AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
IMC MORTGAGE COMPANY
CWB ACQUISITIONS, INC.
COREWEST BANC
AND
THE SHAREHOLDERS OF
COREWEST BANC
AS OF JANUARY 1, 1997
TABLE OF CONTENTS
Page
FACTUAL BACKGROUND
ARTICLE 1
CERTAIN DEFINITIONS
ARTICLE 2
MERGER OF SUBSIDIARY INTO COREWEST
2.1 Incorporation of Agreement of Merger........................... 8
ARTICLE 3
BUYER'S COMMON STOCK TO BE ISSUED TO SHAREHOLDERS
3.1 Shares to be Issued............................................ 8
3.2 Base Payment................................................... 9
3.3 Contingent Payment............................................. 9
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COREWEST AND SHAREHOLDERS
4.1 Organization................................................... 21
4.2 Capitalization of the Company.................................. 21
4.3 Shareholders................................................... 21
4.4 Subsidiaries of CoreWest....................................... 22
4.5 Authority; No Violation........................................ 22
4.6 Consents and Approvals......................................... 23
4.7 Financial Statements........................................... 23
4.8 Undisclosed Liabilities........................................ 23
4.9 No Material Adverse Change..................................... 24
4.10 Legal Proceedings.............................................. 24
4.11 Material Contracts............................................. 24
4.12 Taxes.......................................................... 25
4.13 ERISA.......................................................... 26
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4.14 Ownership of Property.......................................... 27
4.15 Environmental Protection....................................... 28
4.16 Brokers and Finders............................................ 28
4.17 Insurance...................................................... 28
4.18 Mortgage Banking Licenses and Qualifications................... 29
4.19 Loan Portfolio................................................. 29
4.20 Enforceability................................................. 29
4.21 Title to Certain Mortgage Loans................................ 30
4.22 No Recourse.................................................... 30
4.23 Mortgage Servicing Agreements.................................. 30
4.24 Compliance..................................................... 31
4.25 Investment Commitments......................................... 31
4.26 Custodial Accounts............................................. 32
4.27 Accounts Receivable............................................ 32
4.28 Data Processing................................................ 32
4.29 Inquiries...................................................... 32
4.30 CoreWest's Representations with Respect to Mortgage Loans...... 32
4.31 Advances....................................................... 32
4.32 Pools.......................................................... 33
4.33 Commercial Mortgages........................................... 33
4.34 No Tax-Sharing Agreements...................................... 33
4.35 No Intercompany Accounts....................................... 33
4.36 CoreWest Employees............................................. 33
4.37 Conduct Prior to Closing....................................... 33
4.38 Officers and Directors......................................... 35
4.39 Shareholder's Investment Intention/Restricted Securities....... 35
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization................................................... 37
5.2 Authority; No Violation........................................ 37
5.3 Brokers and Finders............................................ 38
5.4 Exchange Shares................................................ 38
5.5 Litigation..................................................... 38
5.6 Securities Filings............................................. 38
ARTICLE 6
COVENANTS
6.1 Filings and Consents........................................... 39
6.2 Press Releases................................................. 39
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6.3 Employment Agreements.......................................... 39
6.4 Marketing of Competing Products................................ 40
6.5 Consent to CoreWest Preclosing Dividend........................ 40
6.6 HSR Act Filing................................................. 40
ARTICLE 7
FURTHER COVENANTS OF COREWEST AND SHAREHOLDERS
7.1 Access to Information and Records.............................. 40
7.2 Bank Accounts.................................................. 41
7.3 Conduct of Business Pending the Closing........................ 41
7.4 Cooperation with Buyer's Accountants........................... 42
7.5 General Releases............................................... 42
7.6 Consents....................................................... 43
7.7 Other Action................................................... 43
7.8 Disclosure..................................................... 43
ARTICLE 8
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
8.1 Representations and Warranties True on the Closing Date........ 43
8.2 Compliance With Agreement...................................... 44
8.3 Absence of Litigation.......................................... 44
8.4 Consents and Approvals......................................... 44
8.5 Xxxx-Xxxxx-Xxxxxx Waiting Period............................... 44
8.6 No Material Adverse Change in CoreWest......................... 44
ARTICLE 9
CONDITIONS PRECEDENT TO COREWEST'S AND
SHAREHOLDER'S OBLIGATIONS
9.1 Representations and Warranties True on the Closing Date........ 45
9.2 Compliance With Agreement...................................... 45
9.3 Absence of Litigation.......................................... 45
9.4 Xxxx-Xxxxx-Xxxxxx Waiting Period............................... 45
9.5 Tax Opinion of Buyer's Counsel................................. 45
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ARTICLE 10
CLOSING
10.1 Documents to be Delivered by CoreWest and Shareholders......... 46
10.2 Documents to be Delivered by Buyer............................. 47
ARTICLE 11
TERMINATION
11.1 Right of Termination Without Breach............................ 48
11.2 Termination for Breach......................................... 48
ARTICLE 12
INDEMNIFICATION
12.1 Indemnification................................................ 49
ARTICLE 13
POST-CLOSING COVENANTS
13.1 Shareholder Cooperation........................................ 53
ARTICLE 14
AMENDMENTS
14.1 Amendment, Extension and Waiver................................ 53
ARTICLE 15
MISCELLANEOUS
15.1 Survival....................................................... 53
15.2 Expenses....................................................... 53
15.3 Entire Agreement............................................... 54
15.4 Parties in Interest............................................ 54
15.5 Assignment..................................................... 54
15.6 Setoff......................................................... 54
15.7 Notices........................................................ 55
15.8 Captions....................................................... 57
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15.9 Counterparts................................................... 57
15.10 Governing Law.................................................. 57
15.11 No Third Party Beneficiaries................................... 58
15.12 Further Assurances/Merger...................................... 58
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of
January 1, 1997, is made by and between IMC MORTGAGE COMPANY, a Florida
corporation ("Buyer"), CWB ACQUISITIONS, INC., a California corporation, a
wholly-owned subsidiary of Buyer ("Subsidiary"), COREWEST BANC, a California
corporation ("CoreWest"), and XXXXXX X. XXXXXX, XXXXXXX X. XXXXX, XXXX X.
XXXXXX, XXXXX X. XXXXXX, XXXXXXX XXXXX, XXX XXXXXX and XXXXXX XXXXX,
individually "Shareholder" and together, jointly and severally, the
"Shareholders") and XXXXXX X. XXXXXX, as agent for the Shareholders (the
"Shareholder Agent").
FACTUAL BACKGROUND
A. CoreWest is engaged in the mortgage banking business, including the
origination, servicing and brokerage of conforming and non-conforming mortgage
loans (the "Business").
B. Shareholders own all of the issued and outstanding shares (the "Shares")
of capital stock of CoreWest.
C. Pursuant to the Merger (as defined below), Buyer desires to acquire the
Shares from Shareholders and Shareholders desire to transfer the Shares to Buyer
in exchange for certain shares of Buyer, upon the terms and conditions herein
set forth ("Acquisition").
D. Shareholders wish to designate Xxxxxx X. Xxxxxx as their agent and
attorney-in-fact with the authority to act on their behalf in connection with
the sale of the Shares to Buyer.
Plan of Reorganization
E. This Plan of Reorganization shall be a reorganization within the meaning
of Section 368(a)(1)(A) by operation of Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended. Subsidiary shall merge into CoreWest pursuant
to an Agreement of Merger, whereby the separate corporate existence of
Subsidiary shall cease, and Shareholders shall receive stock of Buyer (the
"Merger").
Agreement
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, and
intending to be legally bound, the Buyer, Subsidiary and CoreWest approve and
adopt this Agreement and Plan of Merger and the parties hereto do hereby agree
with each other as follows:
ARTICLE 1
CERTAIN DEFINITIONS
For the purpose of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular and (ii) all accounting terms not otherwise defined herein
have the meanings assigned under GAAP.
Acquisition -- As defined in the Factual Background.
Affiliate -- With respect to any Person, any Person directly or indirectly
controlling, controlled by, or under common control with such other Person. For
purposes of this definition, "control" (including with correlative meaning, the
terms "controlled by" and "under common control with,") as used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through ownership of voting securities, by contract or otherwise.
Affiliated Group -- Any affiliated group within the meaning of Code Section
1504 or any similar group defined under a similar provision of state, local or
foreign law, including any consolidated, unitary or combined group of companies.
Agency -- FHA, VA, GNMA, FNMA, FHLMC or a State Agency, as applicable.
Agreed Plan -- The business plan for the Post-Closing CoreWest Business
Unit (including an operating and capital budget) proposed by Xxxxxx Xxxxxx and
Xxxxxxx Xxxxx on behalf of the Shareholders and approved by Buyer prior to
closing. The Agreed Plan shall include projections of (i) the balance sheet of
the Post-Closing CoreWest Business Unit at the end of 1997 and 1998, (ii)
statements of income and expense of each such fiscal year, (iii) statement of
cash flow for each such fiscal year, (iv) a budget of capital expenditures to be
incurred by the Post-Closing CoreWest Business Unit for each such fiscal year.
The business plan shall include management's intentions with regard to
significant business developments and objectives of the Post-Closing CoreWest
Business Unit. The Agreed Plan shall be modified, from time to time thereafter
by mutual written agreement of Xxxxxxx Xxxxx, Xxxxxx Xxxxxx and Buyer, in which
event the business plan as modified shall thereafter serve as the Agreed Plan.
Agreement -- As defined in the Introduction.
Agreement of Merger -- The Plan and Agreement of Merger by and between the
Subsidiary and CoreWest.
Adjusted Agreed Plan -- As defined in Section 3.3(h).
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Ancillary Agreements -- The (i) Registration Rights Agreement by and
between Buyer and the Shareholders, (ii) Employment Agreements; and (iii) the
Agreement of Merger.
Audited Financial Statements -- As defined in Section 4.7.
Base Payment -- Delivery by Buyer to CoreWest of certain Exchange Shares
pursuant to Section 3.2 as part of the Purchase Price.
Business -- As defined in the Factual Background, and includes CoreWest's
Conforming Mortgage Business and Non-Conforming Mortgage Business.
Business Days -- Any day on which the New York Stock Exchange is open for
trading.
Buyer -- As defined in the Introduction.
Buyer Schedule -- The disclosure schedule delivered by Buyer to Sellers in
connection with the Acquisition.
Change in Control -- Any of the following events which occur after the date
hereof:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
(a "Person" for the purpose of this definition only) of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act ("Rule 13d-3")) of 51% or
more of the combined voting power of the then outstanding voting
securities of the Buyer entitled to vote generally in the
election of directors (the "Outstanding Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change in Control; (i) any acquisition by the Buyer
of its Common Stock, or (ii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Buyer or any corporation controlled by the Buyer;
(b) Individuals who, as of the date hereof, constitute the Board
of Directors of the Buyer (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of
Directors of the Buyer; provided, however, that any individual
becoming a director of the Buyer, who shall be nominated or
approved by a vote of at least a majority of the directors then
compromising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board; or
(c) Approval by the shareholders of the Buyer of a
reorganization, merger or consolidation, liquidation or sale of
all or substantially all the assets of Buyer if the effect of
such transaction(s) is that the Shareholders
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of Buyer before the transaction(s) cease to own, directly or
indirectly, at least 51% of the outstanding stock of the
surviving entity or entities.
Closing -- The closing with respect to the Acquisition as defined in
preamble to Article 10.
Closing Balance Sheet -- The balance sheet of CoreWest as of December 31,
1996, prepared in accordance with GAAP accompanied by schedule sufficient to
determine the Initial Net Worth.
Closing Date -- The date and time of Closing as defined in the preamble to
Article 10.
Closing Tangible Net Worth -- The amount equal to the amount included under
shareholder's equity on the Closing Balance Sheet minus the amount of all
intangible assets on the Closing Balance Sheet.
Code -- The Internal Revenue Code of 1986, as amended.
Common Stock -- The common stock, par value $0.01, of Buyer.
Conforming Business -- The Conforming Mortgage Loan origination and
brokerage business conducted by CoreWest.
Conforming Mortgage Loan -- A Mortgage Loan which, as of September 30,
1996, is an FHA Loan, a VA Loan or a loan eligible to be sold to FNMA, FHLMC or
another Agency.
Contingent Payment -- As defined in Section 3.3.
Conventional Loan -- Any Mortgage Loan which (a) is a first lien on a
"single family" residence, (b) is neither insured by FHA nor guaranteed by VA,
(c) has a loan-to-value ratio of 95% or less at the time of origination, (d)
matures in 30 years or less, (e) bears a market yield at the time of
origination, and (f) satisfies the requirements in effect as of the date hereof
for sale to FNMA and FHLMC.
CoreWest Executives -- As defined in Section 3.3(c)(ii).
Effective Time -- January 1, 1997 at 12:01 a.m.
Employment Agreements -- As defined in Section 6.3.
Encumbrance -- Any lien, pledge, security interest, claim, charge,
easement, limitation, commitment, restriction or encumbrance of any kind or
nature whatsoever.
ERISA -- As defined in Section 4.13(b).
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Environmental Claim -- Civil, criminal, administrative action, claim or
other proceeding relating to Environmental Laws.
Environmental Laws -- As defined in Section 4.15.
FHA -- Federal Housing Administration.
FHA Loans -- Mortgage Loans which satisfy all applicable rules and
requirements to be insured by FHA and which are insured by FHA.
FHLMC -- Federal Home Loan Mortgage Corporation.
Financial Statements -- As defined in Section 4.7.
FNMA -- Federal National Mortgage Association.
GAAP - - Generally accepted accounting principles as used in the United
States of America applied on a consistent basis.
GNMA -- Government National Mortgage Association.
GNMA Securities -- GNMA mortgage-backed certificates.
HUD -- United States Department of Housing and Urban Development.
Independent Accounting Firm -- Any "Big Six" accounting firm or its
successor.
Initial Net Worth - As defined in Section 3.2.
Initial Value -- As defined in Section 3.2.
Inquiry -- As defined in Section 4.29.
Investor -- Any Person who owns or holds Mortgage Loans, or servicing
rights to Mortgage Loans, pursuant to Mortgage Servicing Agreements or who is a
party to an Investor Commitment.
Investor Commitment -- The commitment of a Person to purchase a Mortgage
Loan.
Investor Programs -- Mortgage participation, whole-loan sales, pooling and
servicing programs.
IRS -- Internal Revenue Service.
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"Knowledge" and "to our knowledge" -- As used in this Agreement,
"knowledge" and "to our knowledge" with respect to CoreWest means both the
actual current recollection of the CoreWest Executives and Shareholders, and
that an additional investigation, reasonable in light of the facts and
circumstances of the transaction and the matters covered by the statement, has
been conducted by CoreWest with respect to the factual accuracy of the statement
and includes constructive knowledge of facts which reasonably should have been
discovered by such investigation. The phrase also implies that CoreWest has a
reasonable basis for believing the statement is factually correct.
Licenses -- As defined in Section 4.18.
Loan Property -- Any property in which CoreWest holds a mortgage lien or
security interest.
Loss -- Any claim, liability, loss, cost, clean up cost or reimbursement,
damage, penalty, fine, obligation, deficiency or expense of any kind whatsoever
(including, without limitation, reasonable attorneys', accountants',
consultants' or experts' fees, and disbursements including but not limited to
court costs and reasonable costs of investigation incurred in defending against
or settling any such claim, liability, loss, cost, damage or expense, or any
amounts paid in connection with the investigation, defense or settlement
thereof, whether or not arising out of third party claims and including costs
and expenses incurred on appeal or in connection with any bankruptcy or
insolvency proceeding).
Material Adverse Effect -- Adverse effect on the business, condition
(financial or otherwise), results of operations, properties, assets or prospects
of a Person with an economic effect, individually or in the aggregate, of
$75,000 or more.
Mortgage Loan -- Any closed residential mortgage loan (exclusive of
Warehouse Loans) whether or not such mortgage is included in a securitized
portfolio, as evidenced by notes or other evidences of indebtedness duly secured
by mortgages or deeds of trust.
Non-Conforming Business -- The Non-Conforming Mortgage Loan origination and
brokerage business conducted by CoreWest.
Non-Conforming Mortgage Loan -- A Mortgage Loan which does not satisfy the
requirements for being either a Conforming Mortgage Loan or a Conventional Loan.
Operating Property -- As defined in Section 4.15.
