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EXHIBIT 10.5
AGREEMENT AND PLAN OF REORGANIZATION
between
XXXXXXX X. XXXXX,
CORPORATE CAPITAL LEASING GROUP, INC.,
FIRST SIERRA FINANCIAL, INC.
and
FIRST SIERRA PENNSYLVANIA, INC.
October 15, 1996
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TABLE OF CONTENTS
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase Transaction . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Basic Transaction . . . . . . . . . . . . . . . . . . . . . . 6
(b) Merger Consideration . . . . . . . . . . . . . . . . . . . . . 6
(c) Terms of the Preferred Stock. . . . . . . . . . . . . . . . . 6
(d) Tax Effect of Transaction. . . . . . . . . . . . . . . . . . . 13
(e) Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(f) The Closing . . . . . . . . . . . . . . . . . . . . . . . . . 14
(g) Deliveries at the Closing . . . . . . . . . . . . . . . . . . 14
3. Representations and Warranties of Shareholder. . . . . . . . . . . . 14
(a) Organization, Qualification, and Corporate Power. . . . . . . 14
(b) Capitalization. . . . . . . . . . . . . . . . . . . . . . . . 15
(c) Authorization of Transaction . . . . . . . . . . . . . . . . . 15
(d) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . 15
(e) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . 15
(f) Investment . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(g) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 16
(h) Financial Statements . . . . . . . . . . . . . . . . . . . . . 16
(i) Events Subsequent to Most Recent Fiscal Year End . . . . . . . 16
(j) Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 16
(k) Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . 16
(l) Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . 16
(m) Title to Assets . . . . . . . . . . . . . . . . . . . . . . . 17
(n) Real Property . . . . . . . . . . . . . . . . . . . . . . . . 17
(o) Intellectual Property . . . . . . . . . . . . . . . . . . . . 17
(p) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(q) Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . 18
(r) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(s) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(t) Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 19
(u) Employee Benefits . . . . . . . . . . . . . . . . . . . . . . 19
(v) Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(w) Environment, Health, and Safety . . . . . . . . . . . . . . . 19
(x) Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 20
4. Representations and Warranties of First Sierra. . . . . . . . . . . . 20
(a) Organization of First Sierra . . . . . . . . . . . . . . . . . 20
(b) Authorization of Transaction . . . . . . . . . . . . . . . . . 20
(c) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . 20
(d) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . 20
(e) Investment . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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5. Pre-Closing Covenants . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Notices and Consents . . . . . . . . . . . . . . . . . . . . . 20
(c) Operation of Business . . . . . . . . . . . . . . . . . . . . 21
(d) Preservation of Business . . . . . . . . . . . . . . . . . . . 21
(e) Full Access . . . . . . . . . . . . . . . . . . . . . . . . . 21
(f) Notice of Developments . . . . . . . . . . . . . . . . . . . . 21
(g) Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 21
(h) Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 21
(i) Distribution of Assets. . . . . . . . . . . . . . . . . . . . 21
(j) Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6. Post-Closing Covenants . . . . . . . . . . . . . . . . . . . . . . . 22
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Litigation Support . . . . . . . . . . . . . . . . . . . . . . 22
(c) Transition . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(d) Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 22
(e) Covenant Not to Compete . . . . . . . . . . . . . . . . . . . 23
7. Conditions to Obligation to Close . . . . . . . . . . . . . . . . . . 23
(a) Conditions to Obligation of First Sierra . . . . . . . . . . . 23
(b) Conditions to Obligation of Shareholder . . . . . . . . . . . 24
8. Remedies for Breaches of This Agreement . . . . . . . . . . . . . . . 25
(a) Survival of Representations and Warranties . . . . . . . . . . 25
(b) Indemnification Provisions for Benefit of First Sierra . . . . 25
(c) Indemnification Provisions for Benefit of Shareholder . . . . 26
(d) Matters Involving Third Parties . . . . . . . . . . . . . . . 26
(e) Claims for Indemnification. . . . . . . . . . . . . . . . . . 27
(f) Determination of Adverse Consequences . . . . . . . . . . . . 27
(g) Recoupment Under Preferred Stock . . . . . . . . . . . . . . . 28
(h) Other Indemnification Provisions . . . . . . . . . . . . . . . 28
9. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Press Releases and Public Announcements . . . . . . . . . . . 29
(b) No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . 29
(c) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 29
(d) Succession and Assignment . . . . . . . . . . . . . . . . . . 29
(e) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 29
(f) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(g) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 30
(h) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . 30
(i) Severability . . . . . . . . . . . . . . . . . . . . . . . . . 30
(j) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(k) Construction . . . . . . . . . . . . . . . . . . . . . . . . . 30
(l) Incorporation of Exhibits, Annexes, and Schedules . . . . . . 30
(m) Specific Performance . . . . . . . . . . . . . . . . . . . . . 31
(n) Submission to Jurisdiction . . . . . . . . . . . . . . . . . . 31
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(o) Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 31
Exhibit A - List of FF&E
Exhibit B - Certificate of Designation, Preferences, Rights and
Limitations
of the Series B Convertible Preferred Stock
Exhibit C - Form of Letter of Credit
Exhibit D - Financial Statements
Exhibit E - Opinion of Shareholder's Counsel
Exhibit F - Opinion of First Sierra's Counsel
Exhibit G - Agreement and Plan of Merger
Exhibit H - Form of Escrow Agreement
Exhibit I - Form of Employment Agreement
Annex I - Reasons for Being Accredited Investor
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization is entered into as of October
15, 1996, by and between Xxxxxxx X. Xxxxx, a resident of Xxxxxxx County,
Pennsylvania ("Shareholder"), Corporate Capital Leasing Group, Inc., a
Pennsylvania corporation (the "Company"), First Sierra Financial, Inc., a
Delaware corporation ("Parent" or "First Sierra"), and First Sierra
Pennsylvania, Inc., a Delaware corporation ("Sub"). Parent, Sub, Shareholder
and the Company are referred to collectively herein as the "Parties".
Recitals
Shareholder owns all of the outstanding capital stock of the Company.
This Agreement contemplates a transaction in which First Sierra will
purchase all of the issued and outstanding capital stock of the Company through
the consummation of a merger transaction as provided in this Agreement.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses and fees, including court
costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning
of Code Sec. 1504.
"Applicable Rate" means the corporate base rate or prime rate of
interest publicly announced from time to time by Texas Commerce Bank,
National Association, Houston, Texas plus 3.0% per annum.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event,
incident, action failure to act, or transaction that forms or could form
the basis for any specified consequences.
"Business Day" means any day that is not a Saturday, a Sunday, or
a day that is a banking holiday under United States or Texas Law.
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"First Sierra" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2(c).
"Closing Date" has the meaning set forth in Section 2(c).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Share" means any share of the Common Stock, par value
$1.00 per share, of the Company.
"Confidential Information" means any information concerning the
businesses and affairs of the Company that is not already generally
available to the public and the Purchase Price and terms of payment of
the Purchase Price.
"Corporate Capital Division" has the meaning set forth in Section
2(c)(ii)(2).
"Decreasing Adjustment Event" has the meaning set forth in
Section 2(c)(iii).
"Disclosure Schedule" has the meaning set forth in Section 3.
"Earned Purchase Price Amount" has the meaning set forth in
Section 2(c)(ii)(1).
"Earnings Period" has the meaning set forth in Section
2(c)(ii)(1).
"Effective Time" means 11:59 p.m., Eastern Standard time, on
October 31, 1996.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement that is an Employee
Pension Benefit Plan, (b) qualified defined contribution retirement plan
or arrangement that is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement that is an Employee
Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee
Welfare Benefit Plan or material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Sec. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Sec. 3(1).
"Employees" has the meaning set forth in Section 2(e).
"Employment Agreement" means the Employment Agreement to be
entered into by First Sierra and Shareholder in the form of Exhibit I.
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Resource Conservation and Recovery Act of 1976, and the Occupational
Safety and Health Act of 1970, each as amended, together with all other
Laws concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including Laws
relating to emissions, discharges,
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releases, or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes into
ambient air, surface water, ground water, or lands or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow" has the meaning set forth in Section 2(b)(ii).
"Escrow Agreement" means that certain Escrow Agreement
substantially in the form of Exhibit H attached hereto to be entered
into by Shareholder, First Sierra and the escrow agent thereunder in
connection with or promptly following the Closing.
"Escrowed Shares" means the 21,845 shares of the Preferred Stock
placed in the Escrow in connection with the Closing, together with all
shares of First Sierra Common Stock into which such shares of the
Preferred Stock may be convertible or converted into while in the Escrow
and all subscription and other rights incident thereto.
"Extremely Hazardous Substance" has the meaning set forth in Sec.
302 of the Emergency Planning and Community Right-to-Know Act of 1986,
as amended.
"FF&E" means those items of tangible personal property leased or
owned currently by the Company and listed on Exhibit A attached hereto.
"Financial Statements" has the meaning set forth in Section 3(h).
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Governmental Authority" means any government or any department,
agency, political subdivision, or court thereof.
