<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of event reported: February 26, 1996
DANIELSON HOLDING CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 1-6732 95-6021257
-------- ------ ----------
(State of Incorporation) (Commission File (IRS Employer
Number) Identification
No.)
767 Third Avenue, New York, New York 10017
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 888-0347
Exhibit Index is
located on Page 4
Page 1 of 106
<PAGE>
ITEM 5. OTHER EVENTS
On February 26, 1996, the Registrant signed an Agreement and Plan of Merger
dated February 26, 1996 among the Registrant, Midland Financial Group, Inc., a
Tennessee corporation ("Midland"), and Mission Sub E, Inc., a Delaware
corporation ( "Merger Sub") (the "Merger Agreement"). Merger Sub is a wholly-
owned subsidiary of the Registrant. The Merger Agreement provides for the merger
of Midland with and into Merger Sub. Accordingly, upon consummation of the
transaction, Midland will be merged into Merger Sub, and Merger Sub, as a
subsidiary of the Registrant, will be the surviving company.
The closing of the transaction contemplated by the Merger Agreement is subject
to numerous conditions, including the completion of a public offering by the
Registrant of its common stock in order to raise capital to fund (i) the cash
portion of the consideration which will be payable to Midland's shareholders
in the merger and (ii) a $30,000,000 capital contribution to the surviving
company which the Registrant is required to make under the terms of the Merger
Agreement. The proposed public offering of Registrant's common stock is
currently expected to take place in the second quarter of calendar year 1996.
The Registrant anticipates that if the merger is consummated Registrant will
be required under Statement of Financial Accounting Standards No. 109 to
increase its paid in capital to recognize the book value of a portion of its
approximately $1.4 billion net operating loss carryforward in light of the pro
forma impact of the merger. The amount of such adjustment has not been
determined and awaits completion of the business plan for the combined
operations of Midland and Registrant.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
A. Exhibits
The following exhibits are filed as a part of this report.
99.1 Press Release dated February 27, 1996.
2.1 Agreement and Plan of Merger dated February 26, 1996.
Page 2 of 106
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
February 28, 1996 DANIELSON HOLDING CORPORATION
By: /s/ C. Kirk Rhein, Jr.
----------------------
C. Kirk Rhein, Jr.
President and Chief
Executive Officer
Page 3 of 106
<PAGE>
EXHIBIT INDEX
EXHIBIT DOCUMENT PAGE
NUMBER -------- NUMBER
------ ------
99.1 Press Release dated February 27, 1996. 5
2.1 Agreement and Plan of Merger dated February 26, 1996. 7
Page 4 of 106
<PAGE>
Exhibit 99.1
DANIELSON HOLDING CORPORATION
- --------------------------------------------------------------------------------
767 THIRD AVENUE . NEW YORK, NY 10017-2023
Tel: 212-888-0347 . Fax: 212 888-6704
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
Contact: C. Kirk Rhein, Jr.
President & Chief Executive Officer
212/888-0347
DANIELSON HOLDING TO ACQUIRE MIDLAND FINANCIAL GROUP
----------------------------------------------------
New York City - February 27, 1996
Danielson Holding Corporation (DHC-AMEX) announced today that it has entered
into a merger agreement pursuant to which Danielson will acquire all of the
outstanding stock of Midland Financial Group, Inc. (MDLD-NASDAQ) in a merger
transaction. The purchase price will be 1.6 times the 1995 year-end book value
of Midland (or a purchase price of $14.50 per Midland share, based upon
Midland's current estimated year-end book value of approximately $9.06 per
share). As part of the transaction, Danielson will make a $30 million capital
contribution to Midland at the closing.
The consideration to be received by the Midland shareholders will be paid 50% in
cash,40% in DHC non-convertible preferred stock having a market dividend rate,
and 10% in DHC common stock to be valued based upon a trading average prior to
the closing date. Danielson will finance the cash portion of the purchase price
and the $30 million capital contribution with the net proceeds of an
underwritten public offering of DHC common stock to raise approximately $80
million, which will close concurrently with the acquisition. The DHC public
offering will be made as soon as possible and currently is anticipated to occur
during the second quarter of 1996.
Midland is engaged primarily in non-standard automobile insurance and related
activities in 16 states located primarily in the southern and western United
States. Danielson anticipates that operating management of Midland will remain
with the business following the merger.
Mr. C. Kirk Rhein, Jr., President and Chief Executive Officer of Danielson,
stated: "We believe that both Midland and Danielson will benefit from operating
synergies and efficiencies between our businesses and operations. Danielson
anticipates that the transaction will have many positive effects for the
acquired company, including particularly providing support for Midland's Best's
rating at the time of closing. In addition, we believe that the availability of
Danielson's $1.4 billion net operating tax loss carryforward will enable Midland
to enhance its results through a shift in its investment portfolio to higher
yielding instruments, as well as by offsetting Midland's
Page 5 of 106
<PAGE>
pre-tax operating income. We currently contemplate that Danielson will make a
positive accounting adjustment to our stockholders' equity at the closing of the
transaction to recognize a portion of our net operating loss carryforward."
The closing of the transaction is subject to various conditions, including
approvals by the shareholders of both companies, the receipt of regulatory
approvals, and financing. No assurance can be given that the conditions to the
transaction can be satisfied or that the transaction will be completed. The
public offering to be made by Danielson in connection with the merger
transaction will be made after receipt of shareholder approval of the
transaction and will be made only by means of a prospectus.
Danielson Holding Corporation is an American Stock Exchange listed company,
engaging in financial services businesses through its subsidiaries, including
insurance and trust and investment services.
***
Page 6 of 106
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
Page 7 of 106
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1
DEFINITIONS................................................................ 1
ARTICLE 2
THE MERGER................................................................. 11
2.1. The Merger.................................................... 11
2.2. Effective Time of the Merger.................................. 11
2.3. Surviving Corporation......................................... 11
(a) Certificate of Incorporation and Bylaws................... 11
(b) Directors................................................. 11
(c) Effect of the Merger...................................... 11
(d) Name of Surviving Corporatin.............................. 11
ARTICLE 3
MERGER CONSIDERATION;
STATUS AND CONVERSION OF SHARES............................................ 12
3.1. Merger Consideration.......................................... 12
(a) Aggregate Merger Consideration............................ 12
(b) Per Share Merger Consideration............................ 12
3.2. Conversion or Cancellation of
Shares in the Merger.......................................... 12
(a) Company Common Stock...................................... 12
(b) Merger Sub Common Stock................................... 12
3.3. Status of Treasury Shares..................................... 12
3.4. Holder Consideration Election Rights.......................... 13
3.5. Status of Options............................................. 17
3.6. Payment for Shares in the Merger.............................. 17
3.7. Fractional Shares............................................. 19
3.8. Transfer of Shares after the Effective Time................... 20
3.9. Dividend Rate of Preferred Stock.............................. 20
3.10. Closing....................................................... 20
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. 21
4.1. Organization of the Company................................... 21
4.2. Authorization................................................. 21
4.3. Subsidiaries.................................................. 22
4.4. Capital Stock................................................. 22
4.5. Government Approvals; Compliance
with Laws and Orders.......................................... 23
4.6. Absence of Certain Changes or Events.......................... 24
4.7. Compliance with Contracts and Commitments..................... 27
4.8. Non-Contravention; Approvals and Consents..................... 28
4.9. Litigation.................................................... 29
4.10. Labor Matters................................................. 29
4.11. Absence of Undisclosed Liabilities............................ 29
4.12. No Brokers.................................................... 29
4.13. No Other Agreements to Sell the
Page 8 of 106
<PAGE>
Assets or the Company....................................... 29
4.14. Employee Benefit Plans........................................ 30
4.15. S-4 Registration Statement and Proxy
Statement/Prospectus........................................ 32
4.16. Tax Matters................................................... 33
4.17. Reports and Financial Statements.............................. 34
4.18. Payments...................................................... 35
4.19. Information Supplied.......................................... 35
4.20. Other Reports................................................. 35
4.21. Vote Required................................................. 36
4.22. Chapter 35 of the TBCA........................................ 36
4.23. Fairness Opinions............................................. 36
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER AND THE MERGER SUB........................................ 36
5.1. Organization of the Purchaser
and the Merger Sub............................................ 36
5.2. Authorization................................................. 37
5.3. Subsidiaries.................................................. 37
5.4. Capital Stock................................................. 38
5.5. Government Approvals; Compliance
with Laws and Orders.......................................... 39
5.6. Authorization for Preferred Stock
and Additional Purchaser Common Stock......................... 40
5.7. Absence of Certain Changes or Events.......................... 40
5.8. Compliance with Contracts and Commitments..................... 42
5.9. Non-Contravention; Approvals and Consents..................... 43
5.10. Litigation.................................................... 44
5.11. Labor Matters................................................. 45
5.12. Absence of Undisclosed Liabilities............................ 45
5.13. No Brokers.................................................... 45
5.14. No Other Agreements to Merge.................................. 45
5.15. S-4 Registration Statement and Proxy
Statement/Prospectus........................................ 45
5.16. Tax Matters................................................... 46
5.17. Reports and Financial Statements.............................. 47
5.18. Payments...................................................... 47
5.19. Information Supplied.......................................... 48
5.20. Other Reports................................................. 48
5.21. Fairness Opinion.............................................. 48
5.22. Employee Benefit Plans........................................ 48
5.23. Vote Required................................................. 49
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES......................... 49
6.1. Conduct of the Business of the Company........................ 49
6.2. Conduct of the Business of the Purchaser...................... 53
6.3. No Solicitation; Transaction Moratorium....................... 57
6.4. Meetings of Shareholders...................................... 58
6.5. Registration Statement........................................ 59
6.6. Purchaser Common Stock Offering............................... 60
6.7. Audited Financial Statements.................................. 61
Page 9 of 106
<PAGE>
6.8. Reasonable Efforts............................................ 61
6.9. Access to Information......................................... 62
6.10. Supplements or Amendments..................................... 63
6.11. Directors' and Officers' Indemnification
and Insurance............................................... 63
6.12. Registration and Listing of Share Consideration............... 65
6.13. Affiliates of the Purchaser and the Company................... 66
6.14. Consents...................................................... 66
6.15. Filings and Authorizations.................................... 66
6.16. Further Assurances; Notice of Breach; Cure.................... 67
6.17. Continuation of Compensation and Employee
Benefit Plans............................................... 67
6.18. Cooperation on Litigation..................................... 68
6.19. Capital Contribution to Surviving Corporation................. 68
ARTICLE 7
CONDITIONS TO CLOSING...................................................... 68
7.1. Conditions to Obligations of the Parties...................... 68
(a) Company's Shareholders' Approval.......................... 69
(b) Purchaser's Stockholders' Approval........................ 69
(c) Government Consents....................................... 69
(d) No Suits nor Injunctions.................................. 69
(e) Registration Statement.................................... 69
(f) Listing of Purchaser Shares on Exchange................... 69
(g) Rating Agencies........................................... 69
(h) Purchaser Common Stock Offering........................... 70
7.2. Conditions to Obligations of the Purchaser.................... 70
(a) Representations and Warranties True....................... 70
(b) Performance............................................... 70
(c) Compliance Certificate.................................... 70
(d) Opinion of Counsel for the Company........................ 70
(e) Proceedings............................................... 70
(f) Certain Disclosures....................................... 71
(g) Third Party Consents...................................... 71
(h) Fairness Opinion.......................................... 71
7.3. Conditions to Obligations of the Company...................... 71
(a) Representations and Warranties True....................... 71
(b) Performance............................................... 71
(c) Compliance Certificate.................................... 71
(d) Opinion of Counsel for the Purchaser...................... 71
(e) Proceedings............................................... 72
(f) Third Party Consents...................................... 72
(g) Fairness Opinion.......................................... 72
(h) Certain Disclosure........................................ 72
(i) Opinion Regarding Tax Consequences........................ 72
ARTICLE 8
TERMINATION AND ABANDONMENT;
BREAK-UP FEE AND EXPENSE REIMBURSEMENT..................................... 72
8.1. Termination Rights............................................ 72
8.2. Termination Expenses and Liability............................ 73
(a) General Provision......................................... 73
(b) Expense Recoupment - Company.............................. 73
Page 10 of 106
<PAGE>
(c) Expense Recoupment - the Purchaser........................ 73
(d) Termination Fee - the Purchaser........................... 73
ARTICLE 9
MISCELLANEOUS.............................................................. 74
9.1. Expenses...................................................... 74
9.2. Public Disclosure............................................. 74
9.3. Governing Law; Consent to Jurisdiction........................ 74
9.4. Notices....................................................... 75
9.5. Headings...................................................... 75
9.6. Counterparts.................................................. 75
9.7. Assignment.................................................... 75
9.8. Severability.................................................. 76
9.9. Waivers and Amendments........................................ 76
9.10. No Third Party Beneficiaries.................................. 76
9.11. Entire Agreement.............................................. 76
9.12. Survival...................................................... 76
Page 11 of 106
<PAGE>
EXHIBITS
- --------
Exhibit 1A - Series A Preferred Terms
SCHEDULES
- ---------
Company Disclosure Schedule
Purchaser Disclosure Schedule
Schedule 7.2 - Opinion of Counsel for the Company
Schedule 7.3 - Opinion of Counsel for the Purchaser
Page 12 of 106
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 26, 1996 (this
"Agreement"), between Midland Financial Group, Inc., a Tennessee corporation
---------
(the "Company"), Danielson Holding Corporation, a Delaware corporation (the
-------
"Purchaser"), and Mission Sub E, Inc., a Delaware corporation (the "Merger
--------- ------
Sub").
- ---
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the respective boards of directors of the Company, the
Purchaser and the Merger Sub have approved the Merger of the Company with and
into the Merger Sub (the "Merger"), upon the terms and subject to the
------
conditions set forth herein;
WHEREAS, the Purchaser, the Merger Sub and the Company desire to
make certain representations, warranties, covenants and agreements in
connection with the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to, and on the terms and conditions
herein set forth, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
When used in this Agreement, the following terms shall have the
respective meanings set forth below:
"Acquisition Transaction" has the meaning given to such term in
-----------------------
Section 6.3(a).
"Adequate Pricing Opportunity" has the meaning given to such
----------------------------
term in Section 6.6(d).
"Affiliate" has the meaning given to such term in Rule 12b-2
---------
promulgated under the Exchange Act.
"Aggregate Cash Consideration Fund" means an amount equal to
---------------------------------
50% of the Aggregate Merger Price.
"Aggregate Common Stock Consideration Fund" means the number of
-----------------------------------------
shares of Purchaser Common Stock determined by dividing (i) an amount equal to
10% of the Aggregate Merger Price by (ii) the Purchaser Common Stock Per
--
Share Value.
"Aggregate Merger Consideration" means (i) funds representing
------------------------------
the Aggregate Cash Consideration Fund and (ii) stock
Page 13 of 106
<PAGE>
certificates representing the Aggregate Preferred Stock Consideration Fund and
the Aggregate Common Stock Consideration Fund.
"Aggregate Merger Price" means the product determined by
----------------------
multiplying (i) the Per Share Merger Price by (ii) the number of Shares
--
issued and outstanding at the Effective Time.
"Aggregate Preferred Stock Consideration Fund" means the number
--------------------------------------------
of shares of Preferred Stock determined by dividing (i) an amount equal to 40%
of the Aggregate Merger Price by (ii) the Stated Preferred Per Share Value.
--
"AMEX" means the American Stock Exchange, Inc.
----
"Antitrust Division" has the meaning given to such term in
------------------
Section 6.15.
"Assets" means the assets of the Company and its Subsidiaries
------
reflected on the Balance Sheet or acquired in the ordinary course of business
since the Balance Sheet Date.
"Authorization" means any consent, approval or authorization
-------------
of, expiration or termination of any waiting period requirement (including
pursuant to the HSR Act) by, or filing, registration, qualification,
declaration or designation with, any Governmental Body.
"Balance Sheet" means the audited consolidated balance sheet of
-------------
the Company as of December 31, 1994, together with the notes thereon and the
related unqualified report of KPMG Peat Marwick LLP, the Company's certified
public accountants, previously delivered to the Purchaser.
"Balance Sheet Date" means December 31, 1994.
------------------
"Business Day" means any day other than Saturday or Sunday and
------------
any other day on which commercial banks in New York, New York or Memphis,
Tennessee are required or permitted to be closed.
"Capital Contribution Amount" has the meaning given to such
---------------------------
term in Section 6.19.
"Cash Election" has the meaning given to such term in Section
-------------
3.4(a).
"Certificate of Merger" means the Certificate of Merger with
---------------------
respect to the merger of the Company with and into the Merger Sub, containing
the provisions required by, and executed in accordance with, Section 48-21-107
of the TBCA and Section 252 of the DGCL.
Page 14 of 106
<PAGE>
"Certificates" means one or more certificates which immediately
------------
prior to the Effective Time represented outstanding Shares.
"Chosen Underwriters" means DLJ and Salomon Brothers Inc.;
-------------------
provided, however, that a different investment banking firm may be
- -------- -------
substituted for any of such firm upon the mutual written consent of the
Purchaser and the Company.
"Closing" means the closing of the Merger contemplated hereby.
-------
"Closing Date" has the meaning given to such term in Section
------------
3.10.
"Code" means the Internal Revenue Code of 1986, as amended, and
----
all regulations promulgated thereunder, as in effect from time to time.
"Common Stock Election" has the meaning given to such term in
---------------------
Section 3.4(a).
"Company" means Midland Financial Group, Inc.. a Tennessee
-------
corporation.
"Company's Adjusted Book Value" means an amount equal to the
-----------------------------
sum of (i) the total stockholders' equity shown on the Consolidated Balance
Sheets of the Company as of, and for the year ended, December 31, 1995 plus
----
(ii) an additional amount of up to $2,205,000 reflecting additional book value
of the Company resulting from the issuance of Company Common Stock after
December 31, 1995 in connection with the acquisition by the Company of certain
minority interests held by others in Subsidiaries of the Company.
"Company Benefit Arrangement" has the meaning given to such
-------------------
term in Section 4.14(a).
"Company Common Stock" means the common stock, no par value, of
--------------------
the Company.
"Company Disclosure Schedule" means the disclosure schedule of
---------------------------
the Company dated the date of this Agreement delivered concurrently with the
execution and delivery of this Agreement by the Company to the Purchaser.
"Company Employee Plan" has the meaning given to such term in
---------------------
Section 4.14(a).
"Company Financial Statements" has the meaning given to such
----------------------------
term in Section 4.17.
Page 15 of 106
<PAGE>
"Company Material Adverse Effect" means a material adverse
-------------------------------
effect on (i) the business, assets, liabilities, results of operations,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries, taken as a whole, (ii) the validity or enforceability of, or the
ability of any party hereto to perform its obligations under, and to consummate
the transactions contemplated by, this Agreement or any other agreement or
instrument contemplated hereby or to be entered into in connection herewith, or
(iii) without limitation as to the foregoing, any development, condition, event
or circumstance relating to the Company which has a material adverse effect on
the Purchaser's ability to consummate the Purchaser Common Stock Offering or
the pricing or any other terms thereof.
"Company Option" has the meaning given to such term in Section
--------------
3.5.
"Company Permits" has the meaning given to such term in Section
---------------
4.5(a).
"Company SEC Reports" means all reports (including without
-------------------
limitation, definitive proxy statements), forms, schedules, registration
statements and other documents together with all amendments and supplements
thereto, which the Company has been required to file with the SEC since January
1, 1992.
"Company Shareholders' Meeting" has the meaning given to such
-----------------------------
term in Section 6.4(a).
"Company's Adjusted Per Share Book Value" means an amount
---------------------------------------
expressed in dollars and cents equal to the quotient determined by dividing (i)
the Company's Adjusted Book Value by (ii) the number of Shares issued and
--
outstanding as of the Effective Time.
"Company's Shareholders' Approval" has the meaning given to
--------------------------------
such term in Section 6.4(a).
"Consideration Fund" refers generically to, either the Common
------------------
Stock Consideration Fund, the Preferred Stock Consideration Fund or the Cash
Consideration Fund (and, in the plural form, means all three collectively).
"Constituent Corporations" means each of the Merger Sub and the
------------------------
Company.
"Contract" means any note, bond, mortgage, security agreement,
--------
indenture, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind.
"DGCL" means the Delaware General Corporation Law.
----
Page 16 of 106
<PAGE>
"DLJ" means Donaldson Lufkin & Jenrette Securities Corporation.
---
"Effective Time" means the date and time of the effectiveness
--------------
of the Merger pursuant to Section 2.2 and in accordance with the TBCA and the
DGCL.
"Election Deadline" has the meaning given to such term in
-----------------
Section 3.4(e).
"Employees" means the officers, employees, agents, directors or
---------
independent contractors of a Person or any of its Subsidiaries, whether former
or current.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended, and all regulations promulgated thereunder, as in effect from
time to time.
"ERISA Affiliates" means any trade or business, whether or not
----------------
incorporated, that is now or has at any time in the past been treated as a
single employer with the Company or any of its Subsidiaries under Section
414(b) or (c) of the Code and the Treasury Regulations thereunder.
"Excess Shares" has the meaning given to such term in Section
-------------
3.7.
"Exchange" means the stock exchange on which the Purchaser
--------
Common Stock and Preferred Stock is listed for trading upon official notice of
issuance as of, or immediately after giving effect to, the Effective Time.
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended and the rules and regulations promulgated thereunder.
"Exchange Agent" means the exchange agent selected by the
--------------
Purchaser and reasonably acceptable to the Company, to effectuate the payment
for and conversion of Shares in the Merger.
"Final Termination Date" means August 31, 1996 provided,
--------
however, that the Company may, by delivery of written notice to the
- -------
Purchaser prior to the date which would otherwise be the Final Termination
Date, extend such date up to two times for a period of thirty days each such
time, in which case the "Final Termination Date" shall mean the date as so
extended.
"Form of Election" has the meaning given to such term in
----------------
Section 3.4(d).
"Fractional Securities Fund" has the meaning given to such term
--------------------------
in Section 3.7.
Page 17 of 106
<PAGE>
"FTC" has the meaning given to such term in Section 6.15.
---
"Governmental Body" means any Federal, state, municipal,
-----------------
political subdivision or other governmental court, tribunal, arbitrator,
authority, official, department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Holder Consideration Election" has the meaning given to such
-----------------------------
term in Section 3.4(a).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
-------
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"Indemnified Liabilities" has the meaning given to such term in
-----------------------
Section 6.11(a).
"Indemnified Parties" has the meaning given to such term in
-------------------
Section 6.11(a).
"Indemnifying Party" has the meaning given to such term in
------------------
Section 6.11(a).
"Laws" means any statute, law, rule, regulation or ordinance of
----
any Governmental Body.
"Lazard" means Lazard Freres & Co.
------
"Lien" means any lien, claim, mortgage, encumbrance, pledge,
----
security interest, equity and charge of any kind.
"Merger" means the merger of the Company with and into the
------
Merger Sub as contemplated by Section 2.1.
"Merger Sub" has the meaning given to such term in the first
----------
paragraph hereof.
"NASDAQ" means National Association of Securities
------
Dealers-Automated Quotation System.
"Offering Price" means the price per share at which shares of
--------------
Purchaser Common Stock are sold to the public in the Purchaser Common Stock
Offering.
"Offering Pricing Date" means the date upon which an
---------------------
Underwriting Agreement providing for the firm commitment underwriting of the
Purchaser Common Stock Offering, and specifying the pricing of the Purchaser
Common Stock offered therein, has been executed and delivered by the Purchaser
and all other parties thereto.
Page 18 of 106
<PAGE>
"Options" means any subscriptions, options, warrants, rights
-------
(including "phantom" stock rights), preemptive rights or other contracts,
commitments, understandings or arrangements, including any right of conversion
or exchange under any outstanding security, instrument or agreement to issue or
sell any shares of capital stock of a corporation.
"Order" means any judgment, decree, order, writ, permit or
-----
license of any Governmental Body.
"Par Trading Rate" means a dividend rate applicable to the
----------------
Preferred Stock, determined in accordance with Section 3.9 initially as of the
Preferred Pricing Date and again as of the Offering Pricing Date, as the rate
which is likely to cause the market values of the Preferred Stock to trade at
the Stated Preferred Per Share Value if such security was assumed to trade on a
fully distributed basis on the date as of which such rate is determined.
"Per Share Merger Price" means a price per Share equal to the
----------------------
product determined by multiplying (i) the Company's Adjusted Per Share Book
Value by (ii) a factor of 1.6, which price is estimated to be $14.00 per
--
share.
"Person" means any individual or corporation, company,
------
partnership, trust, incorporated or unincorporated association, joint venture
or other entity of any kind.
"Plan" means the Company's 1989 Incentive Stock Option Plan and
----
1992 Long-Term Incentive Plan.
"Potential Acquiror" has the meaning given to such term in
------------------
Section 6.3(a).
"Preferred Pricing Date" has the meaning given to such term in
----------------------
Section 3.9.
"Preferred Stock" means Series A Preferred Stock of the
---------------
Purchaser to be issued at the Effective Time in accordance with Article 3 and
which will have the designations, rights and preferences set forth in the
Series A Preferred Terms and will have a dividend rate set in accordance with
Section 3.9.
"Preferred Stock Election" has the meaning given to such term
------------------------
in Section 3.4(a)(ii).
"Preliminary Prospectus Mailing Date" has the meaning given to
-----------------------------------
such term in Section 6.6(c).
"Pro Rata Allocation" means, for purposes of allocating any
-------------------
Consideration Fund with respect to Shares owned by a holder, the product
determined by multiplying the total value of the consideration available in
such Consideration Fund, when valued
Page 19 of 106
<PAGE>
in accordance with the last sentence of Section 3.1(a) after giving effect to
the reduction of such Consideration Fund by any priority allocations thereof,
by such holder's Pro-Rationing Factor.
- --
"Pro-Rationing Factor" means, for purposes of allocating any
--------------------
Consideration Fund to any holder pursuant to an effective Holder Consideration
Election filed by such holder, the quotient determined by dividing (i) an
amount equal to either (x) the Per Share Merger Price times the number of
Shares covered by such Holder Consideration Election, in the case of an
allocation of such holder's Chosen Consideration, or (y) the amount of such
holder's Unsatisfied Allocation Short-fall, in the case of any allocation of
such holder's Second Form of Consideration or Third Form of Consideration,
by (ii) an amount equal to either (x) the Per Share Merger Price times the
- --
number of all Shares covered by Holder Consideration Elections filed by holders
(including such holder) among whom consideration is to be allocated as a group
(in the case of an allocation of the Chosen Consideration of such group) or (y)
the Unsatisfied Allocation Short-fall of all holders in such group (in the case
of an allocation of the Second Form of Consideration or Third Form of
Consideration of such group).
"Proxy Statement/Prospectus" has the meaning given to such term
--------------------------
in Section 6.5.
"Purchaser" has the meaning given to such term in the first
---------
paragraph hereof.
"Purchaser Benefit Arrangement" means each plan (other than any
-----------------------------
Purchaser Employee Plan), program, policy, contract or arrangement providing
for bonuses, pensions, deferred pay, stock or stock-related awards, severance
pay, salary continuation or similar benefits, hospitalization, medical, dental
or disability benefits, life insurance or other employee benefits, or
compensation to or for any Employees of the Purchaser or any beneficiaries or
dependents of any Employees of the Purchaser (other than directors' and
officers' liability insurance policies), whether or not oral or written or
insured or funded, or constituting an employment or severance agreement or
arrangement with any officer or director of the Purchaser or any Significant
Subsidiary.
"Purchaser Common Stock" means the shares of common stock, par
----------------------
value $.10 per share, of the Purchaser.
"Purchaser Common Stock Offering" has the meaning given to such
-------------------------------
term in Section 6.6(a).
"Purchaser Common Stock Per Share Value" means the arithmetic
--------------------------------------
average of the closing prices of the Purchaser Common Stock on the Amex (or
other national securities exchange on which
Page 20 of 106
<PAGE>
the Purchaser Common Stock is then listed for trading) for each day on which
trading of such stock took place on the Exchange during the period beginning on
the date twenty days prior to the Offering Pricing Date and ending on the
Business Day immediately preceding the Offering Pricing Date; provided,
--------
however, that in no event shall the Purchaser Common Stock Per Share Value
- -------
be an amount less than $5.00 nor more than $10.00 per share.
"Purchaser Disclosure Schedule" means the Disclosure Schedule
-----------------------------
dated the date of this Agreement delivered by the Purchaser to the Company.
"Purchaser Employee Plan" means each "employee benefit plan,"
-----------------------
as such term is defined in Section 3(3) of ERISA, established by the Purchaser,
any of its Subsidiaries, or any ERISA Affiliate or under which the Purchaser,
any of its Subsidiaries, or any ERISA affiliate contributes or under which any
Employees of the Purchaser or any beneficiary thereof is covered, is
eligible for coverage or has benefit rights with respect to service to the
Purchaser, any of its Subsidiaries or any ERISA Affiliate or under which any
obligation exists to issue capital stock of the Purchaser or any of its
Subsidiaries.
"Purchaser Financial Statements" has the meaning given to such
------------------------------
term in Section 5.17.
"Purchaser Material Adverse Effect" means a material adverse
---------------------------------
effect on (i) the business, assets, liabilities, results of operations,
condition (financial or otherwise) or prospects of the Purchaser and its
Subsidiaries, taken as a whole, (ii) the validity of enforceability of, or the
ability of any party hereto to perform its obligations under, and to consummate
the transactions contemplated by, this Agreement or any other agreement or
instrument contemplated hereby or to be entered into in connection herewith, or
(iii) without limitation as to the foregoing, the Purchaser's ability to
consummate the Purchaser Common Stock Offering or the pricing or any other
terms thereof.
"Purchaser Permits" has the meaning given to such term in
-----------------
Section 5.5(a).
"Purchaser SEC Reports" means all reports (including, without
---------------------
limitation, definitive proxy statements), forms, schedules, registration
statements and other documents together with all amendments and supplements
thereto which the Purchaser has been required to file with the SEC since
January 1, 1991.
"Purchaser's Stockholders' Approval" has the meaning given to
----------------------------------
such term in Section 6.4(b).
"Purchaser Stockholders' Meeting" has the meaning given to such
-------------------------------
term in Section 6.4(b).
Page 21 of 106
<PAGE>
"Representative" has the meaning given to such term in Section
--------------
6.3(a).
"Respective Representatives" has the meaning given to such term
--------------------------
in Section 6.9.
"R-H" means The Robinson-Humphrey Company, Inc.
---
"Rule 145 Affiliates" has the meaning given to such term in
-------------------
Section 6.13.
"S-4 Registration Statement" has the meaning given to such term
--------------------------
in Section 6.5.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended,
--------------
and the rules and regulations promulgated thereunder.
"Series A Preferred Terms" means the certificate of
------------------------
designations, preferences, rights and limitations of Preferred Stock
substantially in the form attached hereto as Exhibit 1A.
"Share Consideration" means the amount of shares of Preferred
-------------------
Stock and Purchaser Common Stock to be delivered by the Purchaser as
consideration in the Merger.
"Shares" means the shares of Company Common Stock issued and
------
outstanding immediately prior to the Effective Time, after giving effect to the
exercise or cancellation of each Company Option pursuant to Section 3.5.
"Significant Response" has the meaning given to such term in
--------------------
Section 6.3(b).
"Significant Subsidiary" has the meaning given to such term in
----------------------
Rule 1-02(w) of Regulation S-X promulgated by the SEC.
"Stated Preferred Per Share Value" shall mean, with respect to
--------------------------------
the Preferred Stock, the stated per share value thereof, as set forth in the
Series A Preferred Terms.
"Stephens" means Stephens Inc.
--------
"Subsidiary" means as to any Person, any other Person of which
----------
at least 50% of the equity or voting interests are owned, directly or
indirectly, by such first Person.
"Surviving Corporation" has the meaning given to such term in
---------------------
Section 2.1.
"Surviving Corporation Common Stock" means the common stock,
----------------------------------
par value $.01 per share, of the Surviving Corporation.
Page 22 of 106
<PAGE>
"Taxpayers" means as to any Person, such Person, any
---------
predecessor of such Person and all members for income tax purposes of any
affiliated group of corporations of which such Person or any such predecessor
corporation is or has been a member.
"TBCA" means the Tennessee Business Corporation Act.
----
"Transaction Moratorium Period" has the meaning given to such
-----------------------------
term in Section 6.3(b).
"Unsatisfied Allocation Short-fall" has the meaning given to
---------------------------------
such term in Section 3.4.
"Wholly-Owned Subsidiary" means a Subsidiary of which 100% of
-----------------------
the issued and outstanding common stock is owned directly or indirectly by the
parent company.
ARTICLE 2
THE MERGER
----------
2.1. The Merger. Subject to the terms and conditions hereof,
----------
at the Effective Time and in accordance with the provisions of this Agreement
and the applicable provisions of the TBCA and the DGCL, the Company shall be
merged with and into the Merger Sub which shall continue as the surviving
corporation (the "Surviving Corporation"). Thereupon the separate
---------------------
corporate existence of the Company shall cease, and the Surviving Corporation
shall continue existence under the laws of the State of Delaware.
2.2. Effective Time of the Merger. On or prior to the Closing
----------------------------
Date, the parties hereto will cause the Certificate of Merger, satisfactory to
the parties hereto, to be duly prepared, executed and verified on behalf of
each Constituent Corporation and to be filed with the Secretary of State of the
State of Tennessee, as provided in Section 48-21-105 of the TBCA, and the
Secretary of State of the State of Delaware, as provided in Section 252 of the
DGCL, and the Merger shall become effective on the Closing Date.
2.3. Surviving Corporation
---------------------
(a) Certificate of Incorporation and Bylaws. The Certificate
---------------------------------------
of Incorporation and Bylaws of the Merger Sub, each as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation and
Bylaws of the Surviving Corporation and thereafter shall continue to be its
Certificate of Incorporation and Bylaws until amended as provided therein and
under the provisions of the DGCL.
Page 23 of 106
<PAGE>
(b) Directors. The Board of Directors of the Merger Sub
---------
immediately prior to the Effective Time shall from and after the Effective Time
be the directors of the Surviving Corporation until their successors are
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and Bylaws.
(c) Effect of the Merger. Subject to the foregoing, the
--------------------
effects of the Merger shall be as provided in the applicable provisions of the
TBCA and DGCL.
(d) Name of Surviving Corporation. The name of the
-----------------------------
Surviving Corporation shall be "Midland Financial Group, Inc."
ARTICLE 3
MERGER CONSIDERATION;
STATUS AND CONVERSION OF SHARES
- -------------------------------
3.1. Merger Consideration.
--------------------
(a) Aggregate Merger Consideration. The Aggregate
------------------------------
Merger Consideration, when valued in accordance with the last sentence of this
subsection, shall have a value at the Effective Time equal to the Aggregate
Merger Price, with 50% of that value attributable to non-cash consideration in
the form of the Aggregate Preferred Stock Consideration Fund and the Aggregate
Common Stock Consideration Fund. For purposes of this Article 3, (i) each
share of Preferred Stock in the Aggregate Preferred Stock Consideration Fund
shall be valued at the Stated Preferred Per Share Value and (ii) each share of
Purchaser Common Stock in the Aggregate Common Stock Consideration Fund shall
be valued at the Purchaser Common Stock Per Share Value.
(b) Per Share Merger Consideration. The consideration
------------------------------
that will be issued and paid in the Merger in respect of each Share (i) shall
have at the Effective Time, when valued in accordance with the final sentence
of subsection (a) of this Section 3.1, a value equal to the Per Share Merger
Price and (ii) shall consist of the combination of securities and cash
determined pursuant to this Article 3.
3.2. Conversion or Cancellation of Shares in the Merger.
--------------------------------------------------
Subject to the provisions of this Agreement, at the Effective Time, by virtue
of the Merger and without any action on the part of the holders thereof, the
shares of the Constituent Corporations shall be converted or canceled, as the
case may be, in the following manner:
(a) Company Common Stock. Each Share (other than shares of
--------------------
Company Common Stock held in treasury) shall be converted into a right to
receive a portion of the Aggregate
Page 24 of 106
<PAGE>
Merger Consideration which (i) has a value, when valued in accordance with the
last sentence of Section 3.1(a), equal to the Per Share Merger Price and (ii)
consists of cash, Preferred Stock and Purchaser Common Stock in the proportions
determined in accordance with Section 3.4.
(b) Merger Sub Common Stock. Each share of Common Stock, par
-----------------------
value $.01 per share, of the Merger Sub issued and outstanding immediately
prior to the Effective Time shall remain outstanding and shall constitute one
share of Surviving Corporation Common Stock.
3.3. Status of Treasury Shares. At the Effective Time, each
-------------------------
share of Company Common Stock, if any, held in treasury immediately prior to
the Effective Time shall be canceled and retired and no payment shall be made
with respect thereto.
3.4. Holder Consideration Election Rights.
------------------------------------
(a) Each holder of Company Common Stock will be entitled to
submit, in accordance with the procedures set forth in this Section 3.4, a
written request (in each case a "Holder Consideration Election") as to all
-----------------------------
the Shares owned by such holder, or multiple written requests each relating to
a portion of the Shares owned by such holder, requesting that, subject to the
provisions of this Section 3.4:
(i) the consideration to be paid in the Merger in respect of
the Shares covered by such Holder Consideration Election be
Purchaser Common Stock (a "Common Stock Election"); for
---------------------
purposes of determining allocations pursuant to subsection
(c) to holders who have made Common Stock Elections,
Purchaser Common Stock shall be deemed the "Chosen
Consideration" for such holders, Preferred Stock shall be
deemed the "Second Form of Consideration" for such holders
and cash shall be deemed the "Third Form of Consideration"
for such holders; or
(ii) the consideration to be paid in the Merger in respect
of the Shares covered by such Holder Consideration Election
be Preferred Stock (a "Preferred Stock Election"); for
------------------------
purposes of determining allocations pursuant to subsection
(c) to holders who have made Preferred Stock Elections,
Preferred Stock shall be deemed the "Chosen Consideration"
for such holders, Purchaser Common Stock shall be the "Second
Form of Consideration" for such holders and cash shall be
deemed the "Third Form of Consideration" for such holders; or
Page 25 of 106
<PAGE>
(iii) the consideration to be paid in the Merger in respect
of the Shares covered by such Holder Consideration Election
be cash (a "Cash Election"); for purposes of determining
-------------
allocations pursuant to subsection (c) to holders who have
made Cash Elections, cash shall be deemed the "Chosen
Consideration" for such holders, Preferred Stock shall be
deemed the "Second Form of Consideration" for such holders
and Purchaser Common Stock shall be deemed the "Third Form of
Consideration" for such holders.
In accordance with the priorities set forth in subsection (b) and the
procedures set forth in subsection (c), each holder who has made a valid Holder
Consideration Election with respect to some or all Shares owned by it which
remains in effect at the Effective Time will receive in the Merger in respect
of such Shares consideration in the form of such holder's Chosen Consideration
(subject to the availability of such consideration after pro-rating such holder
with other holders in accordance with this Section); if there is not a
sufficient amount of such holder's Chosen Consideration available (after giving
effect to pro-rationing) to satisfy such holder's right to receive
consideration in the Merger in respect of such Shares which has a value equal
to the Per Share Merger Price (when valued in accordance with the last sentence
of Section 3.1(a), such holder will receive additional, successive allocations
of such holder's Second Form of Consideration and Third Form of Consideration,
until such holder has received such value.
(b) Priority of Allocations Based on Chosen Consideration.
-----------------------------------------------------
The Aggregate Merger Consideration shall be allocated among holders of Shares,
in the manner set forth in subsection (c) of this Section, in the following
order of priority:
First, as a group, among all holders of Shares who have
-----
made valid Common Stock Elections that remain in effect at
the Effective Time;
Second, as a group, among all holders of Shares who have
------
made valid Preferred Stock Elections that remain in effect at
the Effective Time;
Third, as a group, among all holders of Shares who have
-----
made valid Cash Elections that remain in effect at the
Effective Time; and
Page 26 of 106
<PAGE>
Fourth, as a group, among all holders of Shares who have
------
not made any Holder Consideration Election.
(c) Manner of Allocation to Each Holder. Each holder who has
-----------------------------------
made a valid Holder Consideration Election with respect to all or a portion of
the Shares owned by it which remains in effect at the Effective Time shall have
a right to receive in respect of such Shares the following allocations of the
Aggregate Merger Consideration:
(i) Allocation of Chosen Consideration. Such holder
----------------------------------
shall have a right to receive in respect of such Shares
its Pro Rata Allocation of the Consideration Fund of
such holder's Chosen Consideration (after giving effect
to the depletion of such Consideration Fund by any
allocations granted priority in accordance with
subsection (b)).
(ii) Allocation of Second Form of Consideration. If the
------------------------------------------
value of the allocation made to such holder pursuant to
clause (i) above (when valued in accordance with the
last sentence of Section 3.1(a)) is less than the Per
Share Merger Price times the number of Shares owned by
such holder and covered by such Holder Consideration
Election, such holder shall have a right to receive in
respect of such Shares a Pro Rata Allocation of the
Consideration Fund of such holder's Second Form of
Consideration (after giving effect to any depletion of
such Consideration Fund by any allocations granted
priority in accordance with subsection (b)) to the
extent of the short-fall (an "Unsatisfied Allocation
------------------------
Short-fall") between (x) the Per Share Merger Price
----------
times the number of Shares owned by such holder and
covered by such Holder Consideration Election, and (y)
the value of the allocation made to such holder
pursuant to clause (i) above in respect of such Shares;
and
(iii) Allocation of Third Form of Consideration. If the
-----------------------------------------
total value of the allocations made to such holder
pursuant to clauses (i) and (ii) above (when valued in
accordance with the last
Page 27 of 106
<PAGE>
sentence of Section 3.1(a)) is less than the Per Share
Merger Price times the number of Shares owned by such
holder and covered by such Holder Consideration
Election, such holder shall have a right to receive in
respect of such Shares a Pro Rata Allocation of the
Consideration Fund of such holder's Third Form of
Consideration (after giving effect to any depletion of
such Consideration Fund by any allocations granted
priority in accordance with subsection (b)) to the
extent of the Unsatisfied Allocation Short-fall between
(x) the Per Share Merger Price times the number of
Shares owned by such holder and covered by such Holder
Consideration Election, and (y) the value of the
allocations made to such holder pursuant to clauses (i)
and (ii) above in respect of such Shares.
Each holder for whom no Holder Consideration Election is in effect at the
Effective Time shall have a right to receive with respect to its Shares its pro
rata allocation of the Aggregate Cash Consideration Fund, the Aggregate Common
Stock Fund and the Aggregate Preferred Stock Fund, in each case after giving
effect to the depletion of those Consideration Funds by prior allocations to
all holders who made Holder Consideration Elections.
(d) A form pursuant to which each record holder of shares of
Company Common Stock may make Holder Consideration Elections and the related
letter of transmittal (the "Form of Election") shall be mailed to
----------------
shareholders of record of the Company as of the record date for the Company
Shareholders' Meeting and such mailing shall accompany the Proxy
Statement/Prospectus mailed to such shareholders in connection with such
Meeting. The Company shall also make the Form of Election available at its
executive offices and such other places as the Company and the Purchaser deem
appropriate to all persons who become stockholders of the Company during the
period between such record date and the Election Deadline.
(e) A Holder Consideration Election will be deemed effectively
made only if the Exchange Agent shall have received a Form of Election properly
completed and signed, no later than 5:00 P.M. New York City time, on such
Business Day determined in accordance with the last sentence of this Section as
is announced by the Purchaser (after consultation with the Company) in a news
release delivered to the Dow Jones News Service, as the last day on which Forms
of Election will be accepted (the "Election Deadline"). The Business Day
-----------------
on which the Election Deadline shall occur shall be a date no earlier than the
date of the
Page 28 of 106
<PAGE>
Company Shareholders' Meeting and no later than the Effective Time and shall be
at least five, and not more than 20, Business Days following the news release
set forth above.
(f) Any holder of Shares who has made one or more effective
Holder Consideration Elections as provided in clause (e) may at any time prior
to the Election Deadline change or revoke its Holder Consideration Election if
such holder submits to the Exchange Agent, and the Exchange Agent receives,
prior to the Election Deadline, a revocation or a revised Form of Election
properly completed and signed.
(g) The Purchaser shall, in its discretion, conclusively
determine any questions with respect to, and shall have the right to make rules
not inconsistent with, the terms of this Agreement, governing the form, terms
and conditions of Forms of Election, the revocation and withdrawal of
elections, the validity and effectiveness of Holder Consideration Elections and
the manner and extent to which they are to be taken into account in making the
determinations provided for in this Section 3.4. The Purchaser (or the
Exchange Agent at the direction of the Purchaser) may make such changes in the
procedures set forth herein for the implementation of elections by the Company
shareholders as shall be necessary or desirable to effect the purposes of this
Agreement. A Company shareholder shall be deemed to have made no Holder
Consideration Election with respect to Shares as to which an invalid or
ineffective election has been made.
3.5. Status of Options. On the Offering Pricing Date, the
-----------------
Company shall cause the Plan and/or each Option outstanding on such date for
the purchase of shares of Company Common Stock granted under any employee stock
option or compensation plan or arrangement of the Company and its Subsidiaries
(a "Company Option") to be amended in the following respects: (i) each
--------------
Company Option, whether or not such Company Option is then exercisable, shall
become fully vested and exercisable as of the close of business on the Business
Day immediately preceding the Closing Date, (ii) each Company Option shall
terminate as of the Effective Time unless exercised prior to the Effective
Time, and (iii) except with respect to any Company Option granted after the
date six months prior to the Closing Date to a person required to file reports
under Section 16(a) of the Exchange Act, each holder of a Company Option shall
be deemed as of the Offering Pricing Date to have irrevocably exercised in full
his Company Option as of the close of business on the Business Day immediately
prior to the Closing Date by means of a "cash-less" exercise pursuant to which
the Company, when issuing shares of Company Common Stock on exercise, will
withhold from such issuance shares with an aggregate value (when valued at the
Per Share Merger Price) equal to the exercise price payable upon such exercise,
in lieu of the payment by the holder of the exercise price in cash. The
amendment of Company Options provided for in this Section shall
Page 29 of 106
<PAGE>
be conditional upon the consummation of the Merger such that, in the event the
Merger is not consummated and this Agreement is terminated, the Company Options
shall in all respects revert to the terms in effect prior to the Offering
Pricing Date and all notices of exercise deemed given pursuant to this Section
shall be null and void. No payment, assumption or conversion shall occur in
the Merger with respect to terminated Options. All Shares issued upon exercise
of Company Options pursuant to this Section 3.5 shall be deemed issued and
outstanding at the Effective Time for purposes of the Merger.
3.6. Payment for Shares in the Merger. The manner of making
--------------------------------
payment for and conversion of Shares in the Merger shall be as follows:
(a) At the Effective Time, the Purchaser shall make available to
the Exchange Agent for the benefit of those Persons who immediately prior to
the Effective Time were the holders of Shares, the Aggregate Merger
Consideration and such additional funds as may be payable in lieu of fractional
Shares pursuant to Section 3.7. The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the non-cash consideration to be issued
pursuant to Section 3.2 and effect the payments of cash provided for in Section
3.2 out of the Aggregate Merger Consideration. The Aggregate Merger
Consideration shall not be used for any other purpose.
(b) Promptly after the Effective Time, the Exchange Agent shall
mail to each holder of record of a Certificate or Certificates (i) a form of
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and (ii) instructions for
use in effecting the surrender of the Certificates for payment therefor. Upon
surrender of Certificates for cancellation to the Exchange Agent, together with
such letter of transmittal duly executed and any other required documents, the
holder of such Certificates shall be entitled to receive for each of the Shares
represented by such Certificates the non-cash consideration issuable and the
cash consideration payable pursuant to this Article 3, and the Certificates so
surrendered shall forthwith be canceled. Until so surrendered, Certificates
shall represent solely the right to receive the cash and non-cash consideration
payable pursuant to this Article 3 and any cash in lieu of fractional Preferred
Stock or Purchaser Common Stock as contemplated by Section 3.7, with respect to
each of the Shares represented thereby. No dividends or other distributions
that are declared after the Effective Time on securities issued pursuant to
this Article 3 and payable to the holders of record thereof after the Effective
Time will be paid to Persons entitled by reason of the Merger to receive such
securities until such Persons surrender their Certificates. Upon such
surrender, there shall be paid to the Person in whose name the Preferred Stock
and
Page 30 of 106
<PAGE>
Purchaser Common Stock is issued pursuant to this Article 3 any dividends or
other distributions having a record date after the Effective Time and payable
with respect to such securities between the Effective Time and the time of such
surrender. After such surrender there shall be paid to the Person in whose
name the Preferred Stock and Purchaser Common Stock is issued pursuant to this
Article 3 any dividends or other distributions on such securities which shall
have a record date after the Effective Time and prior to such surrender and a
payment date after such surrender and such payment shall be made on such
payment date. In no event shall the Persons entitled to receive such dividends
or other distributions be entitled to receive interest on such dividends or
other distributions. If any cash or any certificate representing Preferred
Stock or Purchaser Common Stock issued pursuant to this Article 3 is to be paid
to or issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the Certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the Person requesting such exchange shall pay
to the Exchange Agent any transfer or other taxes required by reason of the
issuance of certificates for such Preferred Stock or Purchaser Common Stock in
a name other than that of the registered holder of the Certificate surrendered,
or shall establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to a holder of Shares for
any Preferred Stock or Purchaser Common Stock issued pursuant to this Article 3
or dividends thereon or, in accordance with Section 3.7, proceeds of the sale
of fractional interests, delivered to a public official pursuant to applicable
escheat law. The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the Preferred Stock or Purchaser Common
Stock issued pursuant to this Article 3 and held by it from time to time
hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such securities for the
account of the Persons entitled thereto.
(c) Certificates surrendered for exchange by any Person
constituting a Rule 145 Affiliate of the Company shall not be exchanged for
certificates representing Preferred Stock or Purchaser Common Stock until the
Purchaser has received a written agreement from such Person as provided in
Section 6.13.
(d) Any portion of the Aggregate Merger Consideration and the
Fractional Securities Fund which remains unclaimed by the former shareholders
of the Company for one year after the Effective Time shall be delivered to the
Purchaser, upon demand of the Purchaser, and any former shareholders of the
Company shall thereafter look only to the Purchaser for payment of their claim
for the Share Consideration and the Per Share Cash
Page 31 of 106
<PAGE>
Consideration Amount for the Shares or for any cash in lieu of fractional
Shares included in Share Consideration.
3.7. Fractional Shares. No fractional shares of any security
-----------------
constituting a part of the Share Consideration shall be issued in the Merger.
In lieu of any such fractional securities, each holder of Shares who would
otherwise have been entitled to a fraction of a share of any security included
in the Share Consideration upon surrender of Certificates for exchange pursuant
to this Article 3 will be paid an amount in cash (without interest) equal to
such holder's proportionate interest in the net proceeds from the sale or sales
in the open market by the Exchange Agent, on behalf of all such holders, of the
Excess Shares representing the aggregation of all fractional interests created
pursuant to this Article 3. As soon as practicable following the Effective
Time, the Exchange Agent shall determine the excess of (i) the number of full
shares of each security included in the Share Consideration delivered to the
Exchange Agent by the Purchaser over (ii) the aggregate number of full shares
to be distributed to holders of Shares (such excess being herein called the
"Excess Shares"), and the Exchange Agent, as agent for the former holders
-------------
of Shares, shall sell the Excess Shares at the prevailing prices on the
Exchange. The sale of the Excess Shares by the Exchange Agent shall be
executed on the Exchange through one or more member firms of the Exchange and
shall be executed in round lots to the extent practicable. The Purchaser shall
pay all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent, incurred in
connection with such sale of Excess Shares. Until the net proceeds of such sale
have been distributed to the former shareholders of the Company, the Exchange
Agent will hold such proceeds in trust for such former shareholders (the
"Fractional Securities Fund"). As soon as practicable after the
--------------------------
determination of the amount of cash to be paid to former shareholders of the
Company in lieu of any fractional interests, the Exchange Agent shall make
available in accordance with this Agreement such amounts to such former
shareholders.
3.8. Transfer of Shares after the Effective Time. No
-------------------------------------------
transfers of Shares shall be made on the stock transfer books of the Company
after the close of business on the day prior to the date of the Effective Time.
3.9. Dividend Rate of Preferred Stock. The dividend rate
--------------------------------
applicable to the Preferred Stock shall initially be set, not earlier than the
date 10 Business Days nor later than the date five Business Days prior to the
date upon which the Proxy Statement/Prospectus is mailed to shareholders (the
"Preferred Pricing Date"), at the Par Trading Rate as determined in the
----------------------
joint written opinion of DLJ and R-H. The dividend rate set at the Preferred
Pricing Date shall be subject to upward or downward adjustment as of the
Offering Pricing Date to a rate which, in
Page 32 of 106
<PAGE>
the joint written opinion of DLJ and R-H, represents the Par Trading Rate as of
the Offering Pricing Date. In the event that DLJ and R-H are unable to agree
upon an appropriate dividend rate for the Preferred Stock as of either the
Preferred Pricing Date or the Offering Pricing Date, Lazard shall advise the
Company and the Purchaser in writing of the rate which, in its opinion,
represents the Par Trading Rate as of such date. If the rate specified by
Lazard for such security as of either such date is within the high and low
rates specified by DLJ and R-H for such security, the rate so specified by
Lazard shall be the rate for such security (subject to adjustment as of the
Offering Pricing Date as provided above in the case of rates set as of the
Preferred Pricing Date). If the rate specified by Lazard for such security is
above or below the range of the two rates specified by DLJ and R-H for such
security, the nearest of the two rates specified by DLJ and R-H shall be the
dividend rate for such security (subject to adjustment as of the Offering
Pricing Date as provided above in the case of rates set as of the Preferred
Pricing Date).