Person -- Any individual, corporation, company, partnership (limited or
general), joint venture, association, trust or other entity, including
governmental and quasi-governmental bodies.
Plans -- As defined in Section 4.13(a).
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Pooling -- Aggregation of two or more Mortgage Loans that have been pledged
or granted to secure mortgage-backed securities or participation certificates.
Post-Closing CoreWest Business Unit -- As defined in Section 3.3(c).
Prime Rate -- The interest rate published from time to time in The Wall
Street Journal as the prevailing prime rate at a majority of U.S. Banks. If the
Prime Rate is no longer available in The Wall Street Journal, Buyer shall select
a substitute rate which is reasonably equivalent, which shall thereafter serve
as the Prime Rate.
Regulations -- (i) Federal, state and local laws, rules and regulations,
(ii) the responsibilities and obligations set forth in any agreement between
CoreWest and an Investor or private mortgage insurer and (iii) the laws, rules,
regulations, guidelines, handbooks and other requirements of an Investor,
Agency, private mortgage insurer, Public Housing Programs or Investor Programs,
with respect to the origination, insuring, purchase, sale, or filing of claims
in connection with a Mortgage Loan.
Schedule -- The disclosure schedule delivered by Shareholders to Buyer in
connection with the Acquisition.
Seller -- CoreWest and Shareholders, jointly and severally.
Shareholders -- As defined in the Introduction.
Shareholders' Agent -- As defined in the Introduction.
Servicing Released Loans -- As defined in Section 4.22.
Shares -- As defined in the Factual Background.
Single Employer Plan -- Any employee pension benefit plan (as that term is
defined in Section 3(2) of ERISA) maintained or contributed to by any entity
which would be deemed a "single employer" with CoreWest under Section 4001 of
ERISA.
State Agency -- Any state agency with authority to regulate the business of
CoreWest, determine the investment requirements with regard to loans originated
or purchased by CoreWest, or originate or purchase mortgage loans, or otherwise
participate in or promote mortgage lending.
Subsidiary -- A company is a Subsidiary of another company if 50% or more
of its outstanding voting securities is owned by such other company.
Tangible Net Worth -- The amount equal to the amount included under
shareholders' equity on CoreWest's balance sheet minus the amount of all
intangible assets.
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Tax Affiliate -- A Person is a Tax Affiliate of another Person if they are
both members of the same Affiliated Group.
Taxes -- As defined in Section 4.12(d).
Tax Return -- As defined in Section 4.12(e).
VA -- Veterans Administration.
VA Loans -- Mortgage Loans which satisfy all applicable rules and
regulations to be guaranteed by VA and which are guaranteed by VA.
Warehouse Loans -- Residential Mortgage Loans held by CoreWest for sale and
pledged to secure borrowings by CoreWest.
Wholesale Loans -- As defined in Section 3.3(c).
ARTICLE 2
MERGER OF SUBSIDIARY INTO COREWEST
2.1 Incorporation of Agreement of Merger.
The Agreement of Merger attached hereto as Exhibit 2.1 is incorporated
herein by reference. Buyer, Subsidiary, CoreWest and the Shareholders agree to
take such action to execute and deliver such further instruments as may be
necessary to carry out the terms of said Agreement of Merger. As a result of the
Merger, Subsidiary shall merge into CoreWest, whereby the separate corporate
existence of Subsidiary shall cease, the Shareholders shall receive the Exchange
Shares as provided herein and the Shareholders' old shares of CoreWest shall be
canceled and Buyer shall own all the outstanding shares of CoreWest, as the
surviving corporation.
ARTICLE 3
BUYER'S COMMON STOCK TO BE ISSUED TO SHAREHOLDERS
3.1 Shares to be Issued.
The parties recognize that a precise valuation of CoreWest's common
stock for the purpose of determining an equitable and final exchange of stock at
this time is not possible in view of the fact that the business and products of
CoreWest are in the development stage and because of several uncertainties. The
Buyer's fully-paid, non-assessable common stock delivered
8
to the Shareholders pursuant to this merger are referred to as the "Exchange
Shares." The Exchange Shares shall be issued to the Shareholders in proportion
to their holdings of common stock, in two installments of the Base Payment and
the Contingent Payment, if any, as those terms are defined in Sections 3.2
and 3.3 hereof. Each Shareholder entitled to a fractional share of Buyer's
Common Stock shall instead be paid in cash an amount equal to such fraction
multiplied by the closing price on the NASDAQ, as reported in The Wall Street
Journal for the Closing Date. All payments of Exchange Shares, including any
adjustments thereto, are to be delivered to the Shareholders in proportion
to their respective shareholdings of CoreWest, as set forth in Section 3.1 of
the Schedule (the "Shareholder Percentage").
3.2 Base Payment.
The Base Payment, paid at the Closing, shall be Exchange Shares with a
value (as determined below) equal to (the "Initial Value") (i) Seven Million
Five Hundred Twenty-six Thousand and No/100 Dollars ($7,526,000.00); plus (ii)
CoreWest's tangible net worth as of the close of business on December 31, 1996
determined according to GAAP (including all appropriate reserves and expense
accruals, provided that all legal fees and all other fees and expenses of
CoreWest arising in connection with this Agreement prior to Closing, the
preparation of the Closing Balance Sheet and the transactions contemplated to
occur at the Closing (but not fees and expenses related to determination of the
Contingent Payment) shall be treated as pre-closing expenses and fully accrued
on the Closing Balance Sheet for the purpose of determining CoreWest's tangible
net worth (the "Initial Net Worth") not to exceed $250,000. The Exchange Shares
constituting the Base Payment shall be issued and delivered by Buyer to the
Shareholders in the form of stock certificates representing the Exchange Shares
at the Closing. For purposes of the Base Payment, the Exchange Shares will be
deemed to have a value, per share, equal to the average of the last reported
sales price of Buyer's Common Stock on the Nasdaq/NMS (or such other exchange or
market system on which the Common Stock may then be listed or admitted for
trading) for each of the last 20 Business Days preceding January 1, 1997; which
average price the parties agree is $30.819 per share and therefore the Base
Payment is 244,204 Exchange Shares for the portion valued at $7,526,000.
Notwithstanding the foregoing, for purposes of calculating the Base Payment, the
Initial Net Worth shall not exceed Two Hundred Fifty Thousand Dollars
($250,000.00). In the event the Closing Balance Sheet is not available at
Closing, then the portion of the Base Payment representing $7,526,000 (i.e.,
244,204 Exchange Shares) shall be paid at Closing and the balance of the Base
Payment, representing the Initial Net Worth up to a maximum of $250,000, shall
be paid once the Closing Balance Sheet is delivered by CoreWest to Buyer and
Buyer determines that it is reasonably satisfactory in form and content.
3.3 Contingent Payment.
(a) Calculation of Payment. The Contingent Payment, paid in Exchange
Shares, shall be calculated as follows:
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(i) Exchange Shares with a value at the time of the
Contingent Payment (determined according to the valuation formula
in Section 3.3(f) hereof) equal to the amount, if any, by which
the following exceeds the Initial Value:
9.5 times the after-tax net income of the
Post-Closing CoreWest Business Unit (as defined
below) for the twelve months ending December 31,
1998, calculated according to GAAP subject to the
adjustment described below (such Exchange Shares
referred to as the "Contingent Earnings Formula
Shares");
plus
(ii) In the event (a) the total number of Exchange Shares
issued pursuant to the Base Payment and the Contingent Earnings
Formula Shares (collectively, the "Subtotal Shares") exceeds (b)
the amount equal to (i) two times (ii) the total number of
Exchange Shares issued pursuant to the Base Payment and the Escrow
Shares (as defined below) (collectively, the "Original Closing
Shares") (the number of Exchange Shares constituting the excess of
the Subtotal Shares above twice the Original Closing Shares shall
be called the "Gross-Up Shares") and if any Shareholder, upon
written advice of professional tax counsel or due to a position
taken by the Internal Revenue Service or similar state tax
authority actually reports receipt of the value of the Gross-Up
Shares as ordinary income (i.e., not either capital gains and/or
received tax-free) on their tax return, then the Buyer shall issue
additional Exchange Shares equal to (a)(i) the difference between
such Shareholder's tax rate actually paid and the Shareholder's
state and federal capital gain tax rate in effect (expressed as a
percentage); multiplied by (ii) the Gross-Up Shares divided by one
minus the actual combined state and federal tax rate applicable to
such Shareholder for the Gross-Up Shares. (Notwithstanding the
foregoing, this Gross-Up provision shall not apply with respect to
ordinary income arising from imputed interest on the Escrow
Shares.)
Example: As an example of the foregoing calculation, assume
the Base Payment would be 250,000 Exchange Shares and an
additional 250,000 Exchange Shares would be placed in Escrow
at Closing. Assume further that the Contingent-Earnings
Formula Shares were 800,000 Exchange Shares. Therefore, the
Gross-Up Shares would be 50,000 Exchange Shares [calculated
as (250,000 + 800,000) minus ([250,000 + 250,000] x 2)].
Assume further that tax counsel advised in writing that the
Gross-Up Shares must
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be reported as ordinary income under section 368 on the
Shareholder's federal tax return and that Shareholder reports
the Gross-Up Shares as ordinary income for tax purposes and
that Shareholder's marginal ordinary income tax rate was 39%
and the Shareholder's capital gain tax rate on such Gross-Up
Shares would have been 28%. The actual difference is 11%.
Therefore, the Contingent Payment would be increased by 9,016
Exchange Shares, which is calculated as (.11 x 50,000) [div]
(1 - .39).
(b) Contingent Payment Shares Issued at Closing in Escrow. At Closing,
Buyer shall issue Exchange Shares equal to the number of Exchange Shares
constituting the Base Payment (the "Escrow Shares"), and the Escrow Shares shall
be delivered to _________ U.S. Trust Company of California, N.A., to act as
Escrow Agent, pending final determination of the Contingent Payment under
Section 3.3 hereof. (If the Initial Net Worth is not available at Closing, then
Escrow Shares shall be delivered in Escrow at Closing equal to the portion of
the Base Payment representing $7,526,000 [i.e., 244,202 Exchange Shares] and the
balance of the Exchange Shares shall be delivered to Escrow Agent at the time
the balance of the Base Payment representing the Initial Net Worth is paid to
Shareholders.) Shareholders shall be entitled to vote such Escrow Shares and the
Escrow Shares shall be treated as outstanding for all purposes, including
dividends and calculation of liquidation preference. However, Shareholders shall
only receive such Escrow Shares upon determination of the Contingent Payment,
and if the Escrow Shares exceed the total Contingent Payment, the portion in
excess thereof shall be returned to Buyer and canceled. The Escrow Shares shall
be held pursuant to the Escrow Agreement attached as Exhibit 3.3(b).
(c) Post-Closing CoreWest Business Unit. For the purpose of the
foregoing calculation of the Contingent Payment, "Post-Closing CoreWest Business
Unit" shall mean the separate business unit of Buyer comprised of Corewest
(either as a separate subsidiary or separate operating division) and the
business operations and personnel of CoreWest acquired pursuant to this
Acquisition, together with the business contemplated under the Agreed Plan which
shall be operated following the Closing through December 31, 1998 as follows:
(i) The Buyer shall cause the Post-Closing CoreWest Business Unit
to be a separate subsidiary, or a separate operating division or other
separate business unit of Buyer (or its Affiliate). The Buyer and the
Post-Closing CoreWest Business Unit shall cooperate, in a commercially
reasonable manner, to permit the cross-utilization of their respective
licenses and obtaining of additional licenses where practicable.
(ii) At Closing, Buyer shall cause CoreWest to enter into new
employment agreements with certain officers and managers of CoreWest,
pursuant to Section hereof (the "CoreWest Executives"), providing for them
to manage the Post-Closing CoreWest Business Unit, subject to the normal
oversight of responsibilities of the Buyer's Board of Directors and senior
executives and the CoreWest Board of
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Directors, as applicable. The CoreWest Executives shall direct the
day-to-day operations of the Post-Closing CoreWest Business Unit, subject
to the Agreed Plan.
(iii) The Post-Closing CoreWest Business Unit shall be accounted
for as a separate profit and expense center.
(iv) Buyer shall make available to the Post-Closing CoreWest
Business Unit such administrative, financial and other support as Buyer and
CoreWest Executives may agree at such costs as the parties mutually agree.
In the alternative, the CoreWest Executives may cause the Post-Closing
CoreWest Business Unit to independently purchase goods and services to the
extent practical, provided that the Post-Closing CoreWest Business Unit
must engage an Independent Accounting Firm to review its financial
statements in accordance with GAAP. The parties will act reasonably
regarding a fair and equitable allocation of general overhead to the
Post-Closing CoreWest Business Unit by Buyer in situations where it is not
practical for the Post-Closing CoreWest Business Unit to independently
acquire such services. For example, if the Buyer obtains a legal opinion
regarding payment of backpoints for the benefit of various divisions and
Affiliates, the cost shall be fairly allocated to the Post-Closing CoreWest
Business Unit and other divisions and Affiliates based on their respective
activities and operations.
(v) Buyer will make available to the Post-Closing CoreWest
Business Unit such warehouse lines of credit (funded at 100% of the
principal balance) or other financing facilities as may be necessary to
fund all actual Mortgage Loan production and to fund all operating and
capital requirements, provided that such financing and capital requirements
are consistent with the Agreed Plan and include no conditions to funding
that are any more restrictive than the conditions to which parent is
subject with respect to the line. The Post-Closing CoreWest Business Unit
shall bear an imputed interest expense on the capital used to finance its
Warehouse Mortgage Loans at a floating rate equal to LIBOR (thirty day)
plus 225 basis points, provided that Buyer will absorb and not charge the
Post-Closing CoreWest Business Unit with internal costs of administering
the warehouse line (including, without limitation, costs of transferring
and wiring funds, non-usage and Buyer's personnel) but the Post-Closing
CoreWest Business Unit shall pay third party expenses (including, without
limitation, trustee fees and audit fees).
(vi) The business operation comprising the Post-Closing CoreWest
Business Unit will include future direct internal growth and development of
the Business being acquired in this Acquisition, but unless otherwise
specifically agreed in writing by Buyer and Shareholder's Agent, not
Buyer's other existing operations or other future acquisitions by Buyer.
Parties acknowledge that Buyer's other business units will compete directly
with the Post-Closing CoreWest Business Unit.
(vii) Buyer shall provide or make available to the Post-Closing
CoreWest Business Unit all product types and programs which are being made
available in the ordinary course of business by Buyer to its other
operating divisions (including retail,
12
wholesale, spot, flow, bulk acquisition, brokerage and/or correspondent),
branches, Affiliates and Subsidiaries in the same geographic market, on a
market-by-market basis. For example, Buyer would make available to the
Post-Closing CoreWest Business Unit's southern California locations all
products available from Buyer in such market, but Buyer would not be
required to provide products to the southern California locations which
were available in the Chicago market, but which were not available in the
southern California market. The products shall be available to the
Post-Closing CoreWest Business Unit on terms and conditions which are at
least as favorable as terms and conditions offered by Buyer to its other
operating divisions, branches, Affiliates and Subsidiaries in the same
geographic market, provided, however, that these terms and conditions shall
not supersede the pricing formula set forth below in Section 3.3(d) for
determining the adjusted after-tax net income of the Post-Closing CoreWest
Business Unit generated upon sale of a Mortgage Loan to Buyer.
(viii) Buyer's operating divisions, branches, Affiliates and
Subsidiaries, including locations acquired or established after Closing,
shall compete directly with the Post-Closing CoreWest Business Unit.
Pursuant to the Agreed Plan, the Post-Closing CoreWest Business Unit shall
be able to open new retail and wholesale offices and territories or conduct
lending and other operations and activities in any location where it deems
prudent and appropriate.
(ix) All product pricing, underwriting and similar decisions
concerning the business of the Post-Closing CoreWest Business Unit will be
made by the CoreWest Executives, subject to the provisions of the Agreed
Plan. Notwithstanding the foregoing (i) not less than 90% of the Mortgage
Loans originated and purchased by the Post-Closing CoreWest Business Unit
shall be of the type originated or purchased by Buyer in its ordinary
course of business or pursuant to a specific program offered by Buyer, (ii)
at least 95% of the Mortgage Loans shall be closed in the name of CoreWest
or table funded; and (iii) not more than 50% (by principal amount) of the
Mortgage Loans shall be originated through brokers ("Wholesale Loans") on
an annual basis.
(x) Buyer will make available to the Post-Closing CoreWest
Business Unit such errors and omissions, fidelity bond, officers' and
directors' liability insurance, and other types of insurance and protection
which are customarily provided or held by businesses operating in the same
areas in which the Post-Closing CoreWest Business Unit is then operating or
proposes to operate, provided that the reasonably allocable costs of such
coverage shall be included as an expense of the Post-Closing CoreWest
Business Unit in the Agreed Plan.
(xi) The Mortgage Loans originated or purchased by the
Post-Closing CoreWest Business Unit shall be transferred to Buyer as if
sold on an inter-company basis if the Mortgage Loans are of the type
originated or purchased by Buyer in its ordinary course of business.
13
(d) Adjustments to After-tax Net Income of Post-Closing CoreWest
Business Unit. For the purpose of calculating the Contingent Payment, the
after-tax net income of the Post-Closing CoreWest Business Unit during the
twelve months ending December 31, 1998 shall be adjusted as follows:
(i) Non-Conforming Mortgage Loans originated or acquired in each
quarter of 1998 shall be treated as though they had been aggregated and
sold in bulk on a monthly basis by the Post-Closing CoreWest Business Unit
as a bona fide third party seller of Mortgage Loans to Buyer in the quarter
in which such loans were originated or acquired at a purchase price and
premium equal to the greater of (1) the average purchase price and premium
being paid during the same time period by Buyer (and its Affiliates) for
similar loans purchased from unrelated third parties selling a similar
volume to Buyer (and its Affiliates) on a bulk basis and (2) the "Peer
Price" (as defined and calculated below).
In order to determine the "Peer Price," the parties shall jointly
designate in writing, at or prior to Closing, six companies engaged in the
business of purchasing and securitizing Non-Conforming Mortgage Loans
(these six companies are referred to as "Peers"). During each quarter of
1998, Buyer will select two Peers and Shareholders' Agent shall select one
Peer. (These three companies are referred to as "Select Peers.") Each
quarter the parties shall create a sample mortgage portfolio comprised of
all the Mortgage Loans actually originated and/or acquired by the Post-
Closing CoreWest Business Unit during the thirty (30) day period ending on
the 10th day of the third month of each quarter (March 10th, June 10th,
September 10th and December 10th). This sample portfolio shall be offered
for bid to the Select Peers. The Peer Price will be calculated on a single
portfolio basis if the Buyer is then primarily buying on a single portfolio
basis, a separate product basis if Buyer is then buying primarily on a
separate product basis or any other method as the parties mutually agree.
Shareholders' Agent shall prepare a written bid package for each sample
portfolio which must be in form and content reasonably acceptable to Buyer,
in its discretion. The bid package must require the Select Peers to submit
a written bid for the entire portfolio, as a whole. Once the bid package
written materials are approved by Buyer, Messrs. Staake and Xxxxx shall
offer the bid package to the Select Peers and Messrs. Staake and Xxxxx
shall handle all follow-up oral communications in connection with the bid
process. The average premium for the entire model portfolio, based on the
average of the three final written bids submitted by the Select Peers,
shall be the premium used to establish the "Peer Price" for all Mortgage
Loans originated or purchased in that quarter. The Post-Closing CoreWest
Business Unit shall not manipulate the loan origination and purchase
activities in order to prevent the model portfolio from being generally
representative of the types and proportions of Mortgage Loans originated
and purchased during the entire quarter.
(ii) Conforming Mortgage Loans generated pursuant to either an
Agreed Plan or pursuant to a specific product offered by Buyer, if sold to
a third party, shall be valued at the price and premium actually received
and if retained by Buyer shall
14
be treated as though it had been sold by the Post-Closing CoreWest Business
Unit to Buyer at a purchase price equal to the average purchase price and
premium being paid during the same period by Buyer (and its Affiliates) for
similar loans purchased from unrelated third parties, provided that no
income or expense from Conforming Mortgage Loans shall be attributed to
Post-Closing CoreWest Business Unit to the extent such income exceeds 5% of
the total income of the Post-Closing CoreWest Division for the period. For
purposes of this provision, a Conforming Mortgage Loan which has a fair
market value of 105% or more of the principal amount thereof shall be
treated as a Non-conforming Mortgage Loan and not subject to the 5%
limitation. In addition, Wholesale Loans in excess of 50% of volume, on an
annual basis, shall not be counted for purpose of determining income or
expense.
(iii) Non-Conforming Mortgage Loan interest spreads, late payment
fees, prepayment rebates and similar income and expenses will be allocated
to the Post-Closing CoreWest Business Unit as if Non-Conforming Mortgage
Loans had been held by the Post-Closing CoreWest Business Unit for one
month following funding. Conforming Mortgage Loans shall be calculated on
the basis of the period of time actually held.
(iv) In the event a Mortgage Loan sold by the Post-Closing
Business CoreWest Business Unit to Buyer is subsequently prepaid by the
borrower within one year of origination, the rebate due as a result of such
prepayment shall be charged as an expense to the Post-Closing CoreWest
Business Unit based on repayment of the premium on a twelve-month declining
prorated basis from the date of origination, provided that the Post-Closing
CoreWest Business Unit shall not be charged if the borrower refinanced the
loan through Buyer, its Affiliates or any other subsidiary, division or
other business unit of Buyer. (For example, if a Mortgage Loan is prepaid
after 6 months and the premium paid for the loan is $2,000, then the
Post-Closing CoreWest Business Unit shall be charged $1,000 as an expense.)
The Post-Closing CoreWest Business Unit shall be entitled to accrue and
retain any fee, penalty, chargeback or refund which the related borrower is
obligated to pay or which is recoverable from borrower or any third party
which originated or sold the Mortgage Loan to the Post-Closing CoreWest
Business Unit, provided that all such payments are reported under GAAP with
appropriate reserves for uncollectability. In the event a Mortgage Loan
which the Post-Closing CoreWest Business Unit sold to a third party (not
Buyer or its Affiliate) is prepaid, the Post-Closing CoreWest Business Unit
shall bear as an expense the actual amount of any chargeback by such third
party, provided that the Post-Closing CoreWest Business Unit shall not be
charged if the borrower refinanced the loan through Buyer, its Affiliates
or any other subsidiary, division or other business unit of Buyer.
(v) In the event the Post-Closing CoreWest Business Unit breaches
a warranty or covenant regarding compliance with underwriting guidelines in
effect at the time of origination in connection with a Mortgage Loan sold
to Buyer or its Affiliate and Buyer and Post-Closing CoreWest Business Unit
are unable to cure such breach (at
15
expense of Post-Closing CoreWest Business Unit), the Post-Closing CoreWest
Business Unit shall be charged the actual net loss, unless there was
substantial compliance with such guidelines or the breach arises from a
commercially reasonable underwriting decision made in good faith (analyzed
in a case-by-case basis), in which case no cost or charge shall be assessed
against the Post-Closing CoreWest Business Unit. In the event the
Post-Closing CoreWest Business Unit breaches any other warranty or
covenant, covering the origination of a Mortgage Loan, including without
limitation, warranties regarding fraud, in connection with a Mortgage Loan
sold to Buyer or its Affiliate and Buyer and Post-Closing CoreWest Business
Unit are unable to cure such breach (with all cost thereof charged to the
Post-Closing CoreWest Business Unit), the Post-Closing CoreWest Business
Unit shall be charged the actual net loss as determined under GAAP as if
the Mortgage Loan were sold on a whole loan basis. In either case, to the
extent practicable, the Post-Closing CoreWest Business Unit shall be
permitted to "workout," liquidate and dispose of such Mortgage Loan,
including without limitation the foreclosure and marketing of the Mortgage
Loan or collateral if appropriate. In the event the PostClosing CoreWest
Business Unit breaches any warranty or covenant in connection with a
Mortgage Loan sold to a third party, the Post-Closing CoreWest Business
Unit shall bear all actual losses and expenses arising out of the Mortgage
Loan as provided in the mortgage sale agreement and otherwise by applicable
law, provided that the Post-Closing CoreWest Business Unit is unable to
cure such breach (with all costs thereof charged to the Post-Closing
CoreWest Business Unit).
(vi) The operating expenses of the Post-Closing CoreWest Business
Unit shall be the actual expenses according to GAAP. The CoreWest
Executives have authority to either acquire support services and similar
items from Buyer at a mutually agreed price or independently purchase the
services and similar items from third parties to the extent purchases from
third party vendors is practical. The parties will act reasonably regarding
allocations of general overhead to Post-Closing CoreWest Business Unit by
Buyer where it is not practical for the Post-Closing Business Unit to
independently acquire such services. The Post-Closing CoreWest Business
Unit shall not be allocated Buyer's general overhead (including corporate
general and administrative allocations), other than for items and services
specifically requested at an agreed price or where it is not practical to
independently acquire such support services and similar items.
(vii) The state and federal income and franchise taxes and similar
taxes of Buyer's consolidated group shall be allocated to the Post-Closing
CoreWest Business Unit in accordance with GAAP.
(viii) Except to the extent specifically provided in the Agreed
Plan, income from extraordinary events and from sources outside the
mortgage banking and brokerage business shall be excluded.
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(ix) Except to the extent specifically provided in the Agreed
Plan, ordinary income and capital gains from investment assets shall be
excluded.
(x) The Post-Closing CoreWest Business Unit shall operate its
business in the ordinary course of business and shall not intentionally
shift business volume or income from 1997 or 1999 into 1998 or otherwise
intentionally artificially manipulate the 1998 business and financial
results from the results which would have occurred if the business was
operated in the ordinary course pursuant to the Agreed Plan. For example,
the Post-Closing CoreWest Business Unit's employee compensation programs
shall be consistent during 1997, 1998 and 1999 and the bonus programs each
year shall bear the same ratio to Mortgage Loan production each year
(provided that this provision shall not apply to the "Basis Point
Incentive/Executive Bonus Pool," described in certain employment agreements
of CoreWest Executives or changes approved by the Board of Directors).
(xi) All income and expenses (including without limitation the
timing and calculation of reserves and accruals) shall be in accordance
with GAAP and to the extent possible, expenses shall be tied to related
items of income.
(xii) In the event GAAP requires that the CoreWest Shares owned by
Xxxxxxx Xxxxx, Xxx Xxxxxx, Xxxxx Xxxxx, Xxxx Xxxxxxx and/or Xxxxxxxx Xxxx
(or the transactions relating to their acquisition of such CoreWest Shares)
results in an expense charged to Buyer's consolidated income statement or
the Post-Closing CoreWest Business Unit's income, then the total amount of
such expense, regardless of when actually accrued for GAAP, shall be
attributed to the Post-Closing CoreWest Business Unit's net profit during
1998 provided however that no such expense shall be allocated to the Post-
Closing CoreWest Business Unit to the extent that such expense relates to
all Shareholders and provided further if GAAP requires the accrual of an
expense for the period before the Effective Time, then Buyer's right to
recoup such expense shall be governed solely by Article 12.
(xiii) There will be no allocation of goodwill to the Post-Closing
CoreWest Business Unit as a result of the Acquisition.
(e) Payment of Contingent Payment. The Contingent Payment Date shall be
February 28, 1999, or such earlier date as the parties shall mutually agree, at
which time the Buyer shall pay the Shareholders the Estimated Contingent
Payment, if any, which shall be paid in Exchange Shares. For purposes of the
Contingent Payment, the Exchange Shares shall be deemed to have a value, per
share, equal to the average of the last reported sales prices for Buyer's Common
Stock on the NASDAQ (or the principal national securities exchange on which the
common stock of Buyer is then traded) for each of the last 20 Business Days
preceding January 7, 1999. For purposes of determining the Estimated Contingent
Payment payable by the Buyer, no later than February 15, 1999, Shareholders'
Agent (with assistance and cooperation from CoreWest's Executives and the
Post-Closing CoreWest Business Unit's
17
accountants, as requested) shall, in consultation with the Buyer, prepare and
deliver to Buyer an unaudited income statement of the Post-Closing CoreWest
Business Unit as of, and for the year ending December 31, 1998 which shall
represent the Shareholders' Agent's and CoreWest Executives' reasonable estimate
of the final profit and loss statement for CoreWest; such income statement to be
in form and detail identical to, and in its accounting principles and policies
consistent in every respect with, the procedures for calculating net income set
forth in Section 3.3(d) and accompanied by schedules setting forth in reasonable
detail the various income and expense items included therein. Such income
statement and the accompanying schedules shall contain sufficient detail for the
determination of Contingent Payment and shall be used to determine the
Contingent Payment (the "Estimated Contingent Payment").
(f) Final Determination of Contingent Payment.
(i) Within 30 days after the Contingent Payment Date,
Shareholders' Agent shall deliver to Buyer an income statement and loss
statement of the Post-Closing CoreWest Business Unit as of December 31,
1998 prepared in accordance with GAAP and in accordance with this Section
3.3 and a calculation of the Contingent Payment, which have been audited by
Post-Closing CoreWest Business Unit's Accountants. The annual profit and
loss statement shall be accompanied by detailed schedules of the
calculation of the Contingent Payment pursuant to Section 3.3 hereof and by
a report of the Post-Closing CoreWest Business Unit's independent
accountants (1) setting forth the amount of the Contingent Payment, (2)
stating that (a) an audit of the income statement has been made in
accordance with generally accepted accounting standards and (b) the income
statement has been prepared in accordance with GAAP, and (3) setting forth
the amount of any adjustment to the Contingent Payment to be paid and by
whom pursuant to Section 3.3(g) hereof. At the request of the Buyer or the
Third Party Accounting Firm, Post-Closing CoreWest Business Unit's
Accountants' workpapers, trial balances and similar materials used,
prepared or relied upon by Post-Closing CoreWest Business Unit's
accountants in connection with the calculation of the Contingent Payment to
the extent such materials are available to Shareholders' Agent.
(ii) Within 45 days following the delivery of the financial
statements and schedules, Buyer or its independent accountants ("Buyer's
Agent's Accountants") may object to any of the information contained in
said financial statements or accompanying schedules which could affect the
amount of the Contingent Payment. Any such objection shall be made in
writing and shall state Buyer's determination of the amount of the
Contingent Payment.
(iii) In the event of a dispute or disagreement relating to the
financial statements or schedules which Buyer and Shareholder's Agent are
unable to resolve, either party may elect to have all such disputes or
disagreements resolved by an Independent Accounting Firm (the "Third
Accounting Firm") to be mutually selected by Shareholder's Agent and Buyer
or, if no agreement is reached, by Post-Closing CoreWest Business Unit's
Accountants and Buyer's Accountants. The Third Accounting
18
Firm shall make a resolution of the financial statement of the Post-Closing
CoreWest Business Unit and the calculation of the Contingent Payment, which
shall be final and binding for purposes of this Article 3. The Third
Accounting Firm shall be instructed to use every reasonable effort to
perform its services within 15 days of submission of the financial
statement and schedules to it and, in any case, as soon as practicable
after such admission. The fees and expenses for the services of the Third
Accounting Firm shall be shared equally by Buyer and the Shareholders.
(g) Final Payment Adjustment. Once the Contingent Payment Amount is
finally determined pursuant to Section 3.3(d), appropriate adjustments shall be
made in payment of the Contingent Payment, as finally determined, including the
issuance of additional Exchange Shares by Buyer to Shareholders and/or the
return of the Exchange Shares by Shareholders to Buyer, as appropriate.
(h) Contingent Payment Amount upon "Adverse Change". In the event of an
"Adverse Change (as defined below) before December 31, 1998, then in such event,
and at the option of the Shareholders, the Contingent Payment shall be
calculated either (x) based on the assumption that the Post-Closing CoreWest
Business Unit achieved its "Adjusted Agreed Plan" (as defined below) for 1998
and not based on the actual 1998 results of that period or (y) on the actual
results of the Post-Closing CoreWest Business Unit. The term "Adjusted Agreed
Plan" shall mean the after-tax net income of the Post-Closing CoreWest Business
Unit as shown on the Agreed Plan adjusted by multiplying the after-tax net
income of the Post-Closing CoreWest Business Unit by the percentage (which may
be more than 100%) obtained by dividing (x) by (y) where:
(x) is the actual after-tax net income of the Post-Closing CoreWest
Business Unit from the Effective Time to the end of the calendar month
preceding the month during which occurs a declaration of an Adverse Change
by the Shareholders, and
(y) is the projected after-tax net income of the Post-Closing CoreWest
Business Unit from the Effective Time to the end of the calendar month
preceding the month during which occurs a declaration of an Adverse Change
by the Shareholders as set forth in the Agreed Plan.
The declaration of an Adverse Change must be made by written notice to the Buyer
executed by Shareholders holding a majority of the Exchange Shares issued as the
Base Payment (but without counting any Escrow Shares) and delivered to Buyer not
later than thirty (30) days following the occurrence of the Adverse Change.
An "Adverse Change" shall be:
(v) Post-Closing CoreWest's Business Unit's termination of the
employment of Xxxxxx Xxxxxx and Xxxxxxx Xxxxx other than for Cause and
other than as the result of a management decision by a CoreWest Executive
to terminate such
19
employment or death or disability; (w) Xxxxxx Xxxxxx or Xxxxxxx Xxxxx'
termination of their employment with the Post-Closing CoreWest Business
Unit with "Good Reason" (as defined in their employment contracts), (x) a
Change in Control of Buyer following which neither Xxx Xxxxxxxxx or Xxxxxx
Xxxxxxxx are one of the two most senior officers of the Buyer; (y) a
material change as a result of action or inaction by Buyer in the following
which is materially adverse to the Post-Closing CoreWest Business Unit
which is not cured within 30 days following notice thereof by the
Shareholder to Buyer: (i) the ability of the Post-Closing CoreWest Business
Unit Management to control or offer its product lines and product mix in a
manner which is consistent with other products in the sub-prime mortgage
industry from time to time, or in its authority to operate or control the
Post-Closing CoreWest Business Unit day-to-day business operations pursuant
to the approved business plan and budget; (ii) a change in underwriting
criterion from that which is consistent with criterion generally in use in
the sub-prime mortgage industry from time to time; (iii) a change in the
Post-Closing CoreWest Business Unit Management's ability to manage its key
employees; (iv) Buyer fails to provide funding pursuant to the Agreed Plan;
and (v) a failure of Buyer to use commercially reasonable efforts to assist
the Post-Closing CoreWest Business Unit to obtain and maintain all licenses
as provided in the Agreed Plan.; or (z) a sale by Buyer to a party which is
not directly or indirectly owned or controlled by a majority of Buyer's
Shareholders before the transaction of the shares or substantially all the
assets of the Post-Closing CoreWest Business Unit (other than in connection
with a Change of Control of Buyer in which the Post-Closing CoreWest
Business Unit continues as a division or subsidiary of Buyer following such
Change in Control and neither Xxx Xxxxxxxxx nor Xxxxxx Xxxxxxxx are one of
the two most senior officers of Buyer, the Purchaser or its parent.
(i) No Limit on Contingent Payment. There shall be no limit on the
amount of the Contingent Payment or the number of Exchange Shares that shall be
issued pursuant thereto. The Contingent Payment shall not be less than zero.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COREWEST AND SHAREHOLDERS
CoreWest and Shareholders, jointly and severally, make the following
representations and warranties to Buyer, each of which is true and correct on
the date hereof, shall be unaffected by any investigations heretofore or
hereafter made by Buyer, or any knowledge of Buyer other than as specifically
disclosed in the Disclosure Schedule delivered to Buyer at the time of execution
of this Agreement, and shall survive the Closing of the transactions provided
for herein:
20
4.1 Organization.
(a) CoreWest is a corporation duly organized, validly existing and in
good standing under the laws of the State of California with full corporate
power and authority to carry on its business as now conducted, to own the
properties and assets that it now owns, and to lease the properties and assets
that it now leases, and is duly licensed and qualified to do business and is in
good standing in each state or jurisdiction where its ownership or leasing of
property or assets or the conduct of its business requires such licensing or
qualification. The states in which CoreWest is licensed or qualified to do
business are listed on Schedule 4.1.
(b) CoreWest and Shareholders have heretofore delivered to Buyer
accurate and complete copies of the articles of incorporation and by-laws of
CoreWest, as in effect on the date thereof. Such articles and by-laws are in
full force and effect, and have not been subsequently amended, and CoreWest is
not in violation of any of the provisions thereof. The corporate minute book and
stock records of CoreWest which have been furnished to Buyer for inspection are
true, correct and complete and accurately reflect all material corporate action
taken by CoreWest and its Shareholders.
4.2 Capitalization of the Company.
The authorized capital stock of CoreWest consists entirely of 1,000,000
shares of Common Stock, no par value. No shares of such capital stock are issued
or outstanding except for 33,333.33 shares of common stock of the Company which
are owned of record and beneficially by Shareholders in the respective numbers
set forth in Schedule 4.2. All such shares of capital stock of the Company are
validly issued, fully paid and nonassessable. Except as set forth on Schedule
4.2, there are no (a) securities convertible into or exchangeable for any of the
Company's capital stock or other securities, (b) options, warrants or other
rights to purchase or subscribe to capital stock or other securities of the
Company or securities which are convertible into or exchangeable for capital
stock or other securities of the Company, or (c) contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance,
sale or transfer of any capital stock or other equity securities of the Company,
any such convertible or exchangeable securities or any such options, warrants or
other rights.
4.3 Shareholders.
(a) Power. Each Shareholder has full power, legal right and authority
to enter into, execute and deliver this Agreement and the Ancillary Agreements.
(b) Authorization. The execution and delivery of this Agreement and the
Ancillary Agreements, and full performance thereunder, have been duly authorized
by the respective boards of directors and the shareholders of each Shareholder
which is a corporation, and no other or further corporate act on the part of any
such Shareholder is necessary therefor.
21
(c) Validity. This Agreement has been duly and validly executed and
delivered by each Shareholder and is, and when executed and delivered each
Ancillary Agreements will be, the legal, valid and binding obligation of such
Shareholder, enforceable in accordance with its terms, except as such may be
limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally, and by general equitable principles.
(d) Title. Each Shareholder has, and at Closing Buyer will receive,
good and marketable title to the Shares to be sold by such Shareholder
hereunder, free and clear of all Liens including, without limitation, voting
trusts or agreements, proxies, marital or community property interests.
4.4 Subsidiaries of CoreWest
CoreWest does not own any equity interest, directly or indirectly, in
any corporation, partnership or other entity.
4.5 Authority; No Violation
(a) CoreWest has full power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed by CoreWest and all Shareholders and,
assuming this Agreement constitutes a valid and binding obligation of Buyer,
constitutes a valid and binding obligation of CoreWest and Shareholders
enforceable against CoreWest in accordance with its terms, except to the extent
that enforceability may be subject to or limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws relating
to or affecting creditors' rights generally or the appointment of a receiver or
conservator pursuant to state or federal law.
(b) Neither the execution and delivery of this Agreement by CoreWest
and Shareholders nor the consummation by CoreWest and Shareholders of the
transactions contemplated hereby, nor compliance by CoreWest and Shareholders
with any of the terms or provisions hereof, will (i) conflict with or result in
a breach of any provision of the articles of incorporation or by-laws of
CoreWest, (ii) violate any statute, code, ordinance, rule, Regulation, judgment,
order, writ, decree or injunction applicable to Shareholders or CoreWest or any
of their respective properties or assets, or (iii) violate, conflict with,
result in a breach of any provisions of, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of, accelerate the performance required by, or result
in a right of termination or acceleration or the creation of any Encumbrance
upon any of the respective properties or assets of Shareholders or CoreWest
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed or trust, license, lease, agreement or other instrument, or
obligation to which Shareholders or CoreWest is a party, or by which
Shareholders, CoreWest or any of their respective properties or assets may be
bound or affected except for such violations, conflicts, breaches and defaults
which
22
either individually or in the aggregate would not have a Material Adverse Effect
on CoreWest or Shareholders.
4.6 Consents and Approvals
Except as set forth in Section 4.6 of the Schedule, no consents,
permits, authorizations or approvals of, or filings or registrations with, any
governmental or regulatory authorities, government sponsored agencies or
corporations or other third parties are necessary to be obtained or made by
Shareholders or CoreWest in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
4.7 Financial Statements
CoreWest has previously delivered to Buyer copies of (i) the unaudited
balance sheet as of October 31, 1996 (the "Balance Sheet") and (ii) the
year-to-date income statement as of October 31, 1996 (the "Income Statement" and
collectively, the "Financial Statements"). Except as set forth on Schedule 4.8,
the Financial Statements have been prepared from the books and records of
CoreWest, and accurately and fairly present the financial position of CoreWest
as of the respective dates thereof and the result of operations and have been
prepared in accordance with the requirements of GAAP.
4.8 Undisclosed Liabilities.
As of the date of this Agreement, CoreWest does not have any
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise, asserted or unasserted, known or unknown, whether or not required
to be shown on a balance sheet prepared in accordance with GAAP (collectively,
"Liabilities"), except for (i) liabilities and obligations stated or adequately
reserved against on the Balance Sheet dated October 31, 1996, and (ii)
obligations to close Non-Conforming Mortgage Loans and Conforming Mortgage Loans
for which commitments already have been made, including obligations to borrowers
or to parties involved in the origination and funding of such loans; (iii)
liabilities arising in the ordinary course of the business of CoreWest
consistent with past practices to the extent reserved on the Balance Sheet or,
once available, the Closing Balance Sheet used to determine the Initial Net
Worth; (iv) liabilities disclosed on Schedule 4.8; and liabilities, in the
aggregate, which do not constitute a Material Adverse Effect. Notwithstanding
the foregoing, CoreWest's Tangible Net Worth at the Effective Time shall not be
less than $.01, including, to the extent required by GAAP, full reserves for all
the foregoing liabilities and reserves for all legal fees and all other fees and
expenses of CoreWest arising in connection with the Agreement, the preparation
of the Closing Balance Sheet and the transactions contemplated to occur at the
Closing (but not fees and expenses related to determination of the Contingent
Payment). The Initial Net Worth, for purposes of determining the Base Payment,
shall be equal to CoreWest's tangible net worth, calculated according to GAAP,
including full reserve for all the foregoing liabilities and expenses related to
the Acquisition as of and for the year ending December 31, 1996.
23
4.9 No Material Adverse Change.
Since October 31, 1996, CoreWest has not suffered any Material Adverse
Effect nor taken any of the actions specified in Section 4.37(a) - (r).
4.10 Legal Proceedings
Except as described in Schedule 4.10, neither Shareholders, CoreWest
nor any of CoreWest's directors or officers is party to any, and there are no
legal, administrative, arbitral or other, proceedings, claims, actions or
governmental investigations of any nature pending, nor to the best knowledge of
CoreWest or Shareholders, threatened, against or affecting CoreWest or any of
its respective assets or business or challenging the validity or propriety of
the transactions contemplated by this Agreement. CoreWest is not subject to any
order, judgment, injunction, rule or decree.
4.11 Material Contracts
Section 4.11 of the Schedule is a complete and accurate list of the
following contracts, agreements, and other written or oral arrangements (or
group of related written or oral arrangements) (hereinafter collectively
referred to as "arrangements"), to which CoreWest is a party on the date hereof:
(a) any arrangement with any employee, agent or independent
contractors involved in the origination of mortgage loans for CoreWest;
(b) any arrangement (including the lease of real or personal property
from or to third parties) providing for lease payments in excess of $5,000 per
annum or in excess of $10,000 for the remaining term of the arrangement;
(c) any arrangement in which CoreWest is participating as a general
partner or joint venturer;
(d) To the best of CoreWest's knowledge, any arrangement which shall
survive the Closing (other than recourse servicing) under which CoreWest has
created, incurred, assumed, or guaranteed (or may create, incur, assume, or
guarantee) indebtedness for borrowed money (including capitalized lease
obligations) involving more than $5,000;
(e) any arrangement concerning confidentiality or noncompetition;
(f) any arrangement between any Shareholder and CoreWest or any of the
Affiliates;
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(g) any arrangement pursuant to which CoreWest or any Shareholder has
promised to pay, or loan any amount to, or sold, transferred or leased any
property or assets to or from, any Person in their capacity as an officer,
director or other employee of CoreWest;
(h) any arrangement requiring CoreWest to pay severance or similar
payments as a result of the transactions contemplated hereby;
(i) any other arrangement which will survive the Closing not entered
into in the ordinary course of business; or
(j) any power of attorney or similar arrangement.
CoreWest has delivered to Buyer a correct and complete copy of each
written arrangement listed in Section 4.11 of the Schedule. With respect to each
arrangement so listed: (A) the arrangement is in full force and effect; (B)
neither Shareholders nor CoreWest is in breach or default, and no event has
occurred which with notice or lapse of time or both would constitute a breach or
default by Shareholders or CoreWest, or permit termination, modification, or
acceleration against Shareholders or CoreWest under the arrangement applicable
to it; (C) neither Shareholders nor CoreWest has repudiated or waived any
material provision of any such arrangement; (D) to the best of the knowledge of
CoreWest, no other party to any such arrangement is in default in any respect
thereunder; and (E) no consent is required under any arrangement for CoreWest to
enter into and perform this Agreement and the transactions contemplated herein.
With respect to any lease disclosed pursuant to this Section 4.11, all rents and
other amounts currently due thereunder have been paid; no waiver or indulgence
or postponement of any obligation thereunder has been granted by any lessor or
sublessor; and CoreWest has not received any notice that it has breached any
term, condition or covenant.
4.12 Taxes
(a) Except as set forth on Schedule 4.12, CoreWest has (i) duly filed
(or there has been duly filed on its behalf) with the appropriate federal,
state, local and foreign taxing authorities all Tax Returns required to be filed
by or with respect to CoreWest, and such Tax Returns are true, correct and
complete in all material respects, and (ii) paid in full on a timely basis (or
there has been paid on its behalf) all Taxes shown to be due on such Tax
Returns. The provision for Taxes on each of the Financial Statements and the
Closing Balance Sheet is or will be adequate for the payment of all accrued but
unpaid Taxes, whether or not disputed, through the date thereof. At or before
Closing, Shareholders shall cause CoreWest to prepay all taxes arising, or
relating to any period, before the Effective Time.
(b) Neither CoreWest nor any Affiliate thereof has received any notice
of a deficiency or assessment with respect to taxes of CoreWest from any
federal, state, local or foreign taxing authority which has not been fully paid
or finally settled; there are no ongoing audits or examinations of any Tax
Return which includes CoreWest and no notice of audit or examination of any such
Tax Return has been received; CoreWest has not given and there has
25
not been given on its behalf a waiver or extension of any statute of limitations
relating to the payment of Taxes; and no issue has been raised in writing on
audit or in any other proceeding with respect to Taxes of CoreWest by any
federal, state, local or foreign taxing authority which, if resolved against
CoreWest, would have a Material Adverse Effect on CoreWest.
(c) CoreWest has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. CoreWest has not made any payments, is not
obligated to make any payments, and is not a party to any contract, agreement or
other arrangement that could obligate it to make any payments that would not be
deductible under Section 280G of the Code. CoreWest has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of Section
6661 (or its successor, Section 6662) of the Code.
(d) For purposes of this Agreement "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority, including, but not
limited to, income, excise, property, sales, transfer, franchise, payroll,
gains, withholding, ad valorem, social security or other taxes, including any
interest, penalties or additions attributable to Taxes.
(e) For purposes of this Agreement, "Tax Return" shall mean any
return, report or information return required to be filed with any taxing
authority with respect to Taxes.
(f) After the Closing, Shareholders shall bear responsibility for and
pay the reasonable costs and expenses relating to the preparation of any Tax
Return relating to any period before the Effective Time and shall pay, or
reimburse CoreWest for the payment of, any Taxes relating to any period before
the Effective Time.
4.13 ERISA
(a) Section 4.13(a) of the Schedule contains a true and complete list
of each employee benefit, compensation or welfare benefit plan, program or
agreement maintained or contributed to or required to be contributed to by
CoreWest (the "Plans"). CoreWest has no formal plan or commitment, whether
legally binding or not, to create any additional Plan or modify or change any
existing Plan that would affect any employee or terminated employee of CoreWest.
(b) With respect to each of the Plans, CoreWest has heretofore
delivered to Buyer true and complete copies of each of the following documents:
(i) each Plan and related trust, if any, (including all amendments thereto);
(ii) annual report and actuarial report, if required to be filed under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the
last two (2) years and the latest financial statement, if any, for each such
Plan; (iii) the most recent summary plan description, together with each summary
of material modifications, required under ERISA; and (iv) the most recent
determination letter received from the IRS with respect to each Plan that is
intended to be qualified under Section 401 of the Code.
