================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AMERICAN HOME MORTGAGE HOLDINGS, INC.,
AMERICAN HOME MORTGAGE SUB II, INC.,
FIRST HOME MORTGAGE CORP.,
AND
THE STOCKHOLDERS LISTED ON THE SIGNATURE PAGES HERETO
DATED AS OF JANUARY 17, 2000
================================================================================
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
1.1 Defined Terms.........................................................
ARTICLE II
MERGER
2.1 The Merger............................................................
2.2 Effective Time........................................................
2.3 Closing...............................................................
2.4 Conversion of Capital Stock; Purchase Price...........................
2.5 Exchange of Certificates..............................................
2.6 Dispute Resolution and Payments.......................................
2.7 Withholding from Purchase Price.......................................
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND SUB
3.1 Organization of Purchaser and Sub.....................................
3.2 Authorization.........................................................
3.3 No Conflict or Violation..............................................
3.4 Validity of Issuance of Common Stock..................................
3.5 SEC Filings; Financial Statements.....................................
3.6 Consents and Approvals................................................
3.7 Litigation............................................................
3.8 Acquisition for Investment............................................
3.9 Brokers...............................................................
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND the STOCKHOLDERS
4.1 Organization of the Company...........................................
4.2 Capital Stock.........................................................
4.3 Subsidiaries..........................................................
4.4 Authorization.........................................................
4.5 Financial Statements..................................................
4.6 Absence of Certain Changes............................................
4.7 Title to Assets.......................................................
4.8 Condition and Sufficiency of Assets...................................
4.9 Contracts.............................................................
4.10 No Conflict or Violation..............................................
4.11 Consents and Approvals................................................
4.12 Litigation............................................................
4.13 Compliance with Law; Permits and Licenses.............................
4.14 Intellectual Property.................................................
4.15 ERISA.................................................................
4.16 Taxes.................................................................
4.17 Environmental Laws and Regulations....................................
4.18 Labor Matters.........................................................
4.19 Insurance.............................................................
4.20 No Undisclosed Liabilities............................................
4.21 Affiliated Transactions...............................................
4.22 Interests in Clients, Suppliers.......................................
4.23 Brokers...............................................................
4.24 Year 2000 Compliance..................................................
4.25 Loans; Investments. ..................................................
4.26 Allowance for Possible Loan Losses....................................
4.27 Investment Purposes...................................................
4.28 Accredited Investor...................................................
4.29 Exemption.............................................................
4.30 Due Diligence.........................................................
4.31 Exclusivity of Preparation............................................
4.32 No Advertisement......................................................
4.33 Accuracy of Representations...........................................
4.34 Disclosure............................................................
4.35 Mortgage Banking......................................................
ARTICLE V
ACTIONS BY THE PURCHASER, THE STOCKHOLDERS
AND THE COMPANY PRIOR TO THE CLOSING
5.1 Conduct of Business...................................................
5.2 Certain Restrictions on the Company...................................
5.3 Access to Information.................................................
5.4 Regulatory and Other Authorizations...................................
5.5 Insurance.............................................................
5.6 Further Action........................................................
5.7 Exclusivity...........................................................
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions to Obligations of the Purchaser............................
6.2 Conditions to Obligations of the Company and the Stockholders.........
ARTICLE VII
CERTAIN ADDITIONAL COVENANTS AND ACKNOWLEDGEMENTS
7.1 Restrictive Legend....................................................
7.2 No Transfer. (a).....................................................
7.3 Board of Directors....................................................
7.4 Tax Return Filings....................................................
ARTICLE VIII
INDEMNIFICATION
8.1 Survival of Representations and Warranties............................
8.2 Indemnification by the Purchaser......................................
8.3 Indemnification by the Stockholders...................................
8.4 Tax Indemnification...................................................
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1 Methods of Termination................................................
9.2 Procedure Upon Termination............................................
9.3 Effect of Termination.................................................
ARTICLE X
MISCELLANEOUS
10.1 Specific Performance..................................................
10.2 Assignment............................................................
10.3 Notices...............................................................
10.4 Choice of Law.........................................................
10.5 Entire Agreement; Amendments and Waivers..............................
10.6 Counterparts..........................................................
10.7 Invalidity............................................................
10.8 Headings..............................................................
10.9 Expenses..............................................................
10.10 Publicity.............................................................
SCHEDULES AND EXHIBITS
Schedules:
Schedule 4.3 - Subsidiaries
Schedule 4.6 - Certain Changes
Schedule 4.7(a) - Title to Assets
Schedule 4.7(b) - Title to Assets
Schedule 4.9 - Contracts
Schedule 4.11 - Consents and Approvals
Schedule 4.12 - Litigation
Schedule 4.13 - Permits
Schedule 4.14 - Intellectual Property
Schedule 4.15 - ERISA
Schedule 4.16 - Taxes
Schedule 4.19 - Insurance
Schedule 4.21 - Affiliated Transactions
Schedule 4.22 - Clients, Suppliers
Schedule 4.25 - Loans
Exhibits:
Exhibit 2.4(d) - Formula
Exhibit 2.4(e) - Formula
Exhibit 4.5 - Financial Statements
Exhibit 6.1(d) - Legal Opinion
Exhibit 6.1(e) - Form of Employment Agreement
Exhibit 6.1(f) - Form of Non-Competition Agreement
AGREEMENT AND PLAN OF MERGER, dated as of January 17, 2000 (together
with all schedules and exhibits hereto, the "Agreement"), is by and among
American Home Mortgage Holdings, Inc., a Delaware corporation (the "Purchaser"),
First Home Mortgage Corp., an Illinois corporation (the "Company"), American
Home Mortgage Sub II, Inc., a Delaware corporation and a wholly-owned subsidiary
of the Purchaser ("Sub"), and the stockholders of the Company listed on the
signature pages hereto (collectively, the "Stockholders").
RECITALS
WHEREAS, the Stockholders own an aggregate of 833 shares (the
"Shares", and each a "Share") of common stock, par value $1.00 per share, of the
Company, constituting all of the issued and outstanding capital stock of the
Company (the "Stock"); and
WHEREAS, the Boards of Directors of each of the Purchaser, Sub and the
Company have approved, and deem it fair to, advisable and in the best interests
of their respective stockholders to consummate, the acquisition of the Company
by the Purchaser and Sub upon the terms and subject to the conditions set forth
herein;
WHEREAS, the Board of Directors of the Company has determined that the
consideration to be paid for the Stock and the Merger (as defined below) is fair
to the holders of the Shares and has resolved to recommend that the holders of
Shares tender their Shares and approve and adopt this Agreement and the Merger
upon the terms and subject to the conditions set forth herein; and
WHEREAS, the Company, the Purchaser, Sub and the Stockholders desire
to make certain representations, warranties, covenants and agreements in
connection with the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. Capitalized words and phrases used and not
otherwise defined in this Agreement shall have the following meanings:
"Actions" is defined in Section 4.12.
"Adjusted Initial Consideration" shall mean the amount by which the
Initial Consideration shall be adjusted as provided in Article II.
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls, is controlled by or is under common control with
the Person specified. For purposes of this definition, the term "control" of a
Person means the possession, direct or indirect, of the power to (i) vote 50% or
more of the voting securities of such Person or (ii) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise, and the terms and phrases "controlling", "controlled by" and "under
common control with" have correlative meanings.
"Agreement" is defined in the preamble.
"Assets" is defined in Section 4.7.
"Balance Sheet" is defined in Section 4.5.
"Balance Sheet Date" is defined in Section 4.6.
"Benefit Plan" means any employment, consulting, severance or other
similar contract, arrangement or policy, and any plan, arrangement (written or
oral), program, agreement or commitment providing for insurance coverage
(including any self-insured arrangements), workers compensation, disability
benefits, supplemental unemployment benefits, material vacation benefits,
retirement benefits, life, health, disability or accident benefits (including
without limitation any "voluntary employees' beneficiary association" as defined
in section 501(c)(9) of the Code) providing for the same or other benefits, or
for deferred compensation, profit sharing, bonuses, stock options, stock
appreciation rights, stock purchases or awards and any other form of incentive
compensation or post-retirement insurance, compensation or benefits, including
any "employee welfare benefit plan" as defined in section 3(1) of ERISA and any
"employee pension benefit plan" as defined in section 3(2) of ERISA, which is
entered into, maintained, contributed to or required to be contributed to or
with respect to which any liability is borne, as the case may be, by the Company
or an ERISA Affiliate, or under which the Company or any ERISA Affiliate could
incur any material liability, and which covers any employee or former employee
of the Company or an ERISA Affiliate whether or not subject to ERISA.
"Book Value" means the excess of total assets over total liabilities
reflected on the Closing Balance Sheet.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York, New York and the State of Delaware
are authorized or required by law to close.
"Cash Income" means for any period Net Income of First Home Group for
such period plus amortization and depreciation expenses of the Company for such
period as set forth in Exhibit 2.4(e).
"Closing" is defined in Section 2.3.
"Closing Date" means the date on which the Closing occurs pursuant to
Section 2.3.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Common Stock" means shares of common stock, par value $0.01 per
share, of the Purchaser.
"Company" is defined in the preamble.
"Contracts" means all agreements, contracts, commitments,
undertakings, instruments, indentures, licenses and franchises to which the
Company or any of the Subsidiaries is a party, an obligor or a beneficiary.
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
security interest, right-of-way, restriction, encumbrance or other similar right
of a third party.
"Environmental Claim" means any and all administrative, regulatory or
judicial actions, suits, demands, claims, liens, notices of noncompliance or
violations, investigations or proceedings arising under any Environmental Law or
any permit issued under any such Environmental Law (the "Designated Claims")
including, without limitation, (i) any and all Designated Claims by governmental
or regulatory authorities for enforcement, cleanup, removal, response, remedial
or other actions or damages pursuant to any applicable Environmental Law, and
(ii) any and all Designated Claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment.
"Environmental Law" means any currently existing federal, state or
local statute, law, rule, regulation, ordinance, code, legally binding guideline
or policy or rule of common or civil law of the United States or of any other
jurisdiction in which the Company or any Subsidiary owns any real property or
conducts operations relating to the environment, occupational safety and health
or Hazardous Materials and any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent decree or
judgment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means a Person that together with the Company
constitutes a single employer pursuant to any of sections 414(b), (c), (m) or
(o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the average of the last trade price of a
share of Common Stock as reported on the Nasdaq for any period specified or as
of the date specified in this Agreement; provided, if such share is not listed
or admitted to trading on the Nasdaq, as reported on the principal national
security exchange or quotation system on which such share is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the closing bid price of such
share on the over-the-counter market on the day in question as reported by
Bloomberg, LP, or a similar generally accepted reporting service, as the case
may be.
"First Home Group" is defined in Exhibit 2.4(d).
"GAAP" means generally accepted accounting principles consistently
applied.
"Governmental Body" means any federal, state, local, foreign or other
governmental agency, instrumentality, commission, authority, board or body.
"Hazardous Materials" means all infectious, toxic or hazardous
pollutants, contaminants, chemicals, substances, materials or wastes of whatever
kind or nature, whether liquid, solid or gaseous, defined or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous materials",
"chemical substances", "toxic substances", "contaminants", "pollutants",
"dangerous substances" or "dangerous waste" or words of similar import, in any
language, under any applicable Environmental Law. Hazardous Materials include,
without limitation, petroleum products, heavy metals, asbestos and PCBs.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended.
"Initial Consideration" shall mean the "Cash Consideration" and "Stock
Consideration" as defined in Section 2.4(a)(iii).
"Intellectual Property" means all of the following which are owned by,
issued to or licensed to or used by each of the Company and the Subsidiaries,
together with all income, royalties, damages and payments due or payable in
respect thereof as of the Closing or thereafter; patents, patent applications
and inventions and any reissue, continuation, continuation-in-part, division,
extension or reexamination thereof; trademarks, service marks, trade dress,
logos, trade names and corporate names, together with all goodwill associated
therewith; copyrights; and all registrations, applications and renewals for any
of the foregoing; trade secrets, know-how, confidential and proprietary
information, customer and supplier lists and related information; all other
proprietary rights and computer software (including, without limitation, data,
source codes and user and system documentation).
"Investor" means any Person who has acquired or hereinafter acquires a
Loan from the Company or any Subsidiary.
"Investor Requirements" means any outstanding contractual, legal and
regulatory obligation of the Company or any Subsidiary to any Investor,
including but not limited to, the representations, warranties and covenants made
by the Company or any Subsidiary to any Investor.
"Knowledge" means actual knowledge after reasonable investigation.
With respect to any Person, "knowledge" will be deemed to include the actual
knowledge of its directors and officers or persons with similar positions and
any information that is or should be available to the directors, officers or
such other persons by virtue of their positions.
"Leased Real Property" is defined in Section 4.7.
"Loan" means any loan or lease at any time held, serviced or sold by
the Company or any Subsidiary to the extent that the Company or any Subsidiary
could have any liability, obligation or duties with respect thereto.
"Loan Documents" means the note, mortgage, deed of trust, security
agreement, or other instrument securing the note and the related documents for
each Loan.
"Loans Held for Sale" means all Loans currently held and hereinafter
acquired or originated by the Company or any Subsidiary where beneficial
ownership has not been transferred to an Investor.
"Material Adverse Effect" means (i) with respect to the Company, an
adverse effect that is material to the business, assets, liabilities, condition
(financial or otherwise), results of operations, prospects of the Company's
business, or properties of the Company or any of the Subsidiaries and (ii) with
respect to the Purchaser, a material adverse effect on the ability of the
Purchaser to consummate the transactions contemplated by this Agreement.
"Mortgage Loan" means a Loan secured by a mortgage.
"Nasdaq" means the Nasdaq National Market.
"Net Income" means Net Income of First Home Group for the applicable
period as determined in accordance with GAAP using the principles specified in
Exhibit 2.4(d) hereto.
"Organizational Documents" means (i) the articles or certificate of
incorporation and the bylaws of a corporation; the partnership agreement and any
statement of partnership of a general partnership; (iii) the limited partnership
agreement and the certificate of limited partnership of a limited partnership;
(iv) any charter or similar document adopted or filed in connection with the
creation, formation, or organization of a Person; and (v) any amendment of any
of the foregoing.
"PBGC" is defined in Section 4.15.
"Permitted Encumbrances" means (i) statutory liens for current taxes
or other governmental charges not yet due and payable or the amount or validity
of which is being contested in good faith by appropriate proceedings by the
Company and the Subsidiaries and for which appropriate reserves have been
established in accordance with generally accepted accounting principles,
consistently applied and are set forth on the Balance Sheet; (ii) mechanics,
carriers, workers, repairers and similar statutory liens arising or incurred in
the ordinary course of business for amounts which are not delinquent and which
are not, individually or in the aggregate, material to the Company's business;
(iii) zoning, entitlement, building and other land use regulations imposed by
governmental agencies having jurisdiction over the real property which are not
violated by the current use and operation of the real property; and (iv)
covenants, conditions, restrictions, easements and other similar matters of
record affecting title to the real property which do not materially impair the
occupancy or use of the real property for the purposes for which it is currently
used and proposed to be used in connection with the business of the Company and
the Subsidiaries.
"Person" means an individual, a partnership, a limited partnership, a
limited liability company, a joint venture, a corporation, a trust, an
unincorporated organization, a division or operating group of any of the
foregoing, a government or any department or agency thereof or any other entity.
"Portfolio Loan" means all Loans currently owned or hereinafter owned
for investment by the Company or any Subsidiary.
"Post-Closing Tax Period" shall mean any taxable period (or portion
thereof) that begins after the Closing Date.
"Pre-Closing Tax Period" shall mean any taxable period (or portion
thereof) ending on or before the Closing Date.
"Purchaser" is defined in the preamble.
"Regulations" is defined in Section 4.13.
