Securities by me has been registered under the Act, (ii) a sale of Parent
Securities by me is made in conformity with the volume and other limitations of
Rule 145 promulgated by the Commission under the Act or (iii) in the opinion of
counsel reasonably acceptable to Parent, some other exemption from registration
is available with respect to a proposed sale, transfer or other disposition of
the Parent Securities by me.
D. I understand that Parent is under no obligation to register
the sale, transfer or other disposition of Parent Securities by me or on my
behalf or to take any other action necessary in order to make compliance with an
exemption from registration available.
E. I also understand that stop transfer instructions will be
given to Parent's transfer agents with respect to the Parent Securities.
F. I also understand that unless the transfer by me of my
Parent Securities has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, Parent reserves the right to put the
following legend on the certificates issued to my transferee:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and were
acquired from a person who received such shares in a transaction to
which Rule 145 promulgated under such Act applies. The shares have been
acquired by the holder not with a view to, or for resale in connection
with, any distribution thereof within the meaning of such Act and may
not be sold, pledged or otherwise transferred except in accordance with
an exemption from the registration requirements of such Act."
I further represent to and covenant with Parent and the
Company that I have not, within the thirty (30) days prior to the Effective Time
(as defined in the Merger Agreement), sold, transferred or otherwise disposed of
any shares of the capital stock of Parent or the Company held by me and that I
will not sell, transfer or otherwise dispose of any shares of Parent Securities
received by me in the Merger or other shares of the capital stock of Parent
until after such time as results covering
3
at least thirty (30) days of combined operations of the Company and Parent have
been published by Parent, in the form of a quarterly earnings report, an
effective registration statement filed with the Commission, a report to the
Commission on Form 10- K, 10-Q, or 8-K, or any other public filing or
announcement which includes the combined results of operations. Parent agrees to
publish such results within the period set forth in Section 6.16(b) of the
Merger Agreement.
By its acceptance hereof, Parent agrees, for a period of two
years after the Effective Time, that it will file on a timely basis all reports
required to be filed by it pursuant to Section 13 of the Securities Exchange Act
of 1934, as amended, so that the public information provisions of Rule 144(c)
under the Act are satisfied and the resale provisions of Rules 145(d)(1) and (2)
under the Act are therefore available to me in the event I desire to transfer
any Parent Securities issued to me in the Merger.
Very truly yours,
-------------------------------
Name:
Accepted this ____ day of
__________, ____, by:
HFS INCORPORATED
By____________________________
Name:
Title:
