EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AMERICAN HOME MORTGAGE HOLDINGS, INC.,
AMERICAN HOME MORTGAGE SUB I, INC.,
MARINA MORTGAGE COMPANY, INC.,
AND
THE STOCKHOLDERS OF MARINA MORTGAGE COMPANY, INC.
LISTED ON THE SIGNATURE PAGES HERETO
DATED AS OF DECEMBER 29, 1999
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1 Defined Terms............................................................1
ARTICLE II
THE MERGER
2.1 The Merger...............................................................7
2.2 Effective Time...........................................................8
2.3 Closing..................................................................8
2.4 Conversion of Capital Stock; Purchase Price..............................8
2.5 Exchange of Certificates................................................11
2.6 Delivery of Merger Consideration and Dispute Resolution.................12
2.7 Withholding from Merger Consideration...................................13
2.8 Share Issuance Limitation...............................................13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
3.1 Shares..................................................................13
3.2 Authorization...........................................................13
3.3 Investment Purposes.....................................................14
3.4 Accredited Investor.....................................................14
3.5 Exemption...............................................................14
3.6 Due Diligence...........................................................14
3.7 Exclusivity of Preparation..............................................14
3.8 No Advertisement........................................................15
3.9 Accuracy of Representations.............................................15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL STOCKHOLDERS
4.1 Organization of the Company.............................................15
4.2 Capital Stock...........................................................15
4.3 Subsidiaries............................................................16
4.4 Authorization...........................................................16
4.5 Financial Statements....................................................16
4.6 Absence of Certain Changes..............................................17
4.7 Title to Assets.........................................................19
4.8 Condition and Sufficiency of Assets.....................................19
4.9 Contracts...............................................................19
4.10 No Conflict or Violation................................................21
4.11 Consents and Approvals..................................................22
4.12 Litigation..............................................................22
4.13 Compliance with Law; Permits and Licenses...............................22
4.14 Intellectual Property...................................................22
4.15 ERISA...................................................................23
4.16 Taxes...................................................................24
4.17 Environmental Laws and Regulations......................................27
4.18 Labor Matters...........................................................28
4.19 Insurance...............................................................28
4.20 No Undisclosed Liabilities..............................................29
4.21 Affiliated Transactions.................................................29
4.22 Interests in Clients, Suppliers.........................................29
4.23 Brokers.................................................................29
4.24 Year 2000 Compliance....................................................29
4.25 Loans; Investments......................................................30
4.26 Allowance for Possible Loan Losses......................................33
4.27 Accuracy of Representations.............................................33
4.28 Disclosure..............................................................33
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND SUB
5.1 Organization of Purchaser and Sub.......................................33
5.2 Authorization...........................................................33
5.3 No Conflict or Violation................................................34
5.4 Validity of Issuance of Common Stock....................................34
5.5 SEC Filings; Financial Statements.......................................34
5.6 Consents and Approvals..................................................34
5.7 Litigation..............................................................35
5.8 Acquisition for Investment..............................................35
5.9 Brokers.................................................................35
ARTICLE VI
ACTIONS BY THE PURCHASER, THE STOCKHOLDERS
AND THE COMPANY PRIOR TO THE CLOSING
6.1 Conduct of Business.....................................................35
6.2 Certain Restrictions on the Company.....................................35
6.3 Access to Information...................................................37
6.4 Regulatory and Other Authorizations.....................................37
6.5 Insurance...............................................................38
6.6 Further Action..........................................................38
6.7 Exclusivity.............................................................38
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of the Purchaser..............................39
7.2 Conditions to Obligations of the Company and the Stockholders...........41
ARTICLE VIII
CERTAIN ADDITIONAL COVENANTS AND ACKNOWLEDGEMENTS
8.1 Restrictive Legend......................................................42
8.2 No Transfer.............................................................42
8.3 Board of Directors......................................................42
8.4 Tax Return Filings......................................................42
8.5 Piggyback Registration..................................................44
ARTICLE IX
INDEMNIFICATION
9.1 Survival of Representations and Warranties..............................45
9.2 Indemnification by the Purchaser........................................45
9.3 Indemnification by the Principal Stockholders...........................46
9.4 Tax Indemnification.....................................................48
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Methods of Termination..................................................49
10.2 Procedure Upon Termination..............................................49
10.3 Effect of Termination...................................................49
ARTICLE XI
MISCELLANEOUS
11.1 Specific Performance....................................................50
11.2 Assignment..............................................................50
11.3 Notices.................................................................50
11.4 Choice of Law...........................................................51
11.5 Entire Agreement; Amendments and Waivers................................51
11.6 Counterparts............................................................52
11.7 Invalidity..............................................................52
11.8 Headings................................................................52
11.9 Expenses................................................................52
11.10 Publicity...............................................................52
SCHEDULES AND EXHIBITS
Schedules:
Schedule 2.1(c) - Directors
Schedule 4.3 - Subsidiaries
Schedule 4.6 - Certain Changes
Schedule 4.7(a) - Title to Assets
Schedule 4.7(b) - Title to Assets
Schedule 4.9 - Contracts
Schedule 4.10 - No Conflict or Violation
Schedule 4.11 - Consents and Approvals
Schedule 4.12 - Litigation
Schedule 4.13 - Permits
Schedule 4.14 - Intellectual Property
Schedule 4.15 - ERISA
Schedule 4.16 - Taxes
Schedule 4.19 - Insurance
Schedule 4.21 - Affiliated Transactions
Schedule 4.22 - Clients, Suppliers
Schedule 4.25 - Loans
Exhibits:
Exhibit 2.4(c) - Formula
Exhibit 2.4(d) - Formula
Exhibit 2.4(f) - Formula
Exhibit 4.20 - Balance Sheet
Exhibit 7.1(d) - Legal Opinion
Exhibit 7.1(e) - Form of Employment Agreement
Exhibit 7.1(f) - Form of Non-Competition Agreement
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 29, 1999
(together with all schedules and exhibits hereto, the "Agreement"), is by and
among American Home Mortgage Holdings, Inc., a Delaware corporation (the
"Purchaser"), American Home Mortgage Sub I, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Purchaser ("Sub"), Marina Mortgage Company, Inc.,
a California corporation (the "Company"), and the stockholders of the Company
listed on the signature pages hereto (collectively, the "Stockholders").
RECITALS
WHEREAS, the Stockholders own 33,563 shares (the "Shares") of common
stock, no par value, of the Company, constituting substantially all of the
issued and outstanding capital stock of the Company (the "Stock");
WHEREAS, Messrs. Xxxxxx Xxxxxx and Xxxx Xxxxxxxx own 26,989 shares
of Stock and are the Stockholders who effectively control the Company (the
"Principal Stockholders") and agree, among other things, to vote in favor of
this Agreement and the Merger (as defined below);
WHEREAS, the Boards of Directors of each of the Purchaser, Sub and
the Company have approved, and deem it fair to, advisable and in the best
interests of their respective stockholders to consummate, the acquisition of the
Company by the Purchaser and Sub upon the terms and subject to the conditions
set forth herein;
WHEREAS, the Board of Directors of the Company has determined that
the consideration to be paid for the Shares and the Merger is fair to the
holders of the Shares and has resolved to recommend that the holders of Shares
tender their Shares and approve and adopt this Agreement and the Merger upon the
terms and subject to the conditions set forth herein; and
WHEREAS, the Company, the Purchaser, Sub and the Stockholders desire
to make certain representations, warranties, covenants and agreements in
connection with the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. Capitalized words and phrases used and not
otherwise defined in this Agreement shall have the following meanings:
"Actions" is defined in Section 4.12.
"Adjusted Initial Consideration" shall mean the amount by which the
Initial Consideration shall be adjusted as provided in Article II.
"Affiliate" means a Person that directly, or indirectly through one
or more intermediaries, controls, is controlled by or is under common control
with the Person specified. For purposes of this definition, the term "control"
of a Person means the possession, direct or indirect, of the power to (i) vote
50% or more of the voting securities of such Person or (ii) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise, and the terms and phrases "controlling", "controlled by" and "under
common control with" have correlative meanings.
"Agreement" is defined in the preamble.
"Assets" is defined in Section 4.7.
"Audited Balance Sheet Date" is defined in Section 4.6.
"Balance Sheet" is defined in Section 4.5.
"Benefit Plan" means any employment, consulting, severance or other
similar contract, arrangement or policy, and any plan, arrangement (written or
oral), program, agreement or commitment providing for insurance coverage
(including any self-insured arrangements), workers compensation, disability
benefits, supplemental unemployment benefits, material vacation benefits,
retirement benefits, life, health, disability or accident benefits (including
without limitation any "voluntary employees' beneficiary association" as defined
in section 501(c)(9) of the Code) providing for the same or other benefits, or
for deferred compensation, profit sharing, bonuses, stock options, stock
appreciation rights, stock purchases or awards and any other form of incentive
compensation or post-retirement insurance, compensation or benefits, including
any "employee welfare benefit plan" as defined in section 3(1) of ERISA and any
"employee pension benefit plan" as defined in section 3(2) of ERISA, which is
entered into, maintained, contributed to or required to be contributed to or
with respect to which any liability is borne, as the case may be, by the Company
or an ERISA Affiliate, or under which the Company or any ERISA Affiliate could
incur any material liability, and which covers any employee or former employee
of the Company or an ERISA Affiliate whether or not subject to ERISA.
"Book Value" means the excess of total assets over total liabilities
reflected on the Closing Balance Sheet.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York, New York and the State of Delaware
are authorized or required by law to close.
"Cash Income" has the meaning set forth in Exhibit 2.4(c).
"Closing" is defined in Section 2.3.
"Closing Date" means the date on which the Closing occurs pursuant
to Section 2.3.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Common Stock" means shares of common stock, par value $0.01 per
share, of the Purchaser.
"Company" is defined in the preamble.
"Contracts" means all agreements, contracts, commitments,
undertakings, instruments, indentures, licenses and franchises to which the
Company or any of the Subsidiaries is a party, an obligor or a beneficiary.
"Division Net Income" has the meaning set forth in Exhibit 2.4(d).
"Encumbrance" means any claim, lien, pledge, option, charge,
easement, security interest, right-of-way, restriction, encumbrance or other
similar right of a third party.
"Environmental Claim" means any and all administrative, regulatory
or judicial actions, suits, demands, claims, liens, notices of noncompliance or
violations, investigations or proceedings arising under any Environmental Law or
any permit issued under any such Environmental Law (the "Designated Claims")
including, without limitation, (i) any and all Designated Claims by governmental
or regulatory authorities for enforcement, cleanup, removal, response, remedial
or other actions or damages pursuant to any applicable Environmental Law, and
(ii) any and all Designated Claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment.
"Environmental Law" means any currently existing federal, state or
local statute, law, rule, regulation, ordinance, code, legally binding guideline
or policy or rule of common or civil law of the United States or of any other
jurisdiction in which the Company or any Subsidiary owns any real property or
conducts operations relating to the environment, occupational safety and health
or Hazardous Materials and any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent decree or
judgment.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means the last trade price of a share of Common
Stock as reported on the Nasdaq for any period specified in this Agreement;
provided, if such share is not listed or admitted to trading on the Nasdaq, as
reported on the principal national security exchange or quotation system on
which such share is quoted or listed or admitted to trading, or, if not quoted
or listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of such share on the over-the-counter
market on the day in question as reported by Bloomberg, LP, or a similar
generally accepted reporting service, as the case may be.
"GAAP" means generally accepted accounting principles consistently
applied.
"Governmental Body" means any federal, state, local, foreign or
other governmental agency, instrumentality, commission, authority, board or
body.
"Group Net Income" has the meaning set forth in Exhibit 2.4(f).
"Hazardous Materials" means all infectious, toxic or hazardous
pollutants, contaminants, chemicals, substances, materials or wastes of whatever
kind or nature, whether liquid, solid or gaseous, defined or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous materials",
"chemical substances", "toxic substances", "contaminants", "pollutants",
"dangerous substances" or "dangerous waste" or words of similar import, in any
language, under any applicable Environmental Law. Hazardous Materials include,
without limitation, petroleum products, heavy metals, asbestos and PCBs.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Initial Consideration" shall be determined as provided in Section
2.4(b).
"Intellectual Property" means all of the following which are owned
by, issued to or licensed to or used by each of the Company and its
Subsidiaries, together with all income, royalties, damages and payments due or
payable in respect thereof as of the Closing or thereafter; patents, patent
applications and inventions and any reissue, continuation, continuation-in-part,
division, extension or reexamination thereof; trademarks, service marks, trade
dress, logos, trade names and corporate names, together with all goodwill
associated therewith; copyrights; and all registrations, applications and
renewals for any of the foregoing; trade secrets, know-how, confidential and
proprietary information, customer and supplier lists and related information;
all other proprietary rights and computer software (including, without
limitation, data, source codes and user and system documentation).
"Investor" means any Person who has acquired or hereinafter acquires
a Loan from the Company or any Subsidiary.
"Investor Requirements" means any outstanding contractual, legal and
regulatory obligation of the Company or any Subsidiary to any Investor,
including but not limited to, the representations, warranties and covenants made
by the Company or any Subsidiary to any Investor.
"Knowledge" means actual knowledge after reasonable investigation
and knowledge and information that are or should be available to a Person by
virtue of such Person's position. With respect to the Company, "knowledge" will
be deemed to include the actual knowledge after reasonable investigation and
knowledge and information that are or should be available to its directors, the
Principal Stockholders and the Chief Financial Officer of the Company by virtue
of such Persons' positions.
"Leased Real Property" is defined in Section 4.7.
"Leases" is defined in Section 4.7.
"Loan" means any loan or lease at any time held, serviced or sold by
the Company or any Subsidiary to the extent that the Company or any Subsidiary
could have any liability, obligation or duties with respect thereto.
"Loan Documents" means the note, mortgage, deed of trust, security
agreement, or other instrument securing the note and the related documents for
each Loan.
"Loans Held for Sale" means all Loans currently held and hereinafter
acquired or originated by the Company or any Subsidiary where beneficial
ownership has not been transferred to an Investor.
"Material Adverse Effect" means (i) with respect to the Company, an
adverse effect on the ability of the Company to consummate the transactions
contemplated by this Agreement and an adverse effect that is material to the
business, Assets, liabilities, condition (financial or otherwise), results of
operations, prospects of the Company's business, or properties of the Company or
any of its Subsidiaries and (ii) with respect to the Purchaser, an adverse
effect on the ability of the Purchaser to consummate the transactions
contemplated by this Agreement and an adverse effect that is material to the
business, assets, liabilities, conditions (financial or otherwise), results of
operations, prospects of the Purchaser's business, or property of the Purchaser
or any of its subsidiaries.
"Merger Consideration" is defined in Section 2.4.
"Mortgage Loan" means a Loan secured by a mortgage.
"Nasdaq" means the Nasdaq National Market.
"Organizational Documents" means (i) the articles or certificate of
incorporation and the bylaws of a corporation; the partnership agreement and any
statement of partnership of a general partnership; (iii) the limited partnership
agreement and the certificate of limited partnership of a limited partnership;
(iv) any charter or similar document adopted or filed in connection with the
creation, formation, or organization of a Person; and (v) any amendment of any
of the foregoing.
"PBGC" is defined in Section 4.15.
"Permitted Encumbrances" means (i) statutory liens for current taxes
or other governmental charges not yet due and payable or the amount or validity
of which is being contested in good faith by appropriate proceedings by the
Company and its Subsidiaries and for which appropriate reserves have been
established in accordance with generally accepted accounting principles,
consistently applied and are set forth on the Balance Sheet or incurred in the
ordinary course of business consistent with past practices; (ii) mechanics,
carriers, workers, repairers and similar statutory liens arising or incurred in
the ordinary course of business for amounts which are not delinquent and which
are not, individually or in the aggregate, material to the Company's business;
(iii) zoning, entitlement, building and other land use regulations imposed by
governmental agencies having jurisdiction over the real property which are not
violated by the current use and operation of the real property; and (iv)
covenants, conditions, restrictions, easements and other similar matters of
record affecting title to the real property which do not materially impair the
occupancy or use of the real property for the purposes for which it is currently
used and proposed to be used in connection with the business of the Company and
its Subsidiaries.
"Person" means an individual, a partnership, a limited partnership,
a limited liability company, a joint venture, a corporation, a trust, an
unincorporated organization, a division or operating group of any of the
foregoing, a government or any department or agency thereof or any other entity.
"Post-Closing Tax Period" shall mean any taxable period (or portion
thereof) that begins after the Closing Date.
"Portfolio Loan" means all Loans currently owned or hereinafter
owned for investment by the Company or any Subsidiary.
"Pre-Closing Tax Period" shall mean any taxable period (or portion
thereof) ending on or before the Closing Date.
"Purchaser" is defined in the preamble.
"Regulations" is defined in Section 4.13.
"Release" means active or passive disposing, discharging, injecting,
spilling, leaking, leaching, dumping, emitting, pouring, escaping, emptying,
seeping, placing and the like, into or upon any land or water or air, or
otherwise entering into the environment.
"Representative" means any officer, director, principal, employee or
other authorized representative of a Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Serviced Loans" means all Loans currently and hereinafter serviced
by the Company or any Subsidiary for its own account or for others.
"Servicing Requirements" means prudent practice and industry
standards together with any contractual, legal or regulatory obligation of the
Company or any Subsidiary relating to the Serviced Loans or any Loan previously
serviced by the Company or any Subsidiary.
"Stock" is defined in the recitals.
"Subsidiaries" means each corporation or other Person as to which
the Company directly or indirectly (including through one or more Subsidiaries
or any of the stockholders, directors or officers of the Company) owns at least
10% of the outstanding shares of stock or other ownership interests.