"Release" means active or passive disposing, discharging, injecting,
spilling, leaking, leaching, dumping, emitting, pouring, escaping, emptying,
seeping, placing and the like, into or upon any land or water or air, or
otherwise entering into the environment.
"Representative" means any officer, director, principal, employee or
other authorized representative of a Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Serviced Loans" means all Loans currently and hereinafter serviced by
the Company or any Subsidiary for its own account or for others.
"Servicing Requirements" means prudent practice and industry standards
together with any contractual, legal or regulatory obligation of the Company or
any Subsidiary relating to the Serviced Loans or any Loan previously serviced by
the Company or any Subsidiary. "Stock" is defined in the recitals.
"Subsidiary" or "Subsidiaries" means each corporation or other Person
as to which the Company, or after the Closing Date, the Surviving Corporation,
directly or indirectly (including through one or more Subsidiaries or any of the
stockholders, directors or officers of the Company) owns at least 10% of the
outstanding shares of stock or other ownership interests.
"Tax" or "Taxes" means all income, gross receipts, profits,
intangibles, sales, excise, ad valorem, bulk transfer, use, payroll, employment,
franchise, profits, property or other taxes, fees, stamp taxes, imposts, duties,
assessments, levies or similar charges of any kind whatsoever (whether payable
directly or by withholding), together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority with
respect thereto and shall include any liability for such amounts as a result
either of being a member of a combined, consolidated, unitary or affiliated
group or of a contractual obligation to indemnify any Person.
"Tax Return" means any return, filing, questionnaire, information
return or other document required to be filed, including without limitation,
requests for extensions of time, filings made with estimated tax payments,
claims for refund and amended returns that may be filed, for any period with any
taxing authority (whether domestic or foreign) in connection with any Tax
(whether or not a payment is required to be made with respect to such filing).
"Taxing Authority" shall mean any domestic, foreign, federal,
national, state, county or municipal or other local government, any subdivision,
agency, commission or authority thereof, or any quasi-governmental body
exercising tax regulatory authority.
"Trading Day" means any day on which purchase and sales of securities
authorized for quotation on Nasdaq National Market are reported thereto and on
which no event that results in a material suspension or limitation of trading of
Common Stock on Nasdaq has occurred.
ARTICLE II
MERGER
2.1 The Merger. (a) Upon the terms and subject to the conditions of
this Agreement, and in accordance with the laws of the State of Delaware, at the
Effective Time (as defined in Section 2.2 hereof), the Company and Sub shall
consummate a merger (the "Merger") pursuant to which (x) the Company shall be
merged with and into Sub and the separate corporate existence of the Company
shall thereupon cease and (y) Sub shall be the surviving corporation in the
Merger (sometimes hereinafter referred to as the "Surviving Corporation") and
shall be governed by the laws of the State of Delaware.
(b) Pursuant to the Merger, at the Effective Time, (x) the certificate
of incorporation of Sub, as in effect immediately prior to the Effective Time,
shall be the certificate of incorporation of the Surviving Corporation, and (y)
the by-laws of Sub, as in effect immediately prior to the Effective Time, shall
be the by-laws of the Surviving Corporation, each until thereafter changed or
amended as and under applicable law.
(c) The directors of Sub at the Effective Time shall be the initial
directors of the Surviving Corporation until their respective successors are
duly elected and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's certificate of incorporation and
by-laws. The officers of Sub at the Effective Time shall be the initial officers
of the Surviving Corporation until their respective successors are duly elected
and qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's certificate of incorporation and by-laws.
(d) The Merger shall have the effects specified in the applicable
provisions of the laws of the State of Delaware.
2.2 Effective Time. Subject to the terms and conditions of this
Agreement, the Purchaser, Sub and the Company will cause a certificate of merger
or, if applicable, a certificate of ownership and merger (as applicable, the
"Certificate of Merger"), to be executed and filed on the date of the Closing
(as defined in Section 2.3) (or on such other date as the Purchaser and the
Company may agree) with the Secretary of State of the State of Illinois and the
Secretary of State of the State of Delaware (the "Secretary of State") as
provided under the laws of the State of Illinois and the State of Delaware. The
Merger shall become effective on the date on which the Certificate of Merger has
been duly filed with the Secretary of State or such other time as is agreed upon
by the parties and specified in the Certificate of Merger, and such time is
hereinafter referred to as the "Effective Time". The filing of the Certificate
of Merger shall be made as soon as practicable after the satisfaction or waiver
of the conditions to the Merger set forth herein.
2.3 Closing. The closing of the Merger (the "Closing") shall take
place at 10:00 a.m., local time, on a date to be specified by the parties, which
shall be no later than the second Business Day after satisfaction or waiver of
all of the conditions set forth in Article VII hereof (the "Closing Date"), at
the offices of Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇▇▇, unless another date or place is agreed to in writing by the parties
hereto.
2.4 Conversion of Capital Stock; Purchase Price. (a) At the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of any Shares or any shares of capital stock of Sub:
(i) Each issued and outstanding share of common stock, par value $.01
per share, of Sub will continue to be outstanding common stock, par value
$0.01 per share, of the Surviving Corporation.
(ii) All Shares that are owned by the Company or any wholly owned
Subsidiary of the Company (other than by any employee benefit plan) and any
Shares owned by the Purchaser, Sub or any subsidiary of the Purchaser or
Sub (other than shares owned by any employee benefit plan of the Purchaser
or any subsidiary of the Purchaser) shall be cancelled and retired and
shall cease to exist and no consideration shall be delivered in exchange
therefor.
(iii) Each issued and outstanding Share (other than Shares to be
cancelled in accordance with this Section) shall be converted into the
right to receive 588 shares of Common Stock (the "Stock Consideration") and
$3,601.44 in cash (the "Cash Consideration"). All such Shares, when so
converted, shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Initial Consideration
therefor upon the surrender of such certificate in accordance with Section
2.5, without interest.
(b) The Initial Consideration shall be adjusted as follows:
(iv) As promptly as practicable, but in any event not later than one
hundred twenty (120) days after the Closing Date, the Purchaser shall cause
to be prepared and delivered to the Stockholders a balance sheet of the
Company as of the Closing Date (the "Closing Balance Sheet"), which shall
be audited by Deloitte & Touche, certified public accountants, and
certified by such firm to have been prepared in accordance with GAAP.
(v) If the Book Value on the Closing Balance Sheet is less than
$1,900,000 (a "Shortfall"), each Stockholder, for each Share owned by such
Stockholder immediately prior to the Effective Time, shall return to the
Purchaser (i) the amount of the Shortfall divided by 1,666, in cash, and
(ii) the number of shares of Common Stock equal to the amount of the
Shortfall divided by 10,204.25.
(vi) The determination of the Adjusted Initial Consideration shall be
subject to the dispute resolution mechanisms set forth in Section 2.6.
(vii) The return of the shares of Common Stock as provided in Section
2.4(b)(v) shall be made within ten (10) Business Days after the final
determination of the Adjusted Initial Consideration.
(c) In addition, on the Closing Date and January 1, April 1, July 1
and October 1 of each of the calendar years of 2000 and 2001 after the Closing,
the Purchaser shall pay to each Stockholder cash in the amount of $90.036 per
Share owned by such Stockholder immediately prior to the Effective Time. On
January 1, April 1, July 1 and October 1 of each of the calendar years of 2002,
2003 and 2004, the Purchaser shall pay to each Stockholder the amount of $90.036
per Share owned by such Stockholder immediately prior to the Effective Time in
Common Stock. The shares of Common Stock shall be valued at the Fair Market
Value of such shares of Common Stock as of the last five (5) Trading Days
immediately preceding each respective payment date set forth in this Section
2.4(c).
(d) In addition, for the calendar years of 2000, 2001, 2002, 2003 and
2004, on the later of May 10 of the calendar year following the applicable
calendar year or the tenth Business Day after the determination as provided in
Section 2.6, the Purchaser shall pay to each Stockholder an amount per Share
owned by such Stockholder immediately prior to the Effective Time equal to 33%
of the Net Income of the First Home Group for the applicable calendar year,
divided by 833; provided, however, in the event the Net Income of the First Home
Group is more than $1,500,000, (i) 33% of the Net Income of the First Home Group
for the applicable calendar year up to the Net Income in the amount of
$1,500,000, divided by 833, and (ii) 38% of the Net Income so determined over
$1,500,000, divided by 833. One half of each such payment shall be made in
Common Stock, and one half in cash. For the portion of each payment in shares of
Common Stock, such shares of Common Stock shall be valued at the Fair Market
Value of such shares of Common Stock as of the last five (5) Trading Days
immediately preceding each respective payment date set forth in this Section
2.4(d).
(e) In addition, for each Quarter Period of the First Home Group
ending in the calendar years of 2000, 2001, 2002, 2003 and 2004, if the Cash
Income of the First Home Group for the applicable Quarter Period is positive, on
May 15, August 15, November 15 and February 15, as applicable, the Purchaser
shall pay to each of the Stockholders the amount of $180.072 per share (the
"Quarterly Payment"). With respect to any Quarter Period that does not have
positive Cash Income, Purchaser shall not pay to the Stockholder the Quarterly
Payment for such Quarter Period; provided, however, any Quarterly Payment not
paid shall be deferred (a "Deferred Quarterly Payment") and thereafter paid to
the Stockholder or terminated pursuant to the following provision:
(i) If during the same fiscal year in any Quarter Period immediately
following a Quarter Period in which there is an Operating Loss (as defined
below) or Credit Loss (as defined below), there is no Aggregate Annual Loss
(as defined below) the Purchaser shall pay to the Stockholders the Deferred
Quarterly Payment applicable to the prior Quarter Period that was not paid.
(ii) If during the same fiscal year in any Quarter Period immediately
following a Quarter Period in which there was an Operating Loss, there
continues to be a cumulative Operating Loss for such two consecutive
Quarter Periods, the Deferred Quarterly Payment from the prior Quarter
Period shall be terminated and not paid to the Stockholder and no longer
subject to payment pursuant to this provision.
(iii) If during the same fiscal year in any Quarter Period immediately
following a Quarter Period in which there was an Operating Loss or Credit
Loss there continues to be a cumulative Credit Loss, but no cumulative
Operating Loss, the Deferred Quarterly Payments that have not been
terminated pursuant to (B) above shall be paid if and only if, during a
subsequent Quarter Period during the same fiscal year there is no Aggregate
Annual Loss.
(iv) For purposes of this Section 2.4(e) all subsequent Excess Cash
Income (as defined below) for a particular fiscal year shall be applied (i)
first against all prior Operating Losses during such fiscal year commencing
with any Operating Loss in the first Quarter Period of such fiscal year
(other than to any Quarter Period in which the Deferred Quarterly Payment
has been terminated pursuant to (B) above) and (ii) then applied to Credit
Losses in prior Quarter Periods during such fiscal year.
(v) For the purposes of this Section 2.4(e) the following defined
terms shall have the definition set forth below.
(A) "Operating Loss" or "Operating Losses" shall mean any
negative amount of Cash Income for any applicable Quarter Period
resulting from losses other than Credit Losses.
(B) "Credit Loss" or "Credit Losses" shall mean any negative
amount of Cash Income for any applicable Quarter Period resulting from
charges for indemnification, charges against bad debt reserves, cost
of non-accruals and other credit quality associated charges.
(C) "Aggregate Annual Loss" shall mean (x) all Credit Losses
during a fiscal year plus (y) all Operating Losses for Quarter Periods
during a fiscal year other than Quarter Periods in which the Deferred
Quarterly Payment has been terminated pursuant to paragraph (ii)
above.
(D) "Excess Cash Income" shall mean the aggregate Cash Income
during any fiscal year for the Quarter Periods after a Quarter Period
with an Operating Loss or Credit Loss.
(E) "Deferred Quarterly Payment" shall mean any Quarterly Payment
during a fiscal year that has not been paid or terminated pursuant to
paragraph (ii) above.
(vi) Any Deferred Quarterly Payment in a fiscal year not made up and
paid as set forth in paragraph (i) or (iii) above shall be terminated.
For the calendar years of 2000 and 2001, all payments pursuant to this Section
2.4(e) shall be made in cash. For the calendar years of 2002, 2003 and 2004, 55%
of all payments pursuant to this Section 2.4(e) shall be made in cash and 45%
shall be made in Common Stock. For the portion of each payment in shares of
Common Stock, such shares of Common Stock shall be valued at the Fair Market
Value of such shares of Common Stock as of the last five (5) Trading Days
immediately preceding each respective payment date set forth in this Section
2.4(e). For the purpose of this paragraph (e), the first Quarter Period of the
First Home Group after the Closing shall be deemed to commence on the first day
of the first full calendar month to commence after the Closing and shall be
deemed to end on the last day of the third calendar month to commence after the
Closing and, thereafter, each three calendar month period shall be deemed a
"Quarter Period."
2.5 Exchange of Certificates. (a) As soon as reasonably practicable
after the Effective Time, the Purchaser shall cause each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares (the "Certificates") to convert the Shares into
the right to receive the Initial Consideration. Upon surrender of a Certificate
for cancellation to the Purchaser, and such other documents as may reasonably be
required by the Purchaser, the Purchaser shall cause shares of Common Stock to
be delivered to the holder of such Certificate, and the Certificate so
surrendered shall forthwith be cancelled. In the event of a surrender of a
Certificate representing Shares which are not registered in the transfer records
of the First Home Group under the name of the Person surrendering such
Certificate, payment may be made to a Person other than the Person in whose name
the Certificate so surrendered is registered if such Certificate shall be
properly endorsed or otherwise be in proper form for transfer and the Person
requesting such payment shall pay any transfer or other Taxes required by reason
of payment to a Person other than the registered holder of such Certificate or
establish to the satisfaction of the Purchaser that such Tax has been paid or is
not applicable. Until surrendered as contemplated by this Section 2.5, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Initial Consideration which
the holder thereof has the right to receive in respect of such Certificate
pursuant to the provisions of this Article II. No interest shall be paid or will
accrue on the Initial Consideration payable to holders of Certificates pursuant
to the provisions of this Article II.
(b) At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of the Shares on the records of the Company. From and after the
Effective Time, the holders of Certificates evidencing ownership of the Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares, except as otherwise provided for herein or
by applicable law. If, after the Effective Time, the Certificates are presented
to the Surviving Corporation for any reason, they shall be cancelled and
exchanged as provided in this Article II.
(c) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such Certificate
to be lost, stolen or destroyed and, if required by the Surviving Corporation,
the posting by such Person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Purchaser shall pay in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration Per Share
pursuant to this Agreement.
(d) No fractional shares of Common Stock shall be issued but in lieu
thereof each Stockholder who would otherwise be entitled to receive a fraction
of a share of Common Stock shall receive from the Purchaser cash (without
interest) equal to the product of (i) the fraction of a share of Common Stock to
which such Stockholder would otherwise be entitled to multiplied by (ii) the
Fair Market Value of Common Stock at the last Trading Day immediately preceding
the Closing Date.
2.6 Dispute Resolution and Payments. For the purpose of this Article
II, any determination required to be made shall be made by the Purchaser who
shall deliver a certificate to the Stockholders as part of the purchase price or
on or before the date one hundred twenty (120) days after the end of the
applicable period specifying the applicable financial results of the Company for
the relevant period and the resulting amount, if any, owed by the Purchaser to
the Stockholders, along with detailed back-up financial information utilized by
the Purchaser in making its determination. Such determination by the Purchaser
shall be deemed final and binding upon the parties unless within thirty (30)
days after delivery thereof to the Stockholders, written notice is given by the
Stockholders of their objection setting forth in reasonable detail the basis for
the objection. If notice of objection is given, the Stockholders and the
Purchaser will consult with each other with respect to the objection. If
applicable, the amount in dispute will be adjusted immediately to reflect any
amount that is not in dispute. If the Stockholders and the Purchaser are unable
to reach agreement within the thirty (30) days after the notice of objection has
been given, the dispute will be referred for resolution to a nationally
recognized accounting firm that has not had a business relationship with either
the Stockholders and their Affiliates or the Purchaser and its Affiliates during
the period of three years prior to the Closing (the "Dispute Accountants"), as
promptly as practicable; provided, however, that if the Stockholders and the
Purchaser are unable to reach agreement with respect to the Dispute Accountants,
the Stockholders and the Purchaser shall refer the dispute to the American
Arbitration Association that shall appoint the Dispute Accountants as promptly
as practicable. The Dispute Accountants will address and resolve only those
items in dispute as identified by the Stockholders and the Purchaser at the time
of engagement. The Dispute Accountants will make a determination as to each of
the items in dispute, which determination will be (A) in writing, (B) furnished
to each of the Stockholders and the Purchaser as promptly as practicable after
the items in dispute have been referred to the Dispute Accountants, (C) made in
accordance with this Agreement, and (D) conclusive and binding on the parties.
The Stockholders and the Purchaser will use reasonable efforts to cause the
Dispute Accountants to render their decision as soon as reasonably practicable,
including without limitation by promptly complying with all reasonable requests
by the Dispute Accountants for information, books, records and similar items.
The fees and costs of the Dispute Accountants will be borne by the Purchaser and
the Stockholders in the same proportion as the disputed amount is allocated
between the parties. All payments required to be made pursuant to this Article
II shall be made within ten Business Days after the amount of the applicable
payment is finally determined in accordance with the provisions of this Section
2.6.
2.7 Withholding from Purchase Price. The Purchaser shall deduct and
withhold from any amount otherwise payable pursuant to this Agreement any amount
required by law to be withheld, including but not limited to any amount required
to be withheld resulting from the failure of the Stockholders to comply with any
provision of this Agreement or from a change in the federal, state, local or
foreign tax laws requiring withholding on the obligations of the Purchaser. The
Stockholders shall promptly provide, upon request from the Purchaser, any
documentation required for the reduction or elimination of withholding Taxes on
payments pursuant to this Agreement, including but not limited to, IRS Form W-9.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND SUB
Each of the Purchaser and Sub hereby represents and warrants to the
Company and the Stockholders as follows:
3.1 Organization of Purchaser and Sub. Each of the Purchaser and Sub
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has full corporate power and authority to
conduct its business as it is presently being conducted and to own, lease and
use its properties and assets.
3.2 Authorization. Each of the Purchaser and Sub has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and has taken all action necessary to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and to perform
its obligations hereunder. This Agreement has been duly executed and delivered
by the Purchaser and Sub and, assuming the due execution and delivery of this
Agreement by the Company and the Stockholders, is a legal, valid and binding
obligation of each of the Purchaser and Sub , enforceable against the Purchaser
and Sub in accordance with its terms, except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
3.3 No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the
Organizational Documents of the Purchaser and Sub, (b) a breach of, or a default
under, or a right to accelerate with respect to, any term or provision of any
contract, commitment or other obligation to which the Purchaser or Sub is a
party or is subject, or (c) a violation by the Purchaser or Sub of any statute,
rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or
award.
3.4 Validity of Issuance of Common Stock. The shares of Common Stock
to be delivered to the Stockholders as provided herein are or will be validly
issued and outstanding, fully paid and non-assessable, and not subject to any
preemptive rights, rights of first refusal, tag-along rights, draft-along rights
or other similar rights.
3.5 SEC Filings; Financial Statements. (a) The Purchaser has filed all
forms, reports and documents required to be filed with the SEC since October 1,
1999, and has made available to the Company and the Stockholders, in the form
filed with the SEC, together with any amendments thereto, all of its reports
filed with the SEC (collectively, the "SEC Reports"). The SEC Reports (i) were
prepared substantially in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations
promulgated under each of such respective acts, and (ii) did not at the time
they were filed contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The financial statements, including all related notes and
schedules, contained in the SEC Reports (or incorporated by reference therein)
fairly present the consolidated financial position of the Purchaser as at the
respective dates thereof and the results of operations and cash flows of the
Purchaser for the periods indicated in accordance with GAAP throughout the
periods involved (except for changes in accounting principles disclosed in the
notes thereto) and subject in the case of interim financial statements to normal
year-end adjustments.
3.6 Consents and Approvals. No consent, approval, authorization or
other action by, or filing with or notification to, any governmental or
regulatory authority or other third party is required to be made or obtained by
the Purchaser or Sub on or prior to the Closing Date in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, except where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification would not interfere with the ability of the Purchaser and Sub to
consummate the transactions contemplated by this Agreement.
3.7 Litigation. There is no material action, order, writ, injunction,
judgment or decree outstanding, or suit, litigation, proceeding, labor dispute
(other than routine uncontested claims for benefits under any benefit plans for
any officers, employees or agents of the Purchaser or Sub), arbitration,
investigation or reported claim, pending or, to the Knowledge of the Purchaser
and Sub, threatened, before any court, governmental entity or arbitrator which
seeks to delay or prevent the consummation of the transactions contemplated by
this Agreement or would, if successful, materially and adversely affect the
ability of the Purchaser and Sub to consummate the transactions contemplated by
this Agreement.
3.8 Acquisition for Investment. The Purchaser is acquiring the Stock
to be purchased by it pursuant to this Agreement solely for its own account and
not with a view to any distribution or other disposition of such shares or any
part thereof, or interest therein, except in accordance with the Securities Act.
3.9 Brokers. Neither the Purchaser nor Sub has employed, or is subject
to any valid claim of, any broker, finder, investment banker, consultant or
other intermediary in connection with the transactions contemplated by this
Agreement who will be entitled to a fee or commission in connection with such
transactions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
Each of the Company and the Stockholders jointly and severally hereby
represents and warrants to the Purchaser and Sub as follows:
4.1 Organization of the Company. The Company is duly organized,
validly existing and in good standing as a corporation under the laws of the
State of Illinois and has full corporate power and authority to conduct its
business as it is presently being conducted. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction
where the nature of its business or its ownership or use of property makes such
qualification necessary.
4.2 Capital Stock. The authorized capital stock of the Company
consists of 10,000 shares of common stock, par value $1.00 per share, 833 of
which are issued and outstanding, and no shares of any other class or series of
capital stock are authorized, issued or outstanding. All outstanding shares of
the Stock have been duly authorized and validly issued, and are fully paid and
non-assessable, and are owned beneficially and of record by the Stockholders,
free and clear of any and all Encumbrances. Except as provided in Schedule 4.2
hereto, there are no subscriptions, options, warrants, calls, commitments,
preemptive rights or other rights of any kind outstanding for the purchase of,
nor any securities convertible or exchangeable for, nor any plans or agreements
of any character providing for the purchase, issuance, or sale of, any equity
interests of the Company. There are no restrictions upon the voting or transfer
of any shares of the Stock pursuant to the Company's Organizational Documents or
any agreement or other instrument to which any of the Company or the
Stockholders is a party or by which any of the Company or the Stockholders is
bound. Upon consummation of the transactions contemplated by this Agreement, the
Purchaser will own the Stock, free and clear of any and all Encumbrances.
4.3 Subsidiaries. Schedule 4.3 sets forth a complete and accurate list
of all of the Subsidiaries. Schedule 4.3 also contains the jurisdiction of
incorporation or formation of each of the Subsidiaries, each jurisdiction in
which each Subsidiary is qualified or otherwise authorized to do business, the
number of shares of capital stock of each Subsidiary issued and outstanding and
the percentage ownership interest of the Company in each Subsidiary. All
outstanding shares of capital stock of the Subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable. Each share
of the stock is free and clear of any Encumbrances, including, without
limitation, any agreement, understanding or restriction affecting the voting
rights or other incidents of record or beneficial ownership pertaining to such
shares. There are no subscriptions, options, warrants, calls, commitments,
preemptive rights or other rights of any kind outstanding for the purchase of,
nor any securities convertible into or exchangeable for, nor any plans or
agreements of any character providing for the purchase, issuance or sale of, any
equity interests of any of the Subsidiaries. Schedule 4.3 sets forth a complete
and accurate list of all agreements and other instruments pursuant to which the
Company or any Subsidiary is obligated or required, under any circumstance, to
make contributions to the capital of any Subsidiary. Each of the Subsidiaries is
a corporation or a limited liability society duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
with full corporate or limited liability society power to conduct its business
as it is presently being conducted and to own, lease and use its properties and
assets, and is duly qualified to do business and in good standing as a foreign
corporation in each of the jurisdictions listed in Schedule 4.3, which are the
only jurisdictions where, by virtue of its businesses carried on or properties
owned or used, it is required to be so qualified.
4.4 Authorization. Each of the Company and the Stockholders has full
power and authority to execute and deliver this Agreement and to perform its or
his, as the case may be, obligations hereunder and has taken all action
necessary to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and to perform its or his, as the case may be,
obligations hereunder. This Agreement has been duly executed and delivered by
the Company and the Stockholders and, assuming the due execution and delivery of
this Agreement by the Purchaser, is a legal, valid and binding obligation of the
Company and the Stockholders, enforceable against the Company and the
Stockholders in accordance with its terms, except that (i) such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally,
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
4.5 Financial Statements. The Company has delivered to the Purchaser
(i) audited balance sheets of the Company and the Subsidiaries as at December
31, 1996, December 31, 1997 and December 31, 1998 and the related audited
statements of income, changes in stockholders' equity, and cash flow for the
year then ended, including in each case the notes thereto (the "Audited
Financial Statements"), and (ii) unaudited consolidated balance sheet of the
Company and the Subsidiaries as at September 30, 1999 (the "Balance Sheet") and
the statements of income and stockholders' equity and cash flows for the
nine-month period ended on such date, prepared by the Company (collectively,
together with the Balance Sheet, the "Unaudited Financial Statements"). The
Audited and Unaudited Financial Statements are attached hereto as Exhibit 4.5.
Such financial statements and notes fairly present the financial condition and
the results of operations, changes in stockholders' equity, and cash flow of the
Company and the Subsidiaries as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with generally
accepted accounting principles consistently applied.
4.6 Absence of Certain Changes. (a) Except as provided in Schedule 4.6
hereto and except as expressly contemplated by this Agreement, since September
30, 1999 (the "Balance Sheet Date") the Company and the Subsidiaries have
conducted their businesses in the ordinary and usual course consistent with
their business practices during 1998 and neither the Company nor any of the
Subsidiaries has:
(i) experienced any changes in any relationship with its
suppliers, customers, distributors, brokers, lessors or others, other
than changes in the ordinary course of business, consistent with past
practice;
(ii) sold, leased, transferred, or assigned any of its assets,
tangible or intangible, other than for fair consideration in the
ordinary course of business, consistent with past practice;
(iii) entered into any agreement, contract, lease, or license (or
series of related agreements, contracts, leases or licenses) involving
more than $50,000 individually to which it is a party or by which it
is bound nor modified the terms of any such existing contract or
agreement, other than in the ordinary course of business consistent
with past practice;
(iv) engaged in any activity that has resulted in any
acceleration or delay of the collection of its accounts or notes
receivable or any delay in the payment of its accounts payables, in
each case other than in the ordinary course of business consistent
with past practice;
(v) (nor has any other party) accelerated, terminated, modified
or canceled any permit or agreement, contract, lease or license
involving more than $50,000 individually to which it is a party or by
which it is bound;
(vi) suffered any damage, destruction or loss of any asset or
property, whether or not covered by insurance, other than such damage,
destruction or loss which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;
(vii) adopted, modified, amended or terminated any bonus,
profit-sharing, incentive, severance, or other similar plan (including
any benefit plan), contract, or commitment for the benefit of any of
its directors, officers, or employees, or otherwise made any change in
the employment terms (including any increase in the base compensation)
for any of its officers and employees with annual salaries in excess
of $50,000;
(viii) made any capital expenditure or any other investment (or
series of related investments) in excess of $50,000 other than in the
ordinary course of business consistent with past practice;
(ix) issued any note, bond, or other debt security or created,
incurred, assumed, or guaranteed any indebtedness involving more than
$50,000 individually;
(x) canceled, compromised, waived, or released any right or claim
(or series of related rights and claims) either involving more than
$50,000 or outside the ordinary course of business, consistent with
past practice;
(xi) made or authorized any change in its Organizational
Documents;
(xii) issued, sold or otherwise disposed of any of its capital
stock or granted, modified or amended any options, warrants, stock
appreciation rights, or other rights to purchase or obtain (including
upon conversion, exchange, or exercise) any of its capital stock or
participate in any change in the value thereof;
(xiii) made or been subject to change in its accounting
practices, procedures or methods or in its cash management practices;
(xiv) entered into or become party to any agreement, arrangement
or transaction with any of its Affiliates or any of their respective
directors, officers, employees or stockholders, including, without
limitation, any (x) loan or advance funds, or made any other payments,
to any of its directors, officers, employees, stockholders or
Affiliates, (y) creation or discharge of any intercompany account,
other than in the ordinary course of business consistent with past
practice, or (z) any payment or declaration of any dividend,
redemption or other distribution with respect to their respective
capital stock;
(xv) experienced any changes with respect to its Intellectual
Property, other than such changes which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect;
(xvi) experienced any changes in the amount or scope of coverage
of insurance now carried by them other than such changes which,
individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect; or
(xvii) committed to do any of the foregoing.
(b) Except as provided in Schedule 4.6 hereto and except as expressly
contemplated by this Agreement, since the Balance Sheet Date the Company has not
declared, set aside or paid any dividends or made, or agreed to make, any other
payments (whether in cash, stock or property) in respect of its capital stock.
4.7 Title to Assets. Except as set forth on Schedule 4.7(a), the
Company and the Subsidiaries own no real property. Schedule 4.7(b) sets forth a
list of all of the leases and subleases and a true, correct and complete common
street address of each leased and subleased parcel of real property in which the
Company or any Subsidiary has a leasehold or subleasehold interest (the "Leased
Real Property"). The Company and the Subsidiaries have valid and subsisting
leasehold interests in the Leased Real Property, and title to, leaseholds or
licenses in, or valid rights to use, all other property and other assets,
tangible or intangible of the Company and the Subsidiaries that are used or
useful in the operation of their respective businesses (collectively, the
"Assets") free and clear of any Encumbrances other than Permitted Encumbrances.
4.8 Condition and Sufficiency of Assets. The Assets constitute all of
the assets necessary to conduct the business of the Company and the Subsidiaries
as presently conducted and in accordance with the intended conduct of the
Company's business. The current use or occupancy of the Leased Real Property
does not violate in any respect any instrument of record or agreement affecting
such Leased Real Property or any covenant, condition, restriction, easement,
agreement or order of any governmental authority having jurisdiction over any of
the Leased Real Property. The machinery, equipment, vehicles, furniture,
fixtures and other similar tangible assets included among the Assets are free
from defects (patent and latent), have been maintained in accordance with normal
industry practice, are in good condition and repair (ordinary wear and tear
excepted) and are suitable for the purposes for which they are presently used
and for which they are proposed to be used.