26
(c) All required contributions have been, or will be, made with
respect to each Plan on or prior to the Effective Time or will be properly
recorded on the Closing Balance Sheet.
(d) Each of the Plans has been operated and administered in all
material respects in accordance with applicable laws, including, but not limited
to, ERISA and the Code and each of the Plans that is intended to be "qualified"
within the meaning of Section 401(a) of the Code is so qualified.
(e) Except as set forth in Section 4.13(e) of the Schedule, no Plan
provides benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees beyond
their retirement or other termination of service (other than (A) coverage
mandated by applicable law, (B) death benefits or retirement benefits under any
"employee pension plan," as that term is defined in Section 3(2) of ERISA, (C)
deferred compensation benefits accrued as liabilities on the books of CoreWest
or (D) benefits the full cost of which is borne by the current or former
employee (or his beneficiary)).
(f) There are no pending, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any of the Plans or any
trusts related thereto.
(g) Except as set forth in other Schedules to this Agreement, the
consummation of the transactions contemplated by this Agreement will not (either
alone or upon the occurrence of any additional acts or events) (A) entitle any
current or former employee of CoreWest to severance pay, employment compensation
or any other payment, benefit or award or (B) accelerate or modify the time of
payment or vesting, or increase the amount of any benefit, award or compensation
due any such employee.
4.14 Ownership of Property
CoreWest has good and valid title to all CoreWest's assets, business
and properties, whether real or personal, tangible or intangible, including
without limitation, all assets and properties reflected in its balance sheet as
of October 31, 1996, or acquired subsequent thereto, subject to no Encumbrances,
except (i) those items that secure liabilities that are reflected in said
balance sheet or the notes thereto or incurred in the ordinary course of
business after the date of such balance sheet, including the Warehouse Lines of
Credit, (ii) statutory liens for amounts not yet delinquent or which are being
contested in good faith, (iii) liens and encumbrances on, and rights of
redemptions with respect to, foreclosed real estate, (iv) such Encumbrances that
do not in the aggregate materially detract from the value or interfere with the
use or operations of the assets and properties subject thereto and (v) the
Encumbrances set forth on Schedule 4.14. CoreWest as lessee has the right under
valid and subsisting leases to occupy, use, possess and control all property
leased by CoreWest, as presently occupied, used, possessed and controlled by
CoreWest. The properties and assets owned or leased by CoreWest are adequate for
the conduct of the current business of CoreWest. Giving effect to the
transactions contemplated by this Agreement, Buyer shall have all assets,
personnel and
27
property which Shareholders believe to be necessary to conduct CoreWest's
business consistent with historical practice, subject to Buyer securing
appropriate licenses and regulatory approvals to the extent necessary.
CoreWest's assets include, without limitation, the tradename "CoreWest Banc" and
the associated goodwill, all customer and mailing lists, all rights to multiple
locations where the Business is conducted, computer programs, forms, files,
business records, documents, know-how, transactions in progress, contract
rights, furniture, fixtures, equipment, net worth and other tangible and
intangible assets, leasehold interests and other assets relating to the
Business.
4.15 Environmental Protection
CoreWest has not received from any source with respect to any property
("Operating Property") that it owns (including as a trustee), leases, or
actively participates in the management of, any Environmental Claim to the
effect that CoreWest, or any Operating Property or Loan Property, or any
predecessor is not in compliance with all environmental or health laws, rules,
Regulations, standards and requirements relating to pollution (including the
discharge of materials into the environment or indoors) or protection of the
environment, including common law ("Environmental Laws"), nor any requests for
information which could result in or help provide a basis for any Environmental
Claim, nor are there any facts which could reasonably be expected to form the
basis of an Environmental Claim against CoreWest. All environmental audits,
analyses, or surveys of any Operating Property or Loan Property which have been
submitted to or by CoreWest are identified in Section 4.15 of the Schedule, and
copies of such audits, analyses, surveys or other documents have been made
available to Buyer. CoreWest has not owned, managed, supervised or participated
in the management of any commercial real property.
4.16 Brokers and Finders
Neither Shareholders nor CoreWest, nor any of CoreWest's officers,
directors, employees or agents has employed any broker, finder or financial
advisor or incurred any liability for any fees or commissions in connection with
the transactions contemplated hereby, except for legal, accounting and other
professional fees payable by CoreWest or Shareholders in connection with the
Acquisition. The total legal, accounting and other professional fees and
expenses of CoreWest related to this transaction shall be fully reserved against
on the Closing Balance Sheet for the purpose of requiring a positive net worth.
4.17 Insurance
Section 4.17 of the Schedule sets forth all the insurance policies,
binders and bonds maintained by CoreWest. Except as disclosed therein, such
policies are in full force and effect.
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4.18 Mortgage Banking Licenses and Qualifications
CoreWest (i) is qualified as and is (A) an FHA approved investing
lender under 24 C.F.R. 'SS' 202.7; (ii) in all material respects meets all
applicable requirements of laws and regulations so as to be eligible to purchase
and hold FHA Loans and conventional mortgage loans; and (iii) has all other
material certifications, authorizations, licenses, permits and other approvals
("Licenses") necessary to conduct its current mortgage banking business, and is
in good standing under all applicable federal, state and local laws and
regulations thereunder, as a mortgage lender and servicer. A complete list of
such Licenses is set forth in Section 4.18 of the Schedule. Except as set forth
in Section 4.18 of the Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
affect the validity of any License currently possessed by CoreWest, and all such
Licenses will remain in full force and effect after the Closing Date.
Shareholders shall cause all regulatory filings and other actions required by
any contract to which CoreWest is a party or under any law in connection with
the Acquisition and change in ownership of the Business of CoreWest. Section
4.18 of the Schedule sets forth all regulatory actions and consents necessary or
appropriate in connection with the Acquisition and change in ownership of the
Business.
4.19 Loan Portfolio
Shareholders have delivered to Buyer information regarding CoreWest's
mortgage loan portfolio as of December 31, 1996, which is true and correct in
all material respects. Each Mortgage Loan (a) is evidenced by a note or other
evidence of indebtedness with such terms as are customary in the business, (b)
is duly secured by a mortgage or deed of trust with such terms as are customary
in the business and which grants the holder thereof a first lien on the subject
property (including any improvements thereon) each such mortgage or deed of
trust constituting a security interest that has been duly perfected and
maintained (or is in the process of perfection in due course) and is in full
force and effect, and (c) (i) was at the time of its closing accompanied by an
insurance policy covering improvements on the premises subject to such mortgage
or deed of trust, with a loss payee clause in favor of CoreWest or its assignee,
such insurance policy covering such risks as are customarily insured against in
accordance with industry practice and in accordance with Investor requirements,
and (ii) is currently covered by such an insurance policy, or an insurance
policy "force-placed" by CoreWest, or CoreWest's Blanket Mortgage single
Interest Impairment Policy covering the interests of the mortgagee. No Warehouse
Loan is ineligible for purchase under an investor program available to CoreWest.
4.20 Enforceability
All Mortgage Loans are valid and legally binding obligations of the
borrowers thereunder enforceable in accordance with their terms, except as
enforcement thereof may be limited by (i) bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding in equity or at
law), (ii) state laws requiring creditors to proceed against the collateral
before pursuing the borrower, and (iii) state laws on deficiencies. Neither the
operation of any of the
29
terms of any Mortgage Loan nor the exercise of any right thereunder, has
rendered or will render the related mortgage or note unenforceable, in whole or
in part, subject it to any right of rescission, setoff, counterclaim or defense,
and no such right of rescission, setoff, counterclaim or defense has been
asserted with respect thereto.
4.21 Title to Certain Mortgage Loans
Mortgage Loans held in CoreWest's account (whether or not for future
sale or delivery to an Investor) are owned by CoreWest free and clear of any
Encumbrance other than its lender banks pursuant to warehouse lines. Such
Mortgage Loans have been duly recorded or submitted for recordation in the
appropriate filing office in the name of CoreWest as mortgagee. CoreWest has
not, with respect to any such Mortgage Loan, released any security therefor,
except upon receipt of reasonable consideration for such release or accepted
prepayment of any such Mortgage Loan which has not been promptly applied to such
Mortgage Loan.
4.22 No Recourse
Except as set forth in Section 4.22 of the Schedule, CoreWest is not a
party to (A) any agreement or arrangement with (or otherwise obligated to) any
Person, including an Investor or insurer, to repurchase from any such Person any
Mortgage Loan and mortgaged property serviced for others or any mortgage loan
sold by CoreWest with servicing released ("Servicing Released Loans"), or (B)
any agreement, arrangement or understanding to reimburse, indemnify or hold
harmless any Person or otherwise assume any liability with respect to any Loss
suffered or incurred as a result of any default under or the foreclosure or sale
of any such Mortgage Loan or mortgage property or Servicing Released Loans,
except insofar as such recourse is based upon breach by CoreWest of a customary
representation or warranty set forth in any Mortgage Servicing Agreement or
Investor Commitment.
4.23 Mortgage Servicing Agreements
Set forth in Section 4.23 of the Schedule is an accurate and complete
list dated November 30, 1996, setting forth each Mortgage Servicing Agreement in
effect as of such date. Shareholders have previously made and delivered to Buyer
true and complete copies of all Mortgage Servicing Agreements. The Mortgage
Servicing Agreements and the Regulations set forth all the terms and conditions
of CoreWest's rights against and obligations to the Agencies and Investors and
they have not been modified, orally or in writing, since the date of delivery.
All Mortgage Servicing Agreements are valid and binding obligations of the
parties thereto, in full force and effect and enforceable in accordance with
their terms, except as enforcement thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
in equity or at law). To CoreWest's knowledge, there is no default or claim of
default by any party to such Mortgage Servicing Agreements, and no event has
occurred which with the passage of time or the giving of notice or both would
constitute a default by any party
30
under any such Mortgage Servicing Agreement or would result in any such Mortgage
Servicing Agreement being terminable by any party thereto. There is no pending
or, to the best knowledge of Seller, threatened cancellation of any Mortgage
Servicing Agreement, and no sanctions or penalties have been imposed upon
CoreWest under any Mortgage Servicing Agreement or under applicable rules,
regulations, guidelines, policies and handbooks of any other party to such
Mortgage Servicing Agreements. CoreWest shall retain all Mortgage Servicing
Agreements at Closing Date.
4.24 Compliance
CoreWest has been and is (and specifically the documentation,
origination, purchase, assumption, modification, sale, servicing of Mortgage
Loans (including the maintenance of and transactions with respect to custodial
Account) and maintenance of books and records by it has been and is) in
compliance with all Regulations, orders, writs, decrees, injunctions and other
requirements of any court or governmental authorities applicable to it, its
properties and assets or its conduct of business in all material respects.
CoreWest has not done or failed to do, and has not caused to be done or omitted
to be done, any act or omission, the effect of which would operate to invalidate
or materially impair (i) any approvals of the FHA, VA, FNMA, FHLMC, GNMA or HUD,
(ii) any FHA insurance or commitment of the FHA to insure, (iii) any VA
guarantee or commitment of the VA to guarantee, (iv) any private mortgage
insurance or commitment of any private mortgage insurer to insure, (v) any title
insurance policy, (vi) any hazard insurance policy, (vii) any flood insurance
policy required by the National Flood Insurance Act of 1968, as amended, (viii)
any fidelity bond, direct surety bond, or errors and omissions insurance policy
required by HUD, GNMA, FNMA, FHA, FHLMC, VA or private mortgage insurers, (ix)
any surety or guaranty agreement or (x) any guaranty issued by GNMA to CoreWest
respecting mortgage backed securities issued by CoreWest and other like
guaranties. During the twelve month period preceding the date hereof, no Agency,
Investor or private mortgage insurer has (i) claimed that CoreWest has violated
or not complied with the applicable underwriting standards with respect to
mortgage loans sold by CoreWest to such Investor or (ii) imposed restrictions on
the activities (including commitment authority) on CoreWest.
4.25 Investment Commitments
Set forth in Section 4.25 of the Schedule is a complete and correct
list of each Investor Commitment of to which CoreWest is a party on the date
hereof. Shareholders have made available to Buyer complete and correct copies of
all Investor Commitments in effect on such date. Each Investor Commitment
constitutes valid and binding obligations of CoreWest and, to the best knowledge
of CoreWest, of the other parties thereto, enforceable in accordance with its
terms, subject to bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding in equity or at law). CoreWest shall retain all
Investor Commitments as of the Closing Date.
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4.26 Custodial Accounts
CoreWest maintains no escrow accounts for any serviced loans.
4.27 Accounts Receivable
All accounts receivable, are carried on the books at values determined
in accordance with GAAP (including related reserves), and to CoreWest's
knowledge are not subject to defenses, setoffs or claims of the mortgagor (other
than those already accounted for) arising from acts or omissions of CoreWest.
4.28 Data Processing
CoreWest has good and valid title or valid license to the data
processing software (including documentation, user manuals, upgrades and current
releases, etc.), currently used by it, and the data processing system (software
and hardware), used to support CoreWest's mortgage servicing business is
believed to be operating in the intended manner.
4.29 Inquiries
Section 4.29 of the Schedule contains a true and correct list of all
of the audits, investigations, complaints and inquiries of CoreWest by an
Agency, HUD, an Investor, or a private mortgage insurer since inception, the
result of which audits and investigations claimed a material failure to comply
with applicable Regulations, resulted in a repurchase of Mortgage Loans by
CoreWest, resulted in indemnification by CoreWest in connection with the
Mortgage Loans, resulted in rescission of an insurance or guaranty contract or
agreement, or resulted in payment of a penalty to a Agency, HUD, an Investor or
a private mortgage insurer, and like adverse findings. Except for customary
ongoing quality control reviews, no such audit or investigation (each an
"Inquiry") is pending or threatened. CoreWest and the Shareholders have made
available to Buyer copies of all written reports and materials received in
connection with such audits, investigations, complaints and inquiries.
4.30 CoreWest's Representations with Respect to Mortgage Loans
To CoreWest's knowledge, no breach or violation of any representation,
warranty or covenant exists which individually, or collectively, would have a
Material Adverse Effect on CoreWest with respect to any Mortgage Loans, the
ownership of which has been transferred by CoreWest to any Person.
4.31 Advances
Except as set forth in Section 4.31 of the Schedule, there are no
pooling, participation, servicing or other agreements to which CoreWest is a
party which obligate it to
32
make servicing advances with respect to defaulted or delinquent Mortgage Loans
other than as provided in GNMA pooling and servicing agreements.
4.32 Pools
Except as set forth in Section 4.32 of the Schedule, all Pools
serviced by CoreWest have been certified and, if required, re-certified. With
respect to any Pools serviced by CoreWest which have not been fully certified,
CoreWest has notified the custodian with respect thereto of all deficiencies,
and such custodian has so notified the applicable Investor or Investor Program.
4.33 Commercial Mortgages
CoreWest has never taken title to any commercial mortgage loan.
CoreWest has never foreclosed on any commercial property securing any commercial
mortgage loan in its own name, is not required under any Mortgage Servicing
Agreement to foreclose on any commercial property securing any commercial
mortgage loans in default in its own name and has never taken title to any
commercial property securing any commercial mortgage loan. Any breach of any
representation or warranty set forth in this Section 4.33 shall be deemed to
render such representation or warranty to be untrue and incorrect in a material
respect.
4.34 No Tax-Sharing Agreements
CoreWest is not a party to any tax sharing agreement or similar
arrangement.
4.35 No Intercompany Accounts
CoreWest has no intercompany accounts.
4.36 CoreWest Employees
To the best of CoreWest's and Shareholders' knowledge, each employee
of CoreWest will continue his or her employment with the Post-Closing CoreWest
Business Unit after the Closing Date. CoreWest has no agreements, policies,
practices or understandings (written or oral) concerning CoreWest employee bonus
programs, employee incentive plans or employee benefit plans except as set forth
in Section 4.13(a) of the Schedule. A complete list of CoreWest's employees is
set forth in Section 4.36 of the Schedule.