"Income Amount" has the meaning set forth in Section 2(c)(ii)(2).
"Increasing Adjustment Event" has the meaning set forth in
Section 2(c)(iii).
"Indemnified Party" has the meaning set forth in Section 8(d).
"Indemnifying Party" has the meaning set forth in Section 8(d).
"Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures together with all reissuances, continuations, continuations-
in-part, revisions, extensions, and reexaminations thereof, (b) all
trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals
in connection therewith, (d) all mask
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works and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier
lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable
investigation.
"Law" means any constitution, statute, code, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any applicable Governmental Authority.
"Liability" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due), including any liability for Taxes.
"leases" has the meaning set forth in Section 2(c)(ii)(2).
"Margin Requirement" has the meaning set forth in Section
2(c)(ii)(2).
"Merger Agreement" has the meaning set forth in Section 2(a).
"Most Recent Balance Sheet" means the balance sheet contained
within the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in
Section 3(h).
"Most Recent Fiscal Month End" has the meaning set forth in
Section 3(h).
"Most Recent Fiscal Year End" has the meaning set forth in
Section 3(h).
"Multiemployer Plan" has the meaning set forth in ERISA Sec.
3(37).
"Office Lease" means that certain Lease Agreement dated September
28, 1993, as amended, among the Company, as tenant, and Xxxxx Street
Associates, as landlord.
"Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with
respect to quantity and frequency).
"Party" has the meaning set forth in the preface above.
"Per Share Sales Amount" has the meaning set forth in Section
2(c)(vii)(1).
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a Governmental Authority.
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"Preferred Stock" has the meaning set forth in Section 2(b).
"Purchase Price" has the meaning set forth in Section 2(b).
"Released Preferred Share" has the meaning set forth in Section
2(c)(ii).
"Remaining Liabilities" means (a) the following described
indebtedness owed by the Company under the following described loan
documents: (i) Term Loan having an outstanding principal balance of
$50,340.95 and $435.05 in accrued but unpaid interest as of October 31,
1996 payable to First National Bank of Westchester, (ii) Term Loan
having an outstanding principal balance of $11,265.49 and $93.72 in
accrued but unpaid interest as of October 31, 1996 payable to First
National Bank of Westchester, (iii) Term Loan having an outstanding
principal balance of $32,827.51 and $273.56 in accrued but unpaid
interest as of October 31, 1996 payable to Xxxx Xxxxx, (iv) Revolving
Credit Note having an outstanding principal balance of $200,000 and
$52.06 in accrued but unpaid interest as of October 31, 1996 payable to
First Sterling Bank, and (v) Letter of Credit reimbursement obligations
in an aggregate amount of up to $57,200 as of October 31, 1996, payable
to First Sterling Bank.; (b) the rental and other obligations of the
Company under the Office Lease that are attributable to periods after
the Effective Time; and (c) payment and other obligations under the
contracts and agreements referenced in Section 3(q) of the Disclosure
Schedule and that are attributable to periods after the Effective Time.
"Required Sale Proceeds Amount" has the meaning set forth in
Section 2(c)(vii)(1).
"Sale Proceeds" has the meaning set forth in Section
2(c)(vii)(1).
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a)
mechanic's, materialmen's, and similar liens, (b) liens for Taxes not
yet due and payable or for Taxes that the taxpayer is contesting in good
faith through appropriate proceedings, (c) purchase money liens and
liens securing rental payments under capital lease arrangements, and (d)
other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"Series B Designation" has the meaning set forth in Section 2(c).
"Share Number" has the meaning set forth in Section 2(c)(v)(2).
"Shareholder" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common
stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium windfall profits, environmental (including taxes
under Code Sec. 59A), customs duties, capital stock, franchise,
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profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or
other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(d).
"Trading Level Event" has the meaning ascribed to such term in
the Series B Designation.
"Trading Event Notice" has the meaning set forth in Section
2(c)(vi)(2).
2. PURCHASE TRANSACTION.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of
this Agreement, at the Closing the Company will be merged with Sub with the
Company being the surviving corporation pursuant to the Agreement and Plan of
Merger ("Merger Agreement") attached hereto as Exhibit G.
(b) MERGER CONSIDERATION. In consideration of the Shareholder
approving the Merger, First Sierra shall pay to Shareholder and Shareholder
shall receive, subject to the terms of this Agreement, a purchase price
("Purchase Price") of $2,500,000, payable by the issuance to Shareholder of
43,691 shares of Series B Convertible Preferred Stock, $.01 par value, of First
Sierra (the "Preferred Stock"), which shall be paid and delivered as follows:
(i) 21,846 shares of the Preferred Stock (representing
$1,250,000 of the Purchase Price) shall be issued and delivered at
Closing to Shareholder; and
(ii) 21,845 shares of the Preferred Stock (representing
$1,250,000 of the Purchase Price and constituting the initial Escrowed
Shares) shall be issued, placed into escrow (the "Escrow") and subject
to distribution pursuant to the terms of Section 2(c)(iii) and the terms
of the Escrow Agreement, and while in escrow the Escrowed Shares shall
serve as security for purposes of any indemnification claims under
Section 8(g).
(c) TERMS OF THE PREFERRED STOCK. The terms and provisions of the
Preferred Stock shall be as provided in the Certificate of Designation,
Preferences, Rights and Limitations of the Series B Convertible Preferred
Stock, a copy of which is attached hereto as Exhibit B (the "Series B
Designation"). Subject to the terms of the Series B Designation, and subject
to the terms of the Escrow Agreement with respect to the Escrowed Shares, the
rights and preferences of the Preferred Stock are as follows:
(i) Conversion Rate. As referenced in Section 5(c) of the
Series B Designation, each share of the Preferred Stock shall be
convertible into one share of First Sierra Common Stock (subject to
adjustment pursuant to Section 5(g) of the Series B Designation).
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(ii) Dividends. The holder of each share of the Preferred
Stock shall be entitled to receive, subject to the terms of the Series B
Designation, when and as declared by the First Sierra Board of Directors
(as further described below), dividends per share at a per annum rate
equal to the Dividend Rate defined in and calculated pursuant to Series
B Designation. The Dividend Rate shall be based on the number of
Released Preferred B Shares outstanding during the applicable period. A
"Released Preferred Share" shall mean each of the 21,846 shares of the
Preferred Stock issued to Shareholder at the Closing and each additional
Escrowed Share that is released from Escrow to Shareholder pursuant to
Section 2(c)(iii) below from and after (but not before) such Escrowed
Share is so released. Commencing as of the first business day of the
second month of the second Earnings Period and on the first business day
of the second month of each succeeding Earnings Period, First Sierra
agrees with Shareholder that the dividend payment shall be declared by
the Board of Directors of First Sierra and paid by First Sierra (subject
to funds being legally available for the declaration of dividends).
First Sierra will not be in default under this Section 2(c)(ii) unless
and until First Sierra is given written notice by Shareholder of First
Sierra's failure to pay the required dividend and within ten days
following receipt of such notice First Sierra fails to pay the dividend
or deliver to Shareholder an opinion of counsel to the effect that First
Sierra is unable to pay the dividend as a result of a lack of legally
sufficient funds for the declaration of dividends.
(iii) Earnout. (1) An "Earnings Period" shall mean, as
applicable, the 15 month period commencing as of the November 1, 1996
and each successive 12 month period. The "Earned Purchase Price
Amount" shall be $1,250,000 as of November 1, 1996 (November 1, 1996
being the first day of the first Earnings Period) and shall be increased
by $416,666 as of the first day of each of the three successive Earnings
Periods if and only if the aggregate Income Amount for the immediately
preceding Earnings Period is equal to or greater than the Margin
Requirement applicable to such Earnings Period. Following the
expiration of each Earnings Period a determination shall be made as to
whether the division of First Sierra headed by Shareholder (herein
called the "Corporate Capital Division", although such division may be
given a different name within First Sierra) obtained an aggregate Income
Amount with regard to such Earnings Period equal to or in excess of the
Margin Requirement with regard to such Earnings Period with respect to
all new leases/financing instruments (collectively, "leases") booked by
the Corporate Capital Division during such Earnings Period. In
instances where First Sierra acquires the lease, the Income Amount with
respect to each such lease booked by the Corporate Capital Division will
be equal to the excess of (aa) the present value of the scheduled rental
payments under such lease during its initial term, such present value to
be determined using a discount rate equal to the average yield to
maturity on the 2 year U.S. Treasury security during the month such
lease was generated plus 250 basis points, over (bb) the total amount
funded by First Sierra in respect of such lease including, without
limitation, equipment cost, software license fees and fees and
commissions paid to brokers. In instances where First Sierra does not
acquire the lease but rather acts as a broker in respect of the lease,
the Income Amount with respect to each such lease booked by the
Corporate Capital Division will be equal to the profit realized by First
Sierra with respect to such lease. The "Margin Requirement" for each
Earnings Period shall be equal to the sum of (cc) $3,814,000 plus (dd)
the amount, if any, that operating expenses incurred by First Sierra
during such Earnings Period that are directly associated with the
Corporate Capital Division exceed an average of $100,000 per month. For
purposes of the preceding sentence, fees and commissions paid to brokers
shall not be considered operating expenses. By way of example, if the
actual average monthly operating expenses incurred by First Sierra
during the first
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Earnings Period that are directly associated with the Corporate Capital
Division is $150,000, then the Margin Requirement for the first Earnings
Period would be $4,564,000 (i.e., $3,814,00 plus $750,000).