3.10. Closing. The Closing shall, subject to the terms and
-------
conditions set forth herein, including, without limitation, the satisfaction or
waiver of the conditions set forth in Article 7, take place at the New York
offices of Anderson Kill Olick & Oshinsky, P.C. at the Effective Time, which
shall occur at the same time and on the same date (the "Closing Date") as
------------
the closing of the sale of Purchaser Common Stock in the Purchaser Common Stock
Offering. From and after the Offering Pricing Date, time shall be of the
essence in this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
Except as otherwise set forth in the Company Disclosure Schedule,
the Company hereby represents and warrants to the Purchaser as follows:
4.1. Organization of the Company. The Company is a
---------------------------
corporation duly organized, validly existing and in good standing under the
laws of the State of Tennessee, has full corporate power and authority to
conduct its business as and to the extent it is presently being conducted and
as and to the extent proposed by the Company to be conducted and to own, lease
and operate its properties and assets. The Company is duly qualified, licensed
or admitted to do business as a foreign corporation and is in good standing in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification, licensing or
admission necessary and where the failure to be so qualified, licensed or
admitted has or could reasonably be expected (so far as can be foreseen at the
time) to have a Company Material Adverse Effect. Each juris-
Page 33 of 106
<PAGE>
diction in which the Company is qualified to do business as a foreign
corporation is listed in Section 4.1 of the Company Disclosure Schedule. Except
for the Company's Subsidiaries, the Company does not directly or indirectly own
any material equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any material equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity
other than portfolio securities acquired by the Company in the ordinary course
of business.
4.2. Authorization. The Company has all necessary corporate
-------------
power and authority to enter into this Agreement, has taken all corporate
action necessary to consummate the transactions contemplated hereby and,
subject to obtaining the Company Shareholders' Approval, to perform its
obligations hereunder. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the Company. Subject to Section 6.3, the Board of
Directors of the Company has recommended adoption of this Agreement by the
shareholders of the Company and directed that this Agreement be submitted to
the shareholders of the Company for their consideration, and no other corporate
proceedings on the part of the Company or its shareholders are necessary to
authorize the execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby, other than obtaining the Company Shareholders' Approval. This
Agreement has been duly and validly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.3. Subsidiaries. Section 4.3 of the Company Disclosure
------------
Schedule sets forth a complete and accurate list of all of the Company's
Subsidiaries and indicates the Company's ownership interest in each. Section
4.3 of the Company Disclosure Schedule also sets forth the jurisdiction of
incorporation of each of the Company's Subsidiaries, each jurisdiction in which
such Subsidiary is qualified, licensed (other than licenses to conduct
insurance business) or admitted to do business and the number of shares of
capital stock of such Subsidiary authorized and outstanding. Each Subsidiary
of the Company (i) is a corporation or other legal entity duly organized,
validly existing and (if applicable) in good standing under the laws of the
jurisdiction of its incorporation or organization and has the full power and
authority to own, lease or operate its properties and assets and conduct its
business as and to the extent currently conducted, except where the failure
Page 34 of 106
<PAGE>
to be duly organized, validly existing and in good standing does not have, and
could not reasonably be expected (so far as can be foreseen at the time) to
have, a Company Material Adverse Effect, and (ii) is duly qualified, licensed
or admitted and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification, license or admission necessary, except where the
failure to be so qualified, licensed or admitted does not have and could not
reasonably be expected (so far as can be foreseen at the time) to have a
Company Material Adverse Effect.
4.4. Capital Stock.
-------------
(a) As of the date hereof, the authorized capital stock of the
Company consists solely of 50,000,000 shares of Company Common Stock, of which
5,389,022 shares are issued and outstanding, no shares are held in the treasury
of the Company and 534,500 shares are reserved for issuance pursuant to
outstanding Options granted under the Company's Plan, 97,000 shares are
reserved for issuance pursuant to outstanding warrants and 157,500 shares are
reserved for issuance in connection with the acquisition of the minority
interests of certain of the Company's Subsidiaries. Except for shares of
Company Common Stock issued upon exercise of outstanding Options granted
pursuant to the Company's Plan, the outstanding warrants, the acquisition of
certain minority interests of the Company's Subsidiaries and except as
contemplated by Section 6.1(a), there has not been, and as of the Closing Date
there will not have been, any change in the number of issued and outstanding
shares of Company Common Stock or shares of Company Common Stock held in
treasury or reserved for issuance since the date hereof. All of the issued and
outstanding shares of Company Common Stock are, and all shares reserved for
issuance will be, upon issuance in accordance with the terms specified in the
instruments or agreements pursuant to which they are issuable, duly authorized,
validly issued, fully paid and nonassessable. Except as described in this
Section 4.4 and pursuant to this Agreement, there are no outstanding Options
obligating the Company or any of its Subsidiaries to issue or sell any shares
of capital stock of the Company or to grant, extend or enter into any Option
with respect thereto.
(b) All of the outstanding shares of capital stock of each
Subsidiary of the Company are duly authorized, validly issued, fully paid and
nonassessable and are owned, beneficially and of record, by the Company, free
and clear of any Liens. There are no (i) outstanding Options obligating the
Company or any of its Significant Subsidiaries to issue or sell any shares of
capital stock of any Significant Subsidiary of the Company or to grant, extend
or enter into any such Option or (ii) voting trusts, proxies or other
commitments, understandings, restrictions or arrangements in favor of any
person other than the Company or a Significant Subsidiary, wholly owned
directly or
Page 35 of 106
<PAGE>
indirectly, by the Company with respect to the voting of or the right to
participate in dividends or other earnings on any capital stock of any
Significant Subsidiary of the Company.
(c) There are no outstanding contractual obligations of the
Company or any Significant Subsidiary of the Company to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or any capital stock of
any Significant Subsidiary of the Company or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
Significant Subsidiary of the Company or any other Person.
4.5. Government Approvals; Compliance with Laws and Orders.
-----------------------------------------------------
(a) To the best of the Company's knowledge, the Company and each
of its Significant Subsidiaries has obtained from the appropriate Governmental
Bodies or self-regulatory organizations which are charged with regulating or
supervising any business conducted by the Company or any Significant Subsidiary
of the Company all permits, variances, exemptions, orders, approvals and
licenses necessary for the conduct of its business and operations as and to the
extent currently conducted (the "Company Permits"), which Company Permits
---------------
are valid and remain in full force and effect, except where the failure to have
obtained such Company Permits or the failure of such Company Permits to be
valid and in full force and effect, individually or in the aggregate, does not
have and could not reasonably be expected (so far as can be foreseen at the
time) to have a Company Material Adverse Effect. The Company and its
Subsidiaries are in compliance with the terms of the Company Permits, except
failures so to comply which, individually or in the aggregate, do not have and
could not reasonably be expected (so far as can be foreseen at the time) to
have a Company Material Adverse Effect.
(b) Neither the Company nor any of its Significant Subsidiaries
has received notice of any Order or any complaint, proceeding or investigation
of any Governmental Body or self-regulatory organization which is charged with
regulating or supervising any business conducted by the Company or any
Significant Subsidiary of the Company pending or, to the knowledge of the
Company, threatened, which affects or could reasonably be expected (so far as
can be foreseen at the time) to affect the validity of any such Company Permit
or impair the renewal thereof, except where the invalidity of any such Company
Permit or the non-renewal thereof does not have and could not reasonably be
expected (so far as can be foreseen at the time) to have a Company Material
Adverse Effect. As of the date hereof, neither the Company nor any of its
Significant Subsidiaries is a party or subject to, any agreement, consent
decree or Order, or other understanding or arrangement with, or any directive
of, any Governmental Body or self-regulatory organization which is
Page 36 of 106
<PAGE>
charged with regulating or supervising any business conducted by the Company or
any Significant Subsidiary of the Company which imposes any material
restrictions on or otherwise affects in any material way, the conduct of the
insurance business of the Company or any of its Significant Subsidiaries.
(c) To the best of the Company's knowledge, the Company and its
Subsidiaries are not and have not been in violation of or default under any
Laws or Order of any Governmental Body or self-regulatory organization which is
charged with regulating or supervising any business conducted by the Company or
any Subsidiary of the Company, except for violations which, individually or in
the aggregate, have not had and could not reasonably be expected (so far as can
be foreseen at the time) to have a Company Material Adverse Effect.
4.6. Absence of Certain Changes or Events. Since the Balance
------------------------------------
Sheet Date, to the best of the Company's knowledge (i) there has not been any
change, event or development (or threat thereof) which has had, or that could
reasonably be expected (so far as can be foreseen) to have, individually or in
the aggregate, a Company Material Adverse Effect, (ii) the Company and its
Subsidiaries have conducted their respective businesses only in the ordinary
course consistent with past practice and (iii) neither the Company nor any of
its Significant Subsidiaries has taken any action which, if taken after the
date hereof, would constitute a breach of any provision of Section 6.1.
Without limiting the generality of the foregoing, since the Balance Sheet Date
except as disclosed in Company SEC Reports filed prior to the date hereof and
as disclosed in the Company Disclosure Schedule, there has not been any:
(a) change in the condition (financial or otherwise), assets,
liabilities, working capital, reserves, earnings, business or prospects of the
Company or any of its Subsidiaries, except for changes contemplated hereby or
changes which have not, individually or in the aggregate, had a Company
Material Adverse Effect;
(b) (i) except for normal periodic increases in the ordinary
course of business consistent with past practice, increase in the compensation
payable or to become payable to any Company Employee whose total cash
compensation for services rendered to the Company or any of its Subsidiaries is
currently at an annual rate of more than $100,000, (ii) except in the ordinary
course of business consistent with past practice bonus, incentive compensation,
service award or other like benefit granted, made or accrued, contingently or
otherwise, for or to the credit of any of the Company Employees, (iii) except
in the ordinary course of business consistent with past practice or as required
by law, employee welfare, pension, retirement, profit-sharing or similar
payment or arrangement made or agreed to by the Company or any of its
Subsidiaries for any Company Employee
Page 37 of 106
<PAGE>
provided, however, that any employee welfare, pension, retirement,
- -------- -------
profit-sharing or similar payment or arrangement made or agreed to by the
Company or any of its Subsidiaries for any Company Employee pursuant to the
existing plans and arrangements described in benefit plans and arrangements
described in Section 4.15 of the Company Disclosure Schedule shall be
permitted, or (iv)new employment agreement to which the Company or any of its
Subsidiaries is a party;
(c) except in the ordinary course of business consistent with past
practice or as required by law, addition to or modification of the employee
benefit plans, arrangements or practices described in Section 4.14 of the
Company Disclosure Schedule affecting Company Employees other than (i)
contributions made for 1994 or 1995 in accordance with the normal practices of
the Company or its Subsidiaries or (ii) the extension of coverage to other
Company Employees who became eligible after the Balance Sheet Date;
(d) sale, assignment or transfer of any of the assets of the
Company or any of its Subsidiaries, which are material, singly or in the
aggregate to the Company and its Subsidiaries, taken as a whole, other than in
the ordinary course;
(e) cancellation of any indebtedness or waiver of any rights of
substantial value to the Company and its Subsidiaries, taken as a whole,
whether or not in the ordinary course of business;
(f) amendment, cancellation or termination of any Contract,
license or other instrument material to the Company and its Subsidiaries, taken
as a whole;
(g) capital expenditure or the execution of any lease or any
incurring of liability therefor by the Company or any of its Subsidiaries,
involving payments in excess of $50,000 in any 12 month period or $250,000 in
the aggregate;
(h) failure to repay when due any material obligation of the
Company or any of its Subsidiaries, except in the ordinary course of business
or where such failure could not have a Company Material Adverse Effect;
(i) material change in accounting methods or practices by the
Company or any of its Subsidiaries affecting their respective assets,
liabilities or business;
(j) material revaluation by the Company or any of its Subsidiaries
of any of their respective assets, including without limitation, writing-off
notes or accounts receivable which are, individually or in the aggregate,
material to the Company and its Subsidiaries, taken as a whole;
Page 38 of 106
<PAGE>
(k) damage, destruction or loss (whether or not covered by
insurance) having a Company Material Adverse Effect;
(l) mortgage, pledge or other encumbrance of any assets of the
Company or any of its Subsidiaries, which are material, singly or in the
aggregate, to the Company and its Subsidiaries taken as a whole except purchase
money mortgages arising in the ordinary course of business;
(m) declaration, setting aside or payment of dividends or
distributions in respect of any capital stock of the Company or any redemption,
purchase or other acquisition of any of the Company's equity securities;
(n) issuance by the Company or any of its Subsidiaries of, or
commitment of the Company or any of its Subsidiaries to issue, any shares of
capital stock or other equity securities or Options other than the issuance of
Company Common Stock upon the exercise of Options as provided in Section 3.5;
(o) indebtedness incurred by the Company or any of its
Subsidiaries for borrowed money or any commitment to borrow money entered into
by the Company or any of its Subsidiaries, or any loans made or agreed to be
made by the Company or any of its Subsidiaries;
(p) liabilities incurred involving $250,000 or more, except in the
ordinary course of business and consistent with past practice, or any increase
or change in any assumptions underlying or methods of calculating any bad debt,
contingency or other reserves other than in the ordinary course of business
consistent with past practices;
(q) payment, discharge or satisfaction of any liabilities other
than the payment, discharge or satisfaction (i)in the ordinary course of
business and consistent with past practice of liabilities reflected or reserved
against in the Balance Sheet or incurred in the ordinary course of business and
consistent with past practice since the Balance Sheet Date and (ii)of other
liabilities involving not more than $250,000 singly and not more than $750,000
in the aggregate; or
(r) agreement or commitment by the Company or any of its
Subsidiaries to do any of the foregoing.
4.7. Compliance with Contracts and Commitments.
-----------------------------------------
(a) Section 4.7 of the Company Disclosure Schedule contains an
accurate and complete listing of each material Contract, whether written or
oral, required to be described in the Company SEC Reports or filed as exhibits
thereto pursuant to the Exchange Act. Each of such Contracts (other than
Contracts which have expired or terminated in accordance with the terms
Page 39 of 106
<PAGE>
thereof) is in full force and effect and (i) to the best of the Company's
knowledge, neither the Company nor any of its Subsidiaries nor, to the best of
the Company's knowledge, any other party thereto has breached or is in default
thereunder, (ii)to the best of the Company's knowledge, no event has occurred
which, with the passage of time or the giving of notice or both would
constitute such a breach or default, (iii) to the best of the Company's
knowledge, no claim of material default thereunder has been asserted or
threatened and (iv) neither the Company nor any of its Subsidiaries nor, to the
knowledge of the Company, any other party thereto is seeking the renegotiation
thereof or substitute performance thereunder, except where such breach or
default, or attempted renegotiation or substitute performance, individually or
in the aggregate, does not have and could not reasonably be expected (so far as
can be foreseen at the time) to have a Company Material Adverse Effect.
(b) Neither the Company nor any Subsidiary of the Company is in
violation of any term of (i) its charter, by-laws or other organizational
documents, (ii) any agreement or instrument related to indebtedness for
borrowed money or any other Contract to which it is a party or by which it is
bound, (iii)any applicable law, ordinance, rule or regulation of any
Governmental Body, or (iv) any applicable Order of any Governmental Body, or
self-regulatory organization which is charged with regulating or supervising
any business conducted by the Company or any Subsidiary of the Company, the
consequences of which violation, whether individually or in the aggregate, have
or could reasonably be expected (so far as can be foreseen at the time) to have
a Company Material Adverse Effect.
4.8. Non-Contravention; Approvals and Consents.
-----------------------------------------
(a) The execution and delivery of this Agreement by the Company
do not, and the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or without notice or lapse
of time or both) a default under, result in or give to any Person any right of
payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any
of the assets or properties of the Company or any of its Subsidiaries under,
any of the terms, conditions or provisions of (i) the Certificate of
Incorporation or By-laws (or other comparable charter document) of the Company
or any of its Subsidiaries, or (ii) subject to the obtaining of the Company
Shareholders' Approval and the taking of the actions described in paragraph (b)
of this Section, (x) Laws or Orders, of any Governmental Body or
self-regulatory organization which is charged with regulating or supervising
any business conducted by the Company or any Subsidiary of the Company,
applicable to the Company or any of its Subsidiaries or any of their respective
assets or properties, or (y) any Contract
Page 40 of 106
<PAGE>
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or any of their respective assets or
properties is bound, excluding from the foregoing clauses (x) and (y)
conflicts, violations, breaches, defaults, terminations, modifications,
accelerations and creations and impositions of Liens which, individually or in
the aggregate, could not reasonably be expected to have a Company Material
Adverse Effect.
(b) Except for (i) the filing of a premerger notification report
by the Company under the HSR Act, (ii) the filing of the Proxy
Statement/Prospectus with the SEC pursuant to the Exchange Act, (iii) the
filing of the Certificate of Merger and other appropriate merger documents
required by the TBCA and the DGCL with the Secretary of State of the State of
Tennessee and the Secretary of State of the State of Delaware, respectively and
appropriate documents with the relevant authorities of other states in which
the Constituent Corporations are qualified to do business and (iv) any filings
required to be made with the Tennessee State Department of Commerce and
Insurance and any other regulatory authority in each jurisdiction in which the
Company or any of its Subsidiaries conducts insurance business, no consent,
approval or action of, filing with or notice to any Governmental Body or other
public or private third party is necessary or required under any of the terms,
conditions or provisions of any Law or Order of any Governmental Body or
self-regulatory organization which is charged with regulating or supervising
any business conducted by the Company or any Subsidiary of the Company, or any
Contract to which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries or any of their respective assets or
properties is bound for the execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder or the
consummation of the transactions contemplated hereby, other than such consents,
approvals, actions, filings and notices which the failure to make or obtain, as
the case may be, individually or in the aggregate, could not reasonably be
expected to have a Company Material Adverse Effect.
4.9. Litigation. Except as disclosed in Section 4.9 of the
----------
Company Disclosure Schedule there are no actions, suits, arbitrations,
investigations or proceedings (adjudicatory, rulemaking or otherwise) pending
or, to the knowledge of the Company, threatened against the Company or any of
its Subsidiaries (or any Company Employee Plan or Company Benefit Arrangement),
or any property of the Company or any such Subsidiary (including Proprietary
Rights), in any court or before any arbitrator of any kind or before or by any
Governmental Body, except actions, suits, arbitrations, investigations or
proceedings which, individually or in the aggregate, have not had and if
adversely determined or resolved, could not reasonably be
Page 41 of 106
<PAGE>
expected (so far as can be foreseen at the time) to have a Company Material
Adverse Effect.
4.10. Labor Matters. The Company is in material compliance
-------------
with all applicable laws respecting employment practices, terms and conditions
of employment and wages and hours and is not engaged in any unfair labor
practice. There is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any other
governmental agency arising out of the Company's activities, and the Company
has no knowledge of any facts or information which would give rise thereto.
4.11. Absence of Undisclosed Liabilities. The Company has no
----------------------------------
liabilities or obligations (whether choate or inchoate, absolute or contingent,
or otherwise) except (i) liabilities which are reflected and reserved against
or disclosed on the Balance Sheet, (ii) liabilities incurred in the ordinary
course of business and consistent with past practice since the Balance Sheet
Date and which have not resulted in, and could not reasonably be expected to
result in, individually or in the aggregate, a Company Material Adverse Effect.