"Tax" or "Taxes" means all income, gross receipts, profits,
intangibles, sales, excise, ad valorem, bulk transfer, use, payroll, employment,
franchise, profits, property or other taxes, fees, stamp taxes, imposts, duties,
assessments, levies or similar charges of any kind whatsoever (whether payable
directly or by withholding), together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority with
respect thereto and shall include any liability for such amounts as a result
either of being a member of a combined, consolidated, unitary or affiliated
group or of a contractual obligation to indemnify any Person.
"Tax Return" means any return, filing, questionnaire, information
return or other document required to be filed, including without limitation,
requests for extensions of time, filings made with estimated tax payments,
claims for refund and amended returns that may be filed, for any period with any
taxing authority (whether domestic or foreign) in connection with any Tax
(whether or not a payment is required to be made with respect to such filing).
"Taxing Authority" shall mean any domestic, foreign, federal,
national, state, county or municipal or other local government, any subdivision,
agency, commission or authority thereof, or any quasi-governmental body
exercising tax regulatory authority.
"Trading Day" means any day on which purchase and sales of
securities authorized for quotation on Nasdaq are reported thereto and on which
no event that results in a material suspension or limitation of trading of
Common Stock on Nasdaq has occurred; provided, if such security is not listed or
admitted to trading on the Nasdaq, as reported on the principal national
security exchange or quotation system on which such security is quoted or listed
or admitted to trading, or, if not quoted or listed or admitted to trading on
any national securities exchange or quotation system, the closing bid price of
such security on the over-the-counter market on the day in question as reported
by Bloomberg, LP, or a similar generally accepted reporting service, as the case
may be.
"Twelve Month Period" shall mean either the period commencing with
the first day of the month immediately succeeding the Closing Date (the
"Starting Date") and ending on December 31, 2000, or the period commencing on
January 1, 2001 and ending on December 31, 2001.
ARTICLE II
THE MERGER
2.1 The Merger. (a) Upon the terms and subject to the conditions of
this Agreement, and in accordance with the laws of the State of California, at
the Effective Time (as defined in Section 2.2 hereof), the Company and Sub shall
consummate a merger (the "Merger") pursuant to which (x) Sub shall be merged
with and into the Company and the separate corporate existence of Sub shall
thereupon cease and (y) the Company shall be the surviving corporation in the
Merger (sometimes hereinafter referred to as the "Surviving Corporation") and
shall continue to be governed by the laws of the State of California.
(b) Pursuant to the Merger, at the Effective Time, (x) the
certificate of incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be the certificate of incorporation of the Surviving
Corporation, and (y) the by-laws of the Company, as in effect immediately prior
to the Effective Time, shall be the by-laws of the Surviving Corporation, each
until thereafter changed or amended as under applicable law.
(c) The directors of the Surviving Corporation at the Effective Time
shall be such persons as set forth on Schedule 2.1(c) until their respective
successors are duly elected and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
certificate of incorporation and by-laws. The officers of the Surviving
Corporation at the Effective Time shall be the initial officers of the Surviving
Corporation, except that Mr. Xxxxxxx Xxxxxxx shall be the Chairman of the Board
of the Surviving Corporation, Xx. Xxxx X. Xxxxxxxx shall be the Chief Executive
Officer of the Surviving Corporation, and Xx. Xxxxxx Xxxxxx shall be the
President of the Surviving Corporation until the respective successors of the
officers are duly elected and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
certificate of incorporation and by-laws.
(d) The Merger shall have the effects specified in the applicable
provisions of the laws of the State of California.
2.2 Effective Time. Subject to the terms and conditions of this
Agreement, the Purchaser, Sub and the Company will cause a certificate of merger
or, if applicable, a certificate of ownership and merger (as applicable, the
"Agreement of Merger") to be executed and filed on the date of the Closing (as
defined in Section 2.3) (or on such other date as the Purchaser and the Company
may agree) with the Secretary of State of the State of California and, following
such filing, with the Secretary of State of the State of Delaware as provided
under the laws of the State of California and the State of Delaware. The Merger
shall become effective on the date on which the Agreement of Merger has been
duly filed with the Secretary of State of the State of California or such other
time as is agreed upon by the parties and specified in the Agreement of Merger,
and such time is hereinafter referred to as the "Effective Time". The filing of
the Agreement of Merger shall be made as soon as practicable after the
satisfaction or waiver of the conditions to the Merger set forth herein.
2.3 Closing. The closing of the Merger (the "Closing") shall take
place at 10:00 a.m., local time, on a date to be specified by the parties, which
shall be no later than the second Business Day after satisfaction or waiver of
all of the conditions set forth in Article VII hereof (the "Closing Date"), at
the offices of Cadwalader, Xxxxxxxxxx & Xxxx, 000 Xxxxxx Xxxx, Xxx Xxxx, Xxx
Xxxx, 00000, unless another date or place is agreed to in writing by the parties
hereto.
2.4 Conversion of Capital Stock; Purchase Price. (a) At the
Effective Time, by virtue of the Merger and without any action on the part of
the holders of any Shares or any shares of capital stock of Sub:
(i) Each issued and outstanding share of common stock, par value
$.01 per share, of Sub shall be converted into and become 360 fully paid
and nonassessable shares of common stock, no par value, of the Surviving
Corporation.
(ii) All Shares that are owned by the Company or any Subsidiary
of the Company (other than by any employee benefit plan) and any Shares
owned by the Purchaser, Sub or any subsidiary of the Purchaser or Sub
(other than shares owned by any employee benefit plan of the Purchaser or
any subsidiary of the Purchaser) shall be cancelled and retired and shall
cease to exist and no consideration shall be delivered in exchange
therefor.
(iii) Each issued and outstanding Share (other than Shares to be
cancelled in accordance with this Section and any Dissenting Shares (as
defined in Section 1300 of the California Corporations Code)) (the
"Converted Shares") shall be converted into the right to receive the
number of shares of Common Stock and cash, as provided below, equal to the
sum of the Initial Consideration, as adjusted, the First Earnout (as set
forth below), Second Earnout (as set forth below), Additional Earnouts (as
set forth below) and the Cash Consideration (as set forth below)
(collectively, the "Merger Consideration"). All such Shares, when so
converted, shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration
therefor upon the surrender of such certificate in accordance with Section
2.5, without interest.
(b) The Initial Consideration shall be determined and adjusted as
follows:
(i) The Initial Consideration shall be a number of shares of
Common Stock equal to the result obtained by dividing $4,850,144.50 by the
Fair Market Value of the Common Stock on the last Trading Day immediately
preceding the Closing Date and dividing that result by the number of
Converted Shares.
(ii) As promptly as practicable, but in any event not later than
one hundred twenty (120) days after the Closing Date, the Purchaser shall
cause to be prepared and delivered to the Stockholders a balance sheet of
the Company as of the Closing Date (the "Closing Balance Sheet"), which
shall be audited by Deloitte & Touche, certified public accountants, and
certified by such firm to have been prepared in accordance with GAAP
applied on a basis consistent with the preparation of the Audited Balance
Sheet.
(iii) If $2,700,000 exceeds the Book Value on the Closing Balance
Sheet and the Closing Date is on or before December 31, 1999, or if
$2,500,000 exceeds the Book Value at the Closing Balance Sheet and the
Closing Date is on or after January 1, 2000 but before February 1, 2000,
the Stockholders shall return to the Purchaser such number of shares of
Common Stock as is equal to such excess divided by the Fair Market Value
of Common Stock at the last Trading Day immediately preceding the Closing
Date.
(iv) The determination of the Adjusted Initial Consideration
shall be subject to the dispute resolution mechanisms set forth in Section
2.6.
(v) The return of shares of Common Stock as provided in this
Section shall be made within ten (10) Business Days after the final
determination of the Adjusted Initial Consideration.
(c) The First Earnout will be payable if the Cash Income of the
Company as determined in accordance with the formula as set forth on Exhibit
2.4(c) for the eight month period after the Starting Date is greater than zero.
The First Earnout shall be a number of shares of Common Stock equal to the
result obtained by dividing $970,028.90 by the Fair Market Value of the Common
Stock determined as of the average of the twenty (20) Trading Days immediately
following the eight month period after the Starting Date, and dividing that
result by the number of Converted Shares.
(d) The Second Earnout will be payable if the Division Net Income of
the Company for a Twelve Month Period (but only one Twelve Month Period) equals
or exceeds $400,000 as determined in accordance with the formula set forth on
Exhibit 2.4(d). The Second Earnout shall be a number of shares of Common Stock
equal to the result obtained by dividing $970,028.90 by the Fair Market Value of
the Common Stock determined as of the average of twenty (20) Trading Days
immediately following a Twelve Month Period in which Division Net Income equals
or exceeds $400,000, and dividing that result by the number of Converted Shares.
(e) The Cash Consideration (rounded to the nearest whole number)
shall be payable on February 15, May 15, August 15 and November 15 of each of
the calendar years of 2000, 2001, 2002, 2003 and 2004 in an amount in cash equal
to $3.613; provided, however, that each such amount shall be paid solely in
shares of Common Stock based on the Fair Market Value of the Common Stock
determined as of the average of the twenty (20) Trading Days ending on the day
immediately preceding the distribution day as set forth in this Section 2.4(e)
if the total aggregate payments in cash as of the time of such payment under
this Agreement, after giving effect to such payment plus $284,725.45, would
equal 20% or more of the Merger Consideration if such payment were made in cash.
(f) In addition, for the calendar years of 2001, 2002, 2003, 2004
and 2005, on the later of May 10 of the calendar year immediately following the
applicable calendar year or the tenth Business Day after the determination as
provided in Section 2.6, an Additional Earnout to be determined in accordance
with the formula set forth on Exhibit 2.4(f) hereto shall be paid in an amount
equal to 32.01% of the Group Net Income for the applicable calendar year, or in
the event the Group Net Income for such calendar year is more than $2,000,000,
32.01% of the Group Net Income up to the amount of $2,000,000 and 38.80% of the
Group Net Income over $2,000,000. The Additional Earnout in each year shall be
equal to the result obtained by dividing the foregoing amount by the Fair Market
Value of the Common Stock determined as of the average of the twenty (20)
Trading Days immediately following the last day of the applicable calendar year,
and dividing that result by the number of Converted Shares; provided, however,
that if either Xxxx X. Xxxxxxxx or Xxxxxx Xxxxxx is terminated without "Cause"
or resigns with "Good Reason" as such terms are defined in their Employment
Agreements, the form of which is attached hereto as Exhibit 7.1(e) (a
"Liquidated Damage Event"), the Additional Earnout shall equal:
(i) if the Liquidated Damage Event occurs in
year 2001, $2,000,000;
(ii) if the Liquidated Damage Event occurs in
year 2002, $2,000,000;
(iii) if the Liquidated Damage Event occurs in year 2003, (a)
125% of the calculated amount of the Additional Earnout amount for 2002,
plus (b) 125% of the amount calculated in (a) above, plus (c) 125% of the
amount calculated in (b) above;
(iv) if the Liquidated Damage Event occurs in year 2004, (a) 125%
of the calculated amount of the Additional Earnout amount for 2003, plus
(b) 125% of the amount calculated in (a) above; or
(v) if the Liquidated Damage Event occurs in year 2005, 125% of
the calculated amount of the Additional Earnout amount for 2004.
The applicable amount of liquidated damages shall be divided by the Fair Market
Value of the Common Stock determined as of the average of twenty (20) Trading
Days immediately following the last day of the applicable calendar year and
dividing that result by the number of Converted Shares. The payment of the
amount of liquidated damages shall be made at the time that such payment would
have been made if a Liquidated Damage Event had not occurred.
(g) No scrip or fractional share certificate for Common Stock will
be issued as part of the Merger Consideration, and an outstanding fractional
share interest will not entitle the owner thereof to vote, to receive dividends
or any rights of a stockholder of the Purchaser with respect to such fractional
share interest. The Purchaser will, in lieu of issuing a fractional share
certificate, pay to the holder of a fractional share interest the value of such
interest as determined based on the applicable Fair Market Value of the Common
Stock with respect to any distribution of shares of Common Stock as provided
above in this Section.
2.5 Exchange of Certificates. (a) As soon as reasonably practicable
after the Effective Time, the Purchaser shall cause each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares (the "Certificates") to convert the Shares into
the right to receive the Initial Consideration. Upon surrender of a Certificate
for cancellation to the Purchaser, and such other documents as may reasonably be
required by the Purchaser, the Purchaser shall cause shares of Common Stock to
be delivered to the holder of such Certificate, and the Certificate so
surrendered shall forthwith be cancelled. In the event of a surrender of a
Certificate representing Shares which are not registered in the transfer records
of the Company under the name of the Person surrendering such Certificate,
payment may be made to a Person other than the Person in whose name the
Certificate so surrendered is registered if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the Person requesting
such payment shall pay any transfer or other Taxes required by reason of payment
to a Person other than the registered holder of such Certificate or establish to
the satisfaction of the Purchaser that such Tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.5, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Initial Consideration which
the holder thereof has the right to receive in respect of such Certificate
pursuant to the provisions of this Article II. No interest shall be paid or will
accrue on the Initial Consideration payable to holders of Certificates pursuant
to the provisions of this Article II.
(b) At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of the Shares on the records of the Company. From and after the
Effective Time, the holders of Certificates evidencing ownership of the Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares, except as otherwise provided for herein or
by applicable law. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be cancelled and exchanged
as provided in this Article II.
(c) If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such Person of a bond in such reasonable amount as
the Surviving Corporation may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Purchaser shall pay in
exchange for such lost, stolen or destroyed Certificate the Merger Consideration
pursuant to this Agreement.
2.6 Delivery of Merger Consideration and Dispute Resolution. For the
purpose of this Article II, any determination required to be made shall be made
by the Purchaser who shall deliver a certificate to the Stockholders as part of
the Merger Consideration or on or before the date one hundred twenty (120) days
after the end of the applicable period specifying the applicable financial
results of the Company for the relevant period and the resulting amount, if any,
owed by the Purchaser to the Stockholders, along with detailed back-up financial
information utilized by the Purchaser in making its determination. Such
determination by the Purchaser shall be deemed final and binding upon the
parties unless within thirty (30) days after delivery thereof to the
Stockholders, written notice is given by the Stockholders of their objection
setting forth in reasonable detail the basis for the objection. If notice of
objection is given, the Stockholders and the Purchaser will consult with each
other with respect to the objection. If applicable, the amount in dispute will
be adjusted immediately to reflect any amount that is not in dispute. If the
Stockholders and the Purchaser are unable to reach agreement within the thirty
(30) days after the notice of objection has been given, the dispute will be
referred for resolution to a nationally recognized accounting firm that has not
had a business relationship with either the Stockholders and their Affiliates or
the Purchaser and its Affiliates during the period of three years prior to the
Closing (the "Dispute Accountants"), as promptly as practicable; provided,
however, that if the Stockholders and the Purchaser are unable to reach
agreement with respect to the Dispute Accountants, the Stockholders and the
Purchaser shall refer the dispute to the American Arbitration Association that
shall appoint the Dispute Accountants as promptly as practicable. The Dispute
Accountants will address and resolve only those items in dispute as identified
by the Stockholders and the Purchaser at the time of engagement. The Dispute
Accountants will make a determination as to each of the items in dispute, which
determination will be (A) in writing, (B) furnished to each of the Stockholders
and the Purchaser as promptly as practicable after the items in dispute have
been referred to the Dispute Accountants, (C) made in accordance with this
Agreement, and (D) conclusive and binding on the parties. The Stockholders and
the Purchaser will use reasonable efforts to cause the Dispute Accountants to
render their decision as soon as reasonably practicable, including without
limitation by promptly complying with all reasonable requests by the Dispute
Accountants for information, books, records and similar items. The fees and
costs of the Dispute Accountants will be borne by the Purchaser and the
Stockholders in the same proportion as the disputed amount is allocated between
the parties. All payments in cash and delivery of shares of Common Stock
required to be made pursuant to this Article II shall be made within ten
Business Days after the amount of the applicable payment is finally determined
in accordance with the provisions of this Section 2.6.
2.7 Withholding from Merger Consideration. The Purchaser shall
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement any amount required by law to be withheld from a change in the
federal, state, local or foreign tax laws requiring withholding on the
obligations of the Purchaser. The Stockholders shall promptly provide, upon
request from the Purchaser, any documentation required for the reduction or
elimination of withholding Taxes on payments of the Merger Consideration,
including but not limited to, IRS Form W-9.
2.8 Share Issuance Limitation. Notwithstanding any other provision
contained herein, the total number of shares of Common Stock to be issued
pursuant to this Agreement shall not equal or exceed 20% of the outstanding
shares of Common Stock as of the date of such issuance in accordance with Rule
4460 of the NASD Manual unless prior to such issuance, if required, the
Purchaser has obtained the approval of its stockholders to issue such shares or
an appropriate waiver has been obtained from Nasdaq. With respect to any amount
that would otherwise have been payable in Common Stock but for the restriction
contained in the preceding sentence, at the election of each Stockholder, (i)
such amount that is payable at such time shall be paid by the Parent in cash; or
(ii) the number of shares of Common Stock that would have been issued will be
reserved for issuance by the Purchaser and issued as promptly as practicable
upon obtaining the appropriate stockholder approval or Nasdaq waiver, which the
Purchaser agrees to use its best efforts to obtain promptly; or (iii) to the
extent permitted by applicable law and NASD rules, in lieu of the number of
shares of Common Stock that would have been issued, the Purchaser shall issue
shares of Non-Voting Common Stock containing the same economic benefits of the
Common Stock but without voting rights.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders, including the Principal Stockholders,
hereby represents and warrants to the Purchaser and Sub as follows:
3.1 Shares. The Shares are owned beneficially and of record by the
Stockholders, free and clear of any and all Encumbrances; provided, however,
that for purposes of this Section only each Stockholder represents and warrants
only with respect to the Shares that are being owned by such Stockholder.