(2) As soon as practicable following the expiration of
an Earnings Period, First Sierra will provide to Shareholder a
calculation of the Margin Requirement and aggregate Income Amount for
such Earnings Period. If according to First Sierra's calculation the
aggregate Income Amount for such Earnings Period is less than the Margin
Requirement applicable to such period and if Shareholder has any
questions regarding the calculation of or particular items comprising
the Margin Requirement or Income Amount, then First Sierra will make
available for inspection by Shareholder the relevant parts of its books
and records. If according to First Sierra's calculation the aggregate
Income Amount for such Earnings Period is less than the Margin
Requirement applicable to such period and if Shareholder believes any
part of the Margin Requirement or Income Amount was incorrectly
calculated, Shareholder shall give First Sierra written notice thereof
within 30 days following Shareholder's receipt from First Sierra of the
calculation of such Margin Requirement and Income Amount; and if no such
notice is given by Shareholder to First Sierra within such 30 day
period, then Shareholder shall be deemed to have agreed with the
calculation of such Margin Requirement and aggregate Income Amount. If
Shareholder does so notify First Sierra (an "Audit Notice"), and
Shareholder and First Sierra are unable to resolve the disputed
calculation within 30 days following receipt by First Sierra of the
Audit Notice, then First Sierra's independent auditors (currently Xxxxxx
Xxxxxxxx) shall be engaged to determine whether the part of the Margin
Requirement or Income Amount alleged by Shareholder to be incorrectly
calculated was in fact incorrectly calculated, and the determination of
such auditors shall be conclusive and binding on Shareholder and First
Sierra. Shareholder and First Sierra agree that the submission to such
independent auditors of disputes regarding the calculation of and items
comprising the Margin Requirement and aggregate Income Amount shall be
the sole method of resolving such disputes. If, pursuant to the
preceding provisions, as to a particular Earnings Period the calculation
of the Margin Requirement and aggregate Income Amount (or any part
thereof) for such period is submitted to the independent auditors and
the final determination by such independent auditors results in the
aggregate Income Amount for such period equaling or exceeding the Margin
Requirement applicable to such period, then the fees of such auditors
shall be paid by First Sierra, otherwise such fees shall be paid by
Shareholder.
(3) If pursuant to Section 2(c)(iii)(1) the Earned
Purchase Price Amount increases by $416,666 as of the first day of the
second, third and/or fourth Earnings Period, then in connection with the
first such increase Shareholder will be entitled to have released from
the Escrow 7,281 shares of the Preferred Stock; in connection with the
second such increase Shareholder will be entitled to have released from
the Escrow 7,282 shares of the Preferred Stock; and in connection with
the third such increase Shareholder will be entitled to have released
from the Escrow 7,282 shares of the Preferred Stock; provided, each such
release shall be subject to the terms of Section 8(g). If the number of
shares of First Sierra Common Stock outstanding at any time after the
issuance of the Preferred Stock is increased by stock dividend payable
in shares of First Sierra Common Stock or by subdivision or split-up of
shares of First Sierra Common Stock (each an "Increasing Adjustment
Event"), then immediately after the record date fixed for the
determination of holders of First Sierra Common Stock entitled to
receive the stock dividend or the effective date of the subdivision or
split-up, as the case may be, each of the Preferred Stock share numbers
then in effect pursuant to the
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preceding sentence shall be increased to equal the product resulting
from the multiplication of such share number then in effect by a
fraction, the numerator of such fraction being the total number of
shares of First Sierra Common Stock outstanding immediately following
such Increasing Adjustment Event on a fully diluted basis and the
denominator of such fraction being the total number of shares of First
Sierra Common Stock outstanding immediately prior to such Increasing
Adjustment Event on a fully diluted basis. If the number of shares of
First Sierra Common Stock outstanding at any time after the issuance of
the Preferred Stock is decreased by a reverse stock split (a "Decreasing
Adjustment Event"), then immediately after the effective date of the
reserve stock split, each of the Preferred Stock share numbers then in
effect pursuant to the second preceding sentence shall be decreased to
equal the product resulting from the multiplication of such share number
then in effect by a fraction, the numerator of such fraction being the
total number of shares of First Sierra Common Stock outstanding
immediately prior to such Decreasing Adjustment Event on a fully diluted
basis and the denominator of such fraction being the total number of
shares of First Sierra Common Stock outstanding immediately following
such Decreasing Adjustment Event on a fully diluted basis. If pursuant
to this clause (3) any Escrowed Shares are required to be released from
the Escrow, then Shareholder and First Sierra shall take such actions as
may be necessary to cause such release to occur including the
cancellation of existing stock certificates held by the escrow agent and
the issuance of new stock certificates to the escrow agent and
Shareholder.
(4) Reference is made to the Employment Agreement to be
entered into between First Sierra and Shareholder in connection with the
Closing. If (aa) Shareholder resigns her employment with First Sierra
prior to the expiration of the last Earnings Period or (bb) pursuant to
the terms of such Employment Agreement First Sierra terminates
Shareholder's employment for cause at any time prior to the expiration
of the last Earnings Period, then from and after the date of such
resignation or termination First Sierra shall have the right and option
to shut down the Corporate Capital Division, to cause the business of
the Corporate Capital Division to be conducted by another division or an
affiliate of First Sierra or to take such other action as determined by
First Sierra even though such action or the foregoing described events
are intended by First Sierra to reduce the aggregate Income Amount for
the Earnings Period in which such resignation or termination occurs or
for any period commencing as of or following the date of such
resignation or termination to a level below the corresponding Margin
Requirement, or increase the Margin Requirement for the Earnings Period
in which such resignation or termination occurs or for any period
commencing as of or following the date of such resignation or
termination to a level above the corresponding aggregate Income Amount,
and in no such event shall Shareholder have any claim or cause of action
against First Sierra arising out of or any manner attributable to any
such action or event, the same being hereby expressly waived and
released by Shareholder.
(iv) Cancellation of Escrowed Shares. If the aggregate Income
Amount for any of the first three Earnings Periods is less than the
Margin Requirement for such Earnings Period (as to each, a "Reduction
Period"), then (1) if the first Earnings Period is a Reduction Period,
effective automatically as of the expiration of such first Earnings
Period 7,281 of the Escrowed Shares shall be deemed canceled and not
earned by Shareholder, (2) if the second Earnings Period is a Reduction
Period, effective automatically as of the expiration of such second
Earnings Period 7,282 of the Escrowed Shares shall be deemed cancelled
and not earned by Shareholder, (3) if the third Earnings Period is a
Reduction Period, effective automatically as of the expiration of such
third Earnings Period 7,282 of the Escrowed Shares shall be deemed
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cancelled and not earned by Shareholder. If an Increasing Adjustment
Event occurs, then immediately after the record date fixed for the
determination of holders of First Sierra Common Stock entitled to
receive the stock dividend or the effective date of the subdivision or
split-up, as the case may be, each of the Escrowed Share numbers then in
effect pursuant to the preceding sentence shall be increased to equal
the product resulting from the multiplication of such share number then
in effect by a fraction, the numerator of such fraction being the total
number of shares of First Sierra Common Stock outstanding immediately
following such Increasing Adjustment Event on a fully diluted basis and
the denominator of such fraction being the total number of shares of
First Sierra Common Stock outstanding immediately prior to such
Increasing Adjustment Event on a fully diluted basis. If a Decreasing
Adjustment Event occurs, then immediately after the effective date of
the reserve stock split, each of the Preferred Stock share numbers then
in effect pursuant to the second preceding sentence shall be decreased
to equal the product resulting from the multiplication of such share
number then in effect by a fraction, the numerator of such fraction
being the total number of shares of First Sierra Common Stock
outstanding immediately prior to such Decreasing Adjustment Event on a
fully diluted basis and the denominator of such fraction being the total
number of shares of First Sierra Common Stock outstanding immediately
following such Decreasing Adjustment Event on a fully diluted basis. If
pursuant to this clause any Escrowed Shares are cancelled, then
Shareholder and First Sierra shall take such actions as may be necessary
to evidence of such cancellation including the cancellation of existing
stock certificates held by the escrow agent and the issuance of new
stock certificates to the escrow agent.
(v) Redemption. Unless all of the shares of the Preferred
Stock shall have been converted prior to such time, First Sierra shall
be obligated to redeem all outstanding shares of the Preferred Stock on
December 31, 2001 at the "Redemption Price" specified in and determined
pursuant to the Series B Designation. In addition, in the event a
Redemption Acceleration Event (as defined in the Series B Designation)
occurs, First Sierra shall be obligated to redeem all outstanding shares
of the Preferred Stock on the Redemption Acceleration Event Purchase
Date (as defined in the Series B Designation) at the Redemption Price
specified in and determined pursuant to the Series B Designation.