4.12. No Brokers. Neither the Company nor any Subsidiary or
----------
affiliate of the Company has entered into or will enter into any Contract or
understanding, whether oral or written, with any Person other than R-H which
will result in the obligation of the Purchaser to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby.
4.13. No Other Agreements to Sell the Assets or the Company.
-----------------------------------------------------
Neither the Company nor any Significant Subsidiary has any legal obligation,
absolute or contingent, to any other person to sell any Assets, to sell any
capital stock of the Company or any of its Significant Subsidiaries or to
effect any merger, consolidation or other reorganization of the Company or any
of its Significant Subsidiaries or to enter into any agreement with respect
thereto.
4.14. Employee Benefit Plans.
----------------------
(a) The Company Disclosure Schedule sets forth a true and complete
list of all the following: (i) each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, established by the Company, any of its
Significant Subsidiaries, or any ERISA Affiliate or under which the Company,
any of its Significant Subsidiaries, or any ERISA Affiliate contributes or
under which any Employees of the Company or any beneficiary thereof is
covered, is eligible for coverage or has benefit rights with respect to service
to the Company, any of its Significant Subsidiaries or any ERISA Affiliate or
under which any obligation exists to issue capital stock of the Company or
Page 42 of 106
<PAGE>
any of its Significant Subsidiaries (each, a "Company Employee Plan"), and
---------------------
(ii) each other plan, program, policy, contract or arrangement providing for
bonuses, pensions, deferred pay, stock or stock-related awards, severance pay,
salary continuation or similar benefits, hospitalization, medical, dental or
disability benefits, life insurance or other employee benefits, or compensation
to or for any Company Employees or any beneficiaries or dependents of any
Company Employees (other than directors' and officers' liability insurance
policies), whether or not oral or written or insured or funded, or constituting
an employment or severance agreement or arrangement with any officer or
director of the Company or any Significant Subsidiary (each, a "Company
--------
Benefit Arrangement"). Any such Company Employee Plans or Company Benefit
- -------------------
Arrangements maintained for any officer, director or employee of a Subsidiary
of the Company that is not a Significant Subsidiary are not in the aggregate
material to the Company and its Significant Subsidiaries taken as a whole. The
Company Disclosure Schedule also (i) sets forth a true and complete list of
each Company Employee Plan maintained by the Company, any ERISA Affiliate, or
any of its Significant Subsidiaries, during the five years preceding the date
of this Agreement that was covered during such period by Title IV of ERISA,
(ii) identifies each Company Employee Plan that is intended to be qualified
under Section 401(a) of the Code, and (iii) identifies the Company Employee
Plans and Company Benefit Arrangements that are maintained, respectively, by
each of the Company and its Significant Subsidiaries. The Company has made
available to the Purchaser with respect to each Company Employee Plan and
Company Benefit Arrangement: (i) a true and complete copy of all written
documents comprising such Company Employee Plan or Company Benefit Arrangement
(including amendments and individual agreements relating thereto) or, if there
is no such written document, an accurate and complete description of such
Company Employee Plan or Company Benefit Arrangement; (ii) the most recent Form
5500 or Form 5500-C (including all schedules thereto), if applicable; (iii) the
most recent financial statements and actuarial reports, if any, including
without limitation, any such reports relating to any health or medical plan;
(iv) the summary plan description currently in effect and all material
modifications thereof, if any; and (v) the most recent Internal Revenue Service
determination letter, if any. Any such Company Employee Plans and Company
Benefit Arrangements not so provided are not in the aggregate material to the
Company and its Subsidiaries taken as a whole.
(b) Each Company Employee Plan and Company Benefit Arrangement
has been established and maintained in all material respects substantially in
accordance with its terms and substantially in compliance with all applicable
laws, including, but not limited to, ERISA and the Code where the failure to
comply with such terms or laws would have a Company Material Adverse Effect.
To the best of the Company's knowledge, neither the Company nor any of its
Significant Subsidiaries nor any of
Page 43 of 106
<PAGE>
their respective Employees nor any other disqualified person or
party-in-interest with respect to any Company Employee Plan, have engaged
directly or indirectly in any "prohibited transaction," as such term is defined
in section 4975 of the Code or Section 406 of ERISA, with respect to which the
Company or its Significant Subsidiaries could have or has any material
liability. All contributions required to be made to the Company Employee Plans
and Company Benefit Arrangements have been made timely or, to the extent such
contributions have not been made timely the liability resulting therefrom is
not material. Each Company Employee Plan that is intended to be qualified
under Section 401(a) of the Code and whose related trust is intended to be
exempt from taxation under Section 501(a) of the Code has received, or has
applied for and has not been denied, a favorable determination letter with
respect to its qualification and to the Company's best knowledge, nothing has
occurred which could cause a loss of such qualification. Neither the Company,
any ERISA Affiliate nor any Significant Subsidiary has incurred any liability
to the Pension Benefit Guaranty Corporation other than a liability for premiums
not yet due.
(c) Neither the Company, any ERISA Affiliate nor any Significant
Subsidiary has ever maintained, sponsored or contributed to any employee plan
that is or was subject to Section 412 of the Code has incurred any "accumulated
funding deficiency" (as defined in Section 412 of the Code), whether or not
waived.
(d) Neither the Company, any ERISA Affiliate nor any Significant
Subsidiary has ever maintained or sponsored or contributed to any employee
pension benefit plan.
(e) Neither the Company nor any ERISA Affiliate has any liability
under Title IV of ERISA, nor do any circumstances exist that could result in
any of them having any liability under Title IV of ERISA. To the best of the
Company's knowledge, neither the Company nor any Significant Subsidiary has any
liability for any failure to comply with the continuation coverage requirements
of Section 601 et seq. of ERISA and Section 4980B of the Code or to the extent
the Company or any Significant Subsidiary has any such liability, such
liability is not material.
(f) There are no actions, suits, arbitrations, inquiries,
investigations or other proceedings (other than routine claims for benefits)
pending or, to the Company's knowledge, threatened, with respect to any Company
Employee Plan or Company Benefit Arrangement.
(g) No Employees and no beneficiaries or dependents of Employees
are or may become entitled under any Company Employee Plan or Company Benefit
arrangement to post-employment welfare benefits of any kind, including without
limitation death or
Page 44 of 106
<PAGE>
medical benefits, (other than coverage mandated by Section 4980B of the Code.)
(h) There are no agreements with, or pending petitions for
recognition of, a labor union or association as the exclusive bargaining agent
for any of the employees of the Company or any of its Significant Subsidiaries;
no such petitions have been pending at any time within two years of the date of
this Agreement and, to the Company's best knowledge, there has not been any
organizing effort by any union or other group seeking to represent any
employees of the Company or any of its Significant Subsidiaries as their
exclusive bargaining agent at any time within two years of the date of this
Agreement. There are no labor strikes, work stoppages or other labor troubles,
other than routine grievance matters, now pending, or, to the Company's
knowledge, threatened, against the Company or any of its Significant
Subsidiaries, nor have there been any such labor strikes, work stoppages or
other labor troubles, other than routine grievance matters, with respect to the
Company or any of its Significant Subsidiaries at any time within two years of
the date of this Agreement.
(i) Neither the Company, nor any Significant Subsidiary has
scheduled or agreed upon future increases of benefits levels (or creations of
new benefits) with respect to any Company Employee Plan or Company Benefit
Arrangement, and no such increases or creation of benefits have been proposed
or made the subject of representations to employees under circumstances which
make it reasonable to expect that such increases would be granted. No loan is
outstanding between the Company, any Subsidiary, or any ERISA Affiliate and any
Employee.
4.15. S-4 Registration Statement and Proxy Statement/Prospectus.
---------------------------------------------------------
(a) The Proxy Statement/Prospectus relating to the Company
Shareholders' Meeting, as amended or supplemented from time to time, and any
other documents, including without limitation, the S-4 Registration Statement,
to be filed with the SEC or any other Governmental Body or self-regulatory
organization which is charged with regulating or supervising any business
conducted by the Company or any Subsidiary of the Company in connection with
the Merger and the other transactions contemplated hereby will not, on the date
of its filing or, in the case of the Proxy Statement/Prospectus, at the date it
is mailed to shareholders, at the time of the Company Shareholders' Meeting and
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading insofar as the information therein relates to the
Company. The Proxy Statement/Prospectus and any such other documents filed by
the Company with the SEC under the Exchange
Page 45 of 106
<PAGE>
Act will comply as to form in all material respects with the requirements of
the Exchange Act and the Securities Act.
(b) Neither the information supplied or to be supplied by or on
behalf of the Company for inclusion, nor the information incorporated by
reference from documents filed by the Company with the SEC, in any document to
be filed by the Purchaser with the SEC or any other Governmental Body or
self-regulatory organization which is charged with regulating or supervising
any business conducted by the Company or any Subsidiary of the Company in
connection with the Merger, the Purchaser Common Stock Offering or any other
transaction contemplated hereby will on the date of its filing contain, to the
best of the Company's knowledge, any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
4.16. Tax Matters. To the best of the Company's knowledge,
-----------
the Company Taxpayers have duly filed all tax reports and returns required to
be filed by them, including all federal, state, local and foreign tax returns
and reports and have paid in full all taxes required to be paid by such Company
Taxpayers before such payment became delinquent. To the best of the Company's
knowledge, the Company has made adequate provision, in conformity with
generally accepted accounting principles consistently applied, for the payment
of all taxes which may subsequently become due. All taxes which any Company
Taxpayer has been required to collect or withhold have been duly collected or
withheld and, to the extent required when due, have been or will be duly paid
to the proper taxing authority.
The consolidated federal income tax returns of the Company and its
predecessors and the federal income tax returns of each Subsidiary of the
Company whose results of operations are not consolidated in the federal income
tax returns of the Company, have not been examined by the Internal Revenue
Service for any periods since their inception. There are no audits known by
the Company to be pending of the Company's tax returns, and there are no claims
which have been or may be asserted relating to any of the Company's tax returns
filed for any year which if determined adversely would result in the assertion
by any governmental agency of any deficiency which could reasonably be expected
to result in, individually or in the aggregate, a Company Material Adverse
Effect. There have been no waivers of statutes of limitations by the Company.
None of the Company Taxpayers has filed a statement under Section
341(f) of the Code (or any comparable state income tax provision) consenting to
have the provisions of Section 341(f)(2) (collapsible corporations provisions)
of the Code (or any comparable state income tax provision) apply to any
disposition of any of the Company's assets or property, and no
Page 46 of 106
<PAGE>
property of the Company is property which the Purchaser or the Company is or
will be required to treat as owned by another person pursuant to the provisions
of Section 168(f) (safe harbor leasing provisions) of the Code. The Company is
not a party to any tax-sharing agreement or similar arrangement with any other
party.
For the purpose of this Agreement, any federal, state, local or
foreign income, sales, use, transfer, payroll, personal property, occupancy or
other tax, levy, impost, fee, imposition, assessment or similar charge,
together with any related addition to tax, interest or penalty thereon, is
referred to as a "tax."
4.17. Reports and Financial Statements. The Company has filed
--------------------------------
with the SEC all Company SEC Reports and has previously made available to the
Purchaser true and complete copies of all the Company SEC Reports. As of their
respective dates, the Company SEC Reports (i) complied as to form in all
material respects with the requirements of the Securities Act, or the Exchange
Act, as the case may be, and (ii) to the best of the Company's knowledge, did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements (including, in each case, the notes, if any, thereto)
included in the Company SEC Reports (the "Company Financial Statements")
----------------------------
complied as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, and, to the best of the Company's
knowledge, fairly present (subject, in the case of the unaudited interim
financial statements, to normal, recurring year-end audit adjustments which are
not expected, individually or in the aggregate, to result in a Company Material
Adverse Effect) the consolidated financial position of the Company and its
consolidated subsidiaries as of the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended, in each case, in accordance with generally accepted
accounting principles consistently applied. Each Significant Subsidiary of the
Company is treated as a consolidated subsidiary of the Company in the Company
Financial Statements for all periods covered thereby.
4.18. Payments. The Company has not, directly or indirectly,
--------
paid nor has it delivered any fee, commission or other sum of money or item or
property, however characterized, to any finder, agent, government official or
other party, in the United States or any other country, which is in any manner
related to the business or operations of the Company, which the Company knows
or has reason to believe to have been illegal under any federal, state or local
laws of the United States or any other country having jurisdiction; and the
Company has not participated, directly or indirectly, in any boycotts or other
Page 47 of 106
<PAGE>
similar practices affecting any of its actual or potential customers and has at
all times done business in an open and ethical manner.
4.19. Information Supplied. The financial and other
--------------------
information provided to the Purchaser by or on behalf of the Company on or
prior to the date hereof and listed on the Company Disclosure Schedule at
Section 4.19 of such Schedule relating to (i)loans of the Company or its
Subsidiaries secured by an interest in real property, (ii) the reserves and
other amounts of liabilities or obligations of the Company and its Subsidiaries
in respect of insurance contracts, annuity contracts and guaranteed interest
contracts as established or reflected on the books and records of the Company
and its Subsidiaries and (iii) reinsurance, retrocession, coinsurance and
similar contracts was prepared in good faith and, as of the dates provided and
in light of the circumstances under which such information was provided (as
supplemented by further information provided by the Company to the Purchaser
prior to the date hereof), accurately reflected in all material respects the
status or matters purported to be reflected by such financial or other
information. To the best of the Company's knowledge, the information listed on
Company Disclosure Schedule at Section 4.19 thereof which was provided to the
Purchaser by the Company with respect to the business, operations and financial
condition of the Company is not false or misleading in any material respect, as
of the dates provided and in light of the circumstances under which such
information was provided (as supplemented by further information provided by
the Company to the Purchaser prior to the date hereof).
4.20. Other Reports. Since January 1, 1991, to the best of
-------------
the Company's knowledge, the Company and each insurance Subsidiary of the
Company has filed all required forms, reports and documents required to be
filed with the applicable state commissioners or superintendents of insurance,
and any other Governmental Body or self-regulatory organization which is
charged with regulating or supervising any business conducted by the Company or
any Subsidiary of the Company (other than such forms, reports and documents
which if not filed would not adversely affect in any significant manner the
licenses and regulatory status of the Company or any insurance Subsidiary),
each of which complied in all material respects with applicable requirements in
effect on the dates of such filings and to the best of the Company's knowledge,
none of which, as of its date, contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
4.21. Vote Required. The affirmative vote of the holders
-------------
of record of a majority of the outstanding shares of Company Common Stock with
respect to the adoption of this Agreement is the only vote of the holders of
any class or series
Page 48 of 106
<PAGE>
of the capital stock of the Company required to adopt this Agreement and
approve the Merger and the other transactions contemplated hereby.
4.22. Chapter 35 of the TBCA. The provisions of Sections
----------------------
48-35-101 et seq. of the TBCA will not apply to this Agreement, the
---
Merger or the other transactions contemplated hereby.
4.23. Fairness Opinions. The Company has received the oral
-----------------
opinion of R-H to the effect that the consideration to be received by the
holders of Company Common Stock pursuant to the Merger is fair from a financial
point of view to such holders.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER AND THE MERGER SUB
-----------------------------------
Except as otherwise set forth in the Purchaser Disclosure Schedule,
the Purchaser and the Merger Sub hereby represent and warrant to the Company as
follows:
5.1. Organization of the Purchaser and the Merger Sub. Each
------------------------------------------------
of the Purchaser and the Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, has full
corporate power and authority to conduct its business as and to the extent it
is presently being conducted and as and to the extent proposed by the Purchaser
to be conducted and to own, lease and operate its properties and assets. The
Purchaser is duly qualified, licensed or admitted to do business as a foreign
corporation and is in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification, licensing or admission necessary and where the
failure to be so qualified, licensed or admitted has or could reasonably be
expected (so far as can be foreseen at the time) to have a Purchaser Material
Adverse Effect. Each jurisdiction in which the Purchaser is qualified to do
business as a foreign corporation is listed in Section 5.1 of the Purchaser
Disclosure Schedule. Except for the Purchaser's Subsidiaries, the Purchaser
does not directly or indirectly own any material equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any
material equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity other than portfolio securities
acquired by the Purchaser in the ordinary course of business.
5.2. Authorization. Each of the Purchaser and the Merger Sub
-------------
has all necessary corporate power and authority to enter into this Agreement,
has taken all corporate action
Page 49 of 106
<PAGE>
necessary to consummate the transactions contemplated hereby and, subject to
obtaining the Purchaser's Stockholders' Approval, to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Purchaser and the Merger Sub and the consummation by the Purchaser and the
Merger Sub of the transactions contemplated hereby have been duly and validly
approved by the Board of Directors of the Purchaser and the Merger Sub,
respectively. The Board of Directors of the Purchaser has recommended adoption
of this Agreement by the stockholders of the Purchaser and directed that this
Agreement be submitted to the stockholders of the Purchaser for their
consideration, and no other corporate proceedings on the part of the Purchaser
or its stockholders are necessary to authorize the execution, delivery and
performance of this Agreement by the Purchaser and the consummation by the
Purchaser of the transactions contemplated hereby, other than obtaining the
Purchaser's Stockholders' Approval. This Agreement has been duly and validly
executed and delivered by the Purchaser and the Merger Sub and constitutes a
legal, valid and binding obligation of the Purchaser enforceable against the
Purchaser and the Merger Sub in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
5.3. Subsidiaries. Section 5.3 of the Purchaser Disclosure
------------
Schedule sets forth a complete and accurate list of all of the Purchaser's
Subsidiaries, and indicates the Company's ownership interest in each. Section
5.3 of the Purchaser Disclosure Schedule also sets forth the jurisdiction of
incorporation of each of the Purchaser's Subsidiaries, each jurisdiction in
which such Subsidiary is qualified, licensed (other than licenses to conduct
insurance business) or admitted to do business and the number of shares of
capital stock of such Subsidiary authorized and outstanding. Each Subsidiary
of the Purchaser (i) is a corporation or other legal entity duly organized,
validly existing and (if applicable) in good standing under the laws of the
jurisdiction of its incorporation or organization and has the full power and
authority to own, lease or operate its properties and assets and conduct its
business as and to the extent currently conducted, except where the failure to
be duly organized, validly existing and in good standing does not have, and
could not reasonably be expected (so far as can be foreseen at the time) to
have, a Purchaser Material Adverse Effect, and (ii) is duly qualified, licensed
or admitted and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification, license or admission necessary, except where the
failure to be so qualified, licensed or admitted does not have and could not
reasonably be expected (so far as can
Page 50 of 106
<PAGE>
be foreseen at the time) to have a Purchaser Material Adverse Effect.