3.2 Authorization. Each of the Stockholders has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and has taken all action necessary to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and to perform
its or his obligations hereunder. This Agreement and the Merger have been
properly approved by each of the Stockholders. This Agreement has been duly
executed and delivered by the Stockholders and, assuming the due execution and
delivery of this Agreement by the Purchaser, is a legal, valid and binding
obligation of the Stockholders, enforceable against the Stockholders in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought; provided, however, that for purposes of
this Section only each Stockholder represents and warrants only with respect to
the authority of such Stockholder.
3.3 Investment Purposes. Each of the Stockholders is purchasing the
shares of Common Stock for its own account, for investment purposes only and not
with a view towards or in connection with the public sale or distribution
thereof in violation of the Securities Act.
3.4 Accredited Investor. Each of the Stockholders represents with
respect to itself that such Stockholder is (i) an "accredited investor" within
the meaning of Rule 501 of Regulation D under the Securities Act, (ii)
experienced in making investments of the kind contemplated by this Agreement,
(iii) capable, by reason of its business and financial experience, of evaluating
the relative merits and risks of an investment in Common Stock, and (iv) able to
afford the loss of its investment in Common Stock. Each of the Stockholders also
represents with respect to itself that such Stockholder has been advised to seek
the advice of tax counsel and accountants in connection with the negotiation,
execution and delivery of this Agreement and has not relied on the advice of the
Company or its counsel with respect to any of the tax issues relating to, or
arising in connection with, this Agreement or transactions contemplated hereby.
3.5 Exemption. Each of the Stockholders understands that the shares
of Common Stocks are being offered and sold by the Purchaser in reliance on an
exemption from the registration requirements of the Securities Act and
equivalent state securities and "blue sky" laws, and that the Purchaser is
relying upon the accuracy of, and Stockholders' compliance with, Stockholders'
representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of each of the
Stockholders to purchase the shares of Common Stock. Each of the Stockholders
understands that the shares of Common Stock to be acquired by such Stockholder
have not been approved or disapproved by the Securities and Exchange Commission
or any state securities commission.
3.6 Due Diligence. Each of the Stockholders has been given the
opportunity for a reasonable time prior to the date hereof to ask questions of,
and receive answers from, the Purchaser or its Representatives concerning the
Purchaser and the Common Stock, and has been given the opportunity for a
reasonable time prior to the date hereof to obtain such additional information
necessary to verify the accuracy of the information which was provided to the
extent the Purchaser possesses such information or can acquire it without
unreasonable effort or expense.
3.7 Exclusivity of Preparation. No representations or warranties
have been made to the Stockholders by the Purchaser, or any Representative of
the Purchaser, other than the representations of the Purchaser contained herein,
and in acquiring the Common Stock, the Stockholders are not relying upon any
representations other than those contained herein.
3.8 No Advertisement. Neither of the Stockholders is purchasing the
Common Stock as a result of or subsequent to any advertisement, article, notice
or other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, any seminar or meeting or any solicitation
of a subscription by a person or entity not previously known to the Stockholders
in connection with investments in securities generally.
3.9 Accuracy of Representations. No representation or warranty made
by the Stockholders in this Agreement or any document or statement delivered, or
to be delivered, by or on behalf of the Stockholders pursuant hereto contains
or, as of the Closing Date, will contain any untrue statement of a material fact
or omits or, as of the Closing Date, will omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL STOCKHOLDERS
Except as otherwise specifically provided herein, each of the
Company and the Principal Stockholders jointly and severally hereby represents
and warrants to the Purchaser and Sub as follows:
4.1 Organization of the Company. The Company is duly organized,
validly existing and in good standing as a corporation under the laws of the
State of California and has full corporate power and authority to conduct its
business as it is presently being conducted. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction
where the nature of its business or its ownership or use of property makes such
qualification necessary, except where the failure to so qualify would not have a
Material Adverse Effect on the Company.
4.2 Capital Stock. The authorized capital stock of the Company
consists of 200,000 shares of common stock, no par value, of which 34,600 shares
of common stock are issued and outstanding, and 155,000 shares of preferred
stock, no par value, of which no shares of preferred stock are issued or
outstanding. All shares of capital stock of the Company have been duly
authorized and validly issued, and are fully paid and non-assessable, and the
Shares are owned beneficially and of record by the Stockholders, free and clear
of any and all Encumbrances; provided, however, that for purposes of this
sentence only each Principal Stockholder represents and warrants only with
respect to the Shares that are being owned by such Principal Stockholder. There
are no subscriptions, options, warrants, calls, commitments, preemptive rights
or other rights of any kind outstanding for the purchase of, nor any securities
convertible or exchangeable for, nor any plans or agreements of any character
providing for the purchase, issuance, or sale of, any equity interests of the
Company. There are no restrictions upon the voting or transfer of any shares of
the Stock pursuant to the Company's Organizational Documents or any agreement or
other instrument to which any of the Company or the Principal Stockholders is a
party or by which any of the Company or the Principal Stockholders is bound. The
Purchaser has acquired all shares of common stock of the Company owned by all
stockholders of the Company, other than the Stockholders. Upon consummation of
the transactions contemplated by this Agreement, the Purchaser will own the
Stock, free and clear of any and all Encumbrances.
4.3 Subsidiaries. Schedule 4.3 sets forth a complete and accurate
list of all of the Subsidiaries. Schedule 4.3 also contains the jurisdiction of
incorporation or formation of each of the Subsidiaries, each jurisdiction in
which each Subsidiary is qualified or otherwise authorized to do business, the
number of shares of capital stock of each Subsidiary issued and outstanding and
the percentage ownership interest of the Company in each Subsidiary. All
outstanding shares of capital stock of the Subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable. Each share
of the stock is free and clear of any Encumbrances, including, without
limitation, any agreement, understanding or restriction affecting the voting
rights or other incidents of record or beneficial ownership pertaining to such
shares. There are no subscriptions, options, warrants, calls, commitments,
preemptive rights or other rights of any kind outstanding for the purchase of,
nor any securities convertible into or exchangeable for, nor any plans or
agreements of any character providing for the purchase, issuance or sale of, any
equity interests of any of the Subsidiaries. Schedule 4.3 sets forth a complete
and accurate list of all agreements and other instruments pursuant to which the
Company or any Subsidiary is obligated or required, under any circumstance, to
make contributions to the capital of any Subsidiary. Each of the Subsidiaries is
a corporation, a partnership or a limited liability company duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, with full corporate, partnership or limited liability company
power to conduct its business as it is presently being conducted and to own,
lease and use its properties and assets, and is duly qualified to do business
and in good standing as a foreign corporation in each of the jurisdictions
listed in Schedule 4.3, which are the only jurisdictions where, by virtue of its
businesses carried on or properties owned or used, it is required to be so
qualified.
4.4 Authorization. Each of the Company and the Principal
Stockholders has full power and authority to execute and deliver this Agreement
and to perform its or his, as the case may be, obligations hereunder and has
taken all action necessary to execute and deliver this Agreement and to
consummate the transactions contemplated hereby and to perform its or his, as
the case may be, obligations hereunder. This Agreement has been duly executed
and delivered by the Company and the Principal Stockholders and, assuming the
due execution and delivery of this Agreement by the Purchaser and Sub, is a
legal, valid and binding obligation of the Company and the Principal
Stockholders, enforceable against the Company and the Principal Stockholders in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought; provided, however, that for purposes of
this Section only each Principal Stockholder represents and warrants only with
respect to the authority of such Principal Stockholder.
4.5 Financial Statements. The Company has delivered to the Purchaser
(i) audited balance sheets of the Company and the Subsidiaries as at December
31, 1996, December 31, 1997 and December 31, 1998 and the related audited
statements of income, changes in stockholders' equity, and cash flow for the
year then ended, including in each case the notes thereto (the "Audited Balance
Sheet"), and (ii) unaudited consolidated balance sheet of the Company and the
Subsidiaries as at October 31, 1999 and the statements of income and
stockholders' equity and cash flows for the nine-month period ended on such
date, prepared by the Company (collectively, "Balance Sheet"). Such financial
statements and notes fairly present the financial condition and the results of
operations, changes in stockholders' equity, and cash flow of the Company and
the Subsidiaries as at the respective dates of and for the periods referred to
in such financial statements, all in accordance with generally accepted
accounting principles consistently applied.
4.6 Absence of Certain Changes. (a) Except as provided in Schedule
4.6 hereto and except as expressly contemplated by this Agreement, since
December 31, 1998 (the "Audited Balance Sheet Date") the Company and the
Subsidiaries have conducted their businesses in the ordinary and usual course
consistent with their business practices during 1998 and neither the Company nor
any of the Subsidiaries has:
(i) experienced any changes in any relationship with its
suppliers, customers, distributors, brokers, lessors or others, other than
changes in the ordinary course of business, consistent with past practice;
(ii) sold, leased, transferred, or assigned any of its assets,
tangible or intangible, other than for fair consideration in the ordinary
course of business, consistent with past practice;
(iii) entered into any agreement, contract, lease, or license (or
series of related agreements, contracts, leases or licenses) involving
more than $50,000 individually to which it is a party or by which it is
bound nor modified the terms of any such existing contract or agreement,
other than in the ordinary course of business consistent with past
practice;
(iv) engaged in any activity that has resulted in any
acceleration or delay of the collection of its accounts or notes
receivable or any delay in the payment of its accounts payables, in each
case other than in the ordinary course of business consistent with past
practice;
(v) (nor has any other party) accelerated, terminated, modified
or canceled any permit or agreement, contract, lease or license involving
more than $50,000 individually to which it is a party or by which it is
bound, other than in the ordinary course of business consistent with past
practice;
(vi) suffered any damage, destruction or loss of any asset or
property, whether or not covered by insurance, other than such damage,
destruction or loss which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;
(vii) adopted, modified, amended or terminated any bonus,
profit-sharing, incentive, severance, or other similar plan (including any
benefit plan), contract, or commitment for the benefit of any of its
directors or officers at the branch manager level or above, or otherwise
made any change in the employment terms (including any increase in the
base compensation) for any of its officers and employees with annual
salaries in excess of $100,000;
(viii) made any capital expenditure or any other investment (or
series of related investments) in excess of $50,000 other than in the
ordinary course of business consistent with past practice;
(ix) issued any note, bond, or other debt security or created,
incurred, assumed, or guaranteed any indebtedness involving more than
$50,000 individually, other than under mortgage warehouse or similar
financing arrangements entered into in the ordinary course of business;
(x) canceled, compromised, waived, or released any right or claim
(or series of related rights and claims) either involving more than
$50,000 or outside the ordinary course of business, consistent with past
practice;
(xi) made or authorized any change in its
Organizational Documents;
(xii) issued, sold or otherwise disposed of any of its capital
stock or granted, modified or amended any options, warrants, stock
appreciation rights, or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any of its capital stock or participate
in any change in the value thereof;
(xiii) made or been subject to change in its accounting
practices, procedures or methods or in its cash management practices,
other than changes resulting from changes in GAAP as applied to mortgage
banking industry;
(xiv) entered into or become party to any agreement, arrangement
or transaction with any of its Affiliates or any of their respective
directors, officers at the branch manager level or stockholders,
including, without limitation, any (x) loan or advance funds, or made any
other payments, to any of its directors, officers, stockholders or
Affiliates, (y) creation or discharge of any intercompany account, other
than in the ordinary course of business consistent with past practice, or
(z) any payment or declaration of any dividend, redemption or other
distribution with respect to their respective capital stock;
(xv) experienced any changes with respect to its Intellectual
Property, other than such changes which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect;
(xvi) experienced any reduction in the amount or scope of
coverage of insurance now carried by them other than such changes which,
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect;
(xvii) settled any dispute relating to any liability of the
Company or any Subsidiary for Taxes; or
(xviii) committed to do any of the foregoing.
(b) Except as provided in Schedule 4.6 hereto and except as
expressly contemplated by this Agreement, since the Audited Balance Sheet Date
the Company has not declared, set aside or paid any dividends or made, or agreed
to make, any other payments (whether in cash, stock or property) in respect of
its capital stock.
4.7 Title to Assets. Except as set forth on Schedule 4.7(a), the
Company and the Subsidiaries own no real property. Schedule 4.7(b) sets forth a
list of all of the leases and subleases (the "Leases") and a true, correct and
complete legal description of each leased and subleased parcel of real property
in which the Company or any Subsidiary has a leasehold or subleasehold interest
(the "Leased Real Property"). The Company and the Subsidiaries have valid and
subsisting leasehold interests in the Leased Real Property, and title to,
leaseholds or licenses in, or valid rights to use, all other property and other
assets, tangible or intangible of the Company and its Subsidiaries that are used
or useful in the operation of their respective businesses (collectively, the
"Assets") free and clear of any Encumbrances other than Permitted Encumbrances.
4.8 Condition and Sufficiency of Assets. The Assets constitute all
of the assets necessary to conduct the business of the Company and its
Subsidiaries as presently conducted. To the Knowledge of the Company, the
current use or occupancy of the Leased Real Property does not violate in any
respect any instrument of record or agreement affecting such Leased Real
Property or any covenant, condition, restriction, easement, agreement or order
of any governmental authority having jurisdiction over any of the Leased Real
Property. The machinery, equipment, vehicles, furniture, fixtures and other
similar tangible assets included among the Assets are free from defects (patent
and latent), have been maintained in accordance with normal industry practice,
are in good condition and repair (ordinary wear and tear excepted) and are
suitable for the purposes for which they are presently used and for which they
are proposed to be used.
4.9 Contracts. (a) Schedule 4.9 contains a complete
and accurate list of each of the following Contracts:
(i) agreements or instruments imposing an Encumbrance on any of
the Assets, other than those constituting Permitted Encumbrances;
(ii) Contracts relating to indebtedness, liability for borrowed
money or the deferred purchase price of property (excluding trade payables
in the ordinary course of business) or any guarantee or other contingent
liability in respect of any indebtedness or obligation of any Person
(other than the endorsement of negotiable instruments for collection in
the ordinary course of business);
(iii) except with respect to Loans made in the ordinary course of
the Company's mortgage banking business, Loans or advances to, or
investments in, any Person, any Contracts relating to the making of any
such loans, advances or investments or any Contracts involving a sharing
of profits;
(iv) Contracts that contain restrictions with respect to payment
of dividends or any other distribution in respect of the capital stock of
the Company or any Subsidiary;
(v) any letters of credit or similar arrangements relating to the
Company or any Subsidiary;
(vi) any employment agreements with any employee of the Company
or any Subsidiary or other person on a full-time or consulting basis
providing for an annual compensation in excess of $50,000 or providing for
the payment of any cash or other compensation upon the sale of the Company
or any Subsidiary;
(vii) any management, consulting or advisory agreements, or
severance plans or arrangements for any present or former employee of the
Company or any Subsidiary;
(viii) any non-disclosure agreements and non-compete agreements
binding present and former employees of the Company or any Subsidiary;
(ix) any agreement under which the Company or any Subsidiary is
lessee of or holds or operates any real property or any personal property
for which the annual rental exceeds $25,000;
(x) any agreement under which the Company or any Subsidiary is
lessor of or permits any third party to hold or operate any property, real
or personal, for which the annual rental exceeds $25,000;
(xi) any agreement or group of related agreements between the
Company or any Subsidiary and the same party for the sale or purchase of
products or services under which the undelivered balance of such products
and services has a price in excess of $50,000, except for Loans in the
ordinary course of the Company's mortgage banking business;
(xii) any other agreement or group of related agreements between
the Company or any Subsidiary and the same party continuing over a period
of more than six months from the date or dates thereof, not terminable by
it on 30 days' or less notice without penalty and involving more than
$50,000;
(xiii) any agreement relating to the acquisition or divestiture
of the capital stock or equity securities, assets or business of any
Person, the Company or any Subsidiary involving consideration in excess of
$50,000 or pursuant to which the Company or any Subsidiary has any
liability, contingent or otherwise;
(xiv) any powers of attorney granted by or on behalf of the
Company or any Subsidiary (including those granted to customs brokers) and
other agency agreements but excluding powers of attorney granted to
Investors, warehouse lenders and custodians in the ordinary course of the
Company's mortgage banking business;
(xv) any agreement, other than agreements entered into in the
ordinary course of the Company's mortgage banking business, which prevents
the Company or any Subsidiary from disclosing confidential information or
which prohibits the Company or any Subsidiary from freely engaging in
business anywhere in the world;
(xvi) any sales distribution agreements, franchise agreements and
advertising agreements relating to the Company or any Subsidiary;
(xvii) any warranty, guaranty or other similar undertaking with
respect to a contractual performance extended by the Company or any
Subsidiary, other than in the ordinary course of the Company's mortgage
banking business;
(xviii) any agreement pursuant to which the Company or any
Subsidiary has agreed to defend, indemnify or hold harmless any other
Person other than in the ordinary course of the Company's mortgage banking
business;
(xix) any agreement pursuant to which the Company or any
Subsidiary has agreed to settle any liability for Taxes;
(xx) any agreement pursuant to which the Company or any
Subsidiary has agreed to shift or allocate the liability of the Company,
any Subsidiary or any other Person for Taxes; and
(xxi) any other agreement material to the Company or any
Subsidiary.
(b) The Company has delivered to the Purchaser a true and complete
copy of each written arrangement listed on Schedule 4.9, as amended to date.