(vi) Letter of Credit. (1) First Sierra agrees that its
obligations under the terms of the Series B Designation to distribute
assets on a preferential basis to the holders of the Preferred Stock in
connection with any Redemption Acceleration Event (as defined in the
Certificate), and to redeem the Redemption Shares on December 31, 2001
shall, at all times while the Preferred Stock is outstanding, be secured
by one or more irrevocable standby letters of credit (together, with any
and all renewals and replacements, the "Letter of Credit") to be issued
by Xxxxx Fargo, a national banking association, for the account of
Shareholder as the beneficiary under the Letter of Credit (the
"Beneficiary"), in an amount as determined below. The Letter of Credit
shall be in an initial face amount of $2,500,000 and shall be in the
form attached hereto as Exhibit C.
(2) If (aa) the aggregate Income Amount for any
Earnings Period is less than the Margin Requirement for such Earnings
Period, then effective as of the first day of the immediately succeeding
Earnings Period the Letter of Credit will be reduced by $416,666, (bb)
if a resignation or termination of Shareholder's employment as described
in Section 2(c)(iii)(4) occurs, then the amount of the Letter of Credit
shall be reduced by an amount equal to $2,500,000 multiplied by the
Reduction Percentage, (cc) upon any conversion of the shares of
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Preferred Stock into First Sierra Common Stock less than all of the
outstanding shares of Preferred Stock are being so converted, then the
amount of the Letter of Credit shall be reduced by an amount equal to
$2,500,000 multiplied by the Reduction Percentage , and (dd) as of any
day (x) the Trading Level Event has occurred and (y) there is a
currently effective registration statement under the Securities Act of
1933 and applicable state law and a prospectus covering the immediate
resale of the shares of Common Stock (and, if applicable, the Underlying
Stock relating to such shares) into which the Escrowed Shares then in
Escrow are convertible and the Corporation has given notice thereof to
Shareholder (a "Trading Event Notice"), and if within two business days
following the receipt by Shareholder of the Trading Event Notice
Shareholder has not notified the Corporation of her election to convert
all of the Escrowed Shares, then the amount of the Letter of Credit
shall be reduced effective as of the expiration of such two business day
period by an amount equal to $2,500,000 multiplied by the Reduction
Percentage. In the case of a reduction resulting from a resignation or
termination of Shareholder's employment as described in Section
2(c)(iii)(4) or in the case of a reduction resulting from a Trading
Level Event pursuant to clause (dd) preceding, the "Reduction
Percentage" shall be determined by dividing the number of Escrowed
Shares then in Escrow by the Share Number, with the result being
expressed as a percentage. In the case of a reduction resulting from a
conversion of shares of Preferred Stock into First Sierra Common Stock,
the "Reduction Percentage" shall be determined by dividing the number of
shares of Preferred Stock being so converted by the Share Number, with
the result being expressed as a percentage. The "Share Number" shall be
43,691, subject to adjustment as provided in the following two
sentences. If an Increasing Adjustment Event occurs, then immediately
after the record date fixed for the determination of holders of First
Sierra Common Stock entitled to receive the stock dividend or the
effective date of the subdivision or split-up, as the case may be, then
the Share Number then in effect pursuant to the preceding sentence shall
be increased to equal the product resulting from the multiplication of
such Share Number then in effect by a fraction, the numerator of such
fraction being the total number of shares of First Sierra Common Stock
outstanding immediately following such Increasing Adjustment Event on a
fully diluted basis and the denominator of such fraction being the total
number of shares of First Sierra Common Stock outstanding immediately
prior to such Increasing Adjustment Event on a fully diluted basis. If a
Decreasing Adjustment Event occurs, then immediately after the effective
date of the reverse stock split, the Share Number then in effect
pursuant to the second preceding sentence shall be decreased to equal
the product resulting from the multiplication of such Share Number then
in effect by a fraction, the numerator of such fraction being the total
number of shares of First Sierra Common Stock outstanding immediately
prior to such Decreasing Adjustment Event on a fully diluted basis and
the denominator of such fraction being the total number of shares of
First Sierra Common Stock outstanding immediately following such
Decreasing Adjustment Event on a fully diluted basis.
(3) To the extent the Beneficiary is entitled pursuant
to the provisions of clause (c)(v) preceding or pursuant to clause
(c)(vi)(6) below to make a draw on the Letter of Credit, then
Beneficiary shall be entitled to make a draw for the entire amount then
available under the Letter of Credit after taking into account any
required reductions to the Letter of Credit pursuant to clause
(c)(vi)(2) preceding.
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(4) If pursuant to the preceding provisions the amount
of the Letter of Credit is required to be reduced, then promptly
following request each of Shareholder and First Sierra shall execute and
deliver to the issuer of the Letter of Credit such instructions and
amendatory documents as may be necessary to cause the Letter of Credit
to be so reduced.
(5) The Letter of Credit shall terminate and no further
draws shall be permitted thereon, and the Letter of Credit shall be
returned to First Sierra, upon the earlier to occur of (aa) the
voluntary conversion by the holders of the Preferred Stock of all of the
Preferred Stock into First Sierra Common Stock, and (bb) the conversion
of all of the Preferred Stock into First Sierra Common Stock pursuant to
Section 5 of the Series B Designation.
(6) The initial Letter of Credit shall have an expiry
date of no earlier than one year from its date of issue and shall
provide that, if within 15 days prior to its expiration date, it is not
renewed, replaced or extended for an additional period of at least one
year (but in no event required to have an expiration date beyond January
31, 2002) in the amount calculated above, the Beneficiary shall be
entitled to draw as therein provided. Any replacement Letter of Credit
may be issued by Xxxxx Fargo or another institution having combined
capital, surplus and undivided profits of at least $100 million. First
Sierra will notify Shareholder of any replacement or renewal of the
Letter of Credit within 15 days of the expiry date.
(7) Any draw upon the Letter of Credit pursuant to the
terms of this Section 2(c) shall be in complete redemption and
cancellation of the Preferred Stock, and the Beneficiary agrees to
surrender (and cause all other holders of shares of the Preferred Stock
to surrender) to First Sierra the original or all certificate(s)
representing the Preferred Stock promptly following such draw. If
pursuant to the terms of this Section 2(c) the Beneficiary is entitled
to make a draw upon the Letter of Credit, then the Beneficiary shall be
entitled to make such draw regardless of any limitation under the
General Corporation Law of the State of Delaware or any other law on the
power or ability of First Sierra to redeem the Preferred Stock.
(vii) Sale of Escrowed Shares. (1) If at any time any part of
the Escrowed Shares constitute First Sierra Common Stock that are
covered by a currently effective registration statement under the
Securities Act of 1933 and applicable state law and a prospectus
covering the immediate resale of such shares, then Shareholder shall
have the right to notify First Sierra of her election to cause all or a
part of such shares to be sold pursuant to such registration statement.
In the event of the sale of any such shares, the proceeds resulting from
such sale shall be deposited into the Escrow (the "Sale Proceeds"). If
at the time of any required release of Escrowed Shares pursuant to
Section 2(c)(iii)(3) there are any Sale Proceeds contained in the
Escrow, then such release from Escrow shall be accomplished first by a
release of the Required Sale Proceeds Amount (as hereinafter defined)
and the balance with Escrowed Shares. If at the time of any required
cancellation of Escrowed Shares pursuant to Section 2(c)(iv) there are
any Sale Proceeds contained in the Escrow, then such cancellation shall
be accomplished first by the cancellation of Escrowed Shares and the
balance by distributing to First Sierra the Required Sale Proceeds
Amount. In the case of a release pursuant to Section 2(c)(iii)(3), the
"Required Sale Proceeds Amount" shall be determined by multiplying the
number of Escrowed Shares to be so released times the then effective Per
Share Sales Amount. In the case of a cancellation pursuant Section
2(c)(iv), the "Required Sales Proceeds Amount" shall be
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determined by the number of Escrowed Shares still needed to satisfy the
required cancellation times the then effective Per Share Sales Amount.
The "Per Share Sales Amount" shall equal the product resulting from
dividing the aggregate amount of Sale Proceeds by the number of Escrowed
Shares sold, such amount being subject to adjustment pursuant to the
provisions of clause (2) below.