4.37 Conduct Prior to Closing
Within the four (4) months prior to the date hereof, except as set
forth in Section 4.37 of the Schedule, CoreWest has conducted its business only
in the ordinary course, and except as contemplated by or resulting from their
Agreement and the transactions contemplated hereby, CoreWest has not:
33
(a) issued, sold or delivered any shares of its capital stock or issue
or sell any securities convertible into, or options with respect to, or warrants
to purchase or rights to subscribe to, any shares of its capital stock;
(b) effected any recapitalization, reclassification, stock dividend,
stock split or like change in capitalization;
(c) amended its articles of incorporation or by-laws;
(d) merged or consolidated with, or, except as a result of foreclosure
or repossession in the ordinary course of its mortgage banking business,
acquired substantially all of the assets of, any other entity;
(e) sold, transferred, leased or encumbered a material amount of
assets (other than Excluded Assets) except in the ordinary course of business;
(f) materially altered or varied its methods or policies of (i)
underwriting, pricing, originating, warehousing, selling and servicing, or
buying or selling rights to service, its Mortgage Loans, (ii) hedging (which
term includes both buying futures and forward commitments from financial
institutions) its mortgage loan positions or commitments, and (iii) obtaining
financing and credit;
(g) granted to any director, officer, employee or consultant any
material increase in compensation or benefits (other than as may be required
under the terms of written agreements in effect on the date hereof and other
than normal increases made in the ordinary course of business to officers or
employees in accordance with customary past practices and policies);
(h) granted any severance or termination pay (other than as may be
required under the terms of written agreements in effect on the date hereof) to,
or entered into or amended any employment or severance agreement with, any
person, other than termination pay paid in the ordinary course of business to
officers or employees in accordance with customary past practices and policies;
(i) adopted any new or amended any existing director, officer or
employee benefit plans (including, without limitation, profit sharing, bonus,
director and officer incentive compensation, retirement, medical,
hospitalization, life or other insurance plans, arrangements and commitments) or
any trust agreement relating thereto;
(j) incurred any debt other than in the ordinary course of business in
amounts consistent with past practice;
(k) made any change in accounting principles or methods from those
currently employed, except as required by GAAP or by applicable regulatory
requirements;
34
(l) granted any mortgage or security interest in, or made any pledge
of, or permitted any lien or encumbrance to be placed on, any of its assets or
properties other than in the ordinary course of business consistent with past
practice;
(m) canceled, waived, released or compromised any material debt or
claim, other than upon payment in full;
(n) failed to maintain in full force and effect all existing insurance
policies and fidelity bonds;
(o) taken any action, or failed to take any action, that would result
in a breach or violation of the representations and warranties of Sellers
contained in this Agreement or caused any condition to the transactions
contemplated hereby not to be satisfied;
(p) accelerated, terminated, modified or canceled any material
contract, lease, or license to which CoreWest is a party;
(q) entered into any employment or collective bargaining agreement, or
modified any existing employment or collective bargaining agreement; and
(r) agreed to do any of the foregoing included in (a) through (q).
4.38 Officers and Directors.
Schedule 4.38 sets forth all the officers and directors of CoreWest.
4.39 Shareholder's Investment Intention/Restricted Securities.
(a) Each Shareholder is acquiring the Exchange Shares for investment
solely for the Shareholder's account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof and Shareholder
has no present intention of selling, granting any participation in, or otherwise
distributing the same. The Shareholder agrees and acknowledges that the
Shareholder will not, directly or indirectly, offer, transfer, sell, assign,
pledge, hypothecate or otherwise dispose of any Exchange Shares or solicit any
offers to purchase or otherwise acquire or take a pledge of any Shares, except
in accordance with the terms of this Agreement unless (i) the transfer, sale,
assignment, pledge, hypothecation or other disposition is pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act") and the rules and regulations thereunder and has been
registered under any applicable state securities or "blue sky" laws or (ii) no
such registration is required because of the availability of an exemption from
registration under the Securities Act and the rules and regulations in effect
thereunder and under any applicable state securities or "blue sky" laws.
35
(b) Each Shareholder has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the
investment in the Exchange Shares and the Shareholder can bear the economic risk
of its investment.
(c) Each Shareholder understands that the Exchange Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from Buyer in a transaction not involving a
public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act, only in
certain limited circumstances. In this connection, the Shareholder represents
that it is familiar with SEC Rule 144, as presently in effect, and understands
the resale limitations imposed thereby and by the Act.
(d) Without in any way limiting the representations set forth above,
each Shareholder further agrees not to make any disposition of all or any
portion of the Exchange Shares unless:
(i) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(ii) the Shareholder shall have notified Buyer of the proposed
disposition and shall have furnished the Buyer with an opinion of counsel,
reasonably satisfactory to the Buyer, that such disposition will not
require registration of such shares under the Securities Act. It is agreed
that the Buyer will not require opinions of counsel for transactions which
are shown to the Buyer's reasonable satisfaction as being made pursuant to
and in compliance with Rule 144.
(e) It is understood that the certificates evidencing the Exchange
Shares may bear one or all of the following legends:
(i) "These securities have not been registered under the
Securities Act of 1933 (the 'Act') and have been issued pursuant to
exceptions under the Act and under applicable state securities laws. They
may not be sold, offered for sale, pledged or hypothecated in the absence
of a registration statement in effect with respect to the securities under
such Act or an opinion of counsel satisfactory to the Company that such
registration is not required under the Act or under such Act." The
foregoing legend shall be removed from any such certificate at the request
of the holder thereof at such time as the shares represented thereby are
registered under the Act or become eligible for resale pursuant to Rule
144.
(ii) Any legend required by applicable state securities laws.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to CoreWest and
Shareholders, each of which is true and correct on the date hereof, shall remain
true and correct to and including the Closing Date, shall be unaffected by any
investigation heretofore or hereafter made by CoreWest or any notice to
CoreWest, and shall survive the closing of the transactions provided for herein.
5.1 Organization
Buyer is a corporation duly organized and in good standing under the
laws of the State of Florida. Buyer has the corporate power and authority to own
or lease all of its properties and to carry on its business as it is now being
conducted.
5.2 Authority; No Violation
(a) Buyer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action in respect thereof and
no other corporate proceedings on the part of Buyer are necessary to consummate
the transactions so contemplated. This Agreement and the Ancillary Agreements
have been duly and validly executed and delivered by Buyer and, assuming this
Agreement and the Ancillary Agreements constitute valid and binding agreements
of CoreWest, constitutes valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms (subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity.)
(b) Neither the execution and delivery of this Agreement nor the
consummation by Buyer of the transactions contemplated hereby, nor compliance by
Buyer with any of the terms or provisions hereof, will (i) conflict with or
result in a breach of any provision of the articles of incorporation or by-laws
of Buyer, (ii) subject to making or obtaining the consents, permits,
authorizations, approvals, filings and registrations set forth in Section 5.2 of
the Buyer Schedule, violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Buyer or any of its
properties or assets, or (iii) subject to obtaining or making the consents,
permits, authorizations, approvals, filings and registrations set forth in
Section 5.2 of the Buyer Schedule, violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the termination
of, accelerate the performance required by, or result in a right of termination
or acceleration or the creation of any Encumbrance upon any of the properties or
assets of Buyer under, any of the terms, conditions
37
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Buyer is a party, or
by which its properties or assets may be bound or affected except for such
violations, conflicts, breaches or defaults which either individually or in the
aggregate would not have a Material Adverse Effect on Buyer. Notwithstanding the
foregoing, the representations and warranties in this subsection (b) shall not
relate to or cover any consents, approvals, filings or registrations, if any,
arising from the regulated nature of CoreWest or made applicable to Buyer by
virtue of CoreWest or Buyer's acquisition of the Purchased Assets and business
of CoreWest or such regulations governing CoreWest and the mortgage banking
industry as a result of Buyer's purchase of the Purchased Assets.
5.3 Brokers and Finders
Neither Buyer nor any of its officers, directors, employees or agents
has employed any broker, finder or financial advisor or incurred any liability
for any fees or commissions in connection with the transactions contemplated
hereby, except for legal, accounting and other professional fees payable in
connection with the Acquisition.
5.4 Exchange Shares
The Exchange Shares, when issued in accordance with this Agreement,
will be duly and validly issued, fully paid, and non-assessable, and will be
free of restrictions on transfer other than restrictions on transfer under this
Agreement and the Registration Rights Agreement and under applicable state and
federal securities laws.
5.5 Litigation
The Buyer is not subject to any actions, suits, investigations, claims
or proceedings pending, or to the Buyer's knowledge, threatened before any court
or before any governmental or regulatory authority or arbitrator which could
have a Material Adverse Effect upon the Buyer or its business operations or
properties.
5.6 Securities Filings
The Company's filings required by the Exchange Act do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading, and the statements included therein
fairly present the financial condition and results of operating the Company as
of the dates and for the periods therein indicated, subject, and in the case of
unaudited financial statements, to normal year-end audit adjustments.
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ARTICLE 6
COVENANTS
6.1 Filings and Consents
(a) Promptly following the execution and delivery hereof, Shareholders
shall, or shall cause CoreWest to, obtain or file all consents (including Agency
and Investor consents), approvals, permits, authorizations, notices, and
registrations (collectively, "filings and consent solicitations") necessary to
consummate the Acquisition and for CoreWest to continue its Business consistent
with past practices following Closing. Buyer shall cooperate with Shareholders
and CoreWest in obtaining or making the necessary filings and consent
solicitations. Sellers will use their best efforts to cause the filings and
consent solicitations to be made as soon a practicable. The parties hereto agree
that they will consult with each other with respect to the obtaining of all
necessary permits, consents, approvals and authorizations of all third parties
and governmental bodies necessary or advisable to consummate the transactions
contemplated by this Agreement, and each party will keep the others apprised of
the status of matters relating to completion of the transactions contemplated
herein.
(b) Sellers and Buyer shall promptly furnish each other with copies of
written communications received by Shareholders, CoreWest or Buyer, as the case
may be, or delivered by any of them, of any governmental body, Agency, Investor
or private mortgage insurer in respect of the transactions contemplated hereby.
(c) Buyer shall, or shall cause CoreWest to, prepare and distribute any
and all IRS Form 1099s for the period prior to Closing.
6.2 Press Releases
CoreWest and Buyer shall cooperate with each other in the development
and distribution of all news releases and other public information disclosures
with respect to the Agreement or the transactions contemplated hereby; provided,
however, prior to the consummation of the Acquisition, no party hereto shall
make any public announcement or disclosure with respect to the transactions
contemplated hereby without the prior approval of the other parties, except
where disclosure is required by law. The parties agree to cooperate, in good
faith, to promptly issue a press release relating to the Acquisition upon
execution of this Agreement.
6.3 Employment Agreements
Buyer shall cause CoreWest or another Affiliate of Buyer to enter into
employment agreements with Xxxxxx Xxxxxx, Xxxxxxx X. Xxxxx, Xxx Xxxxxx, Xxxxxxx
Xxxxx and Xxxxx Xxxxx to serve as executives of the Post-Closing CoreWest
Business Unit, or of Buyer
39
or an affiliate of Buyer, in the form attached hereto as Exhibit 6.3 (the
"Employment Contracts").
6.4 Marketing of Competing Products
Shareholders and CoreWest acknowledge that Buyer markets products that
directly compete with CoreWest's products, and after Closing Buyer's other
business units will market products which directly compete with the Post-Closing
CoreWest Business Unit. (Nothing contained in Section 6.4 shall release Buyer
from the obligations contained in Section 3.3(c) with respect to the operation
of the Post-Closing CoreWest Business Unit.)
6.5 Consent to CoreWest Preclosing Dividend
Buyer acknowledges that effective on or before December 31, 1996 and
before the Closing, CoreWest intends to declare certain employee bonuses, repay
certain loans and obligations to Shareholders and distribute all its capital and
earnings to Shareholders. Buyer consents to these payments, provided that this
shall not relieve CoreWest and Shareholders with the obligation to comply with
all terms and conditions of this Agreement, including, without limitation, the
representation that CoreWest shall have a tangible net worth of more than one
dollar and that all such payments shall be reflected on the Closing Balance
Sheet prior to calculation of the Initial Net Worth.
6.6 HSR Act Filing
To the extent any filing, notice or consent is required under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvement Act of 1976, each of Buyer, Shareholders
and CoreWest shall, in cooperation with the other, file any reports or
notifications that may be required to be filed by it and shall reasonably
cooperate to satisfy such requirements.
ARTICLE 7
FURTHER COVENANTS OF COREWEST AND SHAREHOLDERS
CoreWest and Shareholders covenant and agree as follows:
7.1 Access to Information and Records. During the period prior to the
Closing:
(a) CoreWest shall, and shall cause its officers, employees, agents,
independent accountants and advisors to, furnish to Buyer, its officers,
employees, agents, independent accountants and advisors, at reasonable times and
places, all information in their possession concerning CoreWest as may be
requested, and give such persons access to all of the properties, books,
records, contracts and other documents of or pertaining to CoreWest that
40
CoreWest or its officers, employees, agents, independent accountants or advisors
shall have in their custody.
(b) With the prior consent of CoreWest in each instance (which consent
shall not be unreasonably withheld), Buyer and its officers, employees, agents,
independent accountants and advisors, shall have access to vendors, customers,
and others having business dealings with CoreWest for the purpose of performing
Buyer's due diligence investigation, provides,m however, that duly authorized
representatives of CoreWest shall have the opportunity to be present during any
such investigation.
7.2 Bank Accounts.
Not less than three (3) days prior to the Closing, CoreWest shall
provide to Buyer a list of each bank in which CoreWest has an account or safe
deposit box, the name and number of each such account or box and the names of
all persons authorized to draw thereon or who have access thereto, with the
amounts they are authorized to draw.
7.3 Conduct of Business Pending the Closing.
From the date hereof until the Closing, except as otherwise approved in
writing in advance by the Buyer (which approval shall not be unreasonably
withheld):
(a) No Changes. CoreWest will carry on its business diligently and in
the same manner as heretofore and will not make or institute any changes in its
methods of purchase, sale, management, accounting or operation.
(b) Maintain Organization. CoreWest will take such action as may be
necessary to maintain, preserve, renew and keep in favor and effect the
existence, rights and franchises of CoreWest and will use its best efforts to
preserve the business organization of CoreWest intact, to keep available to
Buyer the present officers and employees, and to preserve for Buyer its present
relationships with suppliers and customers and others having business
relationships with CoreWest.
(c) No Breach. CoreWest and Shareholders will not do or omit any act,
or permit any omission to act, which may cause a breach of any material
contract, commitment or obligation, or any breach of any representation,
warranty, covenant or agreement made by CoreWest and/or the Shareholders herein,
or which would have required disclosure on Exhibit 4.37 had it occurred after
October 31, 1996 and prior to the date of this Agreement.
(d) No Material Contracts. No contract or commitment will be entered
into, and no purchase of raw materials or supplies and no sale of goods or
services (real, personal, or mixed, tangible or intangible) will be made, by or
on behalf of CoreWest, except contracts, commitments, purchases or sales which
are in the ordinary course of business and consistent with past practice, are
not material to the CoreWest (individually or in the aggregate) and would
41
not have been required to be disclosed in the Disclosure Schedule had they been
in existence on the date of this Agreement.
(e) No Corporate Changes. CoreWest shall not amend its Articles of
Incorporation or By-laws or make any changes in authorized or issued capital
stock.
(f) Maintenance of Insurance. CoreWest shall maintain all of the
insurance in effect as of the date hereof and shall procure such additional
insurance as shall be reasonably requested by Buyer at Buyer's expense.
(g) Maintenance of Property. CoreWest shall use, operate, maintain and
repair all property of CoreWest in a normal business manner.
(h) Interim Financials. CoreWest will provide Buyer with interim
monthly financial statements and other management reports as and when they are
available.
(i) No Negotiations. Neither CoreWest nor any Shareholder will directly
or indirectly (through a representative or otherwise) solicit or furnish any
information to any prospective buyer, commence, or conduct presently ongoing,
negotiations with any other party or enter into any agreement with any other
party concerning the sale of CoreWest, CoreWest's assets or business or any part
thereof or any equity securities of CoreWest (an "acquisition proposal"), and
CoreWest and Shareholders shall immediately advise Buyer of the receipt of any
acquisition proposal.
7.4 Cooperation with Buyer's Accountants.
The Shareholders shall cooperate and assist Buyer's Accountants in the
preparation of financial statements of the consolidated Financial Statements of
Buyer and/or CoreWest and related matters, provided that Buyer shall pay all
reasonable out-of-pocket expenses. Upon request, Shareholders shall execute
representation letters to Buyer's Accountants in form and scope reasonable for
preparation of audited financial statements. If the financial statements of
CoreWest (as a subsidiary or Division of Buyer) are required to be audited on an
annual basis to support CoreWest's operations, such services shall be obtained
by the post-closing CoreWest Business Unit.