With respect to each written arrangement so listed in clauses (i) through (v)
below, to the extent that it could reasonably be expected to have a Material
Adverse Effect on the Company and the Subsidiaries taken as a whole: (i) the
written arrangement is in full force and effect and is valid and enforceable in
accordance with its terms; (ii) neither the Company nor any Subsidiary is in
breach or default thereof; (iii) no event has occurred which, with notice, or
lapse of time or both, would constitute a breach or default thereof by the
Company or any Subsidiary or constitute a breach or default thereof by any other
party thereto (iv) no event has occurred that would permit termination,
modification, or acceleration thereof by any other party thereto; and (v)
neither the Company nor any Subsidiary has repudiated and no other party thereto
has repudiated or acted in a manner inconsistent with any provision thereof. The
Contracts constitute all of the contracts necessary to conduct all operations of
the Company as they are currently conducted except where the lack of the
Contracts would not be reasonably expected to have Material Adverse Effect on
the Company and the Subsidiaries taken as a whole. Neither the Company nor any
Subsidiary is a party to any verbal contract, agreement, or other arrangement
which, if reduced to written form, would be required to be listed on Schedule
4.9 under the terms of this Section 4.9.
4.10 No Conflict or Violation. Except as provided in Schedule 4.10,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in (a) a violation of or a conflict
with any provision of the Organizational Documents of the Company or any
Subsidiary, (b) a breach of, a default under, or a right of termination,
cancellation, acceleration or payment with respect to, or the creation of any
Encumbrance upon, any of the assets or properties of the Company or any of the
Stockholders pursuant to, any Contract to which the Company, any Subsidiary or
any of the Stockholders is a party or is subject or by which any asset of the
Company, any of the Subsidiaries or any of the Stockholders is bound, or (c) a
violation by the Company, any Subsidiary or the Stockholders of any statute,
rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or
award, except where any such matter could not be reasonably expected to have a
Material Adverse Effect on the Company and the Subsidiaries taken as a whole.
4.11 Consents and Approvals. Except as provided in Schedule 4.11, no
consent, approval, authorization or other action by, or filing with or
notification to, any governmental or regulatory authority or other third party
is required to be made or obtained by the Company or any of the Stockholders on
or prior to the Closing Date in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement, except where the failure to take such action
could not be reasonably expected to have a Material Adverse Effect on the
Company and the Subsidiaries taken as a whole.
4.12 Litigation. Except as provided in Schedule 4.12 hereto, there
is no action, order, writ, injunction, judgment or decree outstanding, or suit,
litigation, proceeding, labor dispute (other than routine uncontested claims for
benefits under any benefit plans for any officers, employees or agents of the
Company or the Subsidiaries), arbitration, investigation or reported claim,
pending or, to the Knowledge of the Company and the Stockholders, threatened,
before any court, governmental entity or arbitrator (collectively, "Actions"),
relating to (i) the Company or any Subsidiary, (ii) any Benefit Plan or any
fiduciary or administrator thereof, (iii) the Assets, or (iv) the transactions
contemplated by this Agreement. Neither the Company, any of its Subsidiaries nor
the Stockholders is subject to any order, decree or judgment entered in any
Action.
4.13 Compliance with Law; Permits and Licenses. Except as provided
in Schedule 4.13, each of the Company, its Subsidiaries and their respective
predecessors has complied and is in compliance with all laws, rules,
regulations, codes, and plans, and all injunctions, judgments, orders, decrees
or rulings of every court and Governmental Body (collectively, the
"Regulations"), in each case, as applicable to such Person, its assets or
operations and neither the Company nor any Subsidiary has received notice of any
unremedied violation of any Regulation. Schedule 4.13 sets forth a list of all
governmental or regulatory licenses, permits and authorizations (collectively,
"Permits") held by any of the Company or any Subsidiary. All such Permits are in
full force and effect. Except as set forth in Schedule 4.13, the Permits listed
on Schedule 4.13 comprise all Permits necessary for conduct of the business of
the Company and its Subsidiaries as currently conducted and in accordance with
the intended conduct of the Company's business, except where the absence of
Permits could not be reasonably expected to have a Material Adverse Effect on
the Company and the Subsidiaries taken as a whole.
4.14 Intellectual Property. (a) Schedule 4.14 sets forth a complete
and correct list and description (including expiration dates) of all trade names
and unregistered trademarks used by any of the Company and its Subsidiaries in
connection with their respective businesses.
(b) The Company is not infringing upon or in conflict with any right
of any other Person with respect to any Intellectual Property. Except as
disclosed on Schedule 4.14, (i) no claims have been asserted by any Person
contesting the validity, enforceability, use or ownership of any Intellectual
Property, and the Company has no Knowledge of any basis for such claim, and (ii)
the Company has no Knowledge of any infringement or misappropriation of the
Intellectual Property by any third party.
4.15 ERISA. (a) Schedule 4.15 lists each Employee Benefit Plan that
the Company, any of its Subsidiaries or any ERISA Affiliate (as defined in
Section 414(b) or (c) of the Code) maintains, or to which any of the Company and
its Subsidiaries contributes or is required to contribute, or under which any
employee or former employee receives or is entitled to receive benefits.
(i) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and other
applicable laws.
(ii) All required reports and descriptions (including, without
limitation, Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's,
and Summary Plan Descriptions) have been filed or distributed
appropriately with respect to each such Employee Benefit Plan. The
requirements of Part 6 of Subtitle B of Title I of ERISA and of Code
Section 4980B have been met with respect to each such Employee Benefit
Plan which is an Employee Welfare Benefit Plan (as defined in ERISA
Section 3(1)).
(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan
(as defined in ERISA Section 3(2)) and all contributions for any period
ending on or before the Closing Date which are not yet due have been paid
to each such Employee Pension Benefit Plan or accrued in accordance with
the past custom and practice of the Company and its Subsidiaries. All
premiums or other payments for all periods ending on or before the Closing
Date have been paid with respect to each such Employee Benefit Plan which
is an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
Section 401(a) and has received, within the last five years, a favorable
determination letter from the Internal Revenue Service.
(v) The market value of assets under each such Employee Benefit
Plan which is an Employee Pension Benefit Plan (other than any
Multi-employer Plan (as defined in ERISA Section 3(37))) equals or exceeds
the present value of all vested and nonvested liabilities thereunder
determined in accordance with Pension Benefit Guarantee Corporation
("PBGC") methods, factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for determination.
(vi) The Company has delivered to the Purchaser correct and
complete copies of the plan documents and summary plan descriptions, the
most recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that any of the
Company, its Subsidiaries, and the Controlled Group of Corporations (as defined
in Section 1563 of the Code) which includes the Company and its Subsidiaries
maintains or ever has maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute:
(i) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multi-employer Plan) has been completely or
partially terminated or been the subject of a Reportable Event (as defined
in ERISA Section 4043)) as to which notices would be required to be filed
with the PBGC. No proceeding by the PBGC to terminate any such Employee
Pension Benefit Plan (other than any Multi-employer Plan) has been
instituted or threatened.
(ii) There have been no Prohibited Transactions (as defined in
ERISA Section 406 and Section 4975 of the Code) with respect to any such
Employee Benefit Plan. No Fiduciary (as defined in ERISA Section 3(21))
has any Liability for breach of fiduciary duty or any other failure to act
or comply in connection with the administration or investment of the
assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other than
routine claims for benefits) is pending or threatened. Neither the
Company, the Subsidiaries nor their directors and officers (and employees
with responsibility for employee benefits matters) has any Knowledge of
any Basis for any such action, suit, proceeding, hearing, or
investigation.
(iii) None of the Company and its Subsidiaries has incurred, and
none of their directors and officers (and employees with responsibility
for employee benefits matters) has any reason to expect that any of the
Company and its Subsidiaries will incur; any Liability to the PBGC (other
than PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code with respect to any
such Employee Benefit Plan which is an Employee Pension Benefit Plan.
(iv) None of the Company, its Subsidiaries, and the other members
of the Controlled Group of Corporations that includes the Company and its
Subsidiaries contributes to, ever has contributed to, or ever has been
required to contribute to any Multi-employer Plan or has any Liability
(including withdrawal Liability) under any Multi-employer Plan.
(v) None of the Company and its Subsidiaries maintains or ever
has maintained or contributes, ever has contributed, or ever 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, other than as listed in Schedule 4.15 and which is in
compliance with Code Section 4980B.
4.16 Taxes. (a) Except as set forth in Schedule 4.16, each of the
Company and its Subsidiaries has duly filed, or caused to be filed, or will file
or cause to be filed, on a timely basis all Tax Returns required to be filed on
or before the Closing Date by or on behalf of the Company or its Subsidiaries.
All such Tax Returns are true, correct and complete in all material respects.
None of the Company or any of its Subsidiaries is the beneficiary of any
extension of time within which to file any Tax Return. No power of attorney with
respect to Taxes has been executed or filed with any Taxing Authority by or on
behalf of the Company or any Subsidiary. No claim has ever been made by any
authority in a jurisdiction in which the Company or any Subsidiary does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction. The
Company and its Subsidiaries have timely paid, or will timely pay on or prior to
the Closing Date, all Taxes shown on returns to be due by or with respect to the
income, assets or operations of the Company and its Subsidiaries for all periods
through the Closing Date or has made adequate provision for such Taxes by a tax
accrual or tax reserve (determined in accordance with GAAP) on the Closing
Balance Sheet. All Taxes owed by the Company or any of the Subsidiaries (whether
or not shown on any Tax Return), including any deficiency resulting from any
audit or examination relating to Taxes by any Taxing Authority, have been paid.
(b) There are no liens for Taxes upon the assets of the Company or
of any of its Subsidiaries except liens for current Taxes not yet due and
payable or liens imposed for a nonpayment of Taxes which are currently being
contested in good faith by the Company or a Subsidiary as set forth on Schedule
4.16 and for which adequate reserves have been maintained on the Balance Sheet
in accordance with generally accepted accounting principles.
(c) There are no liens for Taxes upon the Assets of the Company or
of any of its Subsidiaries except liens for current Taxes not yet due and
payable or liens imposed for a nonpayment of Taxes which are currently being
contested in good faith by the Company or a Subsidiary as set forth on Schedule
4.16 and for which adequate reserves have been maintained on the Closing Balance
Sheet in accordance with GAAP.
(d) Schedule 4.16 sets forth (i) each taxable year or other taxable
period of the Company and its Subsidiaries for which an audit or other
examination of Taxes of the Company or any of its Subsidiaries by the
appropriate tax authorities of any nation, state or locality is currently in
progress together with the names of the respective tax authorities conducting
(or scheduled to conduct) such audit or examination and a description of the
subject matter of such audits or examinations, (ii) the most recent taxable year
or other taxable period for which an audit or other examination relating to
federal income taxes of the Company and its Subsidiaries has been finally
completed and the disposition of such audits or examinations, (iii) the taxable
years or other taxable periods of the Company and its Subsidiaries which will
not be subject to the normally applicable statute of limitations by reason of
the existence of circumstances that would cause any such statute of limitations
for applicable Taxes to be extended, (iv) the amount of any proposed adjustments
(and the principal reason therefor) relating to any Tax Returns for Tax
liability of the Company or its Subsidiaries which have been proposed or
assessed by any taxing authority and (v) a list of all written or unwritten
notices received by the Company or its Subsidiaries, or any affiliate of the
foregoing, from any taxing authority relating to any issue which could affect
the Tax liability of the Company or its Subsidiaries, which issue has not been
finally determined and which, if determined adversely to the Company or its
Subsidiaries, could result in a Tax liability. No issues relating to Taxes were
raised by the relevant Taxing Authority in any completed audit or examination
that can reasonably be expected to recur in a later taxable period.
(e) Neither the Company nor any of its Subsidiaries has been
included in any "consolidated", "unitary" or "combined" Tax Return provided for
under the law of the United States, any foreign jurisdiction or any state or
locality with respect to Taxes for any taxable period for which the statute of
limitations has not expired (other than a federal consolidated income Tax Return
with respect to which the Company is the common parent).
(f) All Taxes which the Company or any of its Subsidiaries is (or
was) required by law to withhold or collect have been duly withheld or
collected, and all such Taxes have been timely paid over to the proper
authorities to the extent due and payable.
(g) There are no Tax sharing, allocation, indemnification or similar
agreements or arrangements in effect as between the Company, the Subsidiaries,
or any predecessor or affiliate thereof and any other party under which the
Purchaser, the Company or any of its Subsidiaries could be liable for any Taxes
or other claims of any party after the Closing Date.
(h) The Company is not a party to any agreement that would require
it to make any payment that would constitute an "excess parachute payment" for
purposes of Sections 280G and 4999 of the Code. Neither the Company nor any
Subsidiary has made any payment the deduction for which could be denied, in part
or in whole, pursuant to Section 162(m) of the Code. No acceleration of the
vesting schedule for any property that is substantially unvested within the
meaning of the Treasury Regulations under Section 83 of the Code will occur in
connection with the transactions contemplated by this Agreement.
(i) Neither the Company nor any of its Subsidiaries has applied for,
been granted, or agreed to any accounting method change for which it will be
required to take into account any adjustment under Section 481 of the Code or
any similar provision of the Code or the corresponding tax laws of any nation,
state or locality. Neither the Company nor any of its Subsidiaries will be
required to include in a taxable period ending after the Closing Date any
material amount of taxable income attributable to income that accrued, but was
not recognized, in a Pre-Closing Tax Period, as a result of an adjustment under
Section 481 of the Code, the installment method of accounting, the long-term
contract method of accounting, the cash method of accounting, any comparable
provision of state, local or foreign Tax law, or for any other reason.
(j) No indebtedness of the Company or any of its Subsidiaries
consists of "corporate acquisition indebtedness" within the meaning of Section
279 of the Code.
(k) Neither the Company nor any of its Subsidiaries has applied for
and not yet received a ruling or determination from a taxing authority regarding
a past or prospective transaction of the Company or any of its Subsidiaries.
(l) No election under Section 341(f) of the Code has been made or
shall be made prior to the Closing Date to treat the Company or any of its
Subsidiaries as a consenting corporation within the meaning of Section 341 of
the Code.
(m) The Company has delivered to the Purchaser correct and complete
copies of (i) all federal, state and foreign income, franchise and similar Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by the Company or any Subsidiary since the date of their
incorporation, (ii) all private letter rulings, revenue agent reports,
information document requests, notices of proposed deficiencies, protests,
petitions, closing agreements, settlement agreements, pending ruling requests,
and (iii) any similar documents submitted by, received by or agreed to by or on
behalf of the Company or any Subsidiary, for all taxable periods for which the
statute of limitation has not yet expired.
(n) Neither the Company nor any Subsidiary has constituted either a
"distributing corporation" or a "controlled corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for
tax-free treatment under Section 355 of the Code (i) within the two year period
ending on the date of this Agreement or (ii) which could otherwise constitute
part of a "plan" or "series of related transactions" (within the meaning of
Section 355(e) of the Code) in conjunction with the purchase of Shares
contemplated by this Agreement.
(o) Schedule 4.16 sets forth each state, county, local, municipal or
foreign jurisdiction in which the Company or any Subsidiary files, or is or has
been required to file, a Tax Return relating to state and local income,
franchise, license, excise, net worth, property or sales and use taxes or is or
has been liable for any Taxes on a "nexus" basis at any time for a taxable
period for which the relevant statutes of limitation have not expired.
(p) The Company is not a United States real property holding company
within the meaning of Section 897 of the Code.
(q) None of the Stockholders is a "foreign person" within the
meaning of Section 1445 of the Code.
(r) The Company has authorized access to the Purchaser copies of the
work papers of the outside auditors of the Company and the Subsidiaries with
respect to the components of the accrual for deferred Taxes reflected on the
Balance Sheet under the captions "Deferred income taxes" and "Deferred income
taxes current portion."
(s) Neither the Company nor any of the Subsidiaries has ever (i)
made an election under Section 1362 of the Code to be treated as an S
corporation for federal income tax purposes or (ii) made a similar election
under any comparable provision of any state, local or foreign tax law.
(t) Each of the Company and its Subsidiaries has disclosed on its
federal income Tax Returns all positions taken therein that could give rise to a
penalty for a substantial understatement of federal income Tax, within the
meaning of Section 6662 of the Code.
4.17 Environmental Laws and Regulations. (a) Except in accordance
with applicable Environmental Laws and so as not to give rise to an
Environmental Claim (x) Hazardous Materials have not been generated, used,
treated or stored on, transported to or from, or Released on, at or from, any
past or present facilities, properties or operations of the Company or its
Subsidiaries or of any of their respective predecessors or Affiliates and (y)
Hazardous Materials have not been disposed of on any past or present facilities,
properties or operations of the Company or its Subsidiaries or of any of their
respective predecessors or Affiliates;
(i) to the Company's Knowledge, the Company and its Subsidiaries
and all of their facilities, properties and operations are in compliance
with all applicable Environmental Laws and the requirements of any Permits
issued under such Environmental Laws; and
(ii) to the Company's Knowledge, there are no pending or
threatened Environmental Claims against the Company or any Subsidiaries or
any past or present facilities, properties or operations of the Company or
its Subsidiaries or of any of their respective predecessors or Affiliates.
4.18 Labor Matters. (a) Neither the Company nor any Subsidiary is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by them.
(b) (i) The Company and each of its Subsidiaries is in compliance
with all federal, state and other applicable laws, domestic or foreign,
respecting employment and employment practices, terms and conditions of
employment, wages and hours, immigration, the payment of social security and
similar taxes, occupational safety and health and plant closing, and has not and
is not engaged in any unfair labor practice; (ii) no unfair labor practice
complaint against the Company or any of its Subsidiaries is pending before the
National Labor Relations Board; (iii) there is no labor strike, dispute,
slowdown or stoppage actually pending or threatened against or involving the
Company or any of its Subsidiaries; (iv) no representation question exists
respecting the employees of the Company or any of its Subsidiaries; (v) no
grievance which might have an adverse effect upon the Company or any of its
Subsidiaries or the conduct of their respective businesses exists, no
arbitration proceeding arising out of or under any collective bargaining
agreement is pending and no claim therefor has been asserted; and (vi) no
collective bargaining agreement is currently being negotiated by the Company or
any of its Subsidiaries.