4.9 Contracts. (a) Schedule 4.9 contains a complete and accurate list
of each of the following Contracts:
(i) agreements or instruments imposing an Encumbrance on any of
the Assets;
(ii) Contracts relating to indebtedness, liability for borrowed
money or the deferred purchase price of property (excluding trade
payables in the ordinary course of business) or any guarantee or other
contingent liability in respect of any indebtedness or obligation of
any Person (other than the endorsement of negotiable instruments for
collection in the ordinary course of business);
(iii) loans or advances to, or investments in, any Person, any
Contracts relating to the making of any such loans, advances or
investments or any Contracts involving a sharing of profits;
(iv) Contracts that contain restrictions with respect to payment
of dividends or any other distribution in respect of the capital stock
of the Company or any Subsidiary;
(v) any letters of credit or similar arrangements relating to the
Company or any Subsidiary;
(vi) guaranties of any obligation for borrowed money or
otherwise, other than endorsements made for collection, and any other
similar or related type of agreement relating to the Company or any
Subsidiary;
(vii) any employment agreements with any employee of the Company
or any Subsidiary or other person on a full-time or consulting basis
providing for an annual compensation in excess of $50,000 or providing
for the payment of any cash or other compensation upon the sale of the
Company or any Subsidiary;
(viii) any management, consulting or advisory agreements, or
severance plans or arrangements for any present or former employee of
the Company or any Subsidiary;
(ix) any non-disclosure agreements and non-compete agreements
binding present and former employees of the Company or any Subsidiary;
(x) any agreement under which the Company or any Subsidiary is
lessee of or holds or operates any real property or any personal
property for which the annual rental exceeds $25,000;
(xi) any agreement under which the Company or any Subsidiary is
lessor of or permits any third party to hold or operate any property,
real or personal, for which the annual rental exceeds $25,000;
(xii) any agreement or group of related agreements between the
Company or any Subsidiary and the same party for the sale or purchase
of products or services under which the undelivered balance of such
products and services has a price in excess of $50,000;
(xiii) any other agreement or group of related agreements between
the Company or any Subsidiary and the same party continuing over a
period of more than six months from the date or dates thereof, not
terminable by it on 30 days' or less notice without penalty or
involving more than $50,000;
(xiv) any agreement relating to the acquisition or divestiture of
the capital stock or equity securities, assets or business of any
Person, the Company or any Subsidiary involving consideration in
excess of $50,000 or pursuant to which the Company or any Subsidiary
has any liability, contingent or otherwise;
(xv) any powers of attorney granted by or on behalf of the
Company or any Subsidiary (including those granted to customs brokers)
and other agency agreements;
(xvi) any agreement which prevents the Company or any Subsidiary
from disclosing confidential information or which prohibits the
Company or any Subsidiary from freely engaging in business anywhere in
the world;
(xvii) any sales distribution agreements, franchise agreements
and advertising agreements relating to the Company or any Subsidiary;
(xviii) any warranty, guaranty or other similar undertaking with
respect to a contractual performance extended by the Company or any
Subsidiary, other than in the ordinary course of business;
(xix) any agreement pursuant to which the Company or any
Subsidiary has agreed to defend, indemnify or hold harmless any other
Person; and
(xx) any other agreement material to the Company or any
Subsidiary.
(b) The Company has delivered to the Purchaser a true and complete
copy of each written arrangement listed on Schedule 4.9, as amended to date.
With respect to each written arrangement so listed: (i) the written arrangement
is in full force and effect and is valid and enforceable in accordance with its
terms; (ii) neither the Company nor any Subsidiary is in breach or default
thereof; (iii) no event has occurred which, with notice, or lapse of time or
both, would constitute a breach or default thereof by the Company or any
Subsidiary or constitute a breach or default thereof by any other party thereto;
(iv) no event has occurred that would permit termination, modification, or
acceleration thereof by any other party thereto; and (v) neither the Company nor
any Subsidiary has repudiated and no other party thereto has repudiated or acted
in a manner inconsistent with any provision thereof. The Contracts constitute
all of the contracts necessary to conduct all operations of the Company in
accordance with the intended conduct of the Company's business. Neither the
Company nor any Subsidiary is a party to any verbal contract, agreement, or
other arrangement which, if reduced to written form, would be required to be
listed on Schedule 4.9 under the terms of this Section 4.9.
4.10 No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the
Organizational Documents of the Company or any Subsidiary, (b) a breach of, a
default under, or a right of termination, cancellation, acceleration or payment
with respect to, or the creation of any Encumbrance upon, any of the assets or
properties of the Company or any of the Stockholders pursuant to, any Contract
to which the Company, any Subsidiary or any of the Stockholders is a party or is
subject or by which any asset of the Company, any of the Subsidiaries or any of
the Stockholders is bound, or (c) a violation by the Company, any Subsidiary or
any of the Stockholders of any statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree or award.
4.11 Consents and Approvals. Except as provided in Schedule 4.11, no
consent, approval, authorization or other action by, or filing with or
notification to, any governmental or regulatory authority or other third party
is required to be made or obtained by the Company or any of the Stockholders on
or prior to the Closing Date in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement.
4.12 Litigation. Except as provided in Schedule 4.12 hereto, there is
no action, order, writ, injunction, judgment or decree outstanding, or suit,
litigation, proceeding, labor dispute (other than routine uncontested claims for
benefits under any benefit plans for any officers, employees or agents of the
Company or the Subsidiaries), arbitration, investigation or reported claim,
pending or threatened, before any court, governmental entity or arbitrator
(collectively, "Actions"), relating to (i) the Company or any Subsidiary, (ii)
any Benefit Plan or any fiduciary or administrator thereof, (iii) the Assets, or
(iv) the transactions contemplated by this Agreement. Neither the Company, any
of the Subsidiaries nor any Stockholder is subject to any order, decree or
judgment entered in any Action.
4.13 Compliance with Law; Permits and Licenses. Except as provided in
Schedule 4.13, each of the Company, the Subsidiaries and their respective
predecessors has complied and is in compliance with all laws, rules,
regulations, codes, and plans, and all injunctions, judgments, orders, decrees
or rulings of every court and Governmental Body (collectively, the
"Regulations"), in each case, as applicable to such Person, its assets or
operations and neither the Company nor any Subsidiary has received notice of any
unremedied violation of any Regulation. Schedule 4.13 sets forth a list of all
governmental or regulatory licenses, permits and authorizations (collectively,
"Permits") held by any of the Company or any Subsidiary. All such Permits are in
full force and effect. Except as set forth in Schedule 4.13, the Permits listed
on Schedule 4.13 comprise all Permits necessary for conduct of the business of
the Company and the Subsidiaries as currently conducted and in accordance with
the intended conduct of the Company's business except for Permits the absence of
which shall not have a Material Adverse Effect on the Company.
4.14 Intellectual Property. (a) Schedule 4.14 sets forth a complete
and correct list and description (including expiration dates) of all (i) patents
or registered Intellectual Property and pending patent applications or other
applications for registrations of any Intellectual Property owned or filed by
any of the Company and the Subsidiaries; (ii) all trade names and unregistered
trademarks used by any of the Company and the Subsidiaries in connection with
their respective businesses; and (iii) all license agreements relating to the
Intellectual Property to which any of the Company and the Subsidiaries is a
party, including each license, agreement, or other permission which any of the
Company and the Subsidiaries has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions) and each item of
Intellectual Property that any third party owns and that any of the Company and
the Subsidiaries uses or propose to use pursuant to license, sublicense,
agreement or permission.
(b) With respect to the Intellectual Property: (i) each of the Company
and the Subsidiaries owns and possesses all right, title and interest in and to,
or has a valid and enforceable license to use, the Intellectual Property
necessary for the operation of any of the Company and the Subsidiaries'
businesses as currently conducted; (ii) no claim by any third party contesting
the validity, enforceability, use or ownership of any of the Intellectual
Property has been made or is threatened; (iii) none of the Company and the
Subsidiaries has received any notices of any infringement or misappropriation by
any third party with respect to the Intellectual Property; (iv) none of the
Company and the Subsidiaries has infringed, misappropriated or otherwise
conflicted with any proprietary rights of any third parties; and (v) all of the
Intellectual Property owned or used by each of the Company and the Subsidiaries
immediately prior to the Closing, including any pending patent applications,
will be owned or available for use by any of the Company and the Subsidiaries
immediately after the Closing.
4.15 ERISA. (a) Schedule 4.15 lists each Benefit Plan.
(i) Each such Benefit Plan (and each related trust, insurance
contract, or fund) complies in form and in operation in all respects
with the applicable requirements of ERISA, the Code, and other
applicable laws.
(ii) All required reports and descriptions (including, without
limitation, Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such Benefit Plan. The
requirements of Part 6 of Subtitle B of Title I of ERISA and of Code
Section 4980B have been met with respect to each such Benefit Plan
which is an Employee Welfare Benefit Plan (as defined in ERISA Section
3(1)).
(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Benefit Plan which is an Employee Pension Benefit Plan
(as defined in ERISA Section 3(2)) and all contributions for any
period ending on or before the Closing Date which are not yet due have
been paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the Company and the
Subsidiaries. All premiums or other payments for all periods ending on
or before the Closing Date have been paid with respect to each such
Benefit Plan which is an Employee Welfare Benefit Plan.
(iv) Each such Benefit Plan which is an Employee Pension Benefit
Plan meets the requirements of a "qualified plan" under Code Section
401(a) and is the subject of a favorable determination letter from the
Internal Revenue Service, which letter is in full force and effect.
(v) The market value of assets under each such Benefit Plan which
is an Employee Pension Benefit Plan subject to Title IV of ERISA
(other than any Multi-employer Plan (as defined in ERISA Section
3(37))) equals or exceeds the present value of all vested and
nonvested liabilities thereunder determined in accordance with Pension
Benefit Guaranty Corporation ("PBGC") methods, factors, and
assumptions applicable to an Employee Pension Benefit Plan terminating
on the date for determination.
(vi) No benefit under any Benefit Plan will be accelerated, or
become vested or payable by reason of any transaction contemplated
hereby.
(vii) The Company has delivered to the Purchaser correct and
complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts, and other funding
agreements which implement each such Benefit Plan.
(b) With respect to each Benefit Plan that the Company or an ERISA
Affiliate maintains or ever has maintained or to which any of them contributes,
ever has contributed, or ever has been required to contribute:
(i) No such Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multi-employer Plan) has been completely or
partially terminated or been the subject of a Reportable Event (as
defined in ERISA Section 4043) as to which notice would be required to
be filed with the PBGC. No proceeding by the PBGC to terminate any
such Employee Pension Benefit Plan (other than any Multi-employer
Plan) has been instituted or threatened.
(ii) There have been no Prohibited Transactions (as defined in
ERISA Section 406 and Section 4975 of the Code) with respect to any
such Employee Benefit Plan. No Fiduciary (as defined in ERISA Section
3(21)) of any Benefit Plan has any liability for breach of fiduciary
duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Benefit Plan.
No action, suit, proceeding, hearing, or investigation with respect to
the administration or the investment of the assets of any such Benefit
Plan (other than routine claims for benefits) is pending or
threatened. Neither the Company, the Subsidiaries nor their directors
and officers (and employees with responsibility for employee benefits
matters) has any Knowledge of any basis for any such action, suit,
proceeding, hearing, or investigation.
(iii) None of the Company and the Subsidiaries has incurred, and
none of their directors and officers (and employees with
responsibility for employee benefits matters) has any reason to expect
that any of the Company and the Subsidiaries will incur, any liability
to the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal liability) or under the
Code with respect to any such Benefit Plan which is an Employee
Pension Benefit Plan.
(iv) Neither the Company nor any ERISA Affiliate, contributes to,
ever has contributed to, or ever has been required to contribute to
any Multi-employer Plan or has any liability (including withdrawal
liability) under any Multi-employer Plan.
(v) None of the Company and the Subsidiaries maintains or ever
has maintained or contributes, ever has contributed, or ever has been
required to contribute to any Employee Welfare Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses, or
their dependents, other than as listed in Schedule 4.15 and which is
in compliance with Code Section 4980B.
4.16 Taxes. (a) Each of the Company and the Subsidiaries has duly
filed, or caused to be filed, or will file or cause to be filed, on a timely
basis all Tax Returns required to be filed on or before the Closing Date by or
on behalf of the Company or the Subsidiaries. All such Tax Returns are true,
correct and complete in all material respects. None of the Company or any of the
Subsidiaries is the beneficiary of any extension of time within which to file
any Tax Return. No power of attorney with respect to Taxes has been executed or
filed with any Taxing Authority by or on behalf of the Company or any
Subsidiary. No claim has ever been made by any authority in a jurisdiction in
which the Company or any Subsidiary does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. The Company and the Subsidiaries
have timely paid, or will timely pay on or prior to the Closing Date, all Taxes
shown on returns to be due by or with respect to the income, assets or
operations of the Company and the Subsidiaries for all periods through the
Closing Date or has made adequate provision for such Taxes by a tax accrual or
tax reserve (determined in accordance with GAAP) on the Balance Sheet. All Taxes
owed by the Company or any of the Subsidiaries (whether or not shown on any Tax
Return), including any deficiency resulting from any audit or examination
relating to Taxes by any Taxing Authority, have been paid or, if not yet due,
have been accrued on the Company's Balance Sheet.
(b) There are no liens for Taxes upon the assets of the Company or of
any of the Subsidiaries except liens for current Taxes not yet due and payable
or liens imposed for a nonpayment of Taxes which are currently being contested
in good faith by the Company or a Subsidiary as set forth on Schedule 4.16 and
for which adequate reserves have been maintained on the Balance Sheet in
accordance with generally accepted accounting principles.
(c) Each of the Company and the Subsidiaries has complied in all
respects with all applicable laws relating to the payment and withholding of
Taxes (including withholding Taxes pursuant to Sections 1441, 1442, 3121 and
3042 of the Code or any comparable provision of any state, local, or foreign
laws) and has, within the time and in the manner prescribed by applicable law,
withheld from and paid over to the proper Taxing Authorities all amounts
required to be so withheld and paid over under such laws.
(d) Schedule 4.16 sets forth (i) each taxable year or other taxable
period of the Company and the Subsidiaries for which an audit or other
examination of Taxes of the Company or any of the Subsidiaries by the
appropriate tax authorities of any nation, state or locality is currently in
progress together with the names of the respective tax authorities conducting
(or scheduled to conduct) such audit or examination and a description of the
subject matter of such audits or examinations, (ii) the most recent taxable year
or other taxable period for which an audit or other examination relating to
federal income taxes of the Company and the Subsidiaries has been finally
completed and the disposition of such audits or examinations, (iii) the taxable
years or other taxable periods of the Company and the Subsidiaries which will
not be subject to the normally applicable statute of limitations by reason of
the existence of circumstances that would cause any such statute of limitations
for applicable Taxes to be extended, (iv) the amount of any proposed adjustments
(and the principal reason therefor) relating to any Tax Returns for Tax
liability of the Company or the Subsidiaries which have been proposed or
assessed by any taxing authority and (v) a list of all written notices received
by the Company or the Subsidiaries, or any affiliate of the foregoing, from any
taxing authority relating to any issue which could affect the Tax liability of
the Company or the Subsidiaries, which issue has not been finally determined and
which, if determined adversely to the Company or the Subsidiaries, could result
in a Tax liability. No issues relating to Taxes were raised by the relevant
Taxing Authority in any completed audit or examination that can reasonably be
expected to recur in a later taxable period.
(e) Neither the Company nor any of the Subsidiaries has been included
in any "consolidated", "unitary" or "combined" Tax Return provided for under the
law of the United States, any foreign jurisdiction or any state or locality with
respect to Taxes for any taxable period for which the statute of limitations has
not expired (other than a federal consolidated income Tax Return with respect to
which the Company is the common parent).
(f) All Taxes which the Company or any of the Subsidiaries is (or was)
required by law to withhold or collect have been duly withheld or collected, and
all such Taxes have been timely paid over to the proper authorities to the
extent due and payable.
(g) There are no Tax sharing, allocation, indemnification or similar
agreements or arrangements in effect as between the Company, the Subsidiaries or
any predecessor or affiliate thereof and any other party under which the
Purchaser, the Company or any of the Subsidiaries could be liable for any Taxes
or other claims of any party after the Closing Date.
(h) The Company is not a party to any agreement that would require it
to make any payment that would constitute an "excess parachute payment" for
purposes of Sections 280G and 4999 of the Code. No acceleration of the vesting
schedule for any property that is substantially unvested within the meaning of
the Treasury Regulations under Section 83 of the Code will occur in connection
with the transactions contemplated by this Agreement.