7.5 General Releases.
At the Closing, each Shareholder shall deliver, and shall cause each
person with whom an employment agreement is being entered into pursuant to
Section 6.3 hereof to deliver, general releases to Buyer, in form and substance
satisfactory to Buyer and its counsel, releasing CoreWest and the directors,
officers, agents and employees of CoreWest from all claims to the Closing Date,
except (i) as may be described in written contracts disclosed in the Disclosure
Schedule and expressly described and excepted from such releases, and (ii) in
the case of persons who are employees of CoreWest, compensation for current
periods expressly described and
42
excepted from such releases. Such releases shall also contain waivers of any
right of contribution or other recourse against CoreWest with respect to
representations, warranties made herein by CoreWest.
7.6 Consents.
CoreWest and Shareholders will use their reasonable, good faith,
commercial efforts prior to Closing to obtain all consents necessary for the
consummation of the transactions contemplated hereby.
7.7 Other Action.
CoreWest and Shareholders shall use their reasonable, good faith,
commercial efforts to cause the fulfillment at the earliest practicable date of
all of the conditions to the parties' obligations to consummate the transactions
contemplated in this Agreement and to result in the Acquisition's being treated
as a tax-free reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
7.8 Disclosure.
CoreWest and Shareholders shall have a continuing obligation to
promptly notify Buyer in writing with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Disclosure Schedule.
ARTICLE 8
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of the
following conditions:
8.1 Representations and Warranties True on the Closing Date.
Each of the representations and warranties made by CoreWest and
Shareholders in this Agreement, and the statements contained in the Disclosure
Schedule or in any instrument, list, certificate or writing delivered by
CoreWest or Shareholders pursuant to this Agreement, shall be true and correct
in all material respects when made and shall be true and correct in all material
respects at and as of the Closing Date as though such representations and
warranties were made or given on and as of the Closing Date, except for any
changes permitted by the terms of this Agreement or consented to in writing by
Buyer.
43
8.2 Compliance With Agreement.
CoreWest and Shareholders shall have in all material respects
performed and complied with all of their agreements and obligations under this
Agreement which are to be performed or complied with by them prior to or on the
Closing Date, including the delivery of the closing documents specified in
Section 10.1.
8.3 Absence of Litigation.
No Litigation shall have been commenced or threatened, and no
investigation by any government entity shall have been commenced, against Buyer,
CoreWest, Shareholders or any of the Affiliates, officers or directors of any of
them, with respect to the transactions contemplated hereby.
8.4 Consents and Approvals.
All approvals, consents and waivers that are required to effect the
transactions contemplated hereby shall have been received, and executed
counterparts thereof shall have been delivered to Buyer not less than two
business days prior to the Closing. Notwithstanding the foregoing, receipt of
the consent of any third party to the assignment of a Contract which is not (and
is not required to be) disclosed in the Disclosure Schedule shall not be a
condition to Buyer's obligation to close, provided that the aggregate of all
such Contracts does not represent a material portion of CoreWest's sales or
expenditures. After the Closing, CoreWest and Shareholders will continue to use
reasonable commercial effects to obtain any such consents or approvals, and
neither CoreWest nor any Shareholder shall hereby be relieved of any liability
hereunder for failure to perform any of their respective covenants or for the
inaccuracy of any representation or warranty.
8.5 Xxxx-Xxxxx-Xxxxxx Waiting Period.
All applicable waiting periods related to the HSR Act shall have
expired.
8.6 No Material Adverse Change in CoreWest.
No material adverse change in the financial condition or prospects of
CoreWest has occurred other than changes affecting the mortgage banking industry
generally.
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ARTICLE 9
CONDITIONS PRECEDENT TO COREWEST'S AND
SHAREHOLDER'S OBLIGATIONS
Each and every obligation of CoreWest and Shareholders to be performed
on the Closing Date shall be subject to the satisfaction prior to or at the
Closing of the following conditions:
9.1 Representations and Warranties True on the Closing Date.
Each of the representations and warranties made by Buyer in this
Agreement shall be true and correct in all material respects when made and shall
be true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made or given on and as of the
Closing Date.
9.2 Compliance With Agreement.
Buyer shall have in all material respects performed and complied with
all of Buyer's agreements and obligations under this Agreement which are to be
performed or complied with by Buyer prior to or on the Closing Date, including
the delivery of the closing documents specified in Section 10.2.
9.3 Absence of Litigation.
No Litigation shall have been commenced or threatened, and no
investigation by any Government Entity shall have been commenced, against Buyer,
CoreWest, Shareholders or any of the affiliates, officers or directors of any of
them, with respect to the transactions contemplated hereby; provided that the
obligations of CoreWest and Shareholders shall not be affected unless there is a
reasonable likelihood that as a result of such action, suit, proceeding or
investigation Shareholders will be unable to retain substantially all the
consideration to which it is entitled under this Agreement.
9.4 Xxxx-Xxxxx-Xxxxxx Waiting Period.
All applicable waiting periods related to the HSR Act shall have
expired.
9.5 Tax Opinion of Buyer's Counsel.
Buyer's legal counsel shall deliver a reasoned legal opinion regarding
the tax consequences of the transaction, in form and substance satisfactory to
CoreWest and its counsel.
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ARTICLE 10
CLOSING
The closing of this transaction ("xxx Xxxxxxx") shall take place at the
offices of Xxxxx Lardner Xxxxxxxxx & Xxxxxxx, 0000 Xxxxxxx Xxxx Xxxx, Xxxxx
0000, Xxx Xxxxxxx, XX 00000, at 9:00 a.m. on January 7, 1997, or at such other
time and place as the parties hereto shall agree upon. Such date is referred to
in this Agreement as the "Closing Date". Regardless of the Closing Date, the
transaction shall be deemed to have occurred for all purposes as of the 12:01
a.m., January 1, 1997 (the "Effective Time") and the parties shall cooperate to
treat the transaction as having occurred as of the Effective Time.
10.1 Documents to be Delivered by CoreWest and Shareholders.
At the Closing, CoreWest and Shareholders shall deliver to Buyer the
following documents, in each case duly executed or otherwise in proper form:
(a) Stock Certificates. Stock Certificates representing the Shares,
duly endorsed for transfer or with duly executed stock powers attached.
(b) Compliance Certificate. A certificate signed by the chief
executive officer of CoreWest that each of the representations and warranties
made by CoreWest and Shareholders in this Agreement is true and correct in all
material respects on and as of the Closing Date with the same effect as though
such representations and warranties had been made or given on and as of the
Closing Date (except for any changes permitted by the terms of this Agreement or
consented to in writing by Buyer), and that CoreWest and Shareholders have
performed and complied with all of CoreWest's and Shareholders' obligations
under this Agreement which are to be performed or complied with on or prior to
the Closing Date.
(c) Opinion of Counsel. A written opinion of Troop, Meisinger, Xxxxxxx
& Xxxxxx, LLP, counsel to CoreWest and Shareholders, dated as of the Closing
Date, addressed to Buyer, substantially in the form of Exhibit 10.1(c) hereto.
(d) Employment Agreements. The Employment Agreements referred to in
Section 6.3, duly executed by the persons referred to in such Section.
(e) Certified Resolutions. A certified copy of the resolutions of the
Board of Directors and the Shareholders of CoreWest authorizing and approving
this Agreement and the consummation of the transactions contemplated by this
Agreement.
(f) Articles; By-laws. A copy of the By-laws of CoreWest certified by
the secretary of CoreWest, and a copy of the Articles of Incorporation of
CoreWest certified by the Secretary of State of California.
46
(g) Registration Rights Agreement. The Registration Rights Agreement
in the form attached as Exhibit 10.1(g).
(h) Incumbency Certificate. Incumbency certificates relating to each
person executing any document executed and delivered to Buyer pursuant to the
terms hereof.
(i) Resignations. The resignations of the officers of CoreWest, except
the CoreWest Executives and the directors of CoreWest, except Messrs. Staake and
Xxxxx, effective as of the Closing Date and in form satisfactory to Buyer's
counsel.
(j) Joint Designation of Peers. Joint designation of Peers pursuant to
Section 3.3(d).
(k) Agreed Plan. The Agreed Plan, as in effect at Closing, pursuant to
Section 3.3(h).
(l) Other Documents. All other documents, instruments or writings
required to be delivered to Buyer at or prior to the Closing pursuant to this
Agreement and such other certificates of authority and documents as Buyer may
reasonably request.
10.2 Documents to be Delivered by Buyer.
At the Closing, Buyer shall deliver to CoreWest and Shareholders the
following documents, in each case duly executed or otherwise in proper form:
(a) Exchange Shares. To Shareholders, the Exchange Shares representing
the Base Purchase Price.
(b) Compliance Certificate. A certificate signed by the chief
executive officer of Buyer that the representations and warranties made by Buyer
in this Agreement are true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made or given
on and as of the Closing Date (except for any changes permitted by the terms of
this Agreement or consented to in writing by CoreWest), and that Buyer has
performed and complied with all of Buyer's obligations under this Agreement
which are to be performed or complied with on or prior to the Closing Date.
(c) Opinion of Counsel. (i) A written opinion of Xxxxxxxx X. Xxxxxx,
general counsel to Buyer, dated as of the Closing Date, addressed to CoreWest,
in substantially the form of Exhibit 10.2(c)-1, (ii) a written opinion of Xxxxx
& Xxxxxxx, special counsel to Buyer dated as of the Closing Date, addressed to
CoreWest in substantially the form of Exhibit 10.2(c)-2 hereto and (iii) a
written opinion of Xxxxx & Lardner, special counsel to the Buyer, dated as of
the Closing Date, addressed to CoreWest addressing tax consequences of the
transaction in form and content reasonably acceptable to CoreWest and its
counsel.
47
(d) Employment Agreements. The Employment Agreements referred to in
Section 6.3 duly executed by the persons referred to in such Section.
(e) Registration Rights Agreement. The Registration Rights Agreement.
(f) Joint Designation of Peers. Joint Designation of Peers pursuant to
Section 3.3(d).
(g) The Agreed Plan. The Agreed Plan, as in effect at Closing,
pursuant to Section 3.3(h).
(h) Other Documents. All other documents, instruments or writings
required to be delivered to CoreWest at or prior to the Closing pursuant to this
Agreement and such other certificates of authority and documents as CoreWest may
reasonably request.
ARTICLE 11
TERMINATION
11.1 Right of Termination Without Breach. This Agreement may be terminated
without further liability of any party at any time prior to the Closing:
(a) by mutual written agreement of Buyer and CoreWest, or
(b) by either Buyer or CoreWest if the Closing shall not have occurred
on or before January 31, 1997, provided the terminating party has not,
through breach of a representation, warranty or covenant, prevented the
Closing from occurring on or before such date, or
(c) a major, unforeseen, intervening development, such as filing of a
major class action suit against CoreWest or Buyer which reasonably
jeopardizes the practical ability to consummate the Acquisition.
11.2 Termination for Breach.
(a) Termination by Buyer. If (i) there has been a material violation
or breach by CoreWest of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing
by Buyer, or (ii) there has been a failure of satisfaction of a condition
to the obligations of Buyer which has not been so waived, or (iii) CoreWest
shall have attempted to terminate this Agreement under this Article or
otherwise without grounds to do so, then Buyer may, by written notice to
CoreWest at any time prior to the Closing that such violation, breach,
failure or wrongful
48
termination attempt is continuing, terminate this Agreement with the effect
set forth in Section 11.2(c) hereof.
(b) Termination by CoreWest. If (i) there has been a material
violation or breach by Buyer of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing
by CoreWest, or (ii) there has been a failure of satisfaction of a
condition to the obligations of CoreWest which has not been so waived, or
(iii) Buyer shall have attempted to terminate this Agreement under this
Article 11 or otherwise without grounds to do so, then CoreWest may, by
written notice to Buyer at any time prior to the Closing that such
violation, breach, failure or wrongful termination attempt is continuing,
terminate this Agreement with the effect set forth in Section 11.2(c)
hereof.
(c) Effect of Termination. Termination of this Agreement pursuant to
this Section 11.2 shall not in any way terminate, limit or restrict the
rights and remedies of any party hereto against any other party which has
violated, breached or failed to satisfy any of the representations,
warranties, covenants, agreements, conditions or other provisions of this
Agreement prior to termination hereof. In addition to the right of any
party under common law to redress for any such breach or violation, each
party whose breach or violation has occurred prior to termination shall
jointly and severally indemnify each other party for whose benefit such
representation, warranty, covenant, agreement or other provision was made
("indemnified party") from and against all losses, damages (including,
without limitation, consequential damages), costs and expenses (including,
without limitation, interest (including prejudgment interest in any
litigated matter), penalties, court costs, and attorneys fees and expenses)
asserted against, resulting to, imposed upon, or incurred by the
indemnified party, directly or indirectly, by reason of, arising out of or
resulting from such breach or violation. Subject to the foregoing, the
parties' obligations under Section 11.2 of this Agreement shall survive
termination.
ARTICLE 12
INDEMNIFICATION
12.1 Indemnification.
This Article 12 sets forth the sole and exclusive remedies for the
parties thereto, and any Indemnified Party and their respective successors and
assigns for any claim, suit, action or proceeding any of them may assert or
attempt to assert as a result of any alleged breach or default under this
Agreement by CoreWest or any Shareholder (as the case may be) to the extent the
claim, action, suit or proceeding in any way relates to (a) this Agreement or
its negotiation, execution, delivery or performance, transactions contemplated
hereby, regardless of whether such claim or action is based in tort (for
example, intentional or negligent misrepresentation) or contract, or arises at
law or in equity, and (b) any action or omission of (x) any director, officer
49
or employee of CoreWest or (y) any Shareholder as director, officer or employee
of CoreWest. The parties each agree that it shall not institute any claim,
action, suit or proceeding against another party (as the case may be), or
otherwise assert any claim, with respect to this Agreement, or its negotiation,
execution, delivery or performance, or any alleged breach or default under this
Agreement, or any of the transactions contemplated hereby, except in accordance
with this Article 12. Notwithstanding the foregoing, this limitation on rights
and remedies shall not apply to any claim or cause of action arising out of a
breach of any Ancillary Document after the Closing.
(a) From and after the Closing Date, Shareholders shall indemnify and
hold harmless CoreWest, Buyer and each of its Affiliates from and against any
and all Losses which any of them may suffer, incur or sustain arising out of or
attributable to (whether or not arising out of third party claims) (i) any
breach of any covenant (including, without limitation, the covenant that
CoreWest has a tangible net worth under GAAP of not less than $1.00 at the
Effective Time), representation or warranty made by Shareholders or CoreWest
pursuant to this Agreement, and (ii) any claim or liability (other than payment
of benefits in the ordinary course), tax, penalty asserted, legal action or
administrative proceeding resulting from or arising in connection with any Plan
or Single Employer Plan that was accrued or incurred prior to the Closing Date.
Without limiting Buyer's other remedies, if Shareholders breach the
covenant/warranty that CoreWest's tangible net worth at the Effective Time is
not less than the Initial Net Worth, and in no event less than $1.00, calculated
according to GAAP (with all appropriate reserves) then the Shareholders shall
contribute cash to CoreWest equal to the difference between the actual tangible
net worth and the tangible net worth as warranted.
(b) From and after the Closing Date, Buyer shall indemnify and hold
harmless the Shareholders from and against, and agrees to pay (i) any and all
expenses, costs or Losses relating to the operation of Subsidiary or Buyer prior
to Closing, and (ii) any and all expenses, costs or Losses relating to
operations of CoreWest to the extent (and only up to the amount) fully accrued
or reserved against on the Closing Balance Sheet, provided that the Shareholders
have fully satisfied their obligations, if any, under the last sentence of
Section 12.1(a) with respect to a breach of the warranty/covenant regarding
CoreWest's tangible net worth at the Effective Time with all Loses fully accrued
and reserved against.
(c) From and after the Closing Date, Buyer shall indemnify and hold
harmless Shareholders from and against any and all Losses which any of them may
suffer, incur or sustain arising out of any breach of any representation,
warranty or covenant made or to be performed by Buyer pursuant to this
Agreement.