(2) If an Increasing Adjustment Event occurs at any
time following the first sale of Escrowed Shares, then immediately after
the record date fixed for the determination of holders of First Sierra
Common Stock entitled to receive the stock dividend or the effective
date of the subdivision or split-up, as the case may be, the Per Share
Sales Amount number in effect immediately prior to such record date or
effective date shall be decreased to equal the product resulting from
the multiplication of such Per Share Sales Amount number then in effect
by a fraction, the numerator of such fraction being the total number of
shares of First Sierra Common Stock outstanding immediately prior to
such Increasing Adjustment Event on a fully diluted basis and the
denominator of such fraction being the total number of shares of First
Sierra Common Stock outstanding immediately following such Increasing
Adjustment Event on a fully dilated basis. If a Decreasing Adjustment
Event occurs at any time following the first sale of Escrowed Shares,
then immediately after the effective date of the reverse stock split,
the Per Share Sales Amount number in effect immediately prior to such
effective date shall be increased to equal the product resulting from
the multiplication of such Per Share Sales Amount number then in effect
by a fraction, the numerator of such fraction being the total number of
shares of First Sierra Common Stock outstanding immediately following
such Decreasing Adjustment Event on a fully diluted basis and the
denominator of such fraction being the total number of shares of First
Sierra Common Stock outstanding immediately prior to such Decreasing
Adjustment Event on a fully diluted basis.
(d) TAX EFFECT OF TRANSACTION. It is the intention of the parties
that the transaction contemplated by this Agreement constitute a reverse
triangular Type A reorganization within the meaning of Sections 368(a)(9)(A)
and 368(a)(ii)(E) of the Code. The parties agree to file all of their
respective tax returns and reports in a manner consistent with such intention,
and to not take any filing position in a manner inconsistent with such
intention unless compelled to do so by court order or administrative decree.
Each party agrees to furnish such information and take such action as may be
reasonably requested of the other party in connection with the foregoing (which
action shall not include any change in the commercial terms of this Agreement
and the other transactions incident thereto). In no event, however, shall
First Sierra be required to incur any out-of-pocket expenses in defending such
position or providing such information or taking such action, nor shall the
foregoing constitute a warranty or guaranty that the transactions contemplated
by this Agreement will, in fact, constitute such a Type B reorganization.
(e) EMPLOYEES. (1) Shareholder will in good faith cooperate with
First Sierra in First Sierra's attempt to retain the employees of the Company
as new employees of First Sierra (such employees are referred to herein as the
"Employees"). With regard to the Employees who become employees of First
Sierra, First Sierra shall credit such Employees with their length of service
with the Company prior to Closing. In addition, First Sierra shall credit such
Employees for any accrued and untaken vacations and holidays that such
Employees may have had as employees of the Company immediately prior to the
Closing. Set forth in Section 2(e) of the Disclosure Schedule is a list of all
Employees together with a complete description of all vacation, holiday, and
sick leave policies, all
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incentive compensation policies, and any other policies of the Company relating
to the Employees. Group health insurance will be provided by First Sierra
effective as of the Closing Date to all Employees who become employees of First
Sierra, such insurance to be consistent with the health insurance provided to
the other employees of First Sierra or to be the same group health insurance
currently maintained by the Company. Employee records for the Employees who
become employees of First Sierra, including payroll and wage and hour records,
will become the property of First Sierra who will preserve the records for any
time required by applicable governmental regulations.
(2) In connection with the Closing First Sierra and
Shareholder shall enter into an Employment Agreement in the form of Exhibit I.
In addition, First Sierra shall use reasonable efforts to reach an agreement
with three other key Employees designated by Shareholder regarding their terms
of employment and, subject to reaching an agreement on such terms, in
connection with the Closing First Sierra will enter into employment agreements
with such Employees that incorporate the agreed upon terms.
(f) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place on a date as First Sierra and
Shareholder may mutually determine (the "Closing Date"), with the Closing to be
effective all purposes as of the Effective Time.
(g) DELIVERIES AT THE CLOSING. At the Closing, (i) Shareholder will
deliver to First Sierra the various certificates, instruments, and documents
referred to in Section 7(a), (ii) First Sierra will deliver to Shareholder the
various certificates, instruments, and documents referred to in Section 7(b),
(iii) Shareholder will deliver to First Sierra any stock certificates or other
documents called for pursuant to the Merger Agreement and (iv) First Sierra
will deliver to Shareholder the consideration specified in Section 2(b),
subject to the terms of the Escrow Agreement.
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER.
Shareholder represents and warrants to First Sierra that the statements
contained in this Section 3 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3), except as set forth in the disclosure
schedule delivered by Shareholder to First Sierra on the date hereof and
initialed by Shareholder and First Sierra (the "Disclosure Schedule"). Nothing
in the Disclosure Schedule shall be deemed adequate to disclose an exception to
a representation or warranty made herein, however, unless the Disclosure
Schedule identifies the exception with reasonable particularity and describes
the relevant facts in reasonable detail. Without limiting the generality of
the foregoing, the mere listing (or inclusion of a copy) of a document or other
item shall not be deemed adequate to disclose an exception to a representation
or warranty made herein (unless the representation or warranty has to do with
the existence of the document or other item itself). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 3, and the inclusion of an item as an
exception in one portion of the Disclosure Schedule shall not cause such item
to be an exception under any other portion of the Disclosure Schedule.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Pennsylvania. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Company has full corporate power and
authority
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and all licenses, permits, and authorizations necessary to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. Section 3(a) of the Disclosure Schedule lists all directors,
officers and employees of the Company and their respective official capacities
(if any) in the Company. Shareholder has delivered to First Sierra correct and
complete copies of the charter and bylaws of the Company (as amended to date).
The minute books (containing the records of meetings of the stockholders, the
board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of the Company are correct and
complete. The Company is not in default under or in violation of any provision
of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of the
Company consists of 1,000 Company Shares, of which 100 Company Shares are
issued and outstanding. All of the issued and outstanding Company Shares have
been duly authorized, are validly issued, fully paid, and nonassessable, and
are held of record and owned beneficially by Shareholder, free and clear of any
Taxes, Security Interests, equities, claims, and demands and any restrictions
on transfer (other than any restrictions under the Securities Act and state
securities laws), options, warrants, purchase rights, conversion rights,
exchange rights, or other contracts or commitments that could require
Shareholder to sell, transfer, or otherwise dispose of any capital stock of the
Company (other than this Agreement). There are no outstanding or authorized
options, warrants, purchase rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Company to issue, sell,
or otherwise cause to become outstanding any of its capital stock. There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of the Company.
(c) AUTHORIZATION OF TRANSACTION. The Company has full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of Shareholder and the Company, enforceable in accordance
with its terms and conditions. Except as set forth in Section 3(c) of the
Disclosure Schedule and except for the filing of the Merger Agreement with the
applicable Governmental Authority and consents that have already been obtained,
neither Shareholder nor the Company need to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Governmental
Authority or any other party in order to consummate the transactions
contemplated by this Agreement.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any Law to which either of Shareholder or the Company is subject or
any provision of the charter or bylaws of the Company or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice or consent under any agreement, contract, lease, license,
instrument, or other arrangement to which either of Shareholder or the Company
is a party or by which any of them is bound or to which any of the assets of
any of them is subject (or result in the imposition of any Security Interest
upon any such assets).
(e) BROKERS' FEES. Shareholder has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which First Sierra could become
liable or obligated, and the Company has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
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(f) INVESTMENT. Shareholder (i) understands that the Preferred Stock
has not been, and will not be, registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (ii) is acquiring the Preferred Stock solely for its own account for
investment purposes, and not with a view to the distribution thereof, (iii) is
a sophisticated investor with knowledge and experience in business and
financial matters, (iv) has received certain information concerning First
Sierra and has had the opportunity to obtain additional information as desired
in order to evaluate the merits and the risks inherent in holding the Preferred
Stock, (v) is able to bear the economic risk and lack of liquidity inherent in
holding the Preferred Stock, and (vi) is an Accredited Investor for the reasons
set forth in Annex I.
(g) SUBSIDIARIES. The Company has no Subsidiaries.
(h) FINANCIAL STATEMENTS. Attached hereto as Exhibit D are the
following financial statements (collectively the "Financial Statements"): (i)
audited balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal year ended 12-31-95 (the "Most
Recent Fiscal Year End") for the Company; and (ii) unaudited balance sheet and
statement of income, change in stockholders' equity, and cash flow (the "Most
Recent Financial Statements") as of and for the nine months ended 10-30-96 (the
"Most Recent Fiscal Month End") for the Company. The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, present
fairly the financial condition of the Company as of such dates and the results
of operations of the Company for such periods, are correct and complete, and
are consistent with the books and records of the Company (which books and
records are correct and complete).
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most
Recent Fiscal Year End, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of any of the Company.
(j) UNDISCLOSED LIABILITIES. The Company has no Liability (and there
is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) and (ii)
Liabilities that have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises, out of,
relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of Law).
(k) LEGAL COMPLIANCE. The Company has complied with all applicable
Laws, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
(l) TAX MATTERS.
(i) At all times since its incorporation, the Company has
elected to be and has constituted a Subchapter S corporation under the
Code.
(ii) The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all
respects. All Taxes that have become due and
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payable by the Company (whether or not shown on any Tax Return) have
been paid. The Company currently is not the beneficiary of any
extension of time within which to file any Tax Return. There are no
Security Interests on any of the assets of any of the Company that arose
in connection with any failure (or alleged failure) to pay any Tax.
(iii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other
third party.