(i) Neither the Company nor any of the Subsidiaries has applied for,
been granted, or agreed to any accounting method change for which it will be
required to take into account any adjustment under Section 481 of the Code or
any similar provision of the Code or the corresponding tax laws of any nation,
state or locality. Neither the Company nor any of the Subsidiaries will be
required to include in a taxable period ending after the Closing Date any
material amount of taxable income attributable to income that accrued, but was
not recognized, in a Pre-Closing Tax Period, as a result of an adjustment under
Section 481 of the Code, the installment method of accounting, the long-term
contract method of accounting, the cash method of accounting, any comparable
provision of state, local or foreign Tax law, or for any other reason.
(j) No indebtedness of the Company or any of the Subsidiaries consists
of "corporate acquisition indebtedness" within the meaning of Section 279 of the
Code.
(k) Neither the Company, nor any of the Subsidiaries has applied for
and not yet received a ruling or determination from a taxing authority regarding
a past or prospective transaction of the Company or any of the Subsidiaries.
(l) No election under Section 341(f) of the Code has been made or
shall be made prior to the Closing Date to treat the Company or any of the
Subsidiaries as a consenting corporation within the meaning of Section 341 of
the Code.
(m) The Company has delivered to the Purchaser correct and complete
copies of (i) all federal, state and foreign income, franchise and similar Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by the Company or any Subsidiary since the date of their
incorporation, (ii) all private letter rulings, revenue agent reports,
information document requests, notices of proposed deficiencies, protests,
petitions, closing agreements, settlement agreements, pending ruling requests,
and (iii) any similar documents submitted by, received by or agreed to by or on
behalf of the Company or any Subsidiary, for all taxable periods for which the
statute of limitation has not yet expired.
(n) Schedule 4.16 sets forth the basis of each of the Company and the
Subsidiaries in its respective assets.
(o) Schedule 4.16 sets forth a true and accurate list of those states
and jurisdictions where the Company is treated as an S corporation.
(p) Except as set forth in Schedule 4.16, (a) the Company is, and has
been at all times since its inception, an S corporation for federal income tax
purposes.
(q) Neither the Company nor any Subsidiary has any net unrealized
built-in gain, as defined in Section 1374(d)(1) of the Code, which would be
subject to tax upon a sale of its assets pursuant to Section 1374(a) of the
Code.
(r) None of the Subsidiaries are treated as a corporation for federal
income tax purposes.
4.17 Environmental Laws and Regulations. Except in accordance with
applicable Environmental Laws and so as not to give rise to an Environmental
Claim:
(i) Hazardous Materials have not been generated, used, treated or
stored on, transported to or from, or Released on, at or from, any
past or present facilities, properties or operations of the Company or
the Subsidiaries or of any of their respective predecessors or
Affiliates and (y) Hazardous Materials have not been disposed of on
any past or present facilities, properties or operations of the
Company or the Subsidiaries or of any of their respective predecessors
or Affiliates;
(ii) the Company and the Subsidiaries and all of their
facilities, properties and operations are in compliance with all
applicable Environmental Laws and the requirements of any Permits
issued under such Environmental Laws; and
(iii) there are no pending or threatened Environmental Claims
against the Company or any Subsidiaries or any past or present
facilities, properties or operations of the Company or the
Subsidiaries or of any of their respective predecessors or Affiliates.
4.18 Labor Matters. (a) Neither the Company nor any Subsidiary is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by them.
(b) (i) The Company and each of the Subsidiaries is in compliance with
all federal, state and other applicable laws, domestic or foreign, respecting
employment and employment practices, terms and conditions of employment, wages
and hours, immigration, the payment of social security and similar taxes,
occupational safety and health and plant closing, and has not and is not engaged
in any unfair labor practice; (ii) no unfair labor practice complaint against
the Company or any of the Subsidiaries is pending before the National Labor
Relations Board; (iii) there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against or involving the Company or any of the
Subsidiaries; (iv) no representation question exists respecting the employees of
the Company or any of the Subsidiaries; (v) no grievance which might have an
adverse effect upon the Company or any of the Subsidiaries or the conduct of
their respective businesses exists, no arbitration proceeding arising out of or
under any collective bargaining agreement is pending and no claim therefor has
been asserted; (vi) no collective bargaining agreement is currently being
negotiated by the Company or any of the Subsidiaries; and (vii) neither the
Company nor any of the Subsidiaries has experienced any labor difficulty during
the last four years.
4.19 Insurance. The Company has delivered to the Purchaser a true and
complete copy of, and Schedule 4.19 sets forth the following information with
respect to, each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company or any Subsidiary has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past
five years:
(i) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(ii) the policy number and the period of coverage;
(iii) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(iv) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is in full
force and effect; (B) the policy will continue to be in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any Subsidiary nor, to the Knowledge of the
Company, any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices, and, to the
Knowledge of the Company, no event has occurred which, with notice or the lapse
of time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) no party to the policy
has repudiated any provision thereof. Since the date of the last renewal of any
insurance policy, there has not been any change in the relationship of the
Company or any of the Subsidiaries with its insurers or in the premiums payable
pursuant to such policies. Except as provided in Schedule 4.19, the Company and
the Subsidiaries have been covered during the four-year period by insurance in
scope and amount customary and reasonable for the businesses in which it has
engaged during such period. Schedule 4.19 describes any self-insurance
arrangements affecting the Company or any Subsidiary.
4.20 No Undisclosed Liabilities. To the Knowledge of the Company,
neither the Company nor any of the Subsidiaries has any claims, liabilities or
indebtedness, contingent or otherwise, except as set forth on the Balance Sheet
attached hereto as Exhibit 4.5 or referred to in the footnotes thereto, other
than liabilities incurred subsequent to the date of the Balance Sheet in the
ordinary course of business consistent with past practice (none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of law
or arising out of any action, suit or legal, administrative or arbitration
proceeding or investigation before or by any Governmental Body). Neither the
Company nor any Subsidiary is in default in respect of the terms and conditions
of any indebtedness or obligation. Neither the Company nor the Subsidiaries has
any liabilities that arose or accrued from the date of the Balance Sheet, except
in the ordinary course of business consistent with past practice.
4.21 Affiliated Transactions. Except for salaries paid to officers in
the ordinary course of business and reflected on the Balance Sheet or set forth
on Schedule 4.21, neither the Company nor any of the Subsidiaries have, within
the past five years, (i) paid, loaned or advanced any amount to, (ii) sold,
purchased, transferred or leased any properties or assets to or from, or (iii)
entered into or continued any agreement, arrangement or understanding (written
or otherwise) with, any of its officers, directors, stockholders or any
"affiliate" or "associate" ( as such terms are defined in the Exchange Act) of
any such Persons (other than the Company or the Subsidiaries).
4.22 Interests in Clients, Suppliers. Except as provided in Schedule
4.22 hereto, neither the Company nor any officer or director of the Company or
any of the Subsidiaries possesses, directly or indirectly, any financial
interest in, or is a director, officer or employee of, any entity that is a
client, vendor, supplier, customer, lessor, lessee or competitor or potential
competitor of the Company or any of the Subsidiaries. Ownership of securities of
a company whose securities are registered under the Exchange Act of 1% or less
of any class of such securities shall not be deemed to be a financial interest
for purposes of this Section 4.22.
4.23 Brokers. The Stockholders have not employed, and are not subject
to any valid claim of, any broker, finder, investment banker, consultant or
other intermediary in connection with the transactions contemplated by this
Agreement who will be entitled to a fee or commission in connection with such
transactions. The Stockholders are solely responsible for any payment, fee or
commission that may be due to Stockholders' advisors, if any, in connection with
the transactions contemplated hereby.
4.24 Year 2000 Compliance. The Company has reviewed its products,
business and operations that could be adversely affected by the risk that
computer applications used by the Company and the Subsidiaries may be unable to
recognize and properly perform date-sensitive functions involving dates prior to
and after December 31, 1999 (the "Year 2000 Problem"). The Company believes its
internal information and business systems will be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000. In
addition, the Company is currently surveying those vendors, suppliers and other
third parties (collectively, the "Outside Parties") with which the Company and
the Subsidiaries do business and whose failure to adequately address the Year
2000 Problem could reasonably be expected to adversely affect the business and
operations of the Company and the Subsidiaries. Based upon the aforementioned
internal review and surveys of the Outside Parties as of the date of this
Agreement, the Year 2000 Problem has not resulted in, and is not reasonably
expected to have, a Material Adverse Effect.
4.25 Loans; Investments. Except as otherwise disclosed in Schedule
4.25,
(a) Each Loan reflected as an asset on the Balance Sheet dated as of
September 30, 1999 is evidenced by appropriate and sufficient documentation and
constitutes the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Except as set forth in Schedule 4.25, all such Loans are, and at the Closing
will be, free and clear of any Encumbrances.
(b) All guarantees of indebtedness owed to the Company or any
Subsidiary, including but not limited to those of the Federal Housing
Administration, the Small Business Administration, and other state and federal
agencies, are valid and enforceable, except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(c) All interest rate swaps, caps, floors and option agreements and
other interest rate risk management arrangements to which the Company or any
Subsidiary is a party or by which any of their properties or assets may be bound
were entered into in the ordinary course of business and, in accordance with
then-customary practice and applicable rules, regulations and policies of
regulatory authorities and with counterparties believed to be financially
responsible at the time and are legal, valid and binding obligations and are in
full force and effect. The Company or any Subsidiary have duly performed in all
material respects all of their respective obligations thereunder to the extent
that such obligations to perform have accrued, there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder. None of the transactions contemplated by this Agreement would permit
(i) a counterparty under any interest rate swap, cap, floor and option agreement
or any other interest rate risk management agreement or (ii) any party to any
mortgage backed security financing arrangement, to accelerate, discontinue,
terminate, or otherwise modify any such agreement or arrangement or would
require the Company or any Subsidiary to recognize any gain or loss with respect
to such arrangement.
(d) All outstanding Loans sold by Company or the Subsidiaries complied
in all material respects with Investor Requirements on the date of sale.
(e) The Company and any of the Subsidiaries have at all times been and
are in compliance in all material respects with the Servicing Requirements
relating to the Serviced Loans and Loans previously serviced by any of them.
(f) Neither the Company nor any Subsidiary has any advances
outstanding with respect to any Loan, except for advances made under the
Servicing Requirements.
(g) Neither the Company nor any Subsidiary is in default with respect
to any of its obligations under any Loan.
(h) To the best Knowledge of the Company, neither the Company nor any
Subsidiary is in violation in any material respect of any applicable federal,
state, or local law, statute, ordinance, rule, regulation, order or guideline
pertaining to the Loans, its origination or production practices, or otherwise
relating to its purchase or sale of Loans or its lending business, including but
not limited to, real estate settlement procedures, fair credit reporting, and
every other prohibition against unlawful discrimination or governing consumer
credit, and also including, without limitation, the Consumer Credit Reporting
Act, Equal Credit Opportunity Act of 1975 and Regulation B, Fair Credit
Reporting Act, Truth in Lending Law, in particular, Regulation Z as amended, the
Flood Disaster Protection Act of 1973, and state consumer credit codes and laws.
(i) The Company is a ▇▇▇▇▇▇ ▇▇▇ approved seller/servicer in good
standing. The Company has not received notice from any governmental,
quasi-governmental or private agency of pending or threatened actions or
investigations which would question the status of the Company as an approved
lender, seller/servicer or issuer of securities which has not heretofore been
corrected without fines, penalties or restrictions on the Company. No event has
occurred which, with the passage of time or the giving of notice, or both, would
result in the loss by the Company of its qualification as an approved lender,
seller/servicer or issuer or of the Company as a contractor or as a person
otherwise permitted to transact business with any governmental,
quasi-governmental or private agency.
(j) The terms of each Loan have not been impaired, waived, altered or
modified in any material respect from the date of its origination except by a
written instrument, which written instrument has been recorded if recordation is
necessary to protect the interests of the owner thereof. The substance of any
such waiver, alteration or modification has been communicated to and approved in
writing by:(i) the relevant Investor, to the extent required by the relevant
Investor Requirements; and (ii) the title insurer, to the extent required by the
relevant policies, and its terms are reflected in the Loan Documents. Except as
authorized by the applicable Investor, where the Investor's authorization is
required, neither the Company nor any Subsidiary has: (i) subordinated the lien
of any Mortgage Loan to any other mortgage or lien or given any other mortgage
or lien equal priority with the lien of a mortgage loan; or (ii) executed any
instrument of release, cancellation or satisfaction with, in whole or in part,
respect to any Mortgage Loan.
(k) As of the date hereof, neither the Company nor any Subsidiary is
subject to any repurchase obligation under any Loan.
(l) All escrows required to be maintained by the Company pursuant to
the terms of the Mortgage Loans have been maintained by the Company or any
Subsidiary and, all prior servicers, in all material respects in accordance with
all applicable legal rules and Investor Requirements and in accordance with the
mortgage servicing agreements and the Loan Documents related thereto. The
Company and the Subsidiaries have credited to the account of mortgagors all
interest required to be paid on any escrow account. All escrow, custodial, and
suspense accounts related to the owned Mortgage Loans held by the Company are
held in the Company's or Subsidiary's name or in the Investor's name. With
respect to escrow deposits and payments which are required to be collected, all
such payments are in the possession of, or under the control of, the Company or
Subsidiary or an authorized subservicer, and there exist no material
deficiencies in connection therewith for which customary arrangements for
repayment thereof have not been made. No escrow deposits or other charges or
payments have been capitalized under any mortgage or the related mortgage note.
(m) Neither the Company nor any Subsidiary has received written notice
of a servicing default of the Company or any Subsidiary for any Loan, and each
Loan serviced by the Company or any Subsidiary has been properly serviced and
accounted for in all material respects in accordance with the applicable
Servicing Requirements. To the extent that any applicable legal requirement in
any jurisdiction or any Investor Requirement requires the payment of interest on
escrow accounts with respect to any particular Loan and the Company or any
Subsidiary services such Loans, all such interest has been properly paid or
arrangements for such payment has been made. All amounts payable in respect of a
Loan, or the property covered by a mortgage which the Company or any Subsidiary
is responsible for paying, directly or on behalf of a mortgagor, have, in all
material respects, been paid prior to becoming delinquent. All pools for which
the Company or any Subsidiary is responsible are in compliance in all material
respects with all applicable Investor Requirements, procedures, rules,
regulations and guidelines.
(n) Schedule 4.25 contains a description of each Loan serviced by the
Company or owned by the Company which, as of the date hereof, has a balance over
$1 million and a prepayment penalty less than 5% of the principal amount.
(o) Except as disclosed on Schedule 4.25, neither the Company nor any
Subsidiary has any Portfolio Loan. All Loans held by the Company or any
Subsidiary are Loans Held for Sale.
4.26 Allowance for Possible Loan Losses. The aggregate principal
amount of loans contained in the loan portfolio of the Company and any
Subsidiary as of September 30, 1999, as shown on the Balance Sheet, was fully
collectible in an amount equal to or not less than the amount of loans listed on
the Balance Sheet.
4.27 Investment Purposes. Each of the Stockholders is purchasing the
shares of Common Stock for his own account, for investment purposes only and not
with a view towards or in connection with the public sale or distribution
thereof in violation of the Securities Act.
4.28 Accredited Investor. Each of the Stockholders is (i) an
"accredited investor" within the meaning of Rule 501 of Regulation D under the
Securities Act, (ii) experienced in making investments of the kind contemplated
by this Agreement, (iii) capable, by reason of its business and financial
experience, of evaluating the relative merits and risks of an investment in
Common Stock, and (iv) able to afford the loss of its investment in Common
Stock.
4.29 Exemption. Each of the Stockholders understands that the Shares
of Common Stocks are being offered and sold by the Purchaser in reliance on an
exemption from the registration requirements of the Securities Act and
equivalent state securities and "blue sky" laws, and that the Purchaser is
relying upon the accuracy of, and Stockholders' compliance with, Stockholders'
representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of each of the
Stockholders to purchase the shares of Common Stock. Each of the Stockholders
understands that the shares of Common Stock to be acquired by such Stockholder
have not been approved or disapproved by the Securities and Exchange Commission
or any state securities commission.
