Capitalization of the Company and its Subsidiaries (a) The authorized stock of the Company consists of 14,984,490 shares of Class A common stock, par value $.01 per share (the "Shares"), of which, as of September 30, 2000, 5,681,156 Shares were issued and outstanding, and 15,510 shares of Series A-1 convertible preferred stock, par value $.01 per share (the "Convertible Preferred Stock"), of which, as of September 30, 2000, 14,511 shares were outstanding. All of the outstanding Shares have been validly issued and are fully paid and nonassessable, and free of preemptive rights granted by the Company. As of September 30, 2000, (i) 1,515,338 were reserved for issuance upon the exercise of outstanding Company Stock Options issued pursuant to the Option Plans and other stock option plans, or agreements to which the Company or any of its subsidiaries is a party, (ii) 967,448 Shares were reserved for issuance upon the conversion of the outstanding Convertible Preferred Stock, and (iii) 123,370 Shares were reserved for issuance upon the exercise of the outstanding Warrants. Except as set forth in Section 3.2(a) of the Company Disclosure Schedule, since September 30, 2000, no shares of the Company's stock have been issued other than pursuant to Company Stock Options or other stock-based employee benefit plans of the Company and no options to acquire Shares have been granted other than pursuant to the Option Plans. Except as set forth above and in Section 3.2(a) of the Company Disclosure Schedule, as of the date hereof, there are issued, reserved for issuance, or outstanding (i) no shares of stock or other voting securities of the Company, (ii) no securities of the Company or its subsidiaries convertible into or exchangeable for shares of stock or voting securities of the Company, (iii) no options or other rights to acquire from the Company or its subsidiaries and, except for the Series B Preferred Stock issuable upon exercise of the Option or as described in Section 3.2(a) of the Company Disclosure Schedule, no obligations of the Company or its subsidiaries to issue any stock, voting securities or securities convertible into or exchangeable for stock or voting securities of the Company, (iv) no bonds, debentures, notes or other indebtedness or obligations of the Company or any of its subsidiaries entitling the holders thereof to have the right to vote (or which are convertible into, or exercisable or exchangeable for, securities entitling the holders thereof to have the right to vote) with the stockholders of the Company or any of its subsidiaries on any matter, and (v) no equity equivalent interests in the ownership or earnings of the Company or its subsidiaries or other similar rights (collectively "Company Securities"). As of the date hereof, except as set forth in Section 3.2(a) of the Company Disclosure Schedule, there are no outstanding obligations of the Company or its subsidiaries (absolute, contingent or otherwise) to repurchase, redeem or otherwise acquire any Company Securities. There are no Shares outstanding subject to rights of first refusal of the Company, nor are there any pre-emptive rights granted by the Company with respect to any Shares. Other than this Agreement, there are no stockholder agreements, voting trusts or other agreements or understandings to which the Company is a party or by which it is bound relating to the voting or, except as set forth in Section 3.2(a) of the Company Disclosure Schedule, registration of any shares of stock of the Company.
(b) Except as set forth in Section 3.2(b) of the Company Disclosure Schedule, all of the outstanding stock of the Company's subsidiaries is owned by the Company, directly or indirectly, free and clear of any Lien (as defined below). There are no securities of the Company or its subsidiaries convertible into or exchangeable for, no options or other rights to acquire from the Company or its subsidiaries and no other contract, understanding, arrangement or obligation (whether or not contingent) providing for the issuance or sale, directly or indirectly, of any stock or other ownership interests in, or any other securities, of any subsidiary of, the Company. Except as set forth in Section 3.2(b) of the Company Disclosure Schedule, there are no outstanding contractual obligations of the Company or its subsidiaries to repurchase, redeem or otherwise acquire any outstanding shares of capital stock or other ownership interests in any subsidiary of the Company. For purposes of this Agreement, "Lien" means, with respect to any asset (including without limitation any security), any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset (including any restrictions on the right to vote or sell the same except as may be provided as a matter of law).
Incorporation and Good Standing of the Company and its Subsidiaries The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement. Each subsidiary of the Company has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its organization and has the requisite power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus. Each of the Company and the subsidiaries is duly qualified as a foreign corporation or foreign partnership to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. Except as described in the Prospectus, all of the issued and outstanding capital stock or other equity interests of the subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and are owned by the Company free and clear of any security interest, mortgage, pledge, lien, encumbrance or adverse claim. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the most recently ended fiscal year and other than (i) those subsidiaries not required to be listed on Exhibit 21.1 by Item 601 of Regulation S-K under the Exchange Act and (ii) those subsidiaries formed or acquired since the last day of the most recently ended fiscal year.
Conduct of the Company’s Business During the period from the date of this Agreement and continuing until the earlier of the Effective Time and the date nominees of Parent or Subsidiary constitute a majority of the members of the board of trustees of the Company (such earlier time, the “Control Time”), except either as consented to in writing (including by email or other electronic transmission) by Parent in response to a written or oral request therefore from the Company (which response shall not be unreasonably delayed), the Company shall, and shall cause its subsidiaries to, conduct its and their business in the ordinary course and use commercially reasonable efforts to conduct its and their business relationships with third parties and to keep available the services of their present officers and employees, provided that it does not require additional compensation, and preserve its and their relationships with customers, suppliers and others having business dealings with the Company and its subsidiaries, and to maintain the Company’s qualification as a REIT, in each case subject to the terms of or contemplated by this Agreement. In addition, without limiting the generality of the foregoing, except as expressly permitted in this Agreement, from the date hereof until the Control Time, the Company shall not, and shall cause its subsidiaries not to:
(a) (i) authorize, declare or pay any dividends on or make other distributions in respect of any of its stock (except for dividends by a wholly owned subsidiary of the Company to its parent and except for distributions necessary for the Company to maintain its REIT qualification, avoid the incurrence of any taxes under Section 857 of the Code, avoid the imposition of any excise taxes under Section 4981 of the Code, or avoid the need to make one or more extraordinary or disproportionately larger distributions to meet any of the three preceding objectives), (ii) split, combine or reclassify any of its stock or issue or authorize or propose the issuance of any other securities or (iii) repurchase, redeem or otherwise acquire any shares of stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities;
(b) except in accordance with the Share Option Agreement, issue, deliver, sell, pledge or encumber, or authorize or propose the issuance, delivery, sale, pledge or encumbrance of, any shares of its beneficial interests, stock or any other security;
(c) amend or propose to amend its declaration of trust, certificate of incorporation or bylaws (or similar organizational documents);
(d) (i) acquire or agree to acquire any material assets (including securities) outside the ordinary course or merge or consolidate with any person or engage in any similar transaction or (ii) make any loans, advances or capital contributions to, or investments in, any other person, other than to the Company or any wholly owned subsidiary of the Company and other than loans to auto dealers in the ordinary course of business which would, when originated, qualify as Eligible Receivables under the Warehouse Line;
(e) sell, lease, license, encumber or otherwise dispose of any of its assets or any interest therein, other than in the ordinary course (including the disposition of any assets acquired as a result of a foreclosure), or adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring or other reorganization;
(f) incur or suffer to exist any indebtedness for borrowed money or guarantee any such indebtedness, guarantee any debt of others, enter into any “keep-well” or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, except for borrowings under the Warehouse Line;
(g) make or rescind any Tax election or settle or compromise any Tax liability of the Company or any of its subsidiaries;
(h) make or agree to make any capital expenditures other than in amounts of less than $75,000 in the aggregate;
(i) pay, discharge, settle or satisfy any Claim (whether absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge, settlement or satisfaction, in the ordinary course of business or in accordance with their terms, of Claims whether recognized or disclosed in the most recent financial statements (or the notes thereto) of the Company included in the Company Filed SEC Documents or incurred since the date of such financial statements in the ordinary course of business except for cash payments (x) paid by any insurer or person other than the Company and any subsidiary of the Company, plus (y) an amount paid by the Company or any subsidiary of the Company not exceeding $100,000 per Claim, liability or obligation or $500,000 for all Claims in the aggregate.
(j) (i) modify, amend or terminate any material contract, (ii) waive, release or assign any material rights or claims, (iii) waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement, or fail to enforce any such agreement to the fullest extent practicable, including by seeking injunctive relief and specific performance or (iv) except, with respect to this clause (iv), in the ordinary course of business, enter into any material contracts or transactions;
(i) increase the compensation or benefits of any director, trustee, officer or employee, except for, in the cases of non-officer employees, increases in the ordinary course that are consistent with past practice, (ii) adopt any material amendment to a Benefit Plan, (iii) enter into, amend or modify any employment, consulting, severance, termination or similar agreement with any director, trustee, officer or employee, (iv) accelerate the payment of compensation or benefits to any director, officer or employee, (v) take any action to fund or in any other way secure the payment of compensation or benefits under any Benefit Plan or compensation agreement or arrangement; or change any actuarial or other assumption used to calculate funding obligations with respect to any pension plan or change the timing or manner in which contributions to any pension plan are made or the basis on which such contributions are determined or (vi) take any action that could give rise to severance benefits payable to any officer, trustee, director, or employee of the Company or any subsidiary as a result of consummation of any of the transactions contemplated by this Agreement; provided that nothing in this paragraph (k) shall preclude the payment by the Company of accrued, but unpaid bonuses to employees for 2004 and retroactive salary adjustments in each case as set forth in Section 6.1(k) of the Company Disclosure Schedule;
(l) take any action to exempt or make not subject to or to otherwise waive or cause to be inapplicable (x) the provisions of any Takeover Statute or (y) Section 7.2 of the Declaration of Trust, in each case to any individual or entity (other than Parent or its subsidiaries), or any action taken thereby, which individual, entity or action would have otherwise been subject to the restrictive provisions thereof and not exempt therefrom;
(m) take any action to delist the Shares from Nasdaq;
(n) make any material change to its methods of accounting in effect on the date hereof, except as required by changes in GAAP as concurred with by the Company’s independent auditors, or change its fiscal year;
(o) enter into any transaction with any of its affiliates other than pursuant to arrangements in effect on the date hereof which have been disclosed to Parent;
(p) accelerate the collection of receivables or defer the payment of payables, or modify the payment terms of any receivables or payables, in each case, other than in the ordinary course of business;
(q) securitize, or create any financing arrangements in the nature of a collateralized debt obligation with respect to, any accounts receivable, loans or other assets;
(r) amend or modify the existing agreement between Company and Company Financial Advisor; or
(s) authorize any of, or commit or agree to take any of, the foregoing actions or any action that would result in a breach of any representation, warranty or agreement of the Company contained in this Agreement as of the date when made or as of any future date or would result in any of the conditions to the Merger not being satisfied or in a material delay in the satisfaction of such conditions.
Conduct of the Business From the date hereof until the Closing or the termination of this Agreement in accordance with Section 7.1, Seller shall cause the Transferred Companies to: (x) conduct the Business in all material respects in the ordinary course consistent with past practice; and (y) use their reasonable best efforts to preserve intact the Business and the current relationships and goodwill of the Transferred Companies with customers, suppliers, contractors, licensors, employees, agents, producers, distributors, insureds, Insurance Regulators and others having business dealings with them. Without limiting the generality of the foregoing, from the date hereof until the Closing or the termination of this Agreement in accordance with Section 7.1, except as otherwise expressly permitted or required by this Agreement or as set forth in Section 4.1 of the Seller Disclosure Letter, without the prior written consent of Buyer (which consent shall not be unreasonably withheld, conditioned or delayed), Seller shall cause the Transferred Companies not to:
(a) (i) split, combine or reclassify any of its outstanding capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its outstanding capital stock or (ii) purchase, redeem or otherwise acquire any shares of outstanding capital stock of the Transferred Companies or any rights, warrants or options to acquire any such shares, other than, in each case, any such transaction solely involving Transferred Companies following which each Transferred Company remains a direct or indirect wholly owned Subsidiary of Seller;
(b) issue, sell, grant, pledge or otherwise encumber any shares of capital stock of any of the Transferred Companies, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, other than, in each case, any such transaction solely involving Transferred Companies following which each Transferred Company remains a direct or indirect wholly owned Subsidiary of Seller;
(c) amend its Organizational Documents in a manner that would be adverse to Buyer’s interests;
(d) sell, lease, license or otherwise dispose of (including by way of reinsurance) any of the material assets (other than Investment Assets, which are the subject of clause (y) of this Section 4.1) of any of the Transferred Companies, except in the ordinary course of business consistent with past practice;
(e) enter into any Contract with respect to any merger, consolidation, liquidation, dissolution or business combination (including any acquisition of assets or liabilities comprising a business or a segment, division or line of business) involving any of the Transferred Companies;
(f) purchase, sell, lease, pledge, exchange, encumber or otherwise dispose or acquire any property or assets (other than transactions occurring in the ordinary course of business consistent with past practice and other than Investment Assets, which are the subject of clause (y) of this Section 4.1) for which the aggregate consideration paid or payable in any individual transaction is in excess of $2,000,000 or in the aggregate in excess of $7,500,000;
(g) (i) amend, extend, renew or otherwise modify in any material respect any of the Leases, (ii) assign or sublease any material portion of any of the Leased Real Property or (iii) enter into any new lease, terminate any lease or buy any real property;
(i) modify or amend in any material respect or terminate any material Contract, (ii) waive, release or assign any material rights or claims under any material Contract or (iii) enter into any material Contract, in each case other than in the ordinary course of business consistent with past practice; or (x) modify, amend or terminate any OB Contract or (y) waive, release or assign any rights or claims under any OB Contract;
(i) incur any financial Indebtedness for borrowed money from third party lending sources (other than current trade accounts payable incurred in respect of property or services purchased in the ordinary course of business consistent with past practice) or assume, grant, guarantee or endorse, pledge or otherwise secure any assets or property or otherwise as an accommodation become responsible for (whether primary or secondary) the obligations of any Person (other than a Transferred Company), or make any third party loans or advances (other than, in each case, in the ordinary course of business consistent with past practice), for individual amounts in excess of $1,000,000 or in the aggregate in excess of $2,000,000;
(j) default under any Indebtedness, or fail to pay or satisfy when due any Liability, of any of the Transferred Companies in excess of $500,000 (other than any such Liability that is being contested in good faith);
(k) forgive, cancel or compromise any material debt or claim or waive or release any right, in each case other than in the ordinary course of business consistent with past practice or pursuant to an Insurance Contract;
(l) enter into any new line of business;
(m) make any capital expenditures in excess of $2,000,000 individually or $5,000,000 in the aggregate (not including those made in the ordinary course of business);
(n) voluntarily abandon any material Permit, except to the extent required in order to comply with applicable Law, or voluntarily terminate, fail to renew or permit to lapse any material Permit;
(o) settle or compromise or agree to the dismissal of any Litigation or threatened Litigation (in each case, except for claims under any insurance policies within applicable policy limits that do not allege bad faith), other than any settlement or compromise that involves solely cash payments of less than $5,000,000 in any individual case or of less than $10,000,000 in the aggregate (provided that Seller shall provide prior written notice to Buyer of any such settlement or compromise that involves solely cash payments in excess of $2,000,000 in any individual case);
(p) other than in the ordinary course of business consistent with past practice, dispose of, permit to lapse, abandon, dedicate to the public domain, waive, release or assign any rights, or settle any claims, or permit the creation of any material Lien with respect to any Intellectual Property material to the Business;
(q) (i) establish, adopt, amend or terminate any Company Benefit Plan or any arrangement which upon its establishment or adoption would constitute a material Company Benefit Plan or (ii) materially amend or terminate any related material insurance policy or related material vendor contract, in either case except (A) in the ordinary course of business consistent with past practice or (B) as may be required by applicable Laws or pursuant to the terms of any Company Benefit Plan as in effect on the date hereof;
(r) make or promise to make any material bonus, profit-sharing or similar payment, or fund, increase or accelerate the vesting, payment or amount of wages, salary, commissions, fringe benefits, severance benefits, deferred compensation or other compensation or benefits (including equity-based compensation, whether payable in cash or otherwise) or remuneration payable to, or for the benefit of, any Employee, in each case except (i) as required by applicable Law or the terms of any Company Benefit Plan as in effect on the date hereof and (ii) with respect to Employees other than the LTIP Employees, to the extent such action is (x) not material or (y) made in the ordinary course of business consistent with past practice (including in connection with promotions and employee review cycles consistent with past practice);
(i) terminate the employment of any Key Employee (other than for cause) or hire any new employee who would be, upon hiring, a Key Employee or (ii) enter into a collective bargaining agreement or similar labor agreement with respect to any Employees or renew, extend or renegotiate any existing collective bargaining agreement or similar labor agreement with respect to any Employees, except, in the case of this clause (ii), as may be required by applicable Law;
(i) settle or compromise any Tax Audit or forgo the right to any refund of Taxes; (ii) change any of the Transferred Companies’ methods, policies or practices of Tax accounting or methods of reporting income or deductions for Tax purposes from those employed in the preparation of its most recently filed Tax Return; (iii) amend any Tax Return of or with respect to any of the Transferred Companies; (iv) enter into any agreement with a Tax Authority with respect to any Transferred Company, or terminate any agreement entered into with a Tax Authority with respect to any Transferred Company that is in effect as of the date hereof; (v) alter or make any Tax election; (vi) request a ruling relating to Taxes; (vii) grant any power of attorney relating to Tax matters; or (viii) prepare any Tax Return in a manner that is not consistent with past practices;
(u) terminate, cancel or amend, or cause the termination, cancellation or amendment of, any material insurance coverage (and any surety bonds, letters of credit, cash collateral or other deposits related thereto required to be maintained with respect to such coverage) maintained by the Transferred Companies that is not replaced by comparable insurance coverage;
(v) change in any material respect the terms for, or policies with respect to, the payment of commissions to any of its insurance agents, brokers or producers;
(w) enter into any reinsurance commutations (other than as contemplated by Section 4.16 and the Commutation Agreement), or enter into, amend, modify or otherwise revise any reinsurance agreement or treaty that results in a material change in risk or coverage;
(x) make any material change in its underwriting, reinsurance, claims administration, selling, reserving, Tax or financial accounting policies, guidelines, practices or principles (other than any change required by a change in applicable Laws, GAAP or SAP or, in respect of underwriting or claims administration policies, guidelines, practices or principles, in the ordinary course of business consistent with past practice);
(y) other than as set forth in Schedule 4.1(y), amend or otherwise change the Investment Guidelines or make any investment or manage its Investment Assets other than in compliance with the Investment Guidelines;
(z) during the period from the date hereof to the Closing Date, spend less than 90% (without the consent of Buyer) or more than 100% (without the consent of Seller), in the aggregate, of the advertising spending called for during such period by the advertising plan set forth on Schedule 4.1(z) (for purposes of calculating such aggregate percentage, the spending called for in any period by such advertising plan that is not fully completed between the date hereof and the Closing Date shall be determined on a pro rata basis based on the number of days of such partial period that actually elapsed between the date hereof and the Closing Date), with the actual amount of such spending within such limits being determined by the management of the Transferred Companies in its sole discretion; or
(aa) agree or commit to do any of the foregoing.
Company Subsidiaries As of the date of this Agreement, the Company has Previously Disclosed a true, complete and correct list of each entity in which the Company, directly or indirectly, owns sufficient capital stock or holds a sufficient equity or similar interest such that it is consolidated with the Company in the financial statements of the Company or has the power to elect a majority of the board of directors or other persons performing similar functions (each, a “Company Subsidiary” and, collectively, the “Company Subsidiaries”). Except for the Company Subsidiaries and as Previously Disclosed, the Company does not own beneficially or control, directly or indirectly, more than 5% of any class of equity securities or similar interests of any corporation, bank, business trust, association or similar organization, and is not, directly or indirectly, a partner in any general partnership or party to any joint venture or similar arrangement. The Company owns, directly or indirectly, all of its interests in each Company Subsidiary free and clear of any and all Liens. No equity security of any Company Subsidiary is or may be required to be issued by reason of any option, warrant, scrip, preemptive right, right to subscribe to, gross-up right, call or commitment of any character whatsoever relating to, or security or right convertible into, shares of any capital stock or other interest of such Company Subsidiary, and there are no contracts, commitments, understandings or arrangements by which any Company Subsidiary is bound to issue additional shares of its capital stock or other interest, or any option, warrant or right to purchase or acquire any additional shares of its capital stock. The deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the fullest extent permitted by the Federal Deposit Insurance Act, as amended, and the rules and regulations of the FDIC thereunder, and all premiums and assessments required to be paid in connection therewith have been paid when due (after giving effect to any applicable extensions). The Company beneficially owns all of the outstanding capital securities of, and has sole control of, the Bank.