(iv) Neither Shareholder nor any director or officer of the
Company expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or
claim concerning any Tax Liability of any of the Company either (1)
claimed or raised by any authority in writing or (2) as to which any of
Shareholder and the directors and officers of the Company has Knowledge
based upon personal contact with any agent of such authority. Section
3(l) of the Disclosure Schedule lists all (if any) state and local
income Tax Returns filed with respect to the Company for taxable periods
ended on or prior to 9-30-96 and that have been audited or are currently
the subject of audit.
(v) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(vi) The Company (1) has not been a member of an Affiliated
Group filing a consolidated federal income Tax Return or (2) has any
Liability for the Taxes of any Person (other than any of the Company)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(vii) The unpaid Taxes of the Company (1) did not, as of the
Most Recent Fiscal Month End, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto) and (2)
do not exceed that reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the
Company in filing its Tax Returns.
(m) TITLE TO ASSETS. The Company has good and marketable title to or
valid leasehold interest in the FF&E and a valid leasehold interest in the
office premises described in the Office Lease.
(n) REAL PROPERTY. The Company does not own or lease any real
property other than the office premises leased pursuant to the Office Lease.
(o) INTELLECTUAL PROPERTY.
(i) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Company as
presently conducted. The Company has taken all necessary action to
maintain and protect each item of Intellectual Property that it owns or
uses.
(ii) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties. To the
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Knowledge of Shareholder and the directors and officers (and employees
with responsibility for Intellectual Property matters) of the Company,
no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of
any of the Company.
(p) CONTRACTS. As of the Closing Date the Company will not be a
party or bound by any agreement or commitment requiring the payment of monies
or other consideration or the performance of obligations following the Closing
Date other than the Office Lease and those agreements listed in Section 3(q) of
the Disclosure Schedule.
(q) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
(r) INSURANCE. Section 3(r) of the Disclosure Schedule sets forth
the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which any of the Company has been
a party, a named insured, or otherwise the beneficiary of coverage at any time
within the past one year:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including
a description of how deductibles and ceilings are calculated and
operate) of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (1) the policy is legal, valid,
binding, enforceable, and in full force and effect; (2) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (3) neither the Company nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (4) no party to the policy has
repudiated any provision thereof. The Company has been covered during the past
six years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
3(r) of the Disclosure Schedule describes any self-insurance arrangements
affecting the Company.
(s) LITIGATION. Section 3(s) of the Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or is
threatened to be made a party to any action, suit, proceeding, hearing, or
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investigation of, in, or before any court of quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
(t) LABOR MATTERS. The Company has not committed any unfair labor
practice. None of Shareholder and the directors and officers of the Company
has any knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of any
of the Company.
(u) EMPLOYEE BENEFITS.
Except as otherwise set forth in Section 3(u) of the Disclosure
Statement:
(i) The Company has never maintained or contributed to and
does not currently maintain or contribute to any Employee Benefit Plan;
(ii) The Company does not contribute to, never has contributed
to, and never has been required to contribute to any Multiemployer Plan
or has any Liability (including withdrawal Liability) under any
Multiemployer Plan; and
(iii) The Company does not maintain and never has maintained or
contributed to, and never has been required to contribute to, any
Employee Welfare Benefit Plan providing medical health, or life
insurance or other welfare-type benefits for current or future retired
or terminated employees, their spouses, or their dependents.
(v) GUARANTIES. The Company is not a guarantor or otherwise liable
for any Liability or obligation (including indebtedness) of any other Person.
(w) ENVIRONMENT, HEALTH, AND SAFETY.
(i) The Company has complied with all Environmental, Health,
and Safety Laws, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against the Company alleging any failure so to
comply.
(ii) The Company has no Liability (and the Company has not
handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner
that could form the Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
against the Company giving rise to any Liability) for damage to any
site, location, or body of water (surface or subsurface), for any
illness or personal injury to any employee or other individual, or for
any reason under any Environmental, Health and Safety Law.
(iii) All properties and equipment used in the business of the
Company have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, transdichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances.
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(x) DISCLOSURE. The representations and warranties contained in this
Section 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading.
4. REPRESENTATIONS AND WARRANTIES OF FIRST SIERRA. First Sierra represents
and warrants to Shareholder that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
4).
(a) ORGANIZATION OF FIRST SIERRA. First Sierra is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Delaware.
(b) AUTHORIZATION OF TRANSACTION. First Sierra has full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of First Sierra, enforceable in accordance with its terms
and conditions. Except for the filing of the Merger Agreement with the
applicable Governmental Authority and consents that have already been obtained,
First Sierra need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Governmental Authority or any other
party in order to consummate the transactions contemplated by this Agreement.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any Law to which First Sierra is subject or any provision of its
charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or consent
under any agreement, contract, lease, license, instrument, or other arrangement
to which First Sierra is a party or by which it is bound or to which any of its
assets is subject.
(d) BROKERS' FEES. First Sierra has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Shareholder could
become liable or obligated.
(e) INVESTMENT. First Sierra is acquiring the Company for its own
account for investment purposes and not with a view to offering for sale or
distribution any of the capital stock of the Company.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use commercially reasonable
best efforts to take all actions and to do all things necessary, proper or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in Section 7).
(b) NOTICES AND CONSENTS. To the extent, if any, noted in Section
3(c) of the Disclosure Schedule as being required, Shareholder will give and
cause to give any notices to third parties, and will use and cause the Company
to use all reasonable efforts to obtain any third-party consents, that First
Sierra may request in connection with the matters referred to in Section 3(c).
Each of the Parties
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will (and Shareholder will cause the Company to) give any notices to, make any
filings with, and use all reasonable efforts to obtain any authorizations,
consents, and approvals of Governmental Authorities in connection with the
matters referred to in Sections 3(c) and 4(c).
(c) OPERATION OF BUSINESS. Shareholder will not cause or permit the
Company to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business except as otherwise
contemplated pursuant to Sections 5(h), (i) and (j).
(d) PRESERVATION OF BUSINESS. The Company will keep its business and
properties substantially intact (subject to Sections 5(h), (i) and (j)),
including its present operations, physical facilities, working conditions, and
relationships with lessors, vendors, brokers, licensors, suppliers, customers,
and employees.
(e) FULL ACCESS. Shareholder and the Company will permit
representatives of First Sierra to have full access at all reasonable times
following reasonable prior notice, and in a manner so as not to interfere with
the normal business operations of the Company, to all premises, properties,
personnel, books, records (including Tax records), contracts, and documents of
or pertaining to each of the Company.
(f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties in Sections 3 and 4. No disclosure
by any Party pursuant to this Section 5(f), however, shall be deemed to amend
or supplement Annex I or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. Shareholder and the Company will not (i) solicit,
initiate, or encourage the submission of any proposal or offer from any Person
relating to the acquisition of any capital stock or other voting securities, or
any substantial portion of the assets of, the Company (including any
acquisition structured as a merger, consolidation, or share exchange) or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. Shareholder will not vote the Company Shares in favor of any such
acquisition structured as a merger, consolidation, or share exchange.
Shareholder will notify First Sierra immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) LIABILITIES. Prior to the Closing Shareholder and the Company
shall cause all Liabilities of the Company known to Shareholder or the Company
to be paid off, retired, settled, released and otherwise discharged other than
the Remaining Liabilities. Prior to the Closing Shareholder shall provide to
First Sierra a listing of such Liabilities and the actions taken by Shareholder
to the release and discharge the same.
(i) DISTRIBUTION OF ASSETS. Prior to the Closing Shareholder may
cause the Company to convey or distribute to Shareholder all cash and other
assets of the Company other than the FF&E and the Office Lease.
(j) EMPLOYEES. Prior to the Closing Shareholder shall request that
each Employee to tender to the Company his or her resignation as an employee of
the Company effective as of the Closing, such resignation to include a release
by such Employee in favor of the Company (and
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Shareholder and First Sierra shall jointly prepare a form of resignation and
release letter). If any such Employee shall fail to so resign, prior to the
Closing Shareholder shall cause the Company to terminate such Employee's
employment by the Company and pursuant to Section 8(b) Shareholder shall
indemnify the Company and First Sierra against any severance pay or other
amounts (if any) due to or claims asserted by such Employee.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing.
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 8).
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with it and its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8).
(c) TRANSITION. Shareholder and the Company will not take any action
that is designed or intended to have the effect of discouraging any lessor,
vendor, broker, customer, supplier, or other business associate of the Company
from maintaining the same business relationships with the Company or First
Sierra after the Closing as it maintained with the Company prior to the
Closing. Shareholder will refer all customer inquiries relating to the
businesses of the Company to First Sierra from and after the Closing.
(d) CONFIDENTIALITY. Shareholder will treat and hold as such all of
the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
First Sierra or destroy, at the request and option of First Sierra, all
tangible embodiments (and all copies) of the Confidential Information that are
in its possession. In the event that Shareholder is requested or required (by
oral question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, Shareholder will notify First Sierra
promptly of the request or requirement so that First Sierra may seek an
appropriate protective order or waive compliance with the provisions of this
Section 6(d). If, in the absence of a protective order or the receipt of a
waiver hereunder, Shareholder is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, Shareholder may disclose the Confidential Information to the
tribunal; provided, Shareholder shall use all reasonable efforts to obtain, at
the reasonable request of First Sierra, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as First Sierra shall designate. The
foregoing provisions shall not apply to any Confidential Information that is
generally available to the public immediately prior to the time of disclosure.