(d) If any third party makes a claim for which an Indemnified Party
under this Section 12.1 seeks indemnity from the indemnifying party
("Indemnitor"), the Indemnified Party shall as soon as practicable notify
Indemnitor of the details of the claim ("Claim Notice").
After receiving a Claim Notice, Indemnitor may elect, by written
notice to the Indemnified party, to assume the defense of such claim by using
counsel selected by
50
Indemnitor, acting reasonably. If Indemnitor assumes such defense and admits
that the claim is subject to the Indemnitor's indemnity obligations, then (i)
the claim shall be deemed to be a claim indemnified by the Indemnitor; (ii) the
Indemnified Party may, at its election, participate in the defense of the claim,
but Indemnitor will have no obligation to pay for any defense costs including
attorneys' fees of the Indemnified Party after Indemnitor assumes the defense of
the claim; and (iii) Indemnitor will have the right, without cost to Indemnified
Party, to compromise and settle the claim on any basis believed reasonable, in
good faith, by Indemnitor, and Indemnified Party shall be bound thereby,
provided that Indemnitor can reasonably demonstrate the financial resources to
perform under the terms of the proposed Settlement.
After receiving a Claim Notice, if Indemnitor either does not
assume the defense thereof, or does so under a reservation of rights without
admitting that the claim is subject to the Indemnitor's indemnity obligations,
then: (i) the claim shall not be deemed to be a claim indemnified by the
Indemnitor and neither party shall have waived any rights to assert that the
claim is or is not properly a claim subject to the Indemnitor's indemnity
obligations; (ii) both Indemnitor and Indemnified Party may, at their individual
election, participate in the defense of such claim but Indemnitor will remain
responsible for the costs of defense, including reasonable attorneys' fees of
the Indemnified Party should the claim ultimately be determine to be subject to
Indemnitor's indemnity obligation; and (iii) the Indemnified Party shall have
the right to compromise and settle the claim on any basis believed reasonable,
in good faith, by the Indemnified Party, and the Indemnitor will be bound
thereby should the claim ultimately be determined to be subject to Indemnitor's
indemnity obligation.
(e) Notwithstanding anything to the contrary anywhere in this
Agreement, (i) Shareholders' maximum aggregate liability arising out of this
Agreement and the Acquisition shall be the Purchase Price actually received by
such Shareholder except for claims based on intentional fraud of CoreWest and/or
the Shareholders; (ii) CoreWest and Shareholders shall have no liability for any
claim which is not presented to them in writing within three years following the
Effective Time for all matters except taxes (of any kind or nature) and as to
taxes will expire upon expiration of the applicable statute of limitations;
(iii) Shareholders shall have the option to pay any indemnity obligation in cash
or by surrender of Exchange Shares valued at Original Purchase Price Valuation
for Exchange Shares issued as Base Payment and at the Contingent Price Valuation
for Exchange Shares issued as the Contingent Payment; and (iv) Shareholders
shall have no indemnity obligation until the amount of the aggregate claim(s)
exceeds $75,000, in which case Shareholders shall pay the amount of the
aggregate claims in excess of $75,000 (provided that the "Material Adverse
Event" floor of $75,000 shall not be applied to increase, as a personal matter,
the floor to $150,000). The notice of a potential claim shall state the general
factual basis, to the extent known, and the basis of alleged liability. Any
indemnification payment shall take into account the tax consequences of the
payment so that the claim plus the payment shall be tax neutral. Subject to the
following sentence, the amount of damages for which Buyer shall be entitled to
indemnification by the Shareholders hereunder shall be reduced by the actual
value of any tax benefit received by Buyer as a result of such damages (whether
in the form of an actual refund or a reduction in any Tax that would otherwise
be payable by Buyer). Notwithstanding the foregoing, the amount of the damages
for which Buyer
51
shall be entitled to indemnification shall be reduced only if, as and when, and
only to the extent any such tax benefit is actually realized by Buyer. For
purposes of determining whether Buyer realizes a net tax benefit with respect to
a tax period, Buyer's actual tax liability for such period shall be compared to
Buyer's hypothetical tax liability for such period determined by excluding in
all periods all items attributable to the damages and indemnification payments.
The Shareholders shall indemnify Buyer against any tax imposed on the receipt of
or otherwise attributable to an indemnification payment hereunder (including any
tax imposed as a result of payments attributable to this sentence). Further, the
Shareholders shall not be obligated to make any payment or otherwise indemnify
Buyer under this Article 12 for damages suffered or incurred by Buyer as a
result of a breach if and to the extent that Buyer has received any insurance
proceeds attributable to such damages. If Buyer receives any insurance proceeds
following an indemnification payment, the Shareholders, and the insurance
proceeds are attributable to the damages for which the indemnification payment
was made. Buyer shall return the indemnification payment to the Shareholders
which made the payment (but not more than the actual amount of insurance
proceeds received).
(f) Notwithstanding the fact that Shareholders and CoreWest may have
jointly and severally made representations or warranties to Buyer in this
Agreement, the Shareholders shall not have any right of contribution from
CoreWest or other right to directly or indirectly recover from CoreWest for any
loss arising from a breach of such representation or warranty.
(g) In order to assert any claim for indemnification or loss under
this Agreement, the party seeking payment must provide written notice of the
claim to the party from whom payment is being sought within three years from the
Effective Time setting forth the background of the claim (to the extent known)
and the general nature of the claim, except that Shareholders shall have three
years from the date of any breach by Buyer to the extent Buyer breaches after
the Effective Time.
Notwithstanding the joint and several liability of the
Shareholders, Buyer shall not seek to recover more than 25% of any claim from
either Xxxx X. Xxxxxx or Xxxxx X. Xxxxxx, and shall not seek to recover more
than their individual pro rata share (based on stock ownership of CoreWest) from
Xxxxxxx Xxxxx, Xxx Xxxxxx or Xxxxx Xxxxx, but Messrs. Staake and Xxxxx shall
each remain jointly and severally responsible for 100% of any claim.
(h) No claim shall be made under Article 12 against any shareholder
for a violation of a post-closing covenant regarding the post-closing CoreWest
Business Unit, provided that the violation shall impact calculation of the
Contingent Payment pursuant to Section 3.3, if appropriate.
52
ARTICLE 13
POST-CLOSING COVENANTS
13.1 Shareholder Cooperation.
Shareholders shall encourage CoreWest employees to accept employment
with Buyer. After Closing, Shareholders shall execute accountant's
representation letters reasonably requested by Buyer's Accountants in connection
with their audits of the Buyer or the Post-Closing CoreWest Business Unit.
ARTICLE 14
AMENDMENTS
14.1 Amendment, Extension and Waiver
Subject to applicable law, at any time prior to the consummation of
the transactions contemplated by this Agreement, Sellers and Buyer may (a) amend
this Agreement, (b) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (c) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (d) waive compliance with any of the agreements or
conditions contained in this Agreement. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE 15
MISCELLANEOUS
15.1 Survival
The representations and warranties set forth herein shall survive the
Closing subject to the limitation on asserting claims contained in Article 12.
53
15.2 Expenses
Each party hereto shall bear and pay all costs and expenses incurred
by it in connection with the transactions contemplated hereby, including fees
and expenses of its own financial consultants, accountants and counsel.
15.3 Entire Agreement
This Agreement, including the documents, schedules and other writings
referred to herein or delivered pursuant hereto, contains the entire agreement
and understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior arrangements and understandings between the
parties, both written or oral with respect to its subject matter.
Notwithstanding the foregoing, the Confidentiality Agreement shall remain in
full force and effect and continue if Closing does not occur.
15.4 Parties in Interest
The Agreement shall be binding upon and shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns; provided, however, that nothing in this Agreement, expressed or
implied, is intended to confer upon any other person or entity, any rights,
remedies, obligations or liabilities of any nature whatsoever under or by reason
of this Agreement.
15.5 Assignment
No party hereto may assign any of its rights or obligations hereunder
to any other person, without the prior written consent of the other parties
provided, however, Buyer may assign its rights and obligations hereunder to any
one or more of its Affiliates (whether existing on the date hereof or hereafter
created). Moreover, shareholders may pledge their rights under this Agreement to
a financial institution pursuant to a bona fide loan transaction or transfer to
any family member or any trust or other estate planning vehicle established for
the benefit of a family member, provided that any such pledge, assignment or
transfer is expressly subject to Buyer's right of setoff under this Agreement.
15.6 Setoff
(a) Subject to the following procedure and compliance with the
limitations and procedures of Article 12, the Buyer shall have the right to
setoff against the Contingent Payment and the Exchange Shares for any damages
for any breach of Shareholders' or CoreWest's representations, warranties or
covenants. This shall not limit any of Buyer's other remedies under this
Agreement, at law or in equity, to the extent otherwise permitted under Section
12.1 hereof.
54
(b) In order to assert a setoff against Shareholders, the Buyer must
provide written notice of the claim to the Shareholders within 3 years of the
Effective Time setting forth the background of the claim (to the extent known)
and a reasonably detailed description of the general nature of the claim,
together with a Buyer's reasonable calculation of the Buyer's damages. Within
five (5) business days thereafter, the Buyer shall deposit the Contingent
Payment or Exchange Shares, against which setoff is sought, in an amount not to
exceed the Buyer's estimated damages, with a third party escrow agent pending
final resolution of the issue, provided that the escrow arrangement shall
provide that Buyer shall retain a first priority, perfected security interest in
such Purchase Price or Exchange Shares being placed in escrow to secure the
subject matter of the setoff claim and shall be on such other terms and
conditions as shall be reasonably acceptable to Buyer and Shareholders. In the
event that any Shareholder contest(s) the amount of the proposed setoff or that
a bona fide, commercially reasonable basis exists for asserting the setoff
(including a bona fide, good faith dispute of the underlying claim), the parties
shall mutually select a commercial litigator in California listed in the Best
Lawyers in America (most recent volume) to review the basis for CoreWest's
setoff and the underlying claim and the amount. If the lawyer determines that,
in his opinion, Buyer is acting without a commercially reasonable basis for the
claim, or that the amount placed in escrow exceeds a commercially reasonable
amount or that Article 12 does not provide for indemnification of such a claim,
then the lawyer shall decide how much, if any, should be placed in escrow.
Notwithstanding the foregoing, in no event shall a setoff be taken unless the
reasonable amount of the claim is more than $250,000.
15.7 Notices
All notices or other communications hereunder shall be in writing and
shall be deemed given if delivered personally or mailed by prepaid registered or
certified mail (return receipt requested), or by overnight courier, cable,
telegram or telex addressed as follows:
(a) If to Shareholders to:
c/o Xx. Xxxxxx X. Xxxxxx
CoreWest Banc
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
Xx. Xxxxxx X. Xxxxxx
00000 Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Xx. Xxxxxxx X. Xxxxx
0000 Xxxxx Xxxxx
Xxxxxxxxx, XX 00000
55
Xx. Xxxx X. Xxxxxx
00000 Xx Xxxxxx Xxxx
Xxxxxx Xxxxx Xx, XX 00000
Xx. Xxxxx X. Xxxxxx
00000 Xx Xxxxxx Xxxx
Xxxxxx Xxxxx Xx, XX 00000
Xxxxxxx X. Xxxxx
0000 Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Xxxxxx X. Xxxxx
00000 Xxxxxxxx Xxxx. #0000
Xxx Xxxxxxx, XX 00000
Xxx Xxxxxx
00000 Xxxxxxxx Xxxxxx
Xxxxxx Xxxxx, XX 00000
Xxxx X. Xxxxxxx
0000 Xxxxxxx Xxxxx
Xxxxxx Xxxxxx, XX 00000
Xxxxxxxx X. Xxxx
0000 Xxxx Xxxxxx Xxx
Xxx Xxxxx, XX 00000
(b) If to CoreWest to:
CoreWest Banc
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000
(c) If to Buyer or Subsidiary to:
Xx. Xxxxxx Xxxxxxxx
Industry Mortgage Company
0000 Xxxxxxxxx Xxxx Xxxxx, Xxxxx 000
Xxxxx, XX 00000
Facsimile: (000) 000-0000
56
Copy to:
Xxxxxxxx X. Xxxxxx, Esquire
Xxxxxxxx X. Xxxxxx, P.A.
Xxx Xxxxxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
and Copy to:
Mr. Xxxxxx Xxxxxx
Chief Financial Officer
Industry Mortgage Company
0000 Xxxxxxxxx Xxxx Xxxxx, Xxxxx 000
Xxxxx, XX 00000
Facsimile: (000) 000-0000
15.8 Captions
The table of contents and captions contained in this Agreement are
for reference purposes only and are not part of this Agreement.
15.9 Counterparts
This Agreement may be executed in any number of counterparts, and
each such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one Agreement.
15.10 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida, without giving effect to the principles of
conflict of laws thereof. Neither party shall be construed as the draftsperson
of this Agreement for purposes of interpretation or construction.
57
15.11 No Third Party Beneficiaries
There are no third party beneficiaries and no third party shall have
any rights or remedies under this Agreement provided, that for purposes of
Article 3, Xxxx Xxxxxxx and Xxxxxxxx Xxxx shall be beneficiaries of this
Agreement to the extent of the ownership percentages set forth in Schedules 3.1
and entitled to receive any Exchange Shares issuable hereunder.
15.12 Further Assurances/Merger
The parties agree to provide reasonable further assistance and
cooperation following the Closing in order to accomplish the technical merger of
Subsidiary into CoreWest as a matter of state law and as otherwise may be
necessary or appropriate to carry into effect the transactions contemplated by
this Agreement.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as
of the day and year first above written.
COREWEST BANC
By: /s/ XXXXXX XXXXXX
---------------------------------
Title: President
-----------------------------
IMC MORTGAGE COMPANY
By: /s/ XXXXXX X. XXXXXXXXX
---------------------------------
Title: President
------------------------------
CWB ACQUISITIONS, INC.
By: /s/ XXXXXX X. XXXXXXXXX
---------------------------------
Title: President
------------------------------
/s/ XXXXXX X. XXXXXX
------------------------------------
XXXXXX X. XXXXXX
/S/ XXXXXXX X. XXXXX
-----------------------------------
XXXXXXX X. XXXXX
58
/s/ XXXXX X. XXXXXX
-----------------------------------
XXXXX X. XXXXXX
/s/ XXXX X. XXXXXX
-----------------------------------
XXXX X. XXXXXX
-----------------------------------
XXXXXXX XXXXX
-----------------------------------
XXX XXXXXX
-----------------------------------
XXXXX XXXXX
59
LIST OF EXHIBITS
Exhibit 2.1 - Plan and Agreement of Merger
Exhibit 3.3(b) - Escrow Agreement for Contingent Payment
Exhibit 4.37 - Conduct Prior to Closing
Exhibit 6.3 - Employment Agreements of Xxxxxx Xxxxxx, Xxxxxxx Xxxxx,
Xxx Xxxxxx, Xxxxxxx Xxxxx and Xxxxx Xxxxx
Exhibit 9.5 - Tax Opinion of Buyer's Counsel
Exhibit 10.1(c) - Opinion of CoreWest's Counsel
Exhibit 10.1(g) - Registration Rights Agreement
Exhibit 10.2(c) - Opinion of Buyer's Counsel
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SHAREHOLDER'S SCHEDULE
Section 3.1 - Shareholder Percentage Ownership of CoreWest
Section 4.1 - List of states in which CoreWest licensed to do business
Section 4.2 - List of issued and outstanding Shares
Section 4.2 - Shareholders' Agreements
Section 4.6 - List of consents
Section 4.6 - Financial statements
Section 4.8 - List of liabilities not previously disclosed
Section 4.10 - List of legal proceedings
Section 4.11 - List of material contracts
Section 4.13(a) - List of employee benefits
Section 4.13(e) - List of plan benefits
Section 4.15 - List of environmental audits, analyses or surveys of any
Operating Property or Loan Property
Section 4.17 - List of insurance policies
Section 4.18 - List of licenses
Section 4.22 - List of agreements to repurchase, etc.
Section 4.23 - List of Mortgage Servicing Agreements
Section 4.25 - List of Investor Commitments
Section 4.29 - List of audits, investigation, complaints and inquiries of
CoreWest
Section 4.31 - List of Pooling and Participation Agreements
Section 4.32 - List of pools not serviced by CoreWest
Section 4.36 - List of CoreWest employees
Section 4.37 - List of matters not handled in ordinary course of business
Section 4.38 - List of CoreWest officers and directors
Section 5.2 - List of consents, permits, authorizations and approvals
61