5.4. Capital Stock.
-------------
(a) As of the date hereof, the authorized capital stock of the
Purchaser consists solely of 20,000,000 shares of Purchaser Common Stock, of
which 15,360,255 shares are issued and outstanding, 10,639 shares are held in
the treasury of the Purchaser and 1,271,537 shares are reserved for issuance
pursuant to outstanding Options and 10,000,000 shares of preferred stock, none
of which are issued or outstanding. Except for shares of Purchaser Common
Stock to be issued upon exercise of outstanding Options and except as
contemplated by Section 6.6, there has not been, and as of the Closing Date
there will not have been, any change in the number of issued and outstanding
shares of Purchaser Common Stock or material change in the number of shares of
Purchaser Common Stock held in treasury or reserved for issuance since such
date. All of the issued and outstanding shares of Purchaser Common Stock are,
and all shares reserved for issuance will be, upon issuance in accordance with
the terms specified in the instruments or agreements pursuant to which they are
issuable, duly authorized, validly issued, fully paid and nonassessable.
Except as described in this Section 5.4, there are no outstanding Options
obligating the Purchaser or any of its Subsidiaries to issue or sell any shares
of capital stock of the Purchaser or to grant, extend or enter into any Option
with respect thereto.
(b) Except as disclosed in the Purchaser SEC Reports filed prior
to the date hereof, all of the outstanding shares of capital stock of each
Subsidiary of the Purchaser are duly authorized, validly issued, fully paid and
nonassessable and are owned, beneficially and of record, by the Purchaser or a
Subsidiary of the Purchaser, free and clear of any Liens. There are no (i)
outstanding Options obligating the Purchaser or any of its Subsidiaries to
issue or sell any shares of capital stock of any Subsidiary of the Purchaser or
to grant, extend or enter into any such Option or (ii) voting trusts, proxies
or other commitments, understandings, restrictions or arrangements in favor of
any person other than the Purchaser or any of its Wholly-Owned Subsidiaries
with respect to the voting of or the right to participate in dividends or other
earnings on any capital stock of any Subsidiary of the Purchaser.
(c) There are no outstanding contractual obligations of the
Purchaser or any Subsidiary of the Purchaser to repurchase, redeem or otherwise
acquire any material number of shares of Purchaser Common Stock or any capital
stock of any Subsidiary of the Purchaser or to provide a material amount of
funds to, or make any material investment (in the form of a loan, capital
contribution or otherwise) in, any Subsidiary of the Purchaser or any other
Person.
Page 51 of 106
<PAGE>
5.5. Government Approvals; Compliance with Laws and Orders.
-----------------------------------------------------
(a) To the best of the Purchaser's knowledge, the Purchaser and
each of its Subsidiaries has obtained from the appropriate Governmental Bodies
or self-regulatory organizations which are charged with regulating or
supervising any business conducted by the Purchaser or any Subsidiary of the
Purchaser all permits, variances, exemptions, orders, approvals and licenses
necessary for the conduct of its business and operations as and to the extent
currently conducted (the "Purchaser Permits"), which Purchaser Permits are
-----------------
valid and remain in full force and effect, except where the failure to have
obtained such Purchaser Permits or the failure of such Purchaser Permits to be
valid and in full force and effect, individually or in the aggregate, does not
have and could not reasonably be expected (so far as can be foreseen at the
time) to have a Purchaser Material Adverse Effect. The Purchaser and its
Subsidiaries are in compliance with the terms of the Purchaser Permits, except
failures so to comply which, individually or in the aggregate, do not have and
could not reasonably be expected (so far as can be foreseen at the time) to
have a Purchaser Material Adverse Effect.
(b) Neither the Purchaser nor any of its Significant Subsidiaries
has received notice of any Order or any complaint, proceeding or investigation
of any Governmental Body or self-regulatory organization which is charged with
regulating or supervising any business conducted by the Purchaser or any
Significant Subsidiary of the Purchaser pending or, to the knowledge of the
Purchaser, threatened, which affects or could reasonably be expected (so far as
can be foreseen at the time) to affect the validity of any such Purchaser
Permit or impair the renewal thereof, except where the invalidity of any such
Purchaser Permit or the non-renewal thereof does not have and could not
reasonably be expected (so far as can be foreseen at the time) to have a
Purchaser Material Adverse Effect. As of the date hereof, neither the
Purchaser nor any of its Significant Subsidiaries is a party or subject to, any
agreement, consent decree or Order, or other understanding or arrangement with,
or any directive of, any Governmental Body or self-regulatory organization
which is charged with regulating or supervising any business conducted by the
Purchaser or any Significant Subsidiary of the Purchaser which imposes any
material restrictions on or otherwise affects in any material way, the conduct
of the insurance business of the Purchaser or any of its Significant
Subsidiaries.
(c) To the best of the Purchaser's knowledge, the Purchaser and
its Subsidiaries are not and have not been in violation of or default under any
Laws or Order of any Governmental Body or self-regulatory organization which is
charged with regulating or supervising any business conducted by the Purchaser
or any Subsidiary of the Purchaser, except for
Page 52 of 106
<PAGE>
violations which, individually or in the aggregate, have not had and could not
reasonably be expected (so far as can be foreseen at the time) to have a
Purchaser Material Adverse Effect.
5.6. Authorization for Preferred Stock and Additional Purchaser
-----------------------------------------------------------
Common Stock. Prior to the Effective Time, the Purchaser will have taken all
- ------------
necessary action to permit it to issue the number of shares of Preferred Stock
and shares of Purchaser Common Stock required to be issued pursuant to Article
3. The shares of Preferred Stock and Purchaser Common Stock issued pursuant to
Article 3 will, when issued, be duly authorized, validly issued, fully paid and
nonassessable and no stockholder of the Purchaser will have any preemptive
right of subscription or purchase in respect thereof. The shares of Preferred
Stock and Purchaser Common Stock will, when issued, be registered under the
Securities Act and the Exchange Act and registered or exempt from registration
under any applicable state securities laws and will be approved for listing
upon official notice issuance by the Exchange.
5.7. Absence of Certain Changes or Events. Since the Balance
------------------------------------
Sheet Date (i) there has not been any change, event or development (or threat
thereof) which has had, or that could reasonably be expected (so far as can be
foreseen) to have, individually or in the aggregate, a Purchaser Material
Adverse Effect, (ii) the Purchaser and its Subsidiaries have conducted their
respective businesses only in the ordinary course consistent with past practice
and (iii) neither the Purchaser nor any of its Significant Subsidiaries has
taken any action which, if taken after the date hereof, would constitute a
breach of any provision of Section 6.2. Without limiting the generality of the
foregoing, since the Balance Sheet Date except as described in the Purchaser
SEC Reports filed prior to the date of this Agreement or as disclosed in the
Purchaser Disclosure Schedule, there has not been any:
(a) change in the condition (financial or otherwise), assets,
liabilities, working capital, reserves, earnings, business or prospects of the
Purchaser or any of its Subsidiaries, except for changes contemplated hereby or
changes which have not, individually or in the aggregate, had a Purchaser
Material Adverse Effect.
(b) (i) except for normal periodic increases in the ordinary
course of business consistent with past practice, increase in the compensation
payable or to become payable to any Purchaser Employee whose total cash
compensation for services rendered to the Purchaser or any of its Subsidiaries
is currently at an annual rate of more than $350,000, (ii) bonus, incentive
compensation, service award or other like benefit granted, made or accrued,
contingently or otherwise, for or to the credit of any of the Purchaser
Employees, (iii) employee welfare, pension, retirement, profit-sharing or
similar payment or arrangement made
Page 53 of 106
<PAGE>
or agreed to by the Purchaser or any of its Subsidiaries for any Purchaser
Employee except pursuant to the existing plans and arrangements described in
the Purchaser Disclosure Schedule or (iv)new employment agreement to which the
Purchaser or any of its Subsidiaries is a party;
(c) addition to or modification of the employee benefit plans,
arrangements or practices described in the Purchaser Disclosure Schedule
affecting Purchaser Employees other than (i) contributions made for 1994 or
1995 in accordance with the normal practices of the Purchaser or its
Subsidiaries or (ii) the extension of coverage to other Purchaser Employees who
became eligible after the Balance Sheet Date;
(d) sale, assignment or transfer of any of the assets of the
Purchaser or any of its Subsidiaries, which are material singly or in the
aggregate to the Purchaser and its Subsidiaries, taken as a whole, other than
in the ordinary course;
(e) cancellation of any indebtedness or waiver of any rights of
substantial value to the Purchaser and its Subsidiaries, taken as a whole,
whether or not in the ordinary course of business;
(f) amendment, cancellation or termination of any Contract,
license or other instrument material to the Purchaser and its Subsidiaries,
taken as a whole;
(g) capital expenditure or the execution of any lease or any
incurring of liability therefor by the Purchaser or any of its Subsidiaries,
involving payments in excess of $350,000 in any 12 month period or $1,000,000
in the aggregate;
(h) failure to repay when due any material obligation of the
Purchaser or any of its Subsidiaries, except in the ordinary course of business
or where such failure could not have a Purchaser Material Adverse Effect;
(i) material change in accounting methods or practices by the
Purchaser or any of its Subsidiaries affecting their respective assets,
liabilities or business;
(j) except in connection with the transactions contemplated by the
Merger, material revaluation by the Purchaser or any of its Subsidiaries of any
of their respective assets, including without limitation, writing-off notes or
accounts receivable which are, individually or in the aggregate, material to
the Purchaser and its Subsidiaries, taken as a whole;
(k) damage, destruction or loss (whether or not covered by
insurance) having a Purchaser Material Adverse Effect on the properties,
business or prospects of the Purchaser and its Subsidiaries, taken as a whole;
Page 54 of 106
<PAGE>
(l) mortgage, pledge or other encumbrance of any assets of the
Purchaser or any of its Subsidiaries, which are material singly or in the
aggregate, to the Purchaser and its Subsidiaries, taken as a whole, except
purchase money mortgages arising in the ordinary course of business;
(m) declaration, setting aside or payment of dividends or
distributions in respect of any capital stock of the Purchaser or any
redemption, purchase or other acquisition of any of the Purchaser's equity
securities;
(n) except in connection with the transactions contemplated by the
Merger, issuance by the Purchaser or any of its Subsidiaries of, or commitment
of the Purchaser or any of its Subsidiaries to issue, any shares of capital
stock or other equity securities or Options;
(o) indebtedness incurred by the Purchaser or any of its
Subsidiaries for borrowed money or any commitment to borrow money entered into
by the Purchaser or any of its Subsidiaries, or any loans made or agreed to be
made by the Purchaser or any of its Subsidiaries;
(p) liabilities incurred involving $1,000,000 or more, except in
the ordinary course of business and consistent with past practice, or any
increase or change in any assumptions underlying or methods of calculating any
bad debt, contingency or other reserves other than in the ordinary course
consistent with past practices;
(q) payment, discharge or satisfaction of any liabilities other
than the payment, discharge or satisfaction (i)in the ordinary course of
business and consistent with past practice of liabilities reflected or reserved
against in the Balance Sheet or incurred in the ordinary course of business and
consistent with past practice since the Balance Sheet Date and (ii)of other
liabilities involving not more than $1,000,000 singly and not more than
$2,000,000 in the aggregate; or
(r) agreement or commitment by the Purchaser or any of its
Subsidiaries to do any of the foregoing.
5.8. Compliance with Contracts and Commitments.
-----------------------------------------
(a) Each material Contract to which the Purchaser is a party is
in full force and effect and (i) to the best of the Purchaser's knowledge, none
of the Purchaser or any of its Subsidiaries or any other party thereto, has
breached or is in default thereunder, (ii) to the best of the Purchaser's
knowledge, no event has occurred which, with the passage of time or the giving
of notice or both would constitute such a breach or default, (iii) no claim of
material default thereunder has, to the knowledge of the Purchaser, been
asserted or threatened and
Page 55 of 106
<PAGE>
(iv) none of the Purchaser or any of its Subsidiaries or, to the knowledge of
the Purchaser, any other party thereto is seeking the renegotiation thereof or
substitute performance thereunder, except where such breach or default, or
attempted renegotiation or substitute performance, individually or in the
aggregate, does not have and could not reasonably be expected (so far as can be
foreseen at the time) to have a Purchaser Material Adverse Effect.
(b) Neither the Purchaser nor any Subsidiary of the Purchaser is
in violation of any term of (i) its charter, by-laws or other organizational
documents, (ii) any agreement or instrument related to indebtedness for
borrowed money or any other Contract to which it is a party or by which it is
bound, (iii)any applicable law, ordinance, rule or regulation of any
Governmental Body, or (iv) any applicable Order of any Governmental Body, or
self-regulatory organization which is charged with regulating or supervising
any business conducted by the Purchaser or any Subsidiary of the Purchaser, the
consequences of which violation, whether individually or in the aggregate, have
or could reasonably be expected (so far as can be foreseen at the time) to have
a Purchaser Material Adverse Effect.
5.9. Non-Contravention; Approvals and Consents.
-----------------------------------------
(a) The execution and delivery of this Agreement by the Purchaser
do not, and the performance by the Purchaser of its obligations hereunder and
the consummation of the transactions contemplated hereby will not, conflict
with, result in a violation or breach of, constitute (with or without notice or
lapse of time or both) a default under, result in or give to any person any
right of payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any
of the assets or properties of the Purchaser or any of its Subsidiaries under,
any of the terms, conditions or provisions of (i) the Certificate of
Incorporation or By-laws (or other comparable charter document) of the
Purchaser (assuming Purchaser Stockholder Approval) or any of its Subsidiaries,
(ii) subject to the taking of the actions described in paragraph (b) of this
Section, (x) Laws or Orders, of any Governmental Body or self-regulatory
organization which is charged with regulating or supervising any business
conducted by the Purchaser or any Subsidiary of the Purchaser, applicable to
the Purchaser or any of its Subsidiaries or any of their respective assets or
properties, or (y) any Contract to which the Purchaser or any of its
Subsidiaries is a party or by which the Purchaser or any of its Subsidiaries or
any of their respective assets or properties is bound, excluding from the
foregoing clauses (x) and (y) conflicts, violations, breaches, defaults,
terminations, modifications, accelerations and creations and impositions of
Liens which, individually or in the aggregate,
Page 56 of 106
<PAGE>
could not reasonably be expected to have a Purchaser Material Adverse Effect.
(b) Except for (i) the filing of a premerger notification report
by the Purchaser under the HSR Act, (ii) the filing of the Proxy
Statement/Prospectus with the SEC and the AMEX and NASDAQ pursuant to the
Exchange Act and applying for listing of the Share Consideration on an
Exchange, (iii) the filing of the Certificate of Merger and other appropriate
merger documents required by the TBCA and the DGCL with the Secretary of State
of the State of Tennessee and the Secretary of State of the State of Delaware,
respectively, and appropriate documents with the relevant authorities of other
states in which the Constituent Corporations are qualified to do business, (iv)
the filing of a registration statement with the SEC and any "blue sky" or
similar filings in connection with the Purchaser Common Stock Offering and (v)
the making of any required filings with the California Department of Insurance
and Banking Department, no consent, approval or action of, filing with or
notice to any Governmental Body or other public or private third party is
necessary or required under any of the terms, conditions or provisions of any
Law or Order of any Governmental Body or self-regulatory organization which is
charged with regulating or supervising any business conducted by the Purchaser
or any Subsidiary of the Purchaser, or any Contract to which the Purchaser or
any of its Subsidiaries is a party or by which the Purchaser or any of its
Subsidiaries or any of their respective assets or properties is bound for the
execution and delivery of this Agreement by the Purchaser, the performance by
the Purchaser of its obligations hereunder or the consummation of the
transactions contemplated hereby, other than such consents, approvals, actions,
filings and notices which the failure to make or obtain, as the case may be,
individually or in the aggregate, could not reasonably be expected to have a
Purchaser Material Adverse Effect.
5.10. Litigation. There are no actions, suits, arbitrations,
----------
investigations or proceedings (adjudicatory, rulemaking or otherwise) pending
or, to the knowledge of the Purchaser, threatened against the Purchaser or any
of its Subsidiaries (or any Purchaser Employee Plan or Purchaser Benefit
Arrangement), or any property of the Purchaser or any such Subsidiary
(including Proprietary Rights), in any court or before any arbitrator of any
kind or before or by any Governmental Body, except actions, suits,
arbitrations, investigations or proceedings which, individually or in the
aggregate, have not had and if adversely determined or resolved, could not
reasonably be expected (so far as can be foreseen at the time) to have a
Purchaser Material Adverse Effect.
5.11. Labor Matters. The Purchaser is in material compliance
-------------
with all applicable laws respecting employment practices, terms and conditions
of employment and wages and hours and is not engaged in any unfair labor
practice. To the best of the
Page 57 of 106
<PAGE>
Purchaser's knowledge, there is no unfair labor practice charge or complaint
against the Purchaser pending before the National Labor Relations Board or any
other governmental agency arising out of the Purchaser's activities, and the
Purchaser has no knowledge of any facts or information which would give rise
thereto.
5.12. Absence of Undisclosed Liabilities. The Purchaser has
----------------------------------
no known liabilities or obligations (whether choate or inchoate, absolute or
contingent, or otherwise) except (i) liabilities which are reflected and
reserved against or disclosed on the Balance Sheet, (ii) liabilities incurred
in the ordinary course of business and consistent with past practice since the
Balance Sheet Date and which have not resulted in, and could not reasonably be
expected to result in, individually or in the aggregate, a Purchaser Material
Adverse Effect.
5.13. No Brokers. Neither the Purchaser nor any Subsidiary or
----------
affiliate of the Purchaser has entered into or will enter into any Contract or
understanding, whether oral or written, with any Person other than Stephens and
DLJ which will result in the obligation of the Purchaser to pay any finder's
fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby.
5.14. No Other Agreements to Merge. Except as disclosed in
----------------------------
the SEC Reports, neither the Purchaser nor any Significant Subsidiary thereof
has any legal obligation, absolute or contingent, to any other person to effect
any merger, consolidation or other reorganization of the Purchaser or any of
its Significant Subsidiaries or to enter into any agreement with respect
thereto.
5.15. S-4 Registration Statement and Proxy Statement/Prospectus.
---------------------------------------------------------
(a) The Proxy Statement/Prospectus relating to the Purchaser
Stockholders' Meeting, as amended or supplemented from time to time, and any
other documents, including without limitation, the S-4 Registration Statement,
to be filed with the SEC or any other Governmental Body or self-regulatory
organization which is charged with regulating or supervising any business
conducted by the Purchaser or any Subsidiary of the Purchaser in connection
with the Merger and the other transactions contemplated hereby will not, on the
date of its filing or, in the case of the Proxy Statement/Prospectus, at the
date it is mailed to stockholders, at the time of the Purchaser Stockholders'
Meeting and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, insofar as the
information therein relates to the Purchaser. The Proxy Statement/Prospectus
and any
Page 58 of 106
<PAGE>
such other documents filed by the Purchaser with the SEC under the Exchange Act
will comply as to form in all material respects with the requirements of the
Exchange Act and the Securities Act.
(b) Neither the information supplied or to be supplied by or on
behalf of the Purchaser for inclusion, nor the information incorporated by
reference from documents filed by the Purchaser with the SEC, in any document
to be filed by the Company or any of its Subsidiaries with the SEC or any other
Governmental Body or self-regulatory organization which is charged with
regulating or supervising any business conducted by the Purchaser or any
Subsidiary of the Purchaser in connection with the Merger, the Purchaser Common
Stock Offering contemplated in Section 6.6 or any other transaction
contemplated hereby will on the date of its filing contain, to the best of the
Purchaser's knowledge, any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
5.16. Tax Matters. To the best of the Purchaser's knowledge,
-----------
since August 15, 1990, the Purchaser Taxpayers have duly filed all tax reports
and returns required to be filed by them, including all federal, state, local
and foreign tax returns and reports and have paid in full all taxes required to
be paid by such Purchaser Taxpayers before such payment became delinquent. To
the best of Purchaser's knowledge, the Purchaser has made adequate provision,
in conformity with generally accepted accounting principles consistently
applied, for the payment of all taxes which may subsequently become due. All
taxes which any Purchaser Taxpayer has been required to collect or withhold
have been duly collected or withheld and, to the extent required when due, have
been or will be duly paid to the proper taxing authority.
The consolidated federal income tax returns of the Purchaser and
its predecessors and the federal income tax returns of each Subsidiary of the
Purchaser whose results of operations are not consolidated in the federal
income tax returns of the Purchaser, have not been examined by the Internal
Revenue Service for any periods since August 1990. There are no audits known
by the Purchaser to be pending of the Purchaser's tax returns, and there are no
claims which have been or may be asserted relating to any of the Purchaser's
tax returns filed for any year which if determined adversely would result in
the assertion by any governmental agency of any material deficiency which could
reasonably be expected to result in, individually or in the aggregate, a
Purchaser Material Adverse Effect. There have been no waivers of statutes of
limitations by the Purchaser.
None of the Purchaser Taxpayers has filed a statement under Section
341(f) of the Code (or any comparable state income tax provision) consenting to
have the provisions of Section
Page 59 of 106
<PAGE>
341(f)(2) (collapsible corporations provisions) of the Code (or any comparable
state income tax provision) apply to any disposition of any of the Purchaser's
assets or property, no property of the Purchaser is property which the
Purchaser or the Company is or will be required to treat as owned by another
person pursuant to the provisions of Section 168(f) (safe harbor leasing
provisions) of the Code. The Purchaser is not a party to any tax-sharing
agreement or similar arrangement with any other party.
5.17. Reports and Financial Statements. The Purchaser has
--------------------------------
filed with the SEC all Purchaser SEC Reports and has made available to the
Company true and complete copies of all the Purchaser SEC Reports. As of their
respective dates, the Purchaser SEC Reports (i) complied as to form in all
material respects with the requirements of the Securities Act, or the Exchange
Act, as the case may be, and (ii) to the best of the Purchaser's knowledge, did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements (including, in each case, the notes, if any, thereto)
included in the Purchaser SEC Reports (the "Purchaser Financial
--------------------
Statements") complied as to form in all material respects with the published
- ----------
rules and regulations of the SEC with respect thereto, and, to the best of the
Purchaser's knowledge, fairly present (subject, in the case of the unaudited
interim financial statements, to normal, recurring year-end audit adjustments
which are not expected, individually or in the aggregate, to be material or to
result in a Purchaser Material Adverse Effect) the consolidated financial
position of the Purchaser and its consolidated subsidiaries as of the
respective dates thereof and the consolidated results of their operations and
cash flows for the respective periods then ended, in each case, in accordance
with generally accepted accounting principles consistently applied. Each
Significant Subsidiary of the Purchaser is treated as a consolidated subsidiary
of the Purchaser in the Purchaser Financial Statements for all periods covered
thereby.
5.18. Payments. The Purchaser has not, directly or
--------
indirectly, paid nor has it delivered any fee, commission or other sum of money
or item or property, however characterized, to any finder, agent, government
official or other party, in the United States or any other country, which is in
any manner related to the business or operations of the Purchaser, which the
Purchaser knows or has reason to believe to have been illegal under any
federal, state or local laws of the United States or any other country having
jurisdiction; and the Purchaser has not participated, directly or indirectly,
in any boycotts or other similar practices affecting any of its actual or
potential
Page 60 of 106
<PAGE>
customers and has at all times done business in an open and ethical manner.
5.19. Information Supplied. The financial and other
--------------------
information provided to the Company by or on behalf of the Purchaser on or
prior to the date hereof and listed on the Purchaser Disclosure Schedule at
Section 5.19 of such Schedule relating to the business, assets, liabilities and
business prospects of the Purchaser was prepared in good faith and, as of the
dates provided and in light of the circumstances under which such information
was provided (as supplemented by further information provided by the Purchaser
to the Company prior to the date hereof), accurately reflected in all material
respects the status or matters purported to be reflected by such financial or
other information. To the best knowledge of the Purchaser, the information
provided to the Company by the Purchaser with respect to the business,
operations and financial condition of the Purchaser is not false or misleading
in any material respect, as of the dates provided and in light of the
circumstances under which such information was provided (as supplemented by
further information provided by the Purchaser to the Company prior to the date
hereof).
5.20. Other Reports. Since January 1, 1991, the Purchaser and
-------------
each Subsidiary of the Purchaser has filed all required forms, reports and
documents required to be filed with the applicable state commissioners or
superintendents of insurance and, since March 26, 1993, banking, and any other
Governmental Body or self-regulatory organization which is charged with
regulating or supervising any business conducted by the Purchaser or any
Subsidiary of the Purchaser (other than such forms, reports and documents which
if not filed would not adversely affect in any significant manner the licenses
and regulatory status of the Purchaser or any insurance Subsidiary), each of
which complied in all material respects with applicable requirements in effect
on the dates of such filings and, to the best of the Purchaser's knowledge,
none of which, as of its date, contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
5.21. Fairness Opinion. The Purchaser has received oral
----------------
advice as to the proposed fairness of the Merger from a financial point of view
to the Purchaser and its stockholders.
5.22. Employee Benefit Plans. Purchaser, its Significant
----------------------
Subsidiaries and its ERISA Affiliates are in compliance with all laws relating
to Purchaser Benefit Arrangements and Purchaser Employee Plans, including,
without limitation, ERISA and the Internal Revenue Code, except where the
failure to comply would not have a Purchaser Material Adverse Effect and none
of Purchaser, its Significant Subsidiaries or
Page 61 of 106
<PAGE>
ERISA Affiliates has any liability to or in respect of any such Purchaser
Benefit Arrangements and Purchaser Employee Plans, including, without
limitation, any liability under Part 4 of Title I or Title IV of ERISA or under
the Code, that could have a Purchaser Material Adverse Effect and to the best
of the knowledge of Purchaser, no event has occurred or is likely to occur that
would result in any such liability.
5.23. Vote Required. The affirmative vote of the holders
-------------
of record of at least a majority of the outstanding shares of Purchaser Common
Stock with respect to the adoption of this Agreement and ratification of
Preferred Stock terms is the only vote of the holders of any class or series of
the capital stock of the Purchaser required to adopt this Agreement and approve
the Merger and the other transactions contemplated hereby.
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES
--------------------------------------------------
6.1. Conduct of the Business of the Company. Except as
--------------------------------------
expressly contemplated by this Agreement or as set forth in the Company
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time: (i) the Company will, and will cause each of its Subsidiaries
to, conduct its business only in, and the Company will not take, and will cause
each of its Subsidiaries not to take, any action except in, the ordinary course
consistent with past practice, (ii) the Company will not, and the Company will
cause each of its Subsidiaries not to, enter into any material transaction
other than in the ordinary course of business consistent with past practice and
(iii) to the extent consistent with the foregoing, with no less diligence and
effort than would be applied in the absence of this Agreement, the Company
will, and will cause each of its Subsidiaries to, preserve intact its current
business organizations and reputation, keep available the service of its
current officers and employees, preserve its relationships with customers,
suppliers and others having business dealings with it with the objective that
their goodwill and ongoing businesses shall be unimpaired at the Effective Time
and comply in all material respects with all Laws and Orders of all
Governmental Bodies or regulatory authorities applicable to it. Without
limiting the generality of the foregoing and except as otherwise expressly
permitted in this Agreement, prior to the Effective Time, the Company will not
and will not permit any of its Subsidiaries to, without the prior written
consent of the Purchaser (except to the extent set forth in the Company
Disclosure Schedule):
(a) except for (i) 534,500 shares of Company Common Stock reserved
for issuance upon exercise of Company Options outstanding as of the date hereof
or issuable pursuant to
Page 62 of 106
<PAGE>
additional Company Options which may be granted after the date hereof but prior
to the Effective Time (ii) 97,000 shares of Company Common Stock reserved for
issuance pursuant to warrants and (ii) 157,500 additional shares of Company
Common Stock which may be issued after the date hereof but prior to the
Effective Time in connection with the acquisition of minority interests in
certain Subsidiaries of the Company, issue, deliver, sell, dispose of, pledge
or otherwise encumber, or authorize or propose the issuance, delivery, sale,
disposition or pledge or other encumbrance of (A) any additional shares of its
capital stock of any class (including the Shares), or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for
any shares of its capital stock, or any rights, warrants, options, calls,
commitments or any other agreements of any character to purchase or acquire any
shares of its capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares of its
capital stock, or (B) any other securities in respect of, in lieu of, or in
substitution for, Shares outstanding on the date hereof;
(b) except as contemplated in subsection (a) above, directly or
indirectly redeem, repurchase or otherwise acquire, or propose to redeem,
repurchase or otherwise acquire, any of its outstanding securities (including
the Shares) or any Option with respect thereto;
(c) split, combine, subdivide, reclassify or take similar action
with respect to any shares of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or declare, set aside for payment
or pay any dividend, or make any other actual, constructive or deemed
distribution in respect of any shares of its capital stock or otherwise make
any payments to shareholders in their capacity as such, other than in a manner
consistent with prior business practices;
(d) (i) increase in any manner the compensation or fringe
benefits of any of its directors, officers or employees, except for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company and its Subsidiaries taken as a whole, (ii)
pay or agree to pay any pension, retirement allowance or other employee benefit
not required or contemplated by any of the existing benefit, severance, pension
or employment plans, agreements or arrangements as in effect on the date hereof
to any such director, officer or employees, whether past or present that, in
the aggregate, result in a material increase in benefits or compensation
expense to the Company and its Subsidiaries taken as a whole; (iii) enter into
any new or amend any existing employment agreement with any such director,
officer or employee,
Page 63 of 106
<PAGE>
except for employment agreements with new employees entered into in the
ordinary course of business consistent with past practice, that, in the
aggregate, do not and will not result in a material increase in benefits or
compensation expense to the Company and its Subsidiaries taken as a whole, (iv)
enter into any new or amend any existing severance agreement with any such
director, officer or employee, except as permitted in the Company Disclosure
Schedule and except for severance agreements in the ordinary course of business
consistent with past practice, that in the aggregate do not and will not result
in a material increase in the benefits or compensation expense to the Company
and its Subsidiaries taken as a whole, or (v) except as may be required to
comply with applicable law, become obligated under any new pension plan or
arrangement, welfare plan or arrangement, multi-employer plan or arrangement,
employee benefit plan or arrangement, severance plan or arrangement, benefit
plan or arrangement, or similar plan or arrangement, which was not in existence
on the date hereof, or amend any such plan or arrangement in existence on the
date hereof if such amendment would have the effect of enhancing or
accelerating any benefits thereunder, except for plans, arrangements or
amendments in the ordinary course of business consistent with past practice,
that, in the aggregate do not result in a material increase in the benefits or
compensation expense to the Company and its Subsidiaries taken as whole;
(e) enter into any contract or amend or modify any existing
contract, or engage in any new transaction outside the ordinary course of
business consistent with past practice or not on an arm's length basis, with
any Affiliate of the Company or any of its Subsidiaries;
(f) adopt a plan of complete or partial liquidation, or
resolutions providing for or authorizing such liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or any of its Subsidiaries (other than the Merger, and other
than such of the foregoing with respect to any subsidiary of the Company as do
not change the beneficial ownership interest of the Company in such
Subsidiary);
(g) make any acquisition, by means of merger, consolidation,
purchase of a substantial equity interest in or a substantial portion of the
assets of, or otherwise, of (i) any business or corporation, partnership,
association or other business organization or division thereof or (ii) except
in the ordinary course and consistent with past practice, any other assets;
(h) adopt or propose any amendments to its Certificate of
Incorporation or Bylaws, except as contemplated by this Agreement, or alter
through merger, liquidation, reorganization, restructuring or in any other
fashion the corporate structure or
Page 64 of 106
<PAGE>
ownership of any Subsidiary not constituting an inactive Subsidiary of the
Company;
(i) other than borrowings under existing credit facilities or
other borrowings in the ordinary course (but in all cases only in the aggregate
at any time outstanding up to $1,000,000 of additional borrowings after the
date hereof), (x) incur any indebtedness for borrowed money or guarantee any
such indebtedness other than in the ordinary course of business consistent with
past practices or, except in the ordinary course consistent with past practice,
(y) make any loans, advances or capital contributions to, or investments in,
any other Person (other than to the Company or any Wholly Owned Subsidiary of
the Company) or (z) voluntarily purchase, cancel, prepay or otherwise provide
for a complete or partial discharge in advance of a scheduled repayment date
with respect to, or waive any right under, any indebtedness for borrowed money
other than in the ordinary course of business consistent with past practice;
(j) make any change in the lines of business in which it
participates or is engaged;
(k) enter into any agreement providing for acceleration of payment
or performance or other consequence as a result of a change of control of the
Company or its Subsidiaries;
(l) enter into any contract, arrangement or understanding
requiring the purchase of equipment, materials, supplies or services over a
period greater than 12 months and for the expenditure of greater than $500,000
per year which is not cancelable without penalty on 30 days' or less notice; or
(m) except to the extent required by applicable law, (x) permit
any material change in (A) pricing, marketing, purchasing, investment,
accounting, financial reporting, inventory, credit, allowance or tax practice
or policy or (B) any method or calculating any bad debt, contingency or other
reserve for accounting, financial reporting or tax purposes or (y) make any
material tax election or settle or compromise any material income tax liability
with any Governmental Body or regulatory authority;
(n) other than dispositions of assets which are not, individually
or in the aggregate, material to the Company and its Subsidiaries taken as a
whole, sell, lease, grant any security interest in or otherwise dispose of or
encumber any of its assets or properties;
(o) take any action that would cause any representations set forth
in Article 4 not to be true in all material respects from and after the date
hereof until the Effective Time;
Page 65 of 106
<PAGE>
(p) fail to maintain in full force the insurance policies in
effect on the date hereof or change any self-insurance program in effect in any
material respect;
(q) in the event that a claim is made for damage, which damage
would have a Company Material Adverse Effect during the period prior to the
Closing Date which is covered by such insurance, fail to promptly notify the
Purchaser of the pendency of such a claim;
(r) do any act or omit to do any act, or permit any act or
omission to act, which will cause a breach of any Contract or commitment of the
Company or any of its Subsidiaries, except to the extent that such breach would
not have a Company Material Adverse Effect;
(s) fail to duly comply with all Laws and Orders applicable to it
and its properties, operations, business and employees except to the extent
that such non-compliance would not have a Company Material Adverse Effect; or
(t) authorize, recommend, propose or announce an intention to do
any of the foregoing, or enter into any Contract to do any of the foregoing.
6.2. Conduct of the Business of the Purchaser. Except as
----------------------------------------
expressly contemplated by this Agreement or as set forth in the Purchaser
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time: (i) the Purchaser will, and will cause each of its
Subsidiaries to, conduct its business only in, and the Purchaser will not take,
and will cause each of its Subsidiaries not to take, any action except in, the
ordinary course consistent with past practice, (ii) the Purchaser will not, and
the Purchaser will cause each of its Subsidiaries not to, enter into any
material transaction other than in the ordinary course of business consistent
with past practice and (iii) to the extent consistent with the foregoing, with
no less diligence and effort than would be applied in the absence of this
Agreement, the Purchaser will, and will cause each of its Subsidiaries to,
preserve intact its current business organizations and reputation, keep
available the service of its current officers and employees, preserve its
relationships with customers, suppliers and others having business dealings
with it with the objective that their goodwill and ongoing businesses shall be
unimpaired at the Effective Time and comply in all material respects with all
Laws and Orders of all Governmental Bodies or regulatory authorities applicable
to it. Without limiting the generality of the foregoing and except as
otherwise expressly permitted in this Agreement or as set forth in the
Purchaser Disclosure Schedule, prior to the Effective Time, the Purchaser will
not and will not permit any of its Subsidiaries to, without the prior written
consent of the Company, which consent may not be withheld unless the action in
question would
Page 66 of 106
<PAGE>
have or could reasonably be expected to have a Purchaser Material Adverse
Effect:
(a) except for 2,772,637 shares of Purchaser Common Stock reserved
for issuance upon exercise of options outstanding as of the date hereof or
granted under existing plans or arrangements after the date hereof, issue,
deliver, sell, dispose of, pledge or otherwise encumber, or authorize or
propose the issuance, delivery, sale, disposition or pledge or other
encumbrance of (A) any additional shares of its capital stock of any class
(including the shares of Purchaser Common Stock), or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for
any shares of its capital stock, or any rights, warrants, options, calls,
commitments or any other agreements of any character to purchase or acquire any
shares of its capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares of its
capital stock, or (B) any other securities in respect of, in lieu of, or in
substitution for, shares of Purchaser Common Stock outstanding on the date
hereof;
(b) directly or indirectly redeem, repurchase or otherwise
acquire, or propose to redeem, repurchase or otherwise acquire, any of its
outstanding securities (including the shares of Purchaser Common Stock) or any
Option with respect thereto;
(c) other than pursuant to the Purchaser Common Stock Offering or
the Merger, split, combine, subdivide, reclassify or take similar action with
respect to any shares of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or declare, set aside for payment or pay any
dividend, or make any other actual, constructive or deemed distribution in
respect of any shares of its capital stock or otherwise make any payments to
shareholders in their capacity as such;
(d) (i) increase in any manner the compensation or fringe
benefits of any of its directors, officers or employees, except for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to the Purchaser and its Subsidiaries taken as a whole,
(ii) pay or agree to pay any pension, retirement allowance or other employee
benefit not required or contemplated by any of the existing benefit, severance,
pension or employment plans, agreements or arrangements as in effect on the
date hereof to any such director, officer or employee, whether past or present
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to the Purchaser and its Subsidiaries taken as a whole,
(iii) enter into any new or amend any existing employment agreement with any
such director, officer or employee, except for employment agreements with new
employees
Page 67 of 106
<PAGE>
entered into in the ordinary course of business consistent with past practice,
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to the Purchaser and its Subsidiaries taken as a whole,
(iv) enter into any new or amend any existing severance agreement with any such
director, officer or employee, except as permitted in the Purchaser Disclosure
Schedule or (v) except as may be required to comply with applicable law, become
obligated under any new pension plan or arrangement, welfare plan or
arrangement, multi-employer plan or arrangement, employee benefit plan or
arrangement, severance plan or arrangement, benefit plan or arrangement, or
similar plan or arrangement, which was not in existence on the date hereof, or
amend any such plan or arrangement in existence on the date hereof if such
amendment would have the effect of enhancing or accelerating any benefits
thereunder;
(e) enter into any contract or amend or modify any existing
contract, or engage in any new transaction outside the ordinary course of
business consistent with past practice or not on an arm's length basis, with
any Affiliate of the Purchaser or any of its Subsidiaries;
(f) adopt a plan of complete or partial liquidation, or
resolutions providing for or authorizing such liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Purchaser or any of its Subsidiaries not constituting an inactive
Subsidiary (other than the Merger, and other than such of the foregoing with
respect to any Subsidiary of the Purchaser as do not change the beneficial
ownership interest of the Purchaser in such Subsidiary);
(g) make any acquisition, by means of merger, consolidation,
purchase of a substantial equity interest in or a substantial portion of the
assets of, or otherwise, of (i) any business or corporation, partnership,
association or other business organization or division thereof or (ii) except
in the ordinary course and consistent with past practice, any other assets;
(h) adopt or propose any amendments to its Certificate of
Incorporation or Bylaws, except as contemplated by this Agreement, or alter
through merger, liquidation, reorganization, restructuring or in any other
fashion the corporate structure or ownership of any Subsidiary not constituting
an inactive Subsidiary of the Purchaser;
(i) other than borrowings under existing credit facilities or
other borrowings in the ordinary course or borrowings used to fund the Capital
Contribution, (x) incur any indebtedness for borrowed money or guarantee any
such indebtedness other than in the ordinary course of business
Page 68 of 106
<PAGE>
consistent with past practices or, except in the ordinary course consistent
with past practice, (y) make any loans, advances or capital contributions to,
or investments in, any other Person (other than to the Purchaser or any Wholly
Owned Subsidiary of the Purchaser) or (z) voluntarily purchase, cancel, prepay
or otherwise provide for a complete or partial discharge in advance of a
scheduled repayment date with respect to, or waive any right under, any
indebtedness for borrowed money other than in the ordinary course of business
consistent with past practice;
(j) make any change in the lines of business in which it
participates or is engaged;
(k) enter into any agreement providing for acceleration of payment
or performance or other consequence as a result of a change of control of the
Purchaser or its Subsidiaries;
(l) enter into any contract, arrangement or understanding
requiring the purchase of equipment, materials, supplies or services over a
period greater than 12 months and for the expenditure of greater than
$1,000,000 per year which is not cancelable without penalty on 30 days' or less
notice; or
(m) except to the extent required by applicable law, (x) permit
any material change in (A) pricing, marketing, purchasing, investment,
accounting, financial reporting, inventory, credit, allowance or tax practice
or policy or (B) any method or calculating any bad debt, contingency or other
reserve for accounting, financial reporting or tax purposes or (y) make any
material tax election or settle or compromise any material income tax liability
with any Governmental Body or regulatory authority;
(n) other than dispositions of assets which are not, individually
or in the aggregate, material to the Purchaser and its Subsidiaries taken as a
whole, sell, lease, grant any security interest in or otherwise dispose of or
encumber any of its assets or properties;
(o) take any action that would cause any representations set forth
in Article 5 not to be true in all material respects from and after the date
hereof until the Effective Time;
(p) fail to maintain in full force the insurance policies in
effect on the date hereof or change any self-insurance program in effect in any
material respect;
(q) in the event that a claim is made for damage, which damage
would have a Purchaser Material Adverse Effect during the period prior to the
Closing Date which is covered by
Page 69 of 106
<PAGE>
such insurance, fail to promptly notify the Company of the pendency of such a
claim;
(r) do any act or omit to do any act, or permit any act or
omission to act, which will cause a breach of any Contract or commitment of the
Purchaser or any of its Subsidiaries, except to the extent that such breach
would not have a Purchaser Material Adverse Effect;
(s) fail to duly comply with all Laws and Orders applicable to it
and its properties, operations, business and employees except to the extent
that such non-compliance would not have a Purchaser Material Adverse Effect;
(t) authorize, recommend, propose or announce an intention to do
any of the foregoing, or enter into any Contract to do any of the foregoing.
6.3. No Solicitation; Transaction Moratorium.
---------------------------------------
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, nor shall it authorize or permit any officer, director,
employee, investment banker, financial advisor, attorney, accountant or other
agent or representative (each, a "Representative") retained by or acting
--------------
for or on behalf of it or any of its Subsidiaries to, directly or indirectly,
initiate, solicit, encourage, participate in any negotiations regarding,
furnish any confidential information in connection with, endorse or otherwise
cooperate with, assist, participate in or facilitate the making of any proposal
or offer for, or which may reasonably be expected to lead to, an Acquisition
Transaction by any Person or group (a "Potential Acquiror"); provided,
-------------------- --------
however, that (i) the Company may furnish or cause to be furnished
- -------
information concerning the Company and its businesses, properties or assets to
a Potential Acquiror (provided that such information is supplied on terms,
including confidentiality terms, substantially similar to those set forth in
the Confidentiality Letter dated January 19, 1996, between the Purchaser and
the Company), (ii) the Company may engage in discussions or negotiations with a
Potential Acquiror, (iii) following receipt of a proposal or offer for an
Acquisition Transaction, the Company may take and disclose to its shareholders
a position contemplated by Rules 14d-9 and 14e-2(a) under the Exchange Act or
otherwise make disclosure to the Company's shareholders and (iv) following
receipt of a proposal or offer for an Acquisition Transaction the Board of
Directors may withdraw or modify its recommendation to the Company's
shareholders contemplated by Section 6.4 and thereby elect to terminate this
Agreement pursuant to Section 8.1(a), but in each case referred to in the
foregoing clauses (i) through (iv) only to the extent that the Board of
Directors of the Company shall conclude in good faith on the basis of written
advice from independent counsel that such action is necessary or appropriate
Page 70 of 106
<PAGE>
in order for such Board of Directors to act in a manner which is consistent
with its fiduciary obligations under applicable law. The Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Transaction. As used in this Agreement, "Acquisition
------------
Transaction" means any merger, consolidation or other business combination
- -----------
involving the Company or any of its Significant Subsidiaries or any acquisition
in any manner of all or a substantial portion of the equity of, or all or a
substantial portion of the assets of, the Company or any of its Significant
Subsidiaries, whether for cash, securities or any other consideration or
combination thereof other than pursuant to the transactions contemplated by
this Agreement.
(b) If at any time the Company or any Representative of the
Company provides a Significant Response (as defined below) to any inquiry or
solicitation by a Potential Acquiror, the Company shall immediately deliver to
the Purchaser a written notice advising Purchaser of the fact that such
Significant Response has been given. As a consequence of the delivery of such
notice all duties and obligations of the Purchaser hereunder shall be suspended
during the Transaction Moratorium Period. "Transaction Moratorium Period"
-----------------------------
means a period beginning on the date of such notice and ending on the date of
Purchaser's receipt of a written notice signed by the President of the Company
certifying that all discussions and contacts between the Company and its
Representatives, on one hand, and the Potential Acquiror to whom the Company
had provided a Significant Response and any Representatives or Affiliates
thereof, on the other, have ended and are not expected to resume. In the event
that a Transaction Moratorium Period continues for a period in excess of 30
days, the Purchaser may, at any time prior to its receipt of a notice
terminating such Transaction Moratorium Period, terminate this Agreement
pursuant to Section 8.1(a). If the Company delivers a notice of Significant
Response, the Final Termination Date and each of the dates set forth herein as
relating to or affecting a date by which the Purchaser is required to perform
duties and obligations hereunder shall in each case be extended on a
day-for-day basis for each day in any Transaction Moratorium Period.
"Significant Response" means any action by the Company or any of its
--------------------
Representatives in response to an inquiry, solicitation or request for
documents or other information received by the Company from a Potential
Acquiror other than participation by the Company in a preliminary discussion or
discussions with such Potential Acquiror or any Representative thereof and
shall include, without limitation, (i) any action by the Company or any of its
Representatives to provide a Potential Acquiror information regarding the
Company other than publicly available information, (ii) any execution by the
Company and a Potential Acquiror of a confidentiality agreement relating to
information about the Company and (iii) any participation by the Company or any
of its Representatives in substantive discussions regarding the terms and
conditions of an Acquisition Transaction or
Page 71 of 106
<PAGE>
regarding a term sheet or similar document relating to an Acquisition
Transaction.
6.4. Meetings of Shareholders.
------------------------
(a) Subject to the fiduciary duties of the Company's Board of
Directors under applicable law as advised in writing by counsel (i) the Company
will take all action necessary in accordance with applicable law and its
Certificate of Incorporation and Bylaws to convene a meeting of its
shareholders (the "Company Shareholders' Meeting") as promptly as
-----------------------------
practicable to consider and vote upon the approval of the Merger and the other
transactions contemplated hereby (the "Company's Shareholders' Approval")
--------------------------------
and (ii) the Board of Directors of the Company shall recommend and declare
advisable such approval and the Company shall take all lawful action to
solicit, and use all reasonable efforts to obtain, such approval. The
Purchaser agrees to cooperate in all reasonable respects with the Company in
the Company's efforts to obtain the Company Shareholders' Approval.
(b) Subject to the fiduciary duties of the Purchaser's Board of
Directors under applicable law, as advised in writing by counsel (i) the
Purchaser will take all action necessary in accordance with applicable law and
its Certificate of Incorporation and Bylaws to convene a meeting of its
stockholders (the "Purchaser Stockholders' Meeting") as promptly as
-------------------------------
practicable to consider and vote upon the approval of the Merger and such
amendments to its Certificate of Incorporation as may be necessary to authorize
the Preferred Stock and sufficient additional shares of Purchaser Common Stock
to permit the Purchaser Common Stock Offering ("Purchaser's Stockholders'
--------------------------
Approval") and (ii) the Board of Directors of the Purchaser shall recommend
- --------
and declare advisable such approval and the Purchaser shall take all lawful
action to solicit, and use all reasonable efforts to obtain, such approval.
The Company agrees to cooperate in all reasonable respects with the Purchaser
in the Purchaser's efforts to obtain the Purchaser Stockholders' Approval.
6.5. Registration Statement. The Company and the Purchaser
----------------------
will, as promptly as practicable, jointly prepare and file with the SEC, not
later than April 15, 1996, a registration statement on Form S-4 (the "S-4
----
Registration Statement"), containing a joint proxy statement/prospectus, in
- ----------------------
connection with the registration under the Securities Act of the Share
Consideration issuable in the Merger and the vote of the Company's shareholders
and the Purchaser's stockholders with respect to the Merger (such proxy
statement/prospectus, together with any amendments thereof or supplements
thereto, in each case in the form or forms mailed to the Company's shareholders
and the Purchaser's stockholders, is herein called the "Proxy
------
Statement/Prospectus"). The Company and the Purchaser will use
- --------------------
Page 72 of 106
<PAGE>
all reasonable efforts to have, or cause the S-4 Registration Statement to be,
declared effective as promptly as practicable, and also will take any other
action required to be taken under federal or state securities laws, and the
Company and the Purchaser will use all reasonable efforts to cause the Proxy
Statement/Prospectus to be mailed to shareholders of the Company and
stockholders of the Purchaser at the earliest practicable date.
6.6. Purchaser Common Stock Offering.
-------------------------------
(a) The Purchaser will, as promptly as practicable but in no
event later than April 15, 1996, prepare and file with the SEC a Registration
Statement registering under the Securities Act the offer and sale of shares of
Purchaser Common Stock in a public underwritten transaction (the "Purchaser
----------
Common Stock Offering").
- ---------------------
(b) The Company agrees to cooperate in all reasonable respects
with the Purchaser in the Purchaser's efforts to consummate the Purchaser
Common Stock Offering, including, without limitation, to (i) assist the
Purchaser in preparing any offering documents or related materials and
presenting such offering documents or related materials to potential investors
in connection with the Purchaser Common Stock Offering and (ii) provide to the
Purchaser any required closing opinions, documents or certifications relating
to the Company required at the closing for the Purchaser Common Stock Offering.
The Company shall provide indemnity to the Purchaser with respect to any
information concerning the Company supplied by the Company for use in the
Purchaser Common Stock Offering, such indemnity to be on terms substantially
similar to that given by the Purchaser to any underwriters in the Purchaser
Common Stock Offering.
(c) The Purchaser shall have the right to commence active
marketing of the Purchaser Common Stock Offering at any time prior to
termination of this Agreement including, without limitation, the right to
determine the date (the "Preliminary Prospectus Mailing Date") on which it
-----------------------------------
is appropriate to distribute preliminary prospectuses; provided,
--------
however, that the Purchaser shall first have determined that, in its
- -------
reasonable judgment, the commencement of active marketing at that time is
feasible in light of foreseeable market conditions. After the Preliminary
Prospectus Mailing Date relating to such offering, the Purchaser will continue
in good faith the active marketing of such offering by attending and actively
participating in meetings with financial analysts and potential investors
customary for offerings comparable to the Purchaser Common Stock Offering.
(d) The Purchaser shall have the right to actively market the
Purchaser Common Stock Offering for up to 35 days after the Preliminary
Prospectus Mailing Date. If the Chosen Underwriters do not present the
Purchaser prior to the expiration
Page 73 of 106
<PAGE>
of such 35 day period with an opportunity to enter into a definitive firm
commitment underwriting agreement with respect to the Purchaser Common Stock
Offering and to accept pricing of Purchaser Common Stock in the Purchaser
Common Stock Offering at a price per share which would generate net proceeds to
the Purchaser of not less than the Aggregate Cash Consideration Fund (an
"Adequate Pricing Opportunity"), (i) the Purchaser's obligation hereunder
----------------------------
to actively market such Offering will cease, and (ii) the Company alone will
have the right to terminate this Agreement pursuant to Section 8.1(a) (subject
to the terms and conditions set forth therein). If the Chosen Underwriters
present to the Purchaser prior to the expiration of such 35 day period an
Adequate Pricing Opportunity, the Purchaser shall be required to accept. If
the Purchaser shall decline to accept such Adequate Pricing Opportunity, the
Company may terminate this Agreement pursuant to Section 8.1 (subject to the
terms and conditions set forth therein), which termination shall become
effective no sooner than the day five Business Days after the delivery to the
Purchaser of written notice of termination (unless the Purchaser has accepted
an Adequate Pricing Opportunity prior to such date). The Purchaser shall not
be deemed to have declined to accept an Adequate Pricing Opportunity if the
Purchaser does not enter into an underwriting agreement on the basis of a
determination by the Purchaser that, in its reasonable judgment, there is a
material risk that any condition set forth in Article 7 hereof (other than a
condition set forth solely in Section 7.3 which has been irrevocably waived by
the Company) or in the underwriting agreement would not be satisfied on or
prior to the third Business Day following the day upon which such Adequate
Pricing Opportunity was presented to the Purchaser.
6.7. Audited Financial Statements. The Purchaser and the
----------------------------
Company each will use its best efforts to cause its respective audited
financial statements as of, and for the year ending, December 31, 1995, to be
certified by its independent auditors in conformity with generally accepted
accounting principals consistently applied and to be delivered to the other
party hereto not later than March 31, 1996.
6.8. Reasonable Efforts. The Company and the Purchaser shall
------------------
and shall use all reasonable efforts to cause their respective Subsidiaries to:
(i) promptly make all filings and seek to obtain all Authorizations required
under all applicable laws with respect to the Merger and the other transactions
contemplated hereby and will cooperate with each other with respect thereto;
(ii) use all reasonable efforts to promptly take, or cause to be taken, all
other actions and do, or cause to be done, all other things necessary, proper
or appropriate to satisfy the conditions set forth in Article 7 and to
consummate and make effective the transactions contemplated by this Agreement
on the terms and conditions set forth herein as soon as practicable (including
seeking to remove promptly any injunction
Page 74 of 106
<PAGE>
or other legal barrier that may prevent such consummation); and (iii) not take
any action (including, without limitation, effecting or agreeing to effect or
announcing an intention or proposal to effect, any acquisition, business
combination or other transaction) which might reasonably be expected to impair
the ability of the parties to consummate the Merger at the earliest possible
time (regardless of whether such action would otherwise be permitted or not
prohibited hereunder). The Purchaser shall cause the Chosen Underwriters to
report to the Company to the extent necessary to effectuate the provisions of
Section 6.5.
6.9. Access to Information. Subject to currently existing
---