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(e) COVENANT NOT TO COMPETE. For the period commencing as of the
Closing Date and terminating upon the earlier to occur of (i) the expiration of
one year following the termination pursuant to the Employment Agreement of
Shareholder's employment without cause and (ii) the expiration of four years
following the Closing Date, Shareholder hereby agrees that she shall not,
directly or indirectly, either through any form of ownership, or as a director,
officer, principal, agent, employee, employer, advisor, consultant, partner or
in any individual or representative capacity whatsoever, either for her own
benefit or for the benefit of any other person or entity, without the prior
written consent of the Board of Directors of First Sierra, within any
geographic area that First Sierra does business, engage in any equipment or
software lease or financing business in which First Sierra or any of its
subsidiaries engages in during such four year period. If the final judgment of
a court of competent jurisdiction declares that any term or provision of this
Section 6(e) is invalid or unenforceable, the Parties agree that the court
making the determination of invalidity or unenforceability shall have the power
to reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after the
expiration of the time within which the judgment may be appealed.
(f) REMAINING LIABILITIES GUARANTEED BY SHAREHOLDER. With respect to
all remaining liabilities and obligations of the Company which have been
personally guaranteed by Shareholder (the same being listed and described in
Section 6(f) of the Disclosure Schedule), the Company shall at all times after
the Closing Date repay such obligations only in the ordinary course of the
Company's business in accordance with the terms of the underlying loan
documents and the Company shall not at any time prepay any such obligation
prior to its scheduled maturity except as contemplated by or permitted pursuant
to the underlying loan documentation. Nothing in this Section 6(f) shall
prohibit the Company from repaying lines of credit in the ordinary course of
the Company's business from profits, working capital or through the refinancing
of such obligations. In addition, nothing shall prohibit Shareholder from
notifying the payee of any such obligations that Shareholder will not be liable
for any future obligation incurred by the Company which might otherwise be
covered by Shareholder's personal guarantee.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF FIRST SIERRA. The obligation of
First Sierra to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3
shall be true and correct in all material respects at and as of the
Closing Date;
(ii) Shareholder and the Company shall have performed and
complied with all of their respective covenants hereunder in all
material respects through the Closing;
(iii) First Sierra, Shareholder and the Company shall have
procured all of their third party consents specified in Section 5(b);
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction
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wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation,
(C) affect adversely the right of First Sierra to own the Company Shares
and to control the Company, or (D) affect adversely the right of First
Sierra to conduct the business previously engaged in by the Company (and
no such injunction, judgment, order, decree, ruling, or charge shall be
in effect);
(v) Shareholder shall have delivered to First Sierra a
certificate to the effect that each of the conditions specified above in
Section 7(a)(i)-(iv) is satisfied in all respects;
(vi) all the Parties shall have received all other
authorizations, consents, and approvals of Governmental Authorities
referred to in Sections 3(c) and 4(c);
(vii) First Sierra shall have received from Blank, Rome, Xxxxxxx
& XxXxxxxx, counsel to Shareholder, an opinion in form and substance as
set forth in Exhibit E attached hereto, addressed to First Sierra, and
dated as of the Closing Date;
(viii) First Sierra shall have received the resignations,
effective as of the Closing, of each director and officer of the
Company;
(ix) Shareholder shall have released all claims and causes of
action she has against the Company as the sole shareholder of the
Company and as a director and officer of the Company, excluding,
however, the indemnification obligations owed by the Company to
Shareholder (in her capacity as a director and officer) pursuant to
Section ___ of the Company's Bylaws;
(x) Shareholder shall have executed and delivered to First
Sierra the Employment Agreement; and
(xi) all actions to be taken by Shareholder in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to First Sierra.
First Sierra may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF SHAREHOLDER. The obligation of
Shareholder to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4
shall be true and correct in all material respects at and as of the
Closing Date;
(ii) First Sierra shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
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(iii) First Sierra, Shareholder and the Company, shall have
procured all of their third party consents specified in Section 5(b);
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
prevent consummation of any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(v) First Sierra shall have delivered to Shareholder a
certificate to the effect that each of the conditions specified above in
Section 7(b)(i)-(iv) is satisfied in all respects;
(vi) the Parties shall have received all other authorizations,
consents, and approvals of Governmental Authorities referred to in
Sections 3(c) and 4(c);
(vii) Shareholder shall have received from Xxxxxx & Xxxxxx,
L.L.P., counsel to First Sierra, an opinion in form and substance as set
forth in Exhibit F attached hereto, addressed to Shareholder, and dated
as of the Closing Date;
(viii) First Sierra shall have executed and delivered to
Shareholder the Employment Agreement; and
(ix) all actions to be taken by First Sierra in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to Shareholder.
Shareholder may waive any condition specified in this Section 7(b) if it
executes a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in Sections 3 and 4
shall survive the Closing hereunder (even if the damaged Party had Knowledge of
or had reason to know of any misrepresentation or breach of warranty at the
time of Closing).
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF FIRST SIERRA.
(i) If Shareholder or the Company breaches any of its
representations and warranties in Section 3, then Shareholder agrees to
indemnify First Sierra from and against the entirety of any Adverse
Consequences that First Sierra or the Company may suffer through and
after the date of the claim for indemnification resulting from, arising
out of or relating to, or caused by such breach.
(ii) Shareholder agrees to indemnify First Sierra and the
Company from and against the entirety of any Adverse Consequences First
Sierra or the Company may suffer resulting
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from, arising out of or relating to (1) any and all Liabilities of the
Company attributable to any act, omission, condition or event occurring
prior to the Effective Time including, without limitation, any of the
litigation, claims or other matters referenced in Section 3(s) of the
Disclosure Schedule, (2) without limiting the generality of clause (1)
preceding, any and all Liabilities of the Company under contracts,
agreements or commitments to which the Company is or was a party, or any
part of its property is or was bound, as of or prior to the Effective
Time, including (without limitation) any Liabilities under any agreement
with Colonial Pacific Leasing Company and any repurchase obligations in
respect of leases sold or brokered by the Company prior to the Effective
Time, and (3) without limiting the generality of clause (1) preceding,
any and all Liabilities of the Company with respect to employees of the
Company that are attributable to periods prior to the Effective Time;
excluding, however, in the case of each of clauses (1), (2) and (3)
preceding, the Remaining Liabilities.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF SHAREHOLDER. If First
Sierra breaches any of its representations and warranties in Section 4, then
First Sierra agrees to indemnify Shareholder from and against the entirety of
any Adverse Consequences Shareholder may suffer through and after the date of
the claim for indemnification resulting from, arising out of, relating to, or
caused by such breach.
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
that may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Section 8, then the
Indemnified Party shall promptly notify the Indemnifying Party thereof
in writing; provided, no delay on the part of the Indemnified Party in
notifying the Indemnifying Party shall relieve the Indemnifying Party
from any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) The Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (1)
the Indemnifying Party notifies the Indemnified Party in writing within
15 days after the Indemnified Party has give notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party
from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (2) the
Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third
Party Claim and fulfill its indemnification obligations hereunder, (3)
the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (4) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not in the good faith
judgment of the Indemnified Party, likely to establish a precedential
custom or practice materially adverse to the continuing business
interests of the Indemnified Party, and (5) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 8(d)(ii),
(1) the Indemnified Party may retain separate co-counsel at its sole
cost and expense and participate in the defense of the Third Party
Claim, (2)
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the Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without
the prior written consent of the Indemnifying Party (not to be withheld
unreasonably), and (3) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8(d)(ii) is
or becomes unsatisfied, however, (1) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, the Indemnifying Party in
connection therewith), (2) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (3) the Indemnifying Party will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 8.
(e) CLAIMS FOR INDEMNIFICATION.
(i) Whenever any claim shall arise for indemnification under
Section 8(b), First Sierra shall describe such claim in a written notice
("Notice of Claim") to the Shareholder (and for purposes of this Section
8(e), a notice given by First Sierra pursuant to Section 8(d) shall
constitute a "Notice of Claim") and, when known, specify the facts
constituting the basis for such claim and the amount or an estimate of
the amount of such claim.
(ii) Following the receipt by Shareholder of each Notice of
Claim, Shareholder may give First Sierra written notice ("Notice of
Objection") (1) attaching a copy of such Notice of Claim, (2) stating
that, in the opinion of Shareholder, the claim described in such Notice
of Claim is invalid (either in whole or in specified part) under the
terms of Section 8 hereof, (3) giving the reasons for the alleged
invalidity, and (4) stating that, based on such alleged invalidity,
Shareholder objects to the payment of any portion of the amount claimed
pursuant to such Notice of Claim. If a Notice of Objection alleges that
a Notice of Claim is only partially invalid, Shareholder, within 30 days
of the receipt of such Notice of Claim, agrees to deliver to First
Sierra that portion of the amount claimed pursuant to such Notice of
Claim as to which no objection is made.