4.19 Insurance. The Company has delivered to the Purchaser a true
and complete copy of, and Schedule 4.19 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 the Company or any Subsidiary has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past
four years:
(i) the name of the insurer, the name of the policyholder, and
the name of each covered insured; and
(ii) the policy number and the period of coverage.
Except as set forth in Schedule 4.19, with respect to each current
insurance policy: (A) the policy is in full force and effect; (B) the policy
will continue to be in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) neither the Company
nor any Subsidiary nor, to the Knowledge of the Company, 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, to the Knowledge of the Company, 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 (D) no party to the policy has repudiated any provision
thereof. Except as provided in Schedule 4.19, the Company and the Subsidiaries
have been covered during the past four-year period by insurance in scope and
amount customary and reasonable for the businesses in which it has engaged
during such period. Schedule 4.19 describes any self-insurance arrangements
affecting the Company or any Subsidiary.
4.20 No Undisclosed Liabilities. To the Knowledge of the Company,
neither the Company nor any of its Subsidiaries has any claims, liabilities or
indebtedness, contingent or otherwise, except as set forth or reflected on the
Balance Sheet attached hereto as Exhibit 4.20 or referred to in the footnotes
thereto, other than liabilities incurred subsequent to the date of the Balance
Sheet in the ordinary course of business consistent with past practice (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 or arising out of any action, suit or legal, administrative or
arbitration proceeding or investigation before or by any Governmental Body).
Neither the Company nor any Subsidiary is in default in respect of the terms and
conditions of any indebtedness or obligation.
4.21 Affiliated Transactions. Except for salaries paid or expense
advances made to officers in the ordinary course of business and reflected on
the Balance Sheet or set forth on Schedule 4.21, neither the Company nor any of
the Subsidiaries has (i) any outstanding loan which has not been repaid to, (ii)
sold, purchased, transferred or leased any properties or assets to or from, or
(iii) entered into or continued any agreement, arrangement or understanding
(written or otherwise) with, any of its officers, directors, stockholders or any
"affiliate" or "associate"( as such terms are defined in the Exchange Act) of
any such Persons (other than the Company or the Subsidiaries).
4.22 Interests in Clients, Suppliers. Except as provided in Schedule
4.22 hereto, neither the Company nor any officer or director of the Company or
any of the Company's Subsidiaries possesses, directly or indirectly, any
financial interest in, or is a director, officer or employee of, any entity that
is a client, vendor, supplier, customer, lessor, lessee or competitor or
potential competitor of the Company or any of its Subsidiaries. Ownership of
securities of a company whose securities are registered under the Exchange Act
of 1% or less of any class of such securities shall not be deemed to be a
financial interest for purposes of this Section 4.22.
4.23 Brokers. The Stockholders have not employed, and are not
subject to any valid claim of, any broker, finder, investment banker, consultant
or other intermediary in connection with the transactions contemplated by this
Agreement who will be entitled to a fee or commission in connection with such
transactions. The Stockholders are solely responsible for any payment, fee or
commission that may be due to Stockholders' advisors, if any, in connection with
the transactions contemplated hereby.
4.24 Year 2000 Compliance. The Company has reviewed its products,
business and operations that could be adversely affected by the risk that
computer applications used by the Company and the Subsidiaries may be unable to
recognize and properly perform date-sensitive functions involving dates prior to
and after December 31, 1999 (the "Year 2000 Problem"). The Company believes its
internal information and business systems will be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000. In
addition, the Company is currently surveying those vendors, suppliers and other
third parties (collectively, the "Outside Parties") with which the Company and
the Subsidiaries do business and whose failure to adequately address the Year
2000 Problem could reasonably be expected to adversely affect the business and
operations of the Company and the Subsidiaries. Based upon the aforementioned
internal review and surveys of the Outside Parties as of the date of this
Agreement, the Year 2000 Problem has not resulted in, and is not reasonably
expected to have, a Material Adverse Effect.
4.25 Loans; Investments. With respect to each item set forth below,
to the Knowledge of the Company, except as otherwise disclosed in Schedule 4.25,
each Loan reflected as an asset on the Audited Balance Sheet dated as of
December 31, 1998 is evidenced by appropriate and sufficient documentation and
constitutes the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Except as set forth in Schedule 4.25, all such Loans are, and at the Closing
will be, free and clear of any Encumbrances.
(a) All guarantees of indebtedness owed to the Company or any
Subsidiary, including but not limited to those of the Federal Housing
Administration, the Small Business Administration, and other state and federal
agencies, are valid and enforceable, except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(b) All interest rate swaps, caps, floors and option agreements and
other interest rate risk management arrangements to which the Company or any
Subsidiary is a party or by which any of their properties or assets may be bound
were entered into in the ordinary course of business and, in accordance with
then-customary practice and applicable rules, regulations and policies of
regulatory authorities and with counterparties believed to be financially
responsible at the time and are legal, valid and binding obligations and are in
full force and effect. The Company or any Subsidiary have duly performed in all
material respects all of their respective obligations thereunder to the extent
that such obligations to perform have accrued, and there are no material
breaches, violations or defaults or allegations or assertions of such by any
party thereunder. None of the transactions contemplated by this Agreement would
permit (i) a counterparty under any interest rate swap, cap, floor and option
agreement or any other interest rate risk management agreement or (ii) any party
to any mortgage backed security financing arrangement, to accelerate,
discontinue, terminate, or otherwise modify any such agreement or arrangement or
would require the Company or any Subsidiary to recognize any gain or loss with
respect to such arrangement.
(c) The Loan Documents for each Loan have been duly executed and
recorded, or are in the process of being recorded, and are in due and proper
form, and the information contained therein was true, accurate and complete in
all material respects at the time such Loan documents were executed. The Company
has at all times maintained the Loan Documents in all material respects in
accordance with Investor Requirements, Servicing Requirements and otherwise in
accordance with all legal and regulatory requirements and contractual
obligations.
(d) All outstanding Loans sold by Company or the Subsidiaries
complied in all material respects with Investor Requirements on the date of
sale.
(e) The Company and any of the Subsidiaries have at all times been
and are in compliance in all material respects with the Servicing Requirements
relating to the Serviced Loans and Loans previously serviced by any of them.
(f) Neither the Company nor any Subsidiary has any advances
outstanding with respect to any Loan, except for advances made under the
Servicing Requirements.
(g) Neither the Company nor any Subsidiary is in default with
respect to any of its obligations under any Loan.
(h) Neither the Company nor any Subsidiary is in violation in any
material respect of any applicable federal, state, or local law, statute,
ordinance, rule, regulation, order or guideline pertaining to the Loans, its
origination or production practices, or otherwise relating to its purchase or
sale of Loans or its lending business, including but not limited to, real estate
settlement procedures, fair credit reporting, and every other prohibition
against unlawful discrimination or governing consumer credit, and also
including, without limitation, the Consumer Credit Reporting Act, Equal Credit
Opportunity Act of 1975 and Regulation B, Fair Credit Reporting Act, Truth in
Lending Law, in particular, Regulation Z as amended, the Flood Disaster
Protection Act of 1973, and state consumer credit codes and laws.
(i) All Loans securitized in a pool sponsored by the Company or its
Affiliates, at the time of inclusion in the pool, and at the time of any pool
certification or any recertification, met all applicable guidelines for such
pool. All pools relating to Loans that require certification have been initially
certified, finally certified and/or recertified in accordance with applicable
guidelines. The principal balance outstanding and owing on the Serviced Loans in
each pool equals or exceeds the amount owing to the corresponding security
holder of such pool.
(j) The Company is a Xxxxxx Xxx and Xxxxxxx Mac approved
seller/servicer in good standing. The Company has not received notice from any
governmental, quasi-governmental or private agency of pending or threatened
actions or investigations which would question the status of the Company as an
approved lender, seller/servicer or issuer of securities. No event has occurred
which, with the passage of time or the giving of notice, or both, would result
in the loss by the Company of its qualification as an approved lender,
seller/servicer or issuer or of the Company as a contractor or as a person
otherwise permitted to transact business with any governmental,
quasi-governmental or private agency.
(k) The terms of each Loan have not been impaired, waived, altered
or modified in any material respect from the date of its origination except by a
written instrument, which written instrument has been recorded if recordation is
necessary to protect the interests of the owner thereof. The substance of any
such waiver, alteration or modification has been communicated to and approved in
writing by: (i) the relevant Investor, to the extent required by the relevant
Investor Requirements; and (ii) the title insurer, to the extent required by the
relevant policies, and its terms are reflected in the Loan Documents. Except as
authorized by the applicable Investor, where the Investor's authorization is
required, neither the Company nor any Subsidiary has: (i) subordinated the lien
of any Mortgage Loan to any other mortgage or lien or given any other mortgage
or lien equal priority with the lien of a mortgage loan; or (ii) executed any
instrument of release, cancellation or satisfaction with, in whole or in part,
respect to any Mortgage Loan.
(l) As of the date hereof, neither the Company nor any Subsidiary is
subject to any repurchase obligation under any Loan.
(m) All escrows required to be maintained by the Company pursuant to
the terms of the Mortgage Loans have been maintained by the Company or any
Subsidiary and, all prior servicers, in all material respects in accordance with
all applicable legal rules and Investor Requirements and in accordance with the
mortgage servicing agreements and the Loan Documents related thereto. The
Company nor Subsidiaries have credited to the account of mortgagors all interest
required to be paid on any escrow account. All escrow, custodial, and suspense
accounts related to the owned Mortgage Loans held by the Company are held in the
Company's or Subsidiary's name or in the Investor's name. With respect to escrow
deposits and payments which are required to be collected, all such payments are
in the possession of, or under the control of, the Company or Subsidiary or an
authorized subservicer, and there exist no material deficiencies in connection
therewith for which customary arrangements for repayment thereof have not been
made. No escrow deposits or other charges or payments have been capitalized
under any mortgage or the related mortgage note.
(n) Neither the Company nor any Subsidiary has received written
notice of a servicing default of the Company or any Subsidiary for any Loan, and
each Loan serviced by the Company or any Subsidiary has been properly serviced
and accounted for in all material respects in accordance with the applicable
Servicing Requirements. To the extent that any applicable legal requirement in
any jurisdiction or any Investor Requirement requires the payment of interest on
escrow accounts with respect to any particular Loan and the Company or any
Subsidiary services such Loans, all such interest has been properly paid or
arrangements for such payment has been made. All amounts payable in respect of a
Loan, or the property covered by a mortgage which the Company or any Subsidiary
is responsible for paying, directly or on behalf of a mortgagor, have, in all
material respects, been paid prior to becoming delinquent. All pools for which
the Company or any Subsidiary is responsible are in compliance in all material
respects with all applicable Investor Requirements, procedures, rules,
regulations and guidelines.
(o) Schedule 4.25 contains a description of each Loan serviced by
the Company or owned by the Company which, as of the date hereof, has a balance
over $1 million and a prepayment penalty less than 5% of the principal amount.
(p) No facts currently exist with respect to existing
securitizations heretofore undertaken by the Company that would be reasonably
likely to materially and adversely affect the ability of the Company or any
Subsidiary to continue to do securitizations in the future in accordance with
existing practices.
(q) Neither the Company nor any Subsidiary has any Portfolio Loan.
All Loans held by the Company or any Subsidiary are Loans Held for Sale.
4.26 Allowance for Possible Loan Losses. The allowance for possible
loan losses shown on the Audited Balance Sheet as of December 31, 1998 was
adequate in all respects to provide for possible or specific losses, net of
recoveries relating to loans previously charged off, on loans outstanding, and
contained an additional amount of unallocated reserves for unanticipated future
losses at a level considered adequate under the standards applied by applicable
federal regulatory authorities and based upon GAAP applicable to the Company and
any Subsidiary.
4.27 Accuracy of Representations. No representation or warranty made
by the Company or the Principal Stockholders in this Agreement or any document
or statement delivered, or to be delivered, by or on behalf of the Company or
the Principal Stockholders pursuant hereto contains or, as of the Closing Date,
will contain any untrue statement of a material fact or omits or, as of the
Closing Date, will omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
4.28 Disclosure. No statement of fact made by the Company or the
Principal Stockholders in this Agreement contains any untrue statement of a
material fact or omits to state any material fact necessary to make statements
contained herein or therein not misleading. There is no material fact peculiar
to the Company, any Subsidiary or the Principal Stockholders which has not been
disclosed to the Purchaser.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND SUB
Each of the Purchaser and Sub hereby represents and warrants to the
Company and the Stockholders as follows:
5.1 Organization of Purchaser and Sub. Each of the Purchaser and Sub
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and authority to
conduct its business as it is presently being conducted and to own, lease and
use its properties and assets.
5.2 Authorization. Each of the Purchaser and Sub has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and has taken all action necessary to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and to perform
its obligations hereunder. This Agreement has been duly executed and delivered
by the Purchaser and Sub and, assuming the due execution and delivery of this
Agreement by the Company and the Stockholders, is a legal, valid and binding
obligation of each of the Purchaser and Sub , enforceable against the Purchaser
and Sub in accordance with its terms, except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
5.3 No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the
Organizational Documents of the Purchaser and Sub, (b) a breach of, or a default
under, or a right to accelerate with respect to, any term or provision of any
contract, commitment or other obligation to which the Purchaser or Sub is a
party or is subject, or (c) a violation by the Purchaser or Sub of any statute,
rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or
award.
5.4 Validity of Issuance of Common Stock. The shares of Common Stock
to be delivered to the Stockholders as provided herein are or will be validly
issued and outstanding, fully paid and non-assessable, and not subject to any
preemptive rights, rights of first refusal, tag-along rights, draft-along rights
or other similar rights.
5.5 SEC Filings; Financial Statements. (a) The Purchaser has filed
all forms, reports and documents required to be filed with the SEC since October
1, 1999, and has made available to the Company and the Stockholders, in the form
filed with the SEC, together with any amendments thereto, all of its reports
filed with the SEC (collectively, the "SEC Reports"). The SEC Reports (i) were
prepared substantially in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations
promulgated under each of such respective acts, and (ii) did not at the time
they were filed contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The financial statements, including all related notes and
schedules, contained in the SEC Reports (or incorporated by reference therein)
fairly present the consolidated financial position of the Purchaser as at the
respective dates thereof and the results of operations and cash flows of the
Purchaser for the periods indicated in accordance with GAAP applied on a
consistent basis throughout the periods involved (except for changes in
accounting principles disclosed in the notes thereto) and subject in the case of
interim financial statements to normal year-end adjustments.
5.6 Consents and Approvals. No consent, approval, authorization or
other action by, or filing with or notification to, any governmental or
regulatory authority or other third party is required to be made or obtained by
the Purchaser or Sub on or prior to the Closing Date in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, except where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification would not have a Material Adverse Effect.
5.7 Litigation. There is no material action, order, writ,
injunction, judgment or decree outstanding, or suit, litigation, proceeding,
labor dispute (other than routine uncontested claims for benefits under any
benefit plans for any officers, employees or agents of the Purchaser or Sub),
arbitration, investigation or reported claim, pending or, to the Knowledge of
the Purchaser and Sub, threatened, before any court, governmental entity or
arbitrator which seeks to delay or prevent the consummation of the transactions
contemplated by this Agreement or would, if successful, have a Material Adverse
Effect.
5.8 Acquisition for Investment. The Purchaser is acquiring the Stock
to be purchased by it pursuant to this Agreement solely for its own account and
not with a view to any distribution or other disposition of such shares or any
part thereof, or interest therein, except in accordance with the Securities Act.
5.9 Brokers. Neither the Purchaser nor Sub has employed, or is
subject to any valid claim of, any broker, finder, investment banker, consultant
or other intermediary in connection with the transactions contemplated by this
Agreement who will be entitled to a fee or commission in connection with such
transactions.
ARTICLE VI
ACTIONS BY THE PURCHASER, THE STOCKHOLDERS
AND THE COMPANY PRIOR TO THE CLOSING
6.1 Conduct of Business. From the date hereof through the Closing
Date, the Company covenants and agrees that it shall, and the Principal
Stockholders covenant and agree that they shall cause the Company to, conduct
its business only in the ordinary course and in a manner consistent with the
current practice of the Company and the Subsidiaries.
6.2 Certain Restrictions on the Company. Except for the transactions
with the Purchaser, from the date hereof through the Closing Date, the Principal
Stockholders shall cause the Company not to, and the Company shall not, and
shall cause each Subsidiary not to, without the prior written approval of the
Purchaser:
(a) except in the ordinary course of business, sell, assign or
transfer any asset of the Company or any Subsidiary, which has a fair market
value in excess of $10,000 or which, when aggregated with all other sales
pursuant to this Section 6.2 causes the aggregate value of such sales to exceed
$10,000;
(b) mortgage, pledge or otherwise encumber any material assets of
the Company or any Subsidiary except in the ordinary course of business;
(c) incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for obligations of any other Person or
make any loans or advances to any Person except in the ordinary course of
business;
(d) issue or commit to issue any shares of capital stock,
obligations or other securities of the Company or any Subsidiaries or any
securities convertible into or exchangeable for such capital stock, obligations
or other securities or any warrants, options or rights to subscribe for or
purchase any capital stock or obligations or any other securities of the Company
or any Subsidiaries or any securities convertible into or exchangeable for such
capital stock, obligations or other securities;
(e) terminate, cancel or amend any insurance coverage maintained by
the Company or any of its Subsidiaries with respect to any assets of the Company
or any Subsidiary which is not replaced by a substantially comparable amount of
insurance coverage;
(f) amend or authorize any amendment to its Organizational
Documents;
(g) declare, set aside or pay any dividends or distributions or make
any other payments (whether in cash, stock or property) in respect of any
capital stock of the Company or any Subsidiary, or redeem, directly or
indirectly, purchase or otherwise acquire any of the capital stock of the
Company or any Subsidiary or effect a split or combination with respect to any
shares of such capital stock;
(h) pay (other than in the ordinary course of business, consistent
with past practice) or increase any bonuses, salaries, or other compensation of
any director, officer or employee or enter into any employment, severance or
similar agreement with any director, officer or employee;
(i) adopt or increase any profit sharing, bonus, deferred
compensation, savings, insurance, pension, retirement or other employee benefit
plan (including, without limitation, any Benefit Plan) for or with any of their
employees;
(j) enter into, modify, amend, cancel or terminate any material
Contract, other than in the ordinary course of business consistent with past
practice;
(k) cancel or waive any claim or right, which individually or, in
the aggregate, is material;
(l) make any capital expenditure in excess of $50,000 individually
or $100,000 in the aggregate;
(m) repay any indebtedness of the Company or its Subsidiaries, other
than in the ordinary course of business, or make any voluntary prepayment or
redemption in respect of any indebtedness of the Company or its Subsidiaries;
(n) delay or defer any expenses (including capital expenditures,
liabilities or obligations of any kind whatsoever), or accelerate any income,
revenue, payment or similar item, other than in the ordinary course of business;
(o) terminate any Benefit Plan that is intended to be qualified
under Section 401(a) of the Code or any related trust intended to be exempt
under Section 501(a) of the Code;
(p) do any other act which would cause any representation or
warranty of the Company in this Agreement to be or become untrue in any material
respect;
(q) make or change any Tax election, enter into any agreement for
the allocation or sharing of any Taxes, change an annual Tax accounting period,
adopt or change any Tax accounting method, file any amended Tax Return, enter
into any closing agreement, settle any Tax claim or assessment, surrender any
right to claim a refund of Taxes, consent to any extension or waiver of the
statute of limitations period applicable to any Tax claim or assessment, take
any action or omit to take any action, if any such action or omission would have
the effect of increasing the Tax liability with respect to the business for any
Post-Closing Tax Period;
(r) made any payment or entered into any contract which would
require it to make a payment (i) that would constitute an "excess parachute
payment" for purposes of Sections 280G and 4999 of the Code, or (ii) the
deduction for which would be denied, in part or in whole, pursuant to Section
162(m) of the Code; or
(s) commit to do any of the foregoing.
6.3 Access to Information. (a) From the date hereof through the
Closing Date, the Stockholders, the Company and the Subsidiaries and each of
their officers, employees, auditors and agents shall furnish to the
Representatives of the Purchaser such financial and operating data and other
information regarding the Company and the Subsidiaries, as the Purchaser may
from time to time reasonably request; provided, however, that such review shall
not affect the representations and warranties made by the Principal Stockholders
and the Company in this Agreement or the remedies of the Purchaser for breaches
of the Company's or the Principal Stockholders' representations and warranties.
(b) Until the Closing Date, each party shall promptly inform the
other in writing of any material variance or breach discovered by such party in
the representations and warranties or covenants of such party pursuant to this
Agreement; provided that failure by any party hereunder to give such notice
shall not affect the obligations of the other party or the rights and remedies
of the party failing to give notice, unless the other party is materially
prejudiced by such failure.
(c) From time to time prior to the Closing Date and upon becoming
aware of any such matter, condition or occurrence, each party shall promptly
inform the other in writing of any matter, condition or occurrence which, if
existing or occurring at the date of this Agreement, would have been required to
be set forth or described in a Schedule being delivered concurrently with the
execution of this Agreement. No such disclosure by either party shall be deemed
to modify or supplement the Schedules or cure any breach of any representation
or warranty made in this Agreement by such party.
6.4 Regulatory and Other Authorizations. (a) From the date hereof
through the Closing, each of the Principal Stockholders, the Company and the
Purchaser will use its best efforts to obtain all authorizations, consents,
orders and approvals of all federal, state and foreign regulatory bodies and
officials that may be or become necessary for the performance of its obligations
pursuant to this Agreement and will cooperate fully with the other party in
promptly seeking to obtain all such authorizations, consents, orders and
approvals. Neither the Company, the Principal Stockholders nor the Purchaser
will take any action that will have the effect of delaying, impairing or
impeding the receipt of any required approval.
(b) If in order to properly prepare documents required to be filed
with governmental authorities (including any filings which may be required under
the HSR Act) or its financial statements, it is necessary that either the
Company, the Principal Stockholders or the Purchaser be furnished with
additional information relating to the Company or the Subsidiaries, and such
information is in the possession of the other party, such party agrees to use
its best efforts to furnish such information in a timely manner to such other
party.
6.5 Insurance. Through the Closing Date, the Principal Stockholders
shall cause the Company to, and the Company and the Subsidiaries shall, maintain
insurance policies providing insurance coverage for the Company and its
Subsidiaries of the kinds, in the amounts and against the risks substantially as
are presently provided pursuant to the policies set forth on Schedule 4.19.
6.6 Further Action. Each of the Company, the Stockholders and the
Purchaser shall execute such documents and other papers and take such further
actions as may be reasonably required or desirable to carry out the transactions
contemplated by this Agreement. Upon the terms and subject to the conditions of
this Agreement, each of the parties shall use its best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement.
6.7 Exclusivity. Between the date hereof and the Closing, the
Stockholders, the Company, the Subsidiaries and their respective directors,
officers, employees and agents shall deal exclusively with the Purchaser with
respect to the sale of Stock; will not directly or indirectly solicit, initiate,
encourage, continue or respond to any inquiries, proposals, discussions or
negotiations for an investment in the Company or any business combination
involving the Company or its assets with any person, firm or corporation or
other entity or group other than the Purchaser or provide any information to or
otherwise cooperate in any way with any other person, firm or corporation or
other entity or group for any purpose inconsistent with the intent of this
Agreement. Any such inquiries, proposals, discussions or negotiations heretofore
being conducted shall immediately be terminated. The Stockholders, the Company
and the Subsidiaries shall promptly inform the Purchaser in writing as to the
nature of and parties to any such inquiries, proposals, discussions or
negotiations and any further inquiries and proposals. Each of the Stockholders
and the Company hereby represents that neither he, it nor any of the
Subsidiaries or Affiliates is a party to or bound by any agreement with respect
to a possible merger, combination, sale or other disposition of the Company or
any of its Subsidiaries, or any interest therein other than this Agreement.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of the Purchaser. The obligations of
the Purchaser to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment or waiver, at or prior to the Closing, of
each of the following conditions:
(a) Representations and Warranties; Covenants. The representations
and warranties of the Stockholders and the Company contained in this Agreement
shall be true and correct as of the Closing, with the same force and effect as
if made on and as of the Closing Date (excluding any qualifications thereto that
relate solely to the representations and warranties made as of the date of this
Agreement), and all the covenants contained in this Agreement to be complied
with by the Stockholders and the Company on or before the Closing Date shall
have been complied with in all material respects, and the Purchaser shall have
received a certificate of each of the Stockholders and the Company to such
effect signed by each Stockholder or a duly authorized officer of the Company,
as the case may be;
(b) HSR Act. Any waiting period (and any extension thereof), if any,
under the HSR Act which may be applicable to the transactions contemplated
hereby shall have expired or been terminated;
(c) No Prohibition. There shall not exist any temporary restraining
order, preliminary or permanent injunction, final judgment, law or regulation
prohibiting the consummation of this Agreement or the transactions contemplated
hereby, or, to the knowledge of any party, any pending or threatened action by
any governmental authority or private party prohibiting or seeking to prohibit
the consummation of this Agreement or the transactions contemplated hereby;
(d) Legal Opinion. The Purchaser shall have received from King,
Purtich, Xxxxxx, Xxxxxxx & Xxxxxxxx, LLP, counsel to the Company and the
Stockholders, a legal opinion addressed to the Purchaser and dated the Closing
Date, in substantially the form attached as Exhibit 7.1(d);
(e) Employment Agreements. The Principal Stockholders shall have
entered into employment agreements with the Company, in substantially the form
attached hereto as Exhibit 7.1(e);
(f) Non-Competition Agreements. The Principal Stockholders shall
have entered into non-competition agreements with the Company, in substantially
the form attached as Exhibit 7.1(f);
(g) Due Diligence. The Purchaser shall have completed the due
diligence investigation of the Company, the results of which shall be reasonably
satisfactory to the Purchaser;
(h) Financial Conditions of the Company. The financial conditions of
the Company at the Closing Date shall not be materially adverse changed from the
financial conditions as set forth on the Balance Sheet;
(i) Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental Body necessary to
permit (i) the parties hereto to perform their obligations under this Agreement,
(ii) consummate the transactions contemplated hereby or (iii) permit the
Purchaser to operate the business and operations of the Company after the
Closing, shall have been duly obtained, made or given and shall be in full force
and effect, and all terminations or expirations of waiting periods imposed by
any Governmental Body necessary for the consummation of the transactions
contemplated by this Agreement or to permit the Purchaser to operate the
business and operations of the Company after the Closing, shall have occurred,
except where failure to obtain such consents, approvals and actions could not be
reasonably expected to have a Material Adverse Effect on the Company and the
Purchaser;
(j) Approval. This Agreement, the Merger and the transactions
contemplated hereby shall have been approved by all of the stockholders of the
Company, including the Principal Stockholders;
(k) Subsidiaries. The Purchaser shall have entered into agreements
with the Stockholders, officers, directors or Affiliates of the Company with
respect to the acquisition of the Subsidiaries in form and substance reasonably
satisfactory to the Purchaser;
(l) Resignations. The Purchaser shall have received the resignations
of the officers and directors of the Company and the Subsidiaries;
(m) Cash and Cash Equivalent. If the Closing Date shall occur on or
prior to December 31, 1999, the cash and cash equivalents of the Company on the
Closing Date shall be not less than $500,000, and if the Closing Date shall
occur after December 31, 1999 and prior to January 31, 2000, the cash and cash
equivalents of the Company on the Closing Date shall be not less than $200,000,
and the Purchaser shall have received a certificate from the Chief Financial
officer of the Company to that effect;
(n) Acquisition of Stock. The Purchaser shall have acquired the
shares of common stock of the Company from each of Xxxxxxx Xxxx Xxxxx, Xxxxxx
Xxxxx, Xxxxxx Xxxxxxx Xxxxxxxxx, Xxxxx Xxxxxxx Xxxxxxxxx and Xxxxxxx Xxxxx
XxXxxxx prior to the date hereof;
(o) No Dissenting Stockholders. There shall be no dissenting
stockholders of the Company;
(p) Agreement with Stockholders. All Stockholders shall have entered
into this Agreement; and
(q) Additional Documents. The Purchaser shall have received such
additional documents, certificates, payments, assignments, transfers and other
deliveries as it or its counsel may reasonably request and as are customary to
effect a closing of the matters herein contemplated.
7.2 Conditions to Obligations of the Company and the Stockholders.
The obligations of the Company and the Stockholders to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment
or waiver, at or prior to the Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. The representations
and warranties of the Purchaser contained in this Agreement shall be true and
correct as of the Closing, with the same force and effect as if made on and as
of the Closing Date (excluding any qualifications thereto that relate solely to
the representations and warranties made as of the date of this Agreement), and
all the covenants and other obligations contained in this Agreement to be
complied with by the Purchaser on or before the Closing Date shall have been
complied with in all material respects, and the Company shall have received a
certificate of the Purchaser to such effect signed by a duly authorized officer
thereof;
(b) HSR Act. Any waiting period (and any extension thereof), if any,
under the HSR Act applicable to the transactions contemplated hereby shall have
expired or been terminated;
(c) No Prohibition. There shall not exist any temporary restraining
order, preliminary or permanent injunction, final judgment, law or regulation
prohibiting the consummation of this Agreement or the transactions contemplated
hereby, or, to the knowledge of any party, any pending or threatened action by
any governmental authority or private party prohibiting or seeking to prohibit
the consummation of this Agreement or the transactions contemplated hereby;
(d) Employment Agreements. The Principal Stockholders shall have
entered into employment agreements with the Company, in substantially the form
attached hereto as Exhibit 7.1(e);
(e) Non-Competition Agreements. The Principal Stockholders shall
have entered into non-competition agreements with the Company, in substantially
the form attached hereto as Exhibit 7.1(f);
(f) Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental Body necessary to
permit the parties hereto to perform their obligations under this Agreement and
to consummate the transactions contemplated hereby shall have been duly
obtained, made or given and shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental Body
necessary for the consummation of the transactions contemplated by this
Agreement, including under the HSR Act, shall have occurred; and
(g) Acquisition of Stock. The Purchaser shall have acquired the
shares of common stock of the Company from each of Xxxxxxx Xxxx Xxxxx, Xxxxxx
Xxxxx, Xxxxxx Xxxxxxx Xxxxxxxxx, Xxxxx Xxxxxxx Xxxxxxxxx and Xxxxxxx Xxxxx
XxXxxxx prior to the date hereof;
ARTICLE VIII
CERTAIN ADDITIONAL COVENANTS AND ACKNOWLEDGEMENTS
8.1 Restrictive Legend. Each Stockholder acknowledges and agrees
that, upon issuance pursuant to this Agreement, the shares of Common Stock shall
have endorsed thereon a legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the shares of Common Stock
until such legend has been removed):
"THE SHARES REPRESENTED BY THE CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH LAWS. THESE SHARES MAY NOT BE
SOLD, TRANSFERRED OR PLEDGED EARLIER THAN DECEMBER 29,
2001, AS PROVIDED IN THAT CERTAIN AGREEMENT AND PLAN OF
MERGER DATED AS OF DECEMBER 29, 1999 (THE "AGREEMENT")
BY AND AMONG THE COMPANY AND CERTAIN OTHER PERSONS;
PROVIDED, HOWEVER, THAT IN ANY EVENT NOT MORE THAN 50%
OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR PLEDGED
DURING ANY YEAR SINCE DECEMBER 29, 2001. A COPY OF THE
AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY."
8.2 No Transfer. Each of the Stockholders agrees that it will not
resell, pledge, assign, transfer or otherwise dispose of the shares of Common
Stock until the expiration of the two-year period after the Closing Date whether
or not such shares are registered under the Securities Act and under the
securities act of any State; provided, however, that in any event not more than
50% of such shares may be sold, pledged, assigned, transferred or otherwise
disposed during any year after the expiration of the aforementioned two-year
period after the Closing Date.
8.3 Board of Directors. Promptly after the Closing, the Purchaser
shall cause its Board of Directors to be expanded by one additional member and
shall cause to elect to the Board of Directors one person designated by the
Stockholders and reasonably satisfactory to the Purchaser.
8.4 Tax Return Filings. (a) The Purchaser shall, or shall cause the
Company and the Subsidiaries to, timely prepare and file with the relevant
Taxing Authorities all Tax Returns of the Company and the Subsidiaries the due
date for filing of which, determined taking into account extensions, is after
the Closing Date. The Stockholders shall, or shall cause the Company and the
Subsidiaries to, timely prepare and file with the relevant Taxing Authorities
all Tax Returns for any taxable periods of the Company or any of the
Subsidiaries the due date for filing of which, determined taking into account
extensions, is on or before the Closing Date; provided, however, that the
Company shall furnish the Purchaser with a copy of such Tax Returns at least 60
days before such returns are due, and no such Tax Returns shall be filed with
any Taxing Authority without the Purchaser's written consent. Any Tax Returns
described in the preceding sentence shall be prepared on a basis consistent with
the past practices of the Company and the Subsidiaries and in a manner that does
not distort taxable income (e.g., by deferring income or accelerating
deductions). The Stockholders shall reimburse the Purchaser (in accordance with
Section 9.4) for any amount owed by the Stockholders pursuant to Section 9.4
with respect to the taxable periods covered by such Tax Returns. All Tax Returns
for a taxable period including the Closing Date shall be filed on the basis that
the relevant taxable period ended as of the close of business on the Closing
Date, unless the relevant Taxing Authority will not accept such a Tax Return.
(b) In the case of any taxable period that includes (but does not
end on) the Closing Date (a "Straddle Period"): (i) real, personal and
intangible property Taxes ("Property Taxes") of the Company and its Subsidiaries
for the Pre-Closing Tax Period shall equal the Property Taxes for such Period
multiplied by a fraction, the numerator of which is the number of days during
the Straddle Period that are in the Pre-Closing Tax Period and the denominator
of which is the number of days in the Straddle Period; and (ii) the Taxes of the
Company (other than Property Taxes) for the Pre-Closing Tax Period shall be
computed as if the entire Straddle Period ended as of the close of business on
the Closing Date.
(c) The Stockholders, the Company and the Purchaser shall reasonably
cooperate, and shall cause their respective affiliates, officers, employees,
agents, auditors and representatives reasonably to cooperate, in preparing and
filing all Tax Returns, including maintaining and making available to each other
all records necessary in connection with Taxes, and in resolving all disputes
and audits with respect to all taxable periods relating to Taxes, including all
Tax Claims (as defined below).
(d) (i) If a claim shall be made by any Taxing Authority, which, if
successful, might result in an indemnity payment to any Purchaser Tax Indemnitee
(as defined below) pursuant to Section 9.4, the Purchaser shall promptly notify
Stockholders in writing of such claim (a "Tax Claim"). Failure to give notice of
a Tax Claim to the Stockholders within a sufficient period of time and in
reasonably sufficient detail to allow Stockholders to effectively contest such
Tax Claim shall affect the liability of the Stockholders to any Purchaser Tax
Indemnitee only to the extent that the Stockholders' position is actually and
materially prejudiced as a result thereof.
(ii) The Stockholders shall control all proceedings taken in
connection with any Tax Claim relating solely to Taxes of the Company and any
Subsidiary for a Pre-Closing Tax Period, and may make all decisions in
connection with such Tax Claim. The Stockholders and the Purchaser shall jointly
control all proceedings taken in connection with any Tax Claim relating solely
to Taxes of the Company and any Subsidiary for a Straddle Period, and neither
party shall settle any such Tax Claim without the written consent of the other
party. The Purchaser shall control all proceedings with respect to all other Tax
Claims.
8.5 Piggyback Registration.
(a) If the Purchaser proposes to register any of its Common Stock,
either for its own account or for the account of any Person, but not including a
registration relating to (i) employee stock option or purchase plans, (ii) a
transaction pursuant to Rule 145 under the Securities Act, or (iii) securities
of any investor in the Purchaser (a "Piggyback Registration"), the Purchaser
will:
(X) promptly give written notice thereof to the Stockholders; and
(Y) use its best efforts to include in such Piggyback Registration
and in any underwriting involved therein up to all of the shares of Common
Stock of the Stockholders (the "Registrable Securities") which the
Stockholders request in writing to be so included within 15 days after
receipt of such written notice from the Purchaser.
(b) The Stockholders shall pay, and shall reimburse each Holder for
paying, any expenses incurred in connection with a Piggyback Registration
requested pursuant to this Section, including, without limitation, all
registration, qualification, printing and accounting fees and all fees and
disbursements of counsel for the Purchaser.
(c) If the registration of which the Purchaser gives notice is for a
registered public offering involving an underwriting, the Purchaser shall so
advise the Stockholders as a part of the written notice given pursuant to this
Section, and the right of the Stockholders to include Registrable Securities in
such registration shall be conditioned upon the Stockholders' participation in
such underwriting and the entry of the participating Stockholders (together with
the Purchaser and other holders distributing their securities through such
underwriting) into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Purchaser.
(d) (i) If the underwriter of the registered public offering
referred to in this Section shall advise the Purchaser in writing that marketing
factors require a limitation of the amount of securities to be underwritten,
securities shall be included in such offering in the following priority: first,
the Common Stock proposed to be registered by the Purchaser; second, the
Registrable Securities requested to be included in such registration by
requesting Stockholders pursuant to this Section, pro rata on the basis of the
number of such securities requested to be included by such Stockholders; and
third, other securities for the account of Persons other than Stockholders,
allocated among such Persons in accordance with the priorities then existing
among the Purchaser and such Persons. Any securities excluded pursuant to the
provisions of this Section shall be withdrawn from and shall not be included in
such Piggyback Registration.
(e) The Purchaser, in its sole and absolute discretion, may enter
into agreements granting Persons other than the Stockholders the right to
include any securities issued or issuable to such Persons in a Piggyback
Registration prior to the inclusion of the Registrable Securities of the
Stockholders.
(f) Nothing contained herein shall prohibit the Purchaser from
determining, at any time, not to file a registration statement or, if filed, to
withdraw such registration or terminate or abandon the registration related
thereto.
ARTICLE IX
INDEMNIFICATION
9.1 Survival of Representations and Warranties. The representations
and warranties set forth in Articles IV and V shall survive for a period of 18
months after the Closing, except that those representations and warranties
contained in Sections 4.1, 4.2, 4.3, 4.4, 5.1, 5.2 and 5.4 shall survive
indefinitely, the representations and warranties contained in Section 4.16 shall
survive for the statute of limitations plus any extension thereof with respect
to the applicable tax return, and the representations and warranties contained
in Section 4.17 shall survive for a period of three years after the Closing.
9.2 Indemnification by the Purchaser. (a) The Purchaser agrees,
subject to the other terms and conditions of this Agreement, to indemnify the
Stockholders against, and hold them harmless from, all losses, claims, fines,
penalties, amounts paid in settlement, liabilities, costs and expenses
(including, without limitation, reasonable attorney and expert fees) of and
damages to the Stockholders related to or arising out of the breach of (i) any
representation or warranty of the Purchaser contained herein (without regard to
any "materiality", "Material Adverse Effect", "substantial compliance" or
similar exception or qualifier), or (ii) any breach of any covenant or agreement
of the Purchaser herein.
(b) No claim may be made against the Purchaser for indemnification
pursuant to Section 9.2(a)(i) unless the aggregate of all liabilities and
damages of the Stockholders (exclusive of legal fees incurred in connection with
pursuing such claim) with respect to Section 9.2(a)(i) along with all liability
of the Purchaser to the Stockholders shall in the aggregate exceed $100,000;
provided, however, that under no circumstances shall the Purchaser liability
under Section 9.2(a)(i) exceed (i) the amount equal to 100% of the Purchase
Price with respect to the breach of all representations and warranties set forth
in Sections 5.1, 5.2 and 5.4 and (ii) $500,000 with respect to the breach of all
other representations and warranties set forth in Article V.
(c) The Stockholders agree to give the Purchaser prompt written
notice of any claim, assertion, event or proceeding by or in respect of a third
party of which they have Knowledge concerning any liability or damage as to
which it may request indemnification hereunder; provided, however, that no delay
on the part of any Stockholders in notifying the Purchaser shall relieve the
Purchaser from any liability or obligation hereunder unless (and then solely to
the extent that) the Purchaser can demonstrate that it was damaged by such
delay. The Purchaser will not consent to the entry of any judgment with respect
to the matter, or enter into any settlement which does not include a provision
whereby the plaintiff or claimant in the matter releases the Stockholders from
all liability with respect thereto, without the written consent of the
Stockholders. The Purchaser shall have the right to direct, at its own expense
and through counsel of its own choosing, the defense or settlement of any such
claim or proceeding; the Stockholders may participate in such defense, but in
such case the expenses of the Stockholders shall be paid by the Stockholders;
provided, however, that if the Stockholders deliver to the Purchaser an opinion
of counsel to the effect that there exists an actual conflict of interest
between the Purchaser and the Stockholders with respect to such claim, or such
claim or liability involves the possibility of criminal sanctions or criminal
liability to the Stockholders, the Stockholders shall be entitled to participate
in the defense of such claim or liability at the expense of the Purchaser. The
Stockholders shall provide the Purchaser with access to their records and
personnel relating to any such claim, assertion, event or proceeding during
normal business hours and shall otherwise cooperate with and aid at the
Purchaser's request the Purchaser in the defense or settlement thereof, and the
Purchaser shall reimburse the Stockholders for all reasonable out-of-pocket
expenses in connection therewith. If the Purchaser elects to direct the defense
of any such claim or proceeding, the Stockholders shall not pay, or permit to be
paid, any part of any claim or demand arising from such asserted liability
unless the Purchaser consents in writing to such payment (such consent not to be
unreasonably withheld or delayed) or unless the Purchaser, subject to the last
sentence of this Section 9.2(c), withdraws from the defense of such asserted
liability or unless a final judgment from which no appeal may be taken by or on
behalf of the Purchaser is entered against the Stockholders for such liability.
If the Purchaser shall fail to assume the defense of such claim in the manner
provided above, or if, after commencing or undertaking any such defense, fails
to prosecute or withdraws from such defense, the Stockholders shall have the
right to undertake the defense or settlement thereof, and the Stockholders may
defend against, or enter into any settlement with respect to, the matter in any
manner it reasonably may deem appropriate without prejudice to the Purchaser
Indemnitee's right to indemnity from the Purchaser hereunder.
9.3 Indemnification by the Principal Stockholders. (a) Each of the
Principal Stockholders, jointly and severally, agrees, subject to the other
terms and conditions of this Agreement, to indemnify the Purchaser (and
Purchaser's directors, officers, employees, controlling persons, Affiliates,
successors and assigns (collectively, the "Purchaser Indemnitees")) against, and
hold it harmless on an after-Tax basis from, all losses, claims, fines,
penalties, amounts paid in settlement, liabilities, costs and expenses
(including, without limitation, reasonable attorney and expert fees) of and
damages to the Purchaser, but excluding any anticipated lost profits, related to
or arising out of (i) the breach of any representation or warranty made by or on
behalf of the Company and each of the Principal Stockholders in this Agreement
(without regard to any "materiality", "Material Adverse Effect", "substantial
compliance" or similar exception or qualifier), or (ii) the breach of any
covenant, agreement or undertaking made by or on behalf of the Company and each
of the Principal Stockholders in this Agreement.
(b) No claim may be made against the Principal Stockholders for
indemnification pursuant to Section 9.3(a)(i) unless the aggregate of all
liabilities and damages (exclusive of legal fees incurred in connection with
pursuing such claim) of the Purchaser with respect to Section 9.3(a)(i) and
liability to the Purchaser pursuant to the other Contracts or guaranties shall
exceed $100,000; provided, however, that under no circumstances shall the
Principal Stockholders liability under 9.3(b)(i) exceed (i) the amount equal to
100% of the Purchase Price with respect to the breach of all representations and
warranties set forth in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6(a)(vii),
4.5(a)(xi), 4.6(a)(xii), 4.6(a)(xiii), 4.6(a)(xiv) and 4.6(a)(xviii) with
respect to any actions under the aforementioned 4.6(a)(vii), 4.6(a)(xi),
4.6(a)(xii), 4.6(a)(xiii) and 4.6(a)(xiv), 4.12, 4.16(a), 4.16(b), 4.20, 4.21,
4.22 and 4.23, in the aggregate, and (ii) $500,000 with respect to the breach of
all other representations and warranties set forth in Article IV, in the
aggregate; and provided, further, that the Principal Stockholders shall have the
right to (i) use the consideration due to them under Sections 2.2(c), 2.2(d),
2.2(e) and 2.2(f) in order to offset their liabilities, if any, under this
Section and (ii) satisfy their obligations under this Section by returning to
the Purchaser the shares of Common Stock received by them as provided in Section
2.2 valued at the Fair Market Price of such shares of Common Stock for a thirty
day period prior to their return to the Purchaser. In no event the aggregate
indemnification under Section 9.3 and Section 9.4 shall exceed the amount of the
Purchase Price.
(c) The Purchaser agrees to give the Principal Stockholders prompt
written notice of any claim, assertion, event or proceeding by or in respect of
a third party of which it has Knowledge concerning any liability or damage as to
which it may request indemnification hereunder; provided, however, that no delay
on the part of any Purchaser Indemnitee in notifying the Principal Stockholders
shall relieve the Principal Stockholders from any liability or obligation
hereunder unless (and then solely to the extent that) the Principal Stockholders
can demonstrate that they were damaged by such delay. The Principal Stockholders
will not consent to the entry of any judgment with respect to the matter, or
enter into any settlement which does not include a provision whereby the
plaintiff or claimant in the matter releases the Purchaser Indemnitee from all
liability with respect thereto, without the written consent of the Purchaser
Indemnitee. The Principal Stockholders shall have the right to direct, at their
own expense and through counsel of its own choosing (reasonably satisfactory to
the Purchaser Indemnitee), the defense or settlement of any such claim or
proceeding; the Purchaser Indemnitee may participate in such defense, but in
such case the expenses of the Purchaser Indemnitee shall be paid by the
Purchaser Indemnitee; provided, however, that if the Purchaser Indemnitee
delivers to the Principal Stockholders an opinion of counsel to the effect that
there exists an actual conflict of interest among the Principal Stockholders and
the Purchaser Indemnitee with respect to such claim, or such claim or liability
involves the possibility of criminal sanctions or criminal liability to the
Purchaser Indemnitee, the Purchaser Indemnitee shall be entitled to participate
in the defense of such claim or liability at the expense of the Principal
Stockholders. The Purchaser shall provide the Principal Stockholders with access
to its records and personnel relating to any such claim, assertion, event or
proceeding during normal business hours and shall otherwise cooperate with and
aid at the Principal Stockholders' request the Principal Stockholders in the
defense or settlement thereof, and the Principal Stockholders shall reimburse
the Purchaser for all its reasonable out-of-pocket expenses in connection
therewith. If the Principal Stockholders elect to direct the defense of any such
claim or proceeding, the Purchaser shall not pay, or permit to be paid, any part
of any claim or demand arising from such asserted liability unless the Principal
Stockholders consent in writing to such payment (such consent not to be
unreasonably withheld or delayed) or unless the Principal Stockholders, subject
to the last sentence of this Section 9.3(c), withdraw from the defense of such
asserted liability or unless a final judgment from which no appeal may be taken
by or on behalf of the Principal Stockholders is entered against the Purchaser
for such liability. If the Principal Stockholders shall fail to assume the
defense of such claim in the manner provided above, or if, after commencing or
undertaking any such defense, fails to prosecute or withdraws from such defense,
the Purchaser shall have the right to undertake the defense or settlement
thereof, and the Purchaser Indemnitee may defend against, or enter into any
settlement with respect to, the matter in any manner it reasonably may deem
appropriate without prejudice to the Purchaser Indemnitee's right to indemnity
from the Principal Stockholders hereunder.
9.4 Tax Indemnification. (a) From and after the Closing, the
Stockholders shall be liable for, and shall indemnify the Purchaser, its
affiliates and each of their respective officers, directors, employees,
stockholders, agents and representatives (the "Purchaser Tax Indemnities")
against and hold them harmless on an after-Tax basis from (i) all liability for
Taxes of the Stockholders, the Company and any Subsidiary with respect to any
Pre-Closing Tax Periods paid by the Company or the Purchaser after the Closing
Date and not accrued on the Closing Balance Sheet, (ii) all liability for Taxes
of the Stockholders arising (directly or indirectly) as a result of the
transactions contemplated hereby, paid by the Company or any Subsidiary or the
Purchaser, (iii) any breach of any representation or warranty contained in
Section 4.16 resulting in any loss, claim, fine, penalty, amounts paid in
settlement, liabilities, costs or expenses to the Company or any Subsidiary or
the Purchaser, and (iv) all liability for reasonable legal fees and expenses of
the Company or any Subsidiary or the Purchaser attributable to any item in the
foregoing clauses.
(b) The indemnity obligation under this Agreement in respect of
Taxes for a Straddle Period shall initially be effected by payment to the
Purchaser by the Stockholders of the excess of (i) such Taxes relating to the
Pre-Closing Tax Period over (ii) the amount of such Taxes paid by the Company,
the Subsidiaries and the Stockholders or any of their affiliates on or prior to
the Closing Date plus the amount of any such Taxes which were accrued and
reflected on the Closing Balance Sheet. Such excess initially shall be paid to
the Purchaser no later than 10 days prior to the date on which the Tax Return
with respect to the final liability for such Taxes is required to be filed. If
the aggregate amount of such Taxes paid or accrued by the Company or the
Subsidiaries prior to the Closing, and by the Stockholders or any of their
affiliates at any time, is exceeded by the amount payable pursuant to the
preceding sentence, the Stockholders shall pay to the Purchaser the amount of
such excess within 10 days after the Tax Return with respect to the final
liability for such Taxes is required to be filed. The payments to be made
pursuant to this Section 9.4 with respect to a Straddle Period shall be
appropriately adjusted to reflect any final determination (which shall include
the execution of Form 870AD or successor form, or similar state or local Tax
form) with respect to Straddle Period Taxes.
(c) Any indemnity payment to be made under this Section 9.4, other
than an indemnity payment described in the immediately preceding paragraph,
shall be paid within 10 days after the indemnified party makes written demand
upon the indemnifying party, but in no case earlier than ten business days prior
to the date on which the relevant Taxes are required to be paid to the relevant
Taxing Authority (including as estimated Tax payments).
(d) Any refund or credit of Taxes of the Company or any Subsidiary
for any taxable period ending on or before the Closing Date or any Straddle
Period shall be for the account of the Company; provided, however, any such
refund or credit will reduce any amount for which the Stockholders are liable
pursuant to this Section, to the extend such Taxes were paid prior to the
Closing Date or accrued on the Closing Balance Sheet, and are not related to the
carryback by the Company of any net operating loss, capital loss or similar
items incurred after the Closing Date. Any refund or credit of Taxes of the
Company or any Subsidiary for any Post-Closing Tax Period shall be for the
account of the Company. Each party shall, or shall cause its affiliates to,
forward to any other party entitled under this Section 9.4(d) to any refund or
credit of Taxes any such refund within 10 days after such refund is received or
reimburse such other party for any such credit within 10 days after the credit
is allowed or applied against any other Tax liability; provided, however, that
any such amounts shall be net of any Tax cost or benefit to the payor party
attributable to the receipt of such refund and/or the payment of such amounts to
the payee party. Notwithstanding the foregoing, the control of the prosecution
of a claim for refund of Taxes paid pursuant to a deficiency assessed subsequent
to the Closing Date as a result of an audit shall be governed by the provisions
of Section 8.4(d)(ii).
(e) In the event of any conflict between the provisions of this
Section 9.4 and other Sections of this Agreement regarding the indemnification
of any loss for Taxes, the provisions of this Section 9.4, and not those other
Sections, shall be controlling.
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Methods of Termination. The transactions contemplated herein
may be terminated and/or abandoned at any time prior to the Closing:
(a) by mutual written consent of the Purchaser and the
Principal Stockholders;
(b) by the Purchaser or the Principal Stockholders if either of them
has materially breached any representation, warranty, or covenant contained in
this Agreement;
(c) by the Purchaser or the Principal Stockholders in the event any
court or governmental agency of competent jurisdiction shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby and such order,
decree or ruling or other action shall have become final and nonappealable;
(d) by the Purchaser or the Principal Stockholders if the Closing
has not occurred on January 31, 2000; provided, that neither the Purchaser nor
the Principal Stockholders shall be entitled to terminate this Agreement
pursuant to this Section 10.1(d) if such Person's breach of this Agreement has
prevented the consummation of the transactions contemplated hereby.
10.2 Procedure Upon Termination. In the event of termination and
abandonment by the Purchaser or by the Principal Stockholders, or both, pursuant
to Section 10.1, written notice thereof shall be given to the other party and
the transactions contemplated by this Agreement shall be terminated and/or
abandoned, without further action by the parties. If the transactions
contemplated by this Agreement are terminated and/or abandoned as provided
herein each party hereto will redeliver all documents, work papers and other
material (and all copies thereof) of the other party relating to the
transactions contemplated hereby, whether so obtained before or after the
execution hereof, to the party furnishing the same.
10.3 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1, this Agreement shall thereafter become void
and have no effect, and no party hereto shall have any liability or obligation
to any other party hereto in respect of this Agreement, including any liability
for lost profits and consequential damages, except that the provisions of
Article XI (Miscellaneous) and this Section 10.3 shall survive any such
termination; provided, however, that no party shall be released from any
liability hereunder if this Agreement is terminated and the transactions
contemplated hereby abandoned by reason of (i) willful failure of such party to
perform its obligations hereunder or (ii) any misrepresentation made by such
party of any matter set forth herein.
ARTICLE XI
MISCELLANEOUS
11.1 Specific Performance. It is expressly understood and agreed
that the material breach of any covenant contained in this Agreement will result
in irreparable injury to the other party and that therefore such other party
shall be entitled to specific performance thereof.
11.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by the Company or any of the Principal
Stockholders without the prior written consent of the Purchaser. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, and no other Person
shall have any right, benefit or obligation hereunder.
11.3 Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
parties shall be in writing and delivered in person or by courier or by
facsimile transmission as follows (or at such address or facsimile number of
which notice shall have been duly given in accordance with this Section 11.3):
If to the Company: Marina Mortgage Company, Inc.
00000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx
With a copy to: King, Purtich, Xxxxxx, Xxxxxxx & Xxxxxxxx, LLP
0000 Xxxxxx xx xxx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
If to Stockholders: Marina Mortgage Company, Inc.
00000 Xxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: c/o Xxxxxxx Xxxxxx
With a copy to: King, Purtich, Xxxxxx, Xxxxxxx & Xxxxxxxx, LLP
0000 Xxxxxx xx xxx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
If to Purchaser: American Home Mortgage Holdings, Inc.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx Xxxxxxx
With a copy to: Cadwalader, Xxxxxxxxxx & Xxxx
000 Xxxxxx Xxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxxxx, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others. Any failure by any party to
deliver copies of any notice shall not, in itself, affect the validity of such
notice if otherwise properly made to the other party.
11.4 CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED
AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
11.5 Entire Agreement; Amendments and Waivers. This Agreement
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. No supplement,
modification or waiver of this Agreement shall be binding unless executed in
writing by all parties. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
11.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
11.8 Headings. The headings of the Articles and Sections herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
11.9 Expenses. The Stockholders and the Purchaser will each be
liable for his or its own costs and expenses incurred in connection with the
negotiation, preparation, execution or performance of this Agreement.
11.10 Publicity. The parties agree to notify each other prior to
issuing any press release or making any public statement regarding the
transactions contemplated hereby, and will attempt to obtain the approval of the
other party prior to making such release or statement, including without
limitation, any press release issued by either or both of the parties in
connection with the Closing, which approval shall not be unreasonably withheld.
[Remainder of the page intentionally left blank].
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
AMERICAN HOME MORTGAGE HOLDINGS, INC.
By: /s/ Xxxxxxx Xxxxxxx
-------------------------------------
Name: Xxxxxxx Xxxxxxx
Title: President and CEO
AMERICAN HOME MORTGAGE SUB I, INC.
By: /s/ Xxxxxxx Xxxxxxx
-------------------------------------
Name: Xxxxxxx Xxxxxxx
Title: President and Chief
Executive Officer
MARINA MORTGAGE COMPANY, INC.
By: /s/ Xxxx X. Xxxxxxxx
--------------------------------------
Name: Xxxx X. Xxxxxxxx
Title: Chief Executive Officer
/s/ Xxxx X. Xxxxxxxx
--------------------------------------
Xxxx X. Xxxxxxxx
/s/ Xxxxxx Xxxxxx
--------------------------------------
Xxxxxx Xxxxxx
/s/ Xxxxxxx Xxxxxx Xxxxx
--------------------------------------
Xxxxxxx Xxxxxx Xxxxx
/s/ Xxxxxxx X. Xxxxxx
--------------------------------------
Xxxxxxx X. Xxxxxx
/s/ Xxxxxx Xxxxxxx Xxxxxxxx
--------------------------------------
Xxxxxx Xxxxxxx Xxxxxxxx
/s/ Xxxxxx Xxxxxx Xxxxxxxxxx, III
--------------------------------------
Xxxxxx Xxxxxx Xxxxxxxxxx, III
/s/ Lanceworth Xxxxxxx Xxxxxx
--------------------------------------
Lanceworth Xxxxxxx Xxxxxx
/s/ Xxxxxx Xxxx Livian
--------------------------------------
Xxxxxx Xxxx Livian
/s/ Xxxx Xxxx Xxxxxxxx
--------------------------------------
Xxxx Xxxx Xxxxxxxx
SCHEDULE 2.1(C)
DIRECTORS
The Directors are as follows:
Xxxxxxx Xxxxxxx
Xxxx X. Xxxxxxxx
Xxxxxx Xxxxxx
Xxxxx X. X'Xxxxxx
Xxxxxx X. Xxxxx
EXHIBIT 2.4(C)
CASH INCOME FOR ANY PERIOD WILL EQUAL:
DIVISION NET INCOME for the applicable period as determined in accordance
with EXHIBIT 2.4(D), less any increase in DIVISION REPORTING GROUP
non-cash assets (except for saleable loans held for sale).
* For purposes of this formula, unless otherwise indicated, all amounts shall be
determined in accordance with GAAP.
EXHIBIT 2.4(D)
DIVISION NET INCOME FOR ANY PERIOD WILL EQUAL:
DIVISION LOAN PRODUCTION REVENUES
less: DIRECT LOAN PRODUCTION COSTS
less: OPERATING COSTS
plus: ALLOCABLE SECONDARY MARKETING GAINS
less: ALLOCABLE SECONDARY MARKETING LOSSES
plus: ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES
less: ALLOCABLE CORPORATE OVERHEAD
less: $500,000 PER YEAR (OR A PRO RATA PORTION FOR A SHORTER PERIOD)
all as more fully defined and set forth below.
DIVISION LOAN PRODUCTION REVENUES shall be determined for any measurement period
by adding 1) the product of the difference between the APPLICABLE AMERICAN HOME
MORTGAGE REFERENCE PRICE and 100, expressed as a negative percentage if the
resulting number is less than 0 and as a positive percentage if greater than 0
times the loan principal amount for each loan funded or brokered, at the time
such loan is funded or the loan is closed with respect to brokered loans, by the
DIVISION REPORTING GROUP during such measurement period; 2) all applicable up
front lender fees charged to the borrower and other parties related to such loan
(such as loan origination fees, discount points, loan processing fees,
underwriting fees, loan document fees, wire fees, tax service, flood
certification, inspections, and similar costs and expenses); 3) fees earned from
brokering loans to outside companies; 4) fees earned from in-house escrow
operations; and 5) other ancillary income generated from outside sources; in
each case with respect to the DIVISION REPORTING GROUP.
The APPLICABLE AMERICAN HOME MORTGAGE REFERENCE PRICE for any loan
shall be:
(i) with respect to 30 year jumbo loans and loans eligible for FHA, VA, FNMA,
FHLMC and/or other applicable state or federal agency programs, the highest
price quoted by any one of the REFERENCE BANKS for best efforts delivery for the
applicable program and a delivery window not less than, but closest to, the lock
in period granted by the Purchaser's secondary marketing desk at the time the
loan is locked.
(ii) with respect to all loans not subject to (i) above, the actual price the
buyer of the loan would have paid at the time the loan was locked with the
Purchaser's secondary marketing desk.
For purposes of this Agreement, the DIVISION REPORTING GROUP shall include all
employees of the Purchaser after the Merger reporting directly or indirectly to
Xxxx X. Xxxxxxxx and/or Xxxxxx Xxxxxx and, to the extent that neither such
person is employed by the Purchaser, such employees of the Purchaser that
reported directly or indirectly to either such person immediately prior to their
termination of employment with the Purchaser.
The REFERENCE BANKS (unless otherwise changed by the Purchaser's Pricing
Committee) include: Chase Manhattan Mortgage, Norwest Funding, Countrywide
Credit Corp., Citicorp Mortgage and Fleet Mortgage.
Less: DIRECT LOAN PRODUCTION COSTS:
For all loans funded or brokered by the DIVISION REPORTING GROUP
during any measurement period:
Direct loan production costs associated with originating and selling
a loan and all expenses that are incurred by the DIVISION REPORTING
GROUP, such as commissions, fees paid to mortgage brokers, loan
processing, automated underwriting fees, credit and appraisal fees,
and other costs associated with each loan funded by that group.
Less: OPERATING COSTS:
The DIVISION REPORTING GROUP operating, costs, both current and
deferred, will include expenses relating directly to the cost of
operating the DIVISION REPORTING GROUP but will exclude all direct
loan production costs. Such operating costs will include salaries,
employee benefits, income taxes (federal and state), FICA, SDI,
occupancy, communications, actual loss from REOs and repurchases
charged against reserves, indemnification, postage, auto expenses,
entertainment, advertising, pagers, cell phones, and other operating
costs directly related to the DIVISION REPORTING GROUP'S operations,
facilities and or employees.
Plus: ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING
LOSSES):
ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING
LOSSES) for all loans funded by the DIVISION REPORTING GROUP, which
were sold during an annual measurement period, are to be allocated
as follows:
ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING
LOSSES) shall be determined as the sales proceeds for all
loans sold by the Purchaser, less the Applicable American Home
Mortgage Reference Price value (principal balance of loans
sold times the Applicable American Home Mortgage Reference
Prices at which such loans were locked), plus gains or less
losses on related hedge instruments, less fees charged by
investors and secondary marketing officer bonuses, without
further adjustment pursuant to the Statement of Financial
Accounting Standard No. 91.
ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING
LOSSES) are to be allocated to the DIVISION REPORTING GROUP
based on the number of loans funded by the DIVISION REPORTING
GROUP as compared to the total loans funded by the Purchaser,
expressed as a percentage .
Plus: ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES:
ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES for
the DIVISION REPORTING GROUP are to be allocated as
follows:
ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES shall be
determined based upon interest income earned on mortgage loans
receivable less all interest expense incurred from carrying
loan positions, plus all production bonuses earned by the
Purchaser.
ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES shall be
allocated to the DIVISION REPORTING GROUP based on the number
of loans funded by the DIVISION REPORTING GROUP as compared to
the total loans funded by the Purchaser, expressed as a
percentage.
Less: ALLOCABLE CORPORATE OVERHEAD:
ALLOCABLE CORPORATE OVERHEAD of the Purchaser shall include
all corporate costs recognized in accordance with GAAP during
an annual measurement period which are not specifically
incurred as a result of the operations of the DIVISION
REPORTING GROUP or any other production unit of the Purchaser
or allocated pursuant to the above calculation under "Plus:
ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING
LOSSES)" or the above calculation under "Plus: ALLOCABLE NET
INTEREST INCOME AND PRODUCTION BONUSES."
ALLOCABLE CORPORATE OVERHEAD of the Purchaser shall be
allocated to the DIVISION REPORTING GROUP based on the number
of loans funded or brokered by the DIVISION REPORTING GROUP as
compared to the total loans funded or brokered by the
Purchaser, expressed as a percentage, multiplied by the number
of loans sold that were produced by the DIVISION REPORTING
GROUP.
ALLOCABLE CORPORATE OVERHEAD of the Purchaser will not exceed
$245 per loan.
Less: $500,000 PER YEAR (OR A PRO RATA PORTION FOR A SHORTER PERIOD)
* For purposes of this formula, unless otherwise indicated, all amounts shall be
determined in accordance with GAAP.
EXHIBIT 2.4(F)
GROUP NET INCOME FOR ANY PERIOD WILL EQUAL:
GROUP LOAN PRODUCTION REVENUES
less: DIRECT LOAN PRODUCTION COSTS
less: OPERATING COSTS
plus: ALLOCABLE SECONDARY MARKETING GAINS
less: ALLOCABLE SECONDARY MARKETING LOSSES
plus: ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES
less: ALLOCABLE CORPORATE OVERHEAD
less: $500,000 PER YEAR (OR A PRO RATA PORTION FOR A SHORTER PERIOD)
all as more fully defined and set forth below.
GROUP LOAN PRODUCTION REVENUES shall be determined for any measurement period by
adding 1) the product of (i) the difference between the APPLICABLE AMERICAN HOME
MORTGAGE REFERENCE PRICE and 100, expressed as a negative percentage if the
resulting number is less than 0 and as a positive percentage if greater than 0
multiplied by (ii) the principal amount for each loan funded or brokered, at the
time such loan is funded or the loan is closed with respect to brokered loans,
by the REPORTING GROUP during such measurement period; 2) all applicable up
front lender fees charged to the borrower and other parties related to such loan
(such as loan origination fees, discount points, loan processing fees,
underwriting fees, loan document fees, wire fees, tax service, flood
certification, inspections, and similar costs and expenses); 3) fees earned from
brokering loans to outside companies; 4) fees earned from in-house escrow
operations; and 5) other ancillary income generated from outside sources; in
each case with respect to the Reporting Group.
The APPLICABLE AMERICAN HOME MORTGAGE REFERENCE PRICE for any loan shall be:
(i) with respect to 30 year jumbo loans and loans eligible for FHA, VA, FNMA,
FHLMC and/or other applicable state or federal agency programs, the highest
price quoted by any one of the REFERENCE BANKS for best efforts delivery for the
applicable program and a delivery window not less than, but closest to, the lock
in period granted by the Purchaser's secondary marketing desk at the time the
loan is locked.
(ii) with respect to all loans not subject to (i) above, the actual price the
buyer of the loan would have paid at the time the loan was locked with the
Purchaser's secondary marketing desk.
For purposes of this Agreement, the REPORTING GROUP shall include all employees
of the Purchaser after the Merger reporting directly or indirectly to both Xxxx
X. Xxxxxxxx and Xxxxxx Xxxxxx (or to the extent that either such person is no
longer employed by the Purchaser as a result of death or disability as
determined pursuant to such person's employment agreement with the Purchaser, in
such case, then to either Xxxx X. Xxxxxxxx or Xxxxxx Xxxxxx).
The REFERENCE BANKS (unless otherwise changed by the Purchaser's Pricing
Committee) include: Chase Manhattan Mortgage, Norwest Funding, Countrywide
Credit Corp., Citicorp Mortgage and Fleet Mortgage.
Less: DIRECT LOAN PRODUCTION COSTS:
For all loans funded or brokered by the REPORTING GROUP during any
measurement period:
Direct loan production costs associated with originating and selling
a loan and all expenses that are incurred by the REPORTING GROUP,
such as commissions, fees paid to mortgage brokers, loan processing,
automated underwriting fees, credit and appraisal fees, and other
costs associated with each loan funded by that group.
Less: OPERATING COSTS:
The REPORTING GROUP operating costs will include expenses relating
directly to the cost of operating the REPORTING GROUP but will
exclude all direct loan production costs. Such operating costs will
include salaries, employee benefits, income taxes (federal and
state), both current and deferred, FICA, SDI, occupancy,
communications, actual loss from REOs and repurchases charged
against reserves, indemnification, postage, auto expenses,
entertainment, advertising, pagers, cell phones, and other operating
costs directly related to the REPORTING GROUP'S operations,
facilities and or employees.
Plus: ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING LOSSES):
ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING
LOSSES) for all loans funded by the REPORTING GROUP, which were sold
during an annual measurement period, are to be allocated as follows:
ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING
LOSSES) shall be determined as the sales proceeds for all
loans sold by the Purchaser, less the Applicable American Home
Mortgage Reference Price value (principal balance of loans
sold times the Applicable American Home Mortgage reference
prices at which such loans were locked), plus gains or less
losses on related hedge instruments, less fees charged by
investors and secondary marketing officer bonuses without
further adjustment pursuant to the Statement of Financial
Accounting Standard No. 91.
ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING
LOSSES) are to be allocated to the REPORTING GROUP based on
the number of loans funded by the REPORTING GROUP or as
compared to the total loans funded by the Purchaser, expressed
as a percentage.
Plus: ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES
ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES for the
REPORTING GROUP are to be allocated as follows:
ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES shall be
determined based upon interest income earned on mortgage loans
receivable less all interest expense incurred from carrying
loan positions, plus all production bonuses earned by the
Purchaser.
ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES shall be
allocated to the REPORTING GROUP based on the number of loans
funded by the REPORTING GROUP as compared to the total loans
funded by the Purchaser, expressed as a percentage.
Less: ALLOCABLE CORPORATE OVERHEAD
ALLOCABLE CORPORATE OVERHEAD of the Purchaser shall include
all corporate costs recognized in accordance with GAAP during
an annual measurement period which are not specifically
incurred as a result of the operations of the REPORTING GROUP
or any other production unit of the Purchaser or allocated
pursuant to "Plus: ALLOCABLE SECONDARY MARKETING GAINS (LESS
SECONDARY MARKETING LOSSES)" or the above calulation under
"Plus: ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES."
ALLOCABLE CORPORATE OVERHEAD of the Purchaser shall be
allocated to the REPORTING GROUP based on the number of loans
funded or brokered by the Reporting Group as compared to the
total loans funded or brokered by the Purchaser, expressed as
a percentage, multiplied by the number of loans sold that were
produced by the REPORTING GROUP.
ALLOCABLE CORPORATE OVERHEAD of the Purchaser will not exceed
$245 per loan.
Less: $500,000 PER YEAR (OR A PRO RATA PORTION FOR A SHORTER PERIOD)
* For purposes of this formula, unless otherwise indicated, all amounts shall be
determined in accordance with GAAP.