4.30 Due Diligence. Each of the Stockholders has been given the
opportunity for a reasonable time prior to the date hereof to ask questions of,
and receive answers from, the Purchaser or its Representatives concerning the
Purchaser and the Common Stock, and has been given the opportunity for a
reasonable time prior to the date hereof to obtain such additional information
necessary to verify the accuracy of the information which was provided to the
extent the Purchaser possesses such information or can acquire it without
unreasonable effort or expense.
4.31 Exclusivity of Preparation. No representations or warranties have
been made to the Stockholders by the Purchaser, or any Representative of the
Purchaser, other than the representations of the Purchaser contained herein, and
in acquiring the Common Stock, the Stockholders are not relying upon any
representations other than those contained herein.
4.32 No Advertisement. Neither of the Stockholders is purchasing the
Common Stock as a result of or subsequent to any advertisement, article, notice
or other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, any seminar or meeting or any solicitation
of a subscription by a person or entity not previously known to the Stockholders
in connection with investments in securities generally.
4.33 Accuracy of Representations. No representation or warranty made
by the Company or the Stockholders in this Agreement or any document or
statement delivered, or to be delivered, by or on behalf of the Company or the
Stockholders pursuant hereto contains or, as of the Closing Date, will contain
any untrue statement of a material fact or omits or, as of the Closing Date,
will omit to state a material fact necessary to make the statements contained
herein or therein not misleading.
4.34 Disclosure. No statement of fact made by the Company or the
Stockholders in this Agreement contains any untrue statement of a material fact
or omits to state any material fact necessary to make statements contained
herein or therein not misleading. There is no material fact peculiar to the
Company, any Subsidiary or the Stockholders which has not been disclosed to the
Purchaser.
4.35 Mortgage Banking. The Company does not securitize any of its
Loans for resale and does not service any Loans that it does not own.
ARTICLE V
ACTIONS BY THE PURCHASER, THE STOCKHOLDERS
AND THE COMPANY PRIOR TO THE CLOSING
5.1 Conduct of Business. From the date hereof through the Closing
Date, the Company covenants and agrees that it shall, and the Stockholders
covenant and agree that they shall cause the Company to, conduct its business
only in the ordinary course and in a manner consistent with the current practice
of the Company and the Subsidiaries.
5.2 Certain Restrictions on the Company. Except for the transactions
with the Purchaser, from the date hereof through the Closing Date, the
Stockholders shall cause the Company not to, and the Company shall not, and
shall cause each Subsidiary not to, without the prior written approval of the
Purchaser:
(a) except in the ordinary course of business, sell, assign or
transfer any asset of the Company or any Subsidiary, which has a fair market
value in excess of $10,000 or which, when aggregated with all other sales
pursuant to this Section 5.2 causes the aggregate value of such sales to exceed
$25,000;
(b) mortgage, pledge or otherwise encumber any material assets of the
Company or any Subsidiary;
(c) incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for obligations of any other Person or
make any loans or advances to any Person;
(d) issue or commit to issue any shares of capital stock, obligations
or other securities of the Company or any Subsidiaries or any securities
convertible into or exchangeable for such capital stock, obligations or other
securities or any warrants, options or rights to subscribe for or purchase any
capital stock or obligations or any other securities of the Company or any
Subsidiaries or any securities convertible into or exchangeable for such capital
stock, obligations or other securities;
(e) terminate, cancel or amend any insurance coverage maintained by
the Company or any of the Subsidiaries with respect to any assets of the Company
or any Subsidiary which is not replaced by a substantially comparable amount of
insurance coverage;
(f) amend or authorize any amendment to its Organizational Documents;
(g) declare, set aside or pay any dividends or distributions or make
any other payments (whether in cash, stock or property) in respect of any
capital stock of the Company or any Subsidiary, or redeem, directly or
indirectly, purchase or otherwise acquire any of the capital stock of the
Company or any Subsidiary or effect a split or combination with respect to any
shares of such capital stock;
(h) pay (other than in the ordinary course of business, consistent
with past practice) or increase any bonuses, salaries, or other compensation of
any director, officer or employee or enter into any employment, severance or
similar agreement with any director, officer or employee;
(i) adopt or increase any profit sharing, bonus, deferred
compensation, savings, insurance, pension, retirement or other employee benefit
plan (including, without limitation, any Benefit Plan) for or with any of their
employees;
(j) enter into, modify, amend, cancel or terminate any material
Contract, other than in the ordinary course of business consistent with past
practice;
(k) cancel or waive any claim or right, which individually or, in the
aggregate, is material;
(l) make any capital expenditure in excess of $50,000 individually or
$100,000 in the aggregate;
(m) repay any indebtedness of the Company or the Subsidiaries, other
than in the ordinary course of business, or make any voluntary prepayment or
redemption in respect of any indebtedness of the Company or the Subsidiaries;
(n) delay or defer any expenses (including capital expenditures,
liabilities or obligations of any kind whatsoever), or accelerate any income,
revenue, payment or similar item, other than in the ordinary course of business;
(o) terminate any Benefit Plan that is intended to be qualified under
Section 401(a) of the Code or any related trust intended to be exempt under
Section 501(a) of the Code;
(p) do any other act which would cause any representation or warranty
of the Company in this Agreement to be or become untrue in any material respect;
(q) cause the Company's election to be taxed as an S corporation
within the meaning of Sections 1361 and 1362 of the Code, or take or allow any
action (other than the transactions contemplated by this Agreement) that would
result in the termination of the status as a validly electing S corporation;
(r) make or change any Tax election, enter into any agreement for the
allocation or sharing of any Taxes, change an annual Tax accounting period,
adopt or change any Tax accounting method, file any amended Tax Return, enter
into any closing agreement, settle any Tax claim or assessment, surrender any
right to claim a refund of Taxes, consent to any extension or waiver of the
statute of limitations period applicable to any Tax claim or assessment, take
any action or omit to take any action, if any such action or omission would have
the effect of increasing the Tax liability with respect to the business for any
Post-Closing Tax Period;
(s) make any payment or entered into any contract which would require
it to make a payment (i) that would constitute an "excess parachute payment" for
purposes of Sections 280G and 4999 of the Code, or (ii) the deduction for which
would be denied, in part or in whole, pursuant to Section 162(m) of the Code; or
(t) commit to do any of the foregoing.
5.3 Access to Information. (a) From the date hereof through the
Closing Date, the Stockholders, the Company and the Subsidiaries and each of
their officers, employees, auditors and agents shall furnish to the
Representatives of the Purchaser such financial and operating data and other
information regarding the Company and the Subsidiaries, as the Purchaser may
from time to time reasonably request; provided, however, that such review shall
not affect the representations and warranties made by the Stockholders and the
Company in this Agreement or the remedies of the Purchaser for breaches of the
Company's or the Stockholders' representations and warranties.
(b) Until the Closing Date, each party shall promptly inform the other
in writing of any material variance or breach discovered by such party in the
representations and warranties or covenants of such party pursuant to this
Agreement; provided that failure by any party hereunder to give such notice
shall not affect the obligations of the other party or the rights and remedies
of the party failing to give notice, unless the other party is materially
prejudiced by such failure.
(c) From time to time prior to the Closing Date and upon becoming
aware of any such matter, condition or occurrence, each party shall promptly
inform the other in writing of any matter, condition or occurrence which, if
existing or occurring at the date of this Agreement, would have been required to
be set forth or described in a Schedule being delivered concurrently with the
execution of this Agreement. No such disclosure by either party shall be deemed
to modify or supplement the Schedules or cure any breach of any representation
or warranty made in this Agreement by such party.
5.4 Regulatory and Other Authorizations. (a) From the date hereof
through the Closing, each of the Stockholders, the Company and the Purchaser
will use his or its, as the case may be, best efforts to obtain all
authorizations, consents, orders and approvals of all federal, state and foreign
regulatory bodies and officials that may be or become necessary for the
performance of its obligations pursuant to this Agreement and will cooperate
fully with the other party in promptly seeking to obtain all such
authorizations, consents, orders and approvals. Neither the Company, the
Stockholders nor the Purchaser will take any action that will have the effect of
delaying, impairing or impeding the receipt of any required approval.
(b) If in order to properly prepare documents required to be filed
with governmental authorities (including any filings which may be required under
the HSR Act) or its financial statements, it is necessary that either the
Company, the Stockholders or the Purchaser be furnished with additional
information relating to the Company or the Subsidiaries, and such information is
in the possession of the other party, such party agrees to use its best efforts
to furnish such information in a timely manner to such other party.
5.5 Insurance. Through the Closing Date, the Stockholders shall cause
the Company to, and the Company and the Subsidiaries shall, maintain insurance
policies providing insurance coverage for the Company and the Subsidiaries of
the kinds, in the amounts and against the risks substantially as are presently
provided pursuant to the policies set forth on Schedule 4.19.
5.6 Further Action. Each of the Company, the Stockholders and the
Purchaser shall execute such documents and other papers and take such further
actions as may be reasonably required or desirable to carry out the transactions
contemplated by this Agreement. Upon the terms and subject to the conditions of
this Agreement, each of the parties shall use its best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement.
5.7 Exclusivity. Between the date hereof and the Closing, the
Stockholders, the Company, the Subsidiaries and their respective directors,
officers, employees and agents shall deal exclusively with the Purchaser with
respect to the sale of Stock; will not directly or indirectly solicit, initiate,
encourage, continue or respond to any inquiries, proposals, discussions or
negotiations for an investment in the Company or any business combination
involving the Company or its assets with any person, firm or corporation or
other entity or group other than the Purchaser or provide any information to or
otherwise cooperate in any way with any other person, firm or corporation or
other entity or group for any purpose inconsistent with the intent of this
Agreement. Any such inquiries, proposals, discussions or negotiations heretofore
being conducted shall immediately be terminated. The Stockholders, the Company
and the Subsidiaries shall promptly inform the Purchaser in writing as to the
nature of and parties to any such inquiries, proposals, discussions or
negotiations and any further inquiries and proposals. Each of the Stockholders
and the Company hereby represents that neither he, it nor any of the
Subsidiaries or Affiliates is a party to or bound by any agreement with respect
to a possible merger, combination, sale or other disposition of the Company or
any of the Subsidiaries, or any interest therein other than this Agreement.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions to Obligations of the Purchaser. The obligations of the
Purchaser to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment or waiver, at or prior to the Closing, of each of the
following conditions:
(a) Representations and Warranties; Covenants. The representations and
warranties of the Stockholders and the Company contained in this Agreement shall
be true and correct as of the Closing, with the same force and effect as if made
on and as of the Closing Date (excluding any qualifications thereto that relate
solely to the representations and warranties made as of the date of this
Agreement), and all the covenants contained in this Agreement to be complied
with by the Stockholders and the Company on or before the Closing Date shall
have been complied with in all material respects, and the Purchaser shall have
received a certificate of each of the Stockholders and the Company to such
effect signed by each Stockholder or a duly authorized officer of the Company,
as the case may be;
(b) HSR Act. Any waiting period (and any extension thereof), if any,
under the HSR Act which may be applicable to the transactions contemplated
hereby shall have expired or been terminated;
(c) No Prohibition. There shall not exist any temporary restraining
order, preliminary or permanent injunction, final judgment, law or regulation
prohibiting the consummation of this Agreement or the transactions contemplated
hereby, or, to the knowledge of any party, any pending or threatened action by
any governmental authority or private party prohibiting or seeking to prohibit
the consummation of this Agreement or the transactions contemplated hereby;
(d) Legal Opinion. The Purchaser shall have received from ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇, counsel to the Company and the Stockholders, a legal opinion addressed
to the Purchaser and dated the Closing Date, in substantially the form attached
as Exhibit 6.1(d);
(e) Employment Agreement. Messrs. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. Lake shall have entered into
employment agreements with the Purchaser, in substantially the form attached
hereto as Exhibit 6.1(e); provided, that any employment agreements existing at
or prior to the Closing between, on the one hand, any of Messrs. ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. Lake and, on the
other hand, the Company or any Subsidiary shall be terminated and of no further
force and effect at or prior to the Closing;
(f) Non-Competition Agreement. Messrs. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. Lake shall have entered into
non-competition agreements with the Purchaser, in substantially the form
attached hereto as Exhibit 6.1(f); provided, that any non-competition agreements
existing at or prior to the Closing between, on the one hand, any of Messrs.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. Lake and,
on the other hand, the Company or any Subsidiary shall be terminated and of no
further force and effect at or prior to the Closing;
(g) Due Diligence. The Purchaser shall have completed the due
diligence investigation of the Company, the results of which shall be reasonably
satisfactory to the Purchaser;
(h) Financial Conditions of the Company. The financial conditions of
the Company at the Closing Date shall be substantially similar to the financial
conditions as set forth on the Unaudited Financial Statements;
(i) Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental Body necessary to (i)
permit the parties hereto to perform their obligations under this Agreement,
(ii) consummate the transactions contemplated hereby or (iii) permit Purchaser
to operate the business and operations of the Company in the states of Illinois,
Wisconsin, Indiana and New Mexico and under the jurisdiction of the Federal
Housing Authority and the Veterans Association, as applicable, after the Closing
shall have been duly obtained, made or given and shall be in full force and
effect, and all terminations or expirations of waiting periods imposed by any
Governmental Body necessary for the consummation of the transactions
contemplated by this Agreement or to permit Purchaser to operate the business
and operations of the Company after the Closing, shall have occurred;
(j) Approval. This Agreement, the Merger and the transactions
contemplated hereby shall have been approved by the Board of Directors of the
Company, all the Stockholders and there shall be no dissenting Stockholders;
(k) Resignations. The Purchaser shall have received the resignations
of the officers and directors of the Company and the Subsidiaries;
(l) Additional Documents. The Purchaser shall have received such
additional documents, certificates, payments, assignments, transfers and other
deliveries as it or its counsel may reasonably request and as are customary to
effect a closing of the matters herein contemplated; and
(m) Subscriptions, options, warrants, etc. Any subscriptions, options,
warrants, calls, commitments, preemptive rights or other rights of any kind
outstanding for the purchase of, nor any securities convertible or exchangeable
for, nor any plans or agreements of any character providing for the purchase,
issuance, or sale of, any equity interests of the Company held by any of Messrs.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. Lake and any
other party shall be terminated and of no further force and effect at or prior
to the Closing.
(n) Fairness Opinion. The Purchaser shall have received an opinion,
satisfactory in form and substance to Purchaser in its reasonable judgement,
from Friedman, Billings, ▇▇▇▇▇▇ & Co., Inc. to the effect that the Merger is
fair to the holders of Common Stock from a financial point of view.
(o) Dissenting stockholders. None of the Stockholders are dissenting
stockholders under the laws of the state of Illinois with respect to approval of
the Merger.
6.2 Conditions to Obligations of the Company and the Stockholders. The
obligations of the Company and the Stockholders to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment or waiver, at
or prior to the Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. The representations and
warranties of the Purchaser contained in this Agreement shall be true and
correct as of the Closing, with the same force and effect as if made on and as
of the Closing Date (excluding any qualifications thereto that relate solely to
the representations and warranties made as of the date of this Agreement), and
all the covenants and other obligations contained in this Agreement to be
complied with by the Purchaser on or before the Closing Date shall have been
complied with in all material respects, and the Company shall have received a
certificate of the Purchaser to such effect signed by a duly authorized officer
thereof;
(b) HSR Act. Any waiting period (and any extension thereof), if any,
under the HSR Act applicable to the transactions contemplated hereby shall have
expired or been terminated;
(c) No Prohibition. There shall not exist any temporary restraining
order, preliminary or permanent injunction, final judgment, law or regulation
prohibiting the consummation of this Agreement or the transactions contemplated
hereby, or, to the knowledge of any party, any pending or threatened action by
any governmental authority or private party prohibiting or seeking to prohibit
the consummation of this Agreement or the transactions contemplated hereby;
(d) Employment Agreement. Messrs. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. Lake shall have entered into
employment agreements with the Purchaser, in substantially the form attached
hereto as Exhibit 6.1(e); and
(e) Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental Body necessary to
permit the parties hereto to perform their obligations under this Agreement and
to consummate the transactions contemplated hereby shall have been duly
obtained, made or given and shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental Body
necessary for the consummation of the transactions contemplated by this
Agreement, including under the HSR Act, shall have occurred.