(iii) First Sierra and Shareholder agree to submit to final and
binding arbitration pursuant to Section 10(o) any and all disputes
Shareholder has specified in a Notice of Objection or First Sierra has
specified in a Notice of Claim to which Shareholder has not responded
within 30 days of receipt of such Notice of Claim. If pursuant to any
such arbitration proceeding it is determined that Shareholder is
obligated to make payment to First Sierra, then such payment shall be
made to First Sierra no later than 30 days following such determination.
(f) DETERMINATION OF ADVERSE CONSEQUENCES. There shall be taken into
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this Section 8. All
indemnification payments under this Section 8 shall be deemed adjustments to
the Purchase Price.
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(g) RECOUPMENT UNDER PREFERRED STOCK.
(i) Effective as of the Closing, Shareholder grants to First
Sierra a first priority security interest in and makes a collateral
assignment of (1) all of the Escrowed Shares, (2) the stock powers
executed in blank attached to the Escrowed Shares, (3) any common stock
of First Sierra into which any of the Escrowed Shares is converted, (4)
the income and dividends with respect to the Escrowed Shares, including
cash and stock dividends and stock splits and any exchange of any of the
Escrowed Shares for other property upon reorganization, recapitalization
or other readjustment of the First Sierra (and in the event that
Shareholder receives any property of the type described in clause (3) or
this clause (4), Shareholder agrees to promptly deliver such property to
the escrow agent under the Escrow Agreement to be held by such escrow
agent in accordance with the terms of the Escrow Agreement), and (5) all
proceeds, products, additions and substitutions of and to any and all of
the foregoing (collectively, the "Collateral"). The assignment and
security interest referred to above is granted to First Sierra to secure
the payment and performance when due of any and all obligations and
liabilities of Shareholder pursuant to this Section 8. If pursuant to
Section 8(e) it is determined or deemed that Shareholder owes an
indemnification obligation to First Sierra and Shareholder does not
satisfy such indemnification obligation by making the applicable payment
to First Sierra within the 30 day period set forth in clause (ii) or
(iii) of Section 8(e), as applicable, then First Sierra may (in its sole
discretion) at any time while such failure continues elect to sell in
one or more sales, or otherwise dispose of, any or all of the
Collateral, in such order as First Sierra may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere, or to any brokers' board or securities exchange, either for
cash or upon credit or for future delivery, at such price as First
Sierra may deem fair, and First Sierra may be the purchaser of any and
all Collateral so sold and may hold the same thereafter in its own right
free and clear of any claim of Shareholder or right of redemption. If
any applicable provision of the Uniform Commercial Code or other law
requires First Sierra to give reasonable notice of any such sale or
disposition or other action, five days prior written notice shall
constitute reasonable notice. Any sale hereunder may be conducted by an
auctioneer or any officer or agent of First Sierra. Shareholder shall
remain liable to First Sierra for any indemnification obligations
remaining unpaid following any such sale. The aforesaid rights of First
Sierra shall be in addition to and not exclusive of any other rights
that First Sierra may have as a secured party under the Uniform
Commercial Code or other applicable law. In particular, nothing herein
shall require First Sierra to foreclose on or otherwise take any action
in respect of the Collateral; rather, First Sierra may elect to recover
any amounts owed pursuant to such indemnification obligations directly
from Shareholder and without resort to any of the Collateral.
(ii) The security interest in and collateral assignment of any
Escrowed Shares that are released from Escrow pursuant to Section
2(c)(iii) above shall be terminated and released effective as of the
release date applicable to such Escrowed Shares.
(h) OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of this
Agreement.
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9. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue
any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of First Sierra and Shareholder; provided, either Party may make any
public disclosure it believes in good faith is required by applicable law or
any listing or trading agreement concerning its publicly-traded securities (in
which case the disclosing Party will use all reasonable efforts to advise the
other Party prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) and the Employment Agreement to be entered into between
First Sierra and the Shareholder constitutes the entire agreement among the
Parties and supersedes any prior understandings, agreements, statements, or
representations between the Parties, written or oral, to the extent they relate
in any manner to the subject matter hereof including that certain letter of
intent with attached terms dated ________.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written approval of other Party.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be sent by (i) personal delivery
(including courier service), (ii) telecopier during normal business hours to
the number indicated, or (iii) registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set
forth below (any communication shall be deemed given upon receipt):
IF TO SHAREHOLDER OR THE COMPANY:
Xxxxxxx X. Xxxxx
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
Telecopier No.: 000-000-0000
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IF TO FIRST SIERRA OR SUB:
First Sierra Financial, Inc.
Texas Commerce Tower, Suite 7050
000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx
Telecopier No.: 713-221-1818
Any Party may change its telecopier number or its address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
(g) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
(h) AMENDMENTS AND WAIVERS. No amendments of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
First Sierra and Shareholder. No waiver by either Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(i) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(j) EXPENSES. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(k) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties, and no presumption or burden of proof
shall arise favoring or disfavoring either Party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal, state,
local, or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(l) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
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(m) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and
agrees that the other Party would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Party shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(n)), in addition to any other remedy to which they may be
entitled, at law or in equity.
(n) SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Philadelphia, Xxxxxxx
County, Pennsylvania or in Houston, Texas, in any action or proceeding arising
out of or relating to this Agreement and agrees that all claims in respect of
the action or proceeding may be heard and determined in any such court. Each of
the Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of the other Party with respect thereto. Nothing in
this Section 10(n), however, shall affect the right to any Party to bring any
action or proceeding arising out of or relating to this Agreement in any other
court. Each Party agrees that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law or at equity.
(o) ARBITRATION. If a Party makes a good faith determination that a
breach (or potential breach) of any of the confidentiality or non-competition
provisions of this Agreement by another Party may result in damages or
consequences that will be immediate, severe and incapable of adequate redress
after the fact, or First Sierra believes that a proposed draw or actual draw on
the Letter of Credit is or was not permitted pursuant to the terms of Section
2(v), that Party may seek a temporary restraining order or other immediate
injunctive relief without first seeking relief through arbitration. After the
court has ruled on the request for a temporary restraining order or injunctive
relief, the Parties will thereafter proceed with arbitration of the dispute and
stay the litigation pending arbitration. Subject to the foregoing, any dispute
arising out of this Agreement, or its performance or breach, shall be resolved
by binding arbitration under the Commercial Arbitration Rules (the "AAA Rules")
of the American Arbitration Association (the "AAA"). This arbitration
provision is expressly made pursuant to and shall be governed by the Federal
Arbitration Act, 9 U.S.C. Sections 1-14. The Parties agree that pursuant to
Section 9 of the Federal Arbitration Act, a judgment of a United States
District Court of competent jurisdiction shall be entered upon the award made
pursuant to the arbitration. A single arbitrator, who shall have the authority
to allocate the costs of any arbitration initiated under this paragraph, shall
be selected according to the AAA Rules within ten days of the submission to the
AAA of the response to the statement of claim or the date on which any such
response is due, whichever is earlier. The arbitrator shall conduct the
arbitration in accordance with the Federal Rules of Evidence. The arbitrator
shall decide the amount and extent of pre-hearing discovery which is
appropriate. The arbitrator shall have the power to enter any award of
monetary and/or injunctive relief (including the power issue permanent
injunctive relief and also the power to reconsider any prior request for
immediate injunctive relief by any of the Parties and any order as to immediate
injunctive relief previously granted or denied by a court in response to a
request therefor by any of the Parties), including the power to render an award
as provided in Rule 43 of the AAA Rules; provided, the arbitrator shall not
have the power to award any punitive or exemplary damages (the parties hereby
waiving and releasing any rights that they may have to recover punitive and
exemplary damages). The arbitrator shall award the prevailing Party its costs
and reasonable attorneys' fees, and the losing Party shall bear the entire cost
of the arbitration, including the arbitrator's fees. Any arbitration shall be
held
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in Houston, Texas for any claim brought by the Parties hereto. In addition to
the above courts, the arbitration award may be enforced in any court having
jurisdiction over the Parties and the subject matter of the arbitration.
Notwithstanding the foregoing, the parties irrevocably submit to the
nonexclusive jurisdiction of the state and federal courts situated in Houston,
Texas in any action to enforce an arbitration award and with respect to any
request for a temporary restraining order or injunctive relief.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
FIRST SIERRA FINANCIAL, INC.
By: /s/ XXXXXX X. XXXXXXX
------------------------------------
Xxxxxx X. Xxxxxxx
President and Chief Executive
Officer
FIRST SIERRA PENNSYLVANIA, INC.
By: /s/ XXXXXX X. XXXXXXX
------------------------------------
Xxxxxx X. Xxxxxxx
President
/s/ XXXXXXX X. XXXXX
---------------------------------------
XXXXXXX X. XXXXX
CORPORATE CAPITAL LEASING GROUP, INC.
By: /s/ XXXXXXX X. XXXXX
------------------------------------
Xxxxxxx X. Xxxxx
President
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