ARTICLE VII
CERTAIN ADDITIONAL COVENANTS AND ACKNOWLEDGEMENTS
7.1 Restrictive Legend. (a) Each Stockholder acknowledges and agrees
that, upon issuance pursuant to this Agreement, shares of Common Stock issued as
Stock Consideration, excepting the Affiliate Shares (as defined below), shall
have endorsed thereon a legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the shares of Common Stock
until such legend has been removed):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED
OR PLEDGED EXCEPT PURSUANT TO AN EXEMPTION FROM, OR OTHERWISE IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION OR QUALIFICATION
REQUIREMENTS OF THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAW.
THESE SHARES ARE SUBJECT TO THAT CERTAIN AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 17, 2000 (THE "AGREEMENT") BY AND AMONG THE
COMPANY AND CERTAIN OTHER PERSONS, INCLUDING RESTRICTIONS ON PLEDGE
AND TRANSFER CONTAINED THEREIN."
(b) Each Stockholder acknowledges and agrees that, upon issuance
pursuant to this Agreement, 81,632 shares of Common Stock (the "Affiliate
Shares") shall have endorsed thereon a legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the shares of
Common Stock until such legend has been removed):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE, AND MAY
NOT BE SOLD, TRANSFERRED OR PLEDGED EXCEPT PURSUANT TO AN EXEMPTION
FROM, OR OTHERWISE IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
OR QUALIFICATION REQUIREMENTS OF THE SECURITIES ACT OR APPLICABLE
STATE SECURITIES LAW."
7.2 No Transfer. (a) In the case of the shares of Common Stock subject
to 7.1(a) ("Restricted Shares"), each of the Stockholders agrees that he will
not resell, pledge, assign, transfer or otherwise dispose of the Restricted
Shares prior to the second anniversary of the Effective Time, whether or not the
Restricted Shares are registered under the Securities Act and under the
securities laws of any State; provided, however, that in any event not more than
331/3% of the Restricted Shares may be sold, assigned, transferred or otherwise
disposed (other than by pledge) during any year after the second anniversary of
the Effective Time and before the fifth anniversary of the Effective Time; and
provided further, that in any event (i) not more than 50% of the Restricted
Shares may be pledged prior to the third anniversary of the Effective Time and
(ii) the Restricted Shares may be pledged to a bona fide institutional lender
only in a qualified margin account having a loan-to-collateral ratio no greater
than 50%, or as required by Regulation U promulgated under the Exchange Act, or
any other similar regulation governing credit restrictions on securities.
(b) In the case of the Affiliate Shares subject to 7.1(b), each of the
Stockholders agrees that he will not resell, pledge, assign, transfer or
otherwise dispose of the Affiliate Shares, whether or not the Affiliate Shares
are registered under the Securities Act and under the securities laws of any
State, except pursuant to an opinion of counsel reasonably satisfactory to the
Purchaser that such transaction is in compliance with the provisions of the
Securities Act and applicable State securities laws.
7.3 Board of Directors. Promptly after the Closing, the Purchaser
shall cause its Board of Directors to be expanded by an additional member and
shall cause to elect to the Board of Directors one Person designated by the
Stockholders and reasonably satisfactory to the Purchaser. For a period of three
years, Stockholders shall have the right to appoint one observer to attend Board
meetings, who will not be entitled to vote at such meetings but shall be
entitled to contribute to any discussion on any matter.
7.4 Tax Return Filings. (a) The Purchaser shall (or shall cause the
Surviving Corporation to) timely prepare and file with the relevant Taxing
Authorities all Tax Returns of the Company the due date for filing of which,
determined taking into account extensions, is after the Closing Date. The
Surviving Corporation shall furnish to the Stockholders a copy of the final IRS
Form 1120S to be filed by the Surviving Corporation with respect to the
ownership by the Stockholders of the Company for the Tax Period preceding and
ending on the Closing Date at least 30 days before such return is due, and no
such return shall be filed with the Internal Revenue Service without the
Stockholders' written consent, which consent shall not be unreasonably withheld.
The Stockholders shall (or shall cause the Company to) timely prepare and file
with the relevant Taxing Authorities all Tax Returns for any taxable periods of
the Company and each Subsidiary the due date for filing of which, determined
taking into account extensions, is on or before the Closing Date; provided that
the Company shall furnish to the Purchaser a copy of such returns at least 30
days before such returns are due, and no such returns shall be filed with any
Taxing Authority without the Purchaser's written consent, which consent shall
not be unreasonably withheld. Any Tax Returns described in the preceding
sentence shall be prepared on a basis consistent with the past practices of the
Company. The Stockholders shall reimburse the Purchaser (in accordance with
Section 8.4) for any amount owed by the Company and each Subsidiary with respect
to the taxable periods covered by such Tax Returns except to the extent the
liability for each Taxes is shown on the Closing Balance Sheet. All Tax Returns
for a taxable period including the Closing Date shall be filed on the basis that
the relevant taxable period ended as of the close of business on the Closing
Date, unless the relevant Taxing Authority will not accept such a Tax Return.
(b) In the case of any taxable period that includes (but does not end
on) the Closing Date (a "Straddle Period"): (i) real, personal and intangible
property Taxes ("Property Taxes") of the Company and the Subsidiaries for the
Pre-Closing Tax Period shall equal the Property Taxes for such Period multiplied
by a fraction, the numerator of which is the number of days during the Straddle
Period that are in the Pre-Closing Tax Period and the denominator of which is
the number of days in the Straddle Period; and (ii) the Taxes of the Company
(other than Property Taxes) for the Pre-Closing Tax Period shall be computed as
if the entire Straddle Period ended as of the close of business on the Closing
Date. The Stockholders shall reimburse the Purchaser (in accordance with Section
8.4) for any amount owed by the Company and each Subsidiary with respect to any
and all taxes determined in (i) and (ii) above except to the extent the
liability for such taxes is shown on the Closing Balance Sheet.
(c) The Stockholders, the Company and the Purchaser shall reasonably
cooperate, and shall cause their respective affiliates, officers, employees,
agents, auditors and representatives reasonably to cooperate, in preparing and
filing all Tax Returns, including maintaining and making available to each other
all records necessary in connection with Taxes, and in resolving all disputes
and audits with respect to all taxable periods relating to Taxes, including all
Tax Claims (as defined below).
(d) (i) If a claim shall be made by any Taxing Authority, which, if
successful, might result in an indemnity payment to any Purchaser Tax Indemnitee
(as defined below in Section 8.4) pursuant to Section 8.4, the Purchaser shall
promptly notify Stockholders in writing of such claim (a "Tax Claim"). Failure
to give notice of a Tax Claim to the Stockholders within a sufficient period of
time and in reasonably sufficient detail to allow Stockholders to effectively
contest such Tax Claim shall affect the liability of the Stockholders to any
Purchaser Tax Indemnitee only to the extent that the Stockholders' position is
actually and materially prejudiced as a result thereof.
(ii) The Stockholders shall control all proceedings taken in connection
with any Tax Claim relating solely to Taxes of the Company and any Subsidiary
for a Pre-Closing Tax Period, and may make all decisions in connection with such
Tax Claim. The Stockholders and the Purchaser shall jointly control all
proceedings taken in connection with any Tax Claim relating solely to Taxes of
the Company and any Subsidiary for a Straddle Period, and neither party shall
settle any such Tax Claim without the written consent of the other party, which
consent shall not be unreasonably withheld. The Purchaser shall control all
proceedings with respect to all other Tax Claims.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival of Representations and Warranties. The representations
and warranties set forth in Articles IV and V shall survive for a period of
three years after the Closing, except that those representations and warranties
contained in Sections 3.1, 3.2, 3.3, 4.1, 4.2, 4.3, 4.4 and 4.17 shall survive
indefinitely and the representations and warranties contained in Section 4.16
shall survive for the statute of limitations plus any extension thereof with
respect to the applicable tax return.
8.2 Indemnification by the Purchaser. (a) The Purchaser agrees,
subject to the other terms and conditions of this Agreement, to indemnify the
Stockholders against, and hold them harmless on an after-Tax basis from, all
losses, claims, fines, penalties, amounts paid in settlement, liabilities, costs
and expenses (including, without limitation, reasonable attorney and expert
fees) of and damages to the Stockholders related to or arising out of the breach
of (i) any representation or warranty of the Purchaser contained herein (without
regard to any "materiality", "Material Adverse Effect", "substantial compliance"
or similar exception or qualifier), or (ii) any breach of any covenant or
agreement of the Purchaser herein.
(b) No claim may be made against the Purchaser for indemnification
pursuant to Section 8.2(a)(i) unless the aggregate of all liabilities and
damages of the Stockholders (exclusive of legal fees incurred in connection with
pursuing such claim) with respect to Section 8.2(a)(i) along with all liability
of the Purchaser to the Stockholders shall in the aggregate exceed $100,000.
(c) The Stockholders agree to give the Purchaser prompt written notice
of any claim, assertion, event or proceeding by or in respect of a third party
of which they have Knowledge concerning any liability or damage as to which it
may request indemnification hereunder; provided, however, that no delay on the
part of any Stockholders in notifying the Purchaser shall relieve the Purchaser
from any liability or obligation hereunder unless (and then solely to the extent
that) the Purchaser can demonstrate that it was damaged by such delay. The
Purchaser will not consent to the entry of any judgment with respect to the
matter, or enter into any settlement which does not include a provision whereby
the plaintiff or claimant in the matter releases the Stockholders from all
liability with respect thereto, without the written consent of the Stockholders.
The Purchaser shall have the right to direct, at its own expense and through
counsel of its own choosing, the defense or settlement of any such claim or
proceeding; the Stockholders may participate in such defense, but in such case
the expenses of the Stockholders shall be paid by the Stockholders; provided,
however, that if the Stockholders deliver to the Purchaser an opinion of counsel
to the effect that there exists an actual conflict of interest between the
Purchaser and the Stockholders with respect to such claim, or such claim or
liability involves the possibility of criminal sanctions or criminal liability
to the Stockholders, the Stockholders shall be entitled to participate in the
defense of such claim or liability at the expense of the Purchaser. The
Stockholders shall provide the Purchaser with access to their records and
personnel relating to any such claim, assertion, event or proceeding during
normal business hours and shall otherwise cooperate with and aid at the
Purchaser's request the Purchaser in the defense or settlement thereof, and the
Purchaser shall reimburse the Stockholders for all reasonable out-of-pocket
expenses in connection therewith. If the Purchaser elects to direct the defense
of any such claim or proceeding, the Stockholders shall not pay, or permit to be
paid, any part of any claim or demand arising from such asserted liability
unless the Purchaser consents in writing to such payment (such consent not to be
unreasonably withheld or delayed) or unless the Purchaser, subject to the last
sentence of this Section 8.2(c), withdraws from the defense of such asserted
liability or unless a final judgment from which no appeal may be taken by or on
behalf of the Purchaser is entered against the Stockholders for such liability.
If the Purchaser shall fail to assume the defense of such claim in the manner
provided above, or if, after commencing or undertaking any such defense, fails
to prosecute or withdraws from such defense, the Stockholders shall have the
right to undertake the defense or settlement thereof, and the Stockholders may
defend against, or enter into any settlement with respect to, the matter in any
manner it reasonably may deem appropriate without prejudice to the Purchaser
Indemnitee's right to indemnity from the Purchaser hereunder.
8.3 Indemnification by the Stockholders. (a) Each of the Stockholders,
jointly and severally, agrees, subject to the other terms and conditions of this
Agreement, to indemnify the Purchaser (and Purchaser's directors, officers,
employees, controlling persons, Affiliates, successors and assigns
(collectively, the "Purchaser Indemnitees")) against, and hold it harmless on an
after-Tax basis from, all losses, claims, fines, penalties, amounts paid in
settlement, liabilities, costs and expenses (including, without limitation,
reasonable attorney and expert fees) of and damages to the Purchaser, related to
or arising out of (i) the breach of any representation or warranty made by or on
behalf of the Company and each of the Stockholders in this Agreement (without
regard to any "materiality", "Material Adverse Effect", "substantial compliance"
or similar exception or qualifier), or (ii) the breach of any covenant,
agreement or undertaking made by or on behalf of the Company and each of the
Stockholders in this Agreement.
(b) No claim may be made against the Stockholders for indemnification
pursuant to Section 8.3(a)(i) unless the aggregate of all liabilities and
damages (exclusive of legal fees incurred in connection with pursuing such
claim) of the Purchaser with respect to Section 8.3(a)(i) and liability to the
Purchaser pursuant to the other Contracts or guaranties shall exceed $100,000.
The maximum of all payments pursuant to this indemnification shall not exceed
the total [Initial Consideration, as adjusted] paid to the Stockholders.
(c) The Purchaser agrees to give the Stockholders prompt written
notice of any claim, assertion, event or proceeding by or in respect of a third
party of which it has Knowledge concerning any liability or damage as to which
it may request indemnification hereunder; provided, however, that no delay on
the part of any Purchaser Indemnitee in notifying the Stockholders shall relieve
the Stockholders from any liability or obligation hereunder unless (and then
solely to the extent that) the Stockholders can demonstrate that they were
damaged by such delay. The Stockholders will not consent to the entry of any
judgment with respect to the matter, or enter into any settlement which does not
include a provision whereby the plaintiff or claimant in the matter releases the
Purchaser Indemnitee from all liability with respect thereto, without the
written consent of the Purchaser Indemnitee. The Stockholders shall have the
right to direct, at their own expense and through counsel of its own choosing
(reasonably satisfactory to the Purchaser Indemnitee), the defense or settlement
of any such claim or proceeding; the Purchaser Indemnitee may participate in
such defense, but in such case the expenses of the Purchaser Indemnitee shall be
paid by the Purchaser Indemnitee; provided, however, that if the Purchaser
Indemnitee delivers to the Stockholders an opinion of counsel to the effect that
there exists an actual conflict of interest among the Stockholders and the
Purchaser Indemnitee with respect to such claim, or such claim or liability
involves the possibility of criminal sanctions or criminal liability to the
Purchaser Indemnitee, the Purchaser Indemnitee shall be entitled to participate
in the defense of such claim or liability at the expense of the Stockholders.
The Purchaser shall provide the Stockholders with access to its records and
personnel relating to any such claim, assertion, event or proceeding during
normal business hours and shall otherwise cooperate with and aid at the
Stockholders' request the Stockholders in the defense or settlement thereof, and
the Stockholders shall reimburse the Purchaser for all its reasonable
out-of-pocket expenses in connection therewith. If the Stockholders elect to
direct the defense of any such claim or proceeding, the Purchaser shall not pay,
or permit to be paid, any part of any claim or demand arising from such asserted
liability unless the Stockholders consent in writing to such payment (such
consent not to be unreasonably withheld or delayed) or unless the Stockholders,
subject to the last sentence of this Section 8.3(c), withdraw from the defense
of such asserted liability or unless a final judgment from which no appeal may
be taken by or on behalf of the Stockholders is entered against the Purchaser
for such liability. If the Stockholders shall fail to assume the defense of such
claim in the manner provided above, or if, after commencing or undertaking any
such defense, fails to prosecute or withdraws from such defense, the Purchaser
shall have the right to undertake the defense or settlement thereof, and the
Purchaser Indemnitee may defend against, or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate without
prejudice to the Purchaser Indemnitee's right to indemnity from the Stockholders
hereunder.
(d) Each of the Stockholders, jointly and severally, agrees to
indemnify the Purchaser against, and hold it harmless from, all losses, claims,
amounts paid in settlement, liabilities, costs and expenses (including, without
limitation, reasonable collection costs) of and damages to the Purchaser,
related to or arising out of the debt owed to the Company by ▇▇▇▇ ▇▇▇▇▇ or his
sole proprietorship, Frost Mortgage Banking Group, as set forth on Schedule 4.9.
8.4 Tax Indemnification. (a) From and after the Closing, the
Stockholders shall be liable for, and shall indemnify the Purchaser, its
affiliates and each of their respective officers, directors, employees,
stockholders, agents and representatives (the "Purchaser Tax Indemnities")
against and hold them harmless on an after-Tax basis from (i) all liability for
Taxes of the Stockholders, the Company and any Subsidiary with respect to any
Pre-Closing Tax Period, including any Taxes with respect to a Straddle Period,
paid by the Surviving Corporation or the Purchaser and not accrued for at the
Closing on the Closing Balance Sheet, (ii) all liability for Taxes of the
Stockholders, the Surviving Corporation or of any Subsidiaries arising (directly
or indirectly) as a result of the transactions contemplated hereby, paid by the
Surviving Corporation or any Subsidiary or the Purchaser, (iii) any breach of
any representation or warranty contained in Section 4.16 resulting in a loss to
the Surviving Corporation or any Subsidiary or the Purchaser, and (iv) all
liability for reasonable legal fees and expenses of the Surviving Corporation or
any Subsidiary or the Purchaser attributable to any item in the foregoing
clauses.
(b) The indemnity obligation under this Agreement in respect of Taxes
for a Straddle Period shall initially be effected by payment to the Purchaser by
the Stockholders of the excess of (i) such Taxes relating to the Pre-Closing Tax
Period over (ii) the amount of such Taxes paid by the Company, the Subsidiaries
and the Stockholders or any of their affiliates on or prior to the Closing Date
plus the amount of any such Taxes which were accrued and reflected on the
Closing Balance Sheet. Such excess initially shall be paid to the Purchaser no
later than 10 days prior to the date on which the Tax Return with respect to the
final liability for such Taxes is required to be filed. If the aggregate amount
of such Taxes paid or accrued by the Company or the Subsidiaries prior to the
Closing, and by the Stockholders or any of their affiliates at any time, is
exceeded by the amount payable pursuant to the preceding sentence, the
Stockholders shall pay to the Purchaser the amount of such excess within 10 days
after the Tax Return with respect to the final liability for such Taxes is
required to be filed. The payments to be made pursuant to this Section 8.4 with
respect to a Straddle Period shall be appropriately adjusted to reflect any
final determination (which shall include the execution of Form 870AD or
successor form, or similar state or local Tax form) with respect to Straddle
Period Taxes.
(c) Any indemnity payment to be made under this Section 8.4, other
than an indemnity payment described in the immediately preceding paragraph,
shall be paid within 10 days after the indemnified party makes written demand
upon the indemnifying party, but in no case earlier than ten business days prior
to the date on which the relevant Taxes are required to be paid to the relevant
Taxing Authority (including as estimated Tax payments).
(d) Any refund or credit of Taxes of the Company or any Subsidiary for
any taxable period ending on or before the Closing Date or any Straddle Period
shall be for the account of the Company, except to the extent that such refund
or credit rotates to a carryback of the items of the Surviving Corporation from
any Post-Closing Tax Period or any Straddle Period. Any refund or credit of
Taxes of the Surviving Corporation or any Subsidiary for any Post-Closing Tax
Period shall be for the account of the Surviving Corporation. Each party shall,
or shall cause its affiliates to, forward to any other party entitled under this
Section 8.4(d) to any refund or credit of Taxes any such refund within 10 days
after such refund is received or reimburse such other party for any such credit
within 10 days after the credit is allowed or applied against any other Tax
liability; provided, however, that any such amounts shall be net of any Tax cost
or benefit to the payor party attributable to the receipt of such refund and/or
the payment of such amounts to the payee party. Notwithstanding the foregoing,
the control of the prosecution of a claim for refund of Taxes paid pursuant to a
deficiency assessed subsequent to the Closing Date as a result of an audit shall
be governed by the provisions of Section 7.4.
(e) In the event of any conflict between the provisions of this
Section 8.4 and other Sections of this Agreement regarding the indemnification
of any loss in respect of Taxes, the provisions of this Section, and not those
other Sections, shall be controlling.
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1 Methods of Termination. The transactions contemplated herein may be
terminated and/or abandoned at any time prior to the Closing:
(a) by mutual written consent of the Purchaser and the Stockholders;
(b) by the Purchaser or the Stockholders if either of them has
materially breached any representation, warranty, or covenant contained in this
Agreement;
(c) by the Purchaser or the Stockholders in the event any court or
governmental agency of competent jurisdiction shall have issued an order, decree
or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree or
ruling or other action shall have become final and nonappealable;
(d) by the Purchaser or the Stockholders if the Closing has not
occurred on March 15, 2000; provided, that neither the Purchaser nor the
Stockholders shall be entitled to terminate this Agreement pursuant to this
Section 9.1(d) if such Person's breach of this Agreement has prevented the
consummation of the transactions contemplated hereby.
9.2 Procedure Upon Termination. In the event of termination and
abandonment by the Purchaser or by the Stockholders, or both, pursuant to
Section 9.1, written notice thereof shall be given to the other party and the
transactions contemplated by this Agreement shall be terminated and/or
abandoned, without further action by the parties. If the transactions
contemplated by this Agreement are terminated and/or abandoned as provided
herein each party hereto will redeliver all documents, work papers and other
material (and all copies thereof) of the other party relating to the
transactions contemplated hereby, whether so obtained before or after the
execution hereof, to the party furnishing the same.
9.3 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9.1, this Agreement shall thereafter become void
and have no effect, and no party hereto shall have any liability or obligation
to any other party hereto in respect of this Agreement, except that the
provisions of Article X (Miscellaneous) and this Section 9.3 shall survive any
such termination; provided, however, that no party shall be released from any
liability hereunder if this Agreement is terminated and the transactions
contemplated hereby abandoned by reason of (i) willful failure of such party to
perform its obligations hereunder or (ii) any misrepresentation made by such
party of any matter set forth herein.
ARTICLE X
MISCELLANEOUS
10.1 Specific Performance. It is expressly understood and agreed that
the material breach of any covenant contained in this Agreement will result in
irreparable injury to the other party and that therefore such other party shall
be entitled to specific performance thereof.
10.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by the Company or any of the Stockholders
without the prior written consent of the Purchaser. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, and no other Person shall
have any right, benefit or obligation hereunder.
10.3 Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
parties shall be in writing and delivered in person or by courier or by
facsimile transmission as follows (or at such address or facsimile number of
which notice shall have been duly given in accordance with this Section 10.3):
If to the Company: First Home Mortgage Corp.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇. ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
If to Stockholders: First Home Mortgage Corp.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇. ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇.
If to Purchaser: American Home Mortgage Holdings, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
With a copy to: Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others. Any failure by any party to
deliver copies of any notice shall not, in itself, affect the validity of such
notice if otherwise properly made to the other party.
10.4 CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND
THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
10.5 Entire Agreement; Amendments and Waivers. This Agreement
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. No supplement,
modification or waiver of this Agreement shall be binding unless executed in
writing by all parties. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
10.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.7 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
10.8 Headings. The headings of the Articles and Sections herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
10.9 Expenses. The Stockholders, the Company and the Purchaser will
each be liable for his or its own costs and expenses incurred in connection with
the negotiation, preparation, execution or performance of this Agreement.
10.10 Publicity. The parties agree to notify each other prior to
issuing any press release or making any public statement regarding the
transactions contemplated hereby, and will attempt to obtain the approval of the
other party prior to making such release or statement, including without
limitation, any press release issued by either or both of the parties in
connection with the Closing, which approval shall not be unreasonably withheld.
[Remainder of the page intentionally left blank].
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AMERICAN HOME MORTGAGE HOLDINGS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President and CEO
AMERICAN HOME MORTGAGE SUB II, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Director
FIRST HOME MORTGAGE CORP.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President and CEO
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. Lake
-----------------------------------------
▇▇▇▇▇▇▇ ▇. Lake
EXHIBIT 2.4(D)
NET INCOME FOR ANY PERIOD WILL EQUAL:
GROUP LOAN PRODUCTION REVENUES
less: DIRECT LOAN PRODUCTION COSTS
less: OPERATING COSTS
plus: ALLOCABLE SECONDARY MARKETING GAINS
less: ALLOCABLE SECONDARY MARKETING LOSSES
plus: ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES
less: ALLOCABLE CORPORATE OVERHEAD
less: $300,000 PER YEAR (OR A PRO RATA PORTION FOR A SHORTER PERIOD)
less: PAYMENTS MADE OR ACCRUED UNDER SECTION 2.4(E) OF THE MERGER
AGREEMENT (OTHER THAN ANY AMOUNTS ACCOUNTED FOR IN OPERATING COSTS)
all as more fully defined and set forth below.
GROUP LOAN PRODUCTION REVENUES shall be determined for any measurement period by
adding 1) the product of (a) the difference between the APPLICABLE AMERICAN HOME
MORTGAGE REFERENCE PRICE and 100, expressed as a negative percentage if the
resulting number is less than 0 and as a positive percentage if greater than 0
multiplied by (b) the principal amount for each loan funded or brokered, at the
time such loan is funded or the loan is closed with respect to brokered loans,
by the FIRST HOME GROUP during such measurement period; 2) all applicable up
front lender fees charged to the borrower and other parties related to such loan
(such as loan origination fees, discount points, loan processing fees,
underwriting fees, loan document fees, wire fees, tax service, flood
certification, inspections, and similar costs and expenses); 3) fees earned from
brokering loans to outside companies; 4) fees earned from in-house escrow
operations; and 5) other ancillary income generated from outside sources; in
each case with respect to the FIRST HOME GROUP.
The APPLICABLE AMERICAN HOME MORTGAGE REFERENCE PRICE for any loan shall be:
(i) with respect to 30 year jumbo loans and loans eligible for
FHA, VA, FNMA, FHLMC and/or other applicable state or federal agency
programs, the highest price quoted by any one of the REFERENCE BANKS
for best efforts delivery for the applicable program and a delivery
window not less than, but closest to, the lock in period granted by
the Purchaser's secondary marketing desk at the time the loan is
locked.
(ii) with respect to all loans not subject to (i) above, the
actual price the buyer of the loan would have paid at the time the
loan was locked with the Purchaser's secondary marketing desk.
For purposes of this Agreement, the FIRST HOME GROUP shall include all employees
of the Purchaser after the Merger reporting directly or indirectly to the
management team of ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇
(or to the extent that any of such persons is no longer employed by the
Purchaser as a result of (a) death or disability as determined pursuant to such
person's employment agreement with the Purchaser or (b) any event of personal
emergency or catastrophe involving such person or such person's immediate
family, which is approved by the Board of Directors of the Purchaser as a
non-Termination Event (as defined below), in such case, then to any of the
remaining persons) (the "Management Team"). If any of the members of the
Management Team leave the employment of the Purchaser, other than for "good
reason" or is terminated by the Company for "cause" as such terms are defined in
such person's employment agreement with the Purchaser, the FIRST HOME GROUP
shall be deemed terminated (a "Termination Event"). Notwithstanding any other
provision of this Exhibit 4.2(d), if a Termination Event occurs at any time, the
Net Income shall be deemed to be zero.
The REFERENCE BANKS (unless otherwise changed by the Purchaser's Pricing
Committee), which shall at all times prior to January 1, 2005 include a
representative from First Home Group, include: Norwest Funding, Chase Manhattan
Mortgage, Citicorp Mortgage, Countrywide Credit Corp., and Fleet Mortgage.
Less: DIRECT LOAN PRODUCTION COSTS:
For all loans funded or brokered by the REPORTING GROUP during any
measurement period:
Direct loan production costs associated with originating and selling a
loan and all expenses that are incurred by the REPORTING GROUP, such
as commissions, fees paid to mortgage brokers, loan processing,
automated underwriting fees, credit and appraisal fees, and other
costs associated with each loan funded by that group.
Less: OPERATING COSTS:
The REPORTING GROUP operating costs will include expenses relating
directly to the cost of operating the REPORTING GROUP but will exclude
all direct loan production costs. Such operating costs will include
salaries, employee benefits, income taxes (federal and state), both
current and deferred, FICA, SDI, occupancy, communications, actual
loss from REOs and repurchases charged against reserves,
indemnification, postage, auto expenses, entertainment, advertising,
pagers, cell phones, and other operating costs directly related to the
REPORTING GROUP'S operations, facilities and or employees.
Plus: ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING LOSSES):
ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING LOSSES)
for all loans funded by the REPORTING Group, which were sold during an
annual measurement period, are to be allocated as follows:
ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING LOSSES)
shall be determined as the sales proceeds for all loans sold by the
Purchaser, less the Applicable American Home Mortgage Reference Price
value (principal balance of loans sold times the Applicable American
Home Mortgage reference prices at which such loans were locked), plus
gains or less losses on related hedge instruments, less fees charged
by investors and secondary marketing officer bonuses without further
adjustment pursuant to the Statement of Financial Accounting Standard
No. 91.
ALLOCABLE SECONDARY MARKETING GAINS (LESS SECONDARY MARKETING LOSSES)
are to be allocated to the REPORTING GROUP based on the number of
loans funded by the REPORTING GROUP or as compared to the total loans
funded by the Purchaser, expressed as a percentage.
Plus: ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES
ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES for the REPORTING
GROUP are to be allocated as follows:
ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES shall be
determined based upon interest income earned on mortgage loans
receivable less all interest expense incurred from carrying loan
positions, plus all production bonuses earned by the Purchaser.
ALLOCABLE NET INTEREST INCOME AND PRODUCTION BONUSES shall be
allocated to the REPORTING GROUP based on the number of loans funded
by the REPORTING GROUP as compared to the total loans funded by the
Purchaser, expressed as a percentage.
Less: ALLOCABLE CORPORATE OVERHEAD
ALLOCABLE CORPORATE OVERHEAD of the Purchaser shall include all
corporate costs recognized in accordance with GAAP during an annual
measurement period which are not specifically incurred as a result of
the operations of the REPORTING GROUP or any other production unit of
the Purchaser or allocated pursuant to "Plus: ALLOCABLE SECONDARY
MARKETING GAINS (LESS SECONDARY MARKETING LOSSES)" or the above
calculation under "Plus: ALLOCABLE NET INTEREST INCOME AND PRODUCTION
BONUSES."
ALLOCABLE CORPORATE OVERHEAD of the Purchaser shall be allocated to
the REPORTING GROUP based on the number of loans funded or brokered by
the Reporting Group as compared to the total loans funded or brokered
by the Purchaser, expressed as a percentage, multiplied by the number
of loans sold that were produced by the REPORTING GROUP.
Less: $300,000 PER YEAR (OR A PRO RATA PORTION FOR A SHORTER PERIOD)
Less: PAYMENTS MADE OR ACCRUED UNDER SECTION 2.4(E) OF THE MERGER AGREEMENT
(OTHER THAN ANY AMOUNTS ACCOUNTED FOR IN OPERATING COSTS)
* For purposes of this formula, unless otherwise indicated, all amounts shall be
determined in accordance with GAAP.
EXHIBIT 2.4(E)
CASH INCOME FOR ANY PERIOD WILL EQUAL:
NET INCOME for the applicable period as determined in accordance with
EXHIBIT 2.4(D), less any increase in REPORTING GROUP non-cash assets (except for
saleable loans held for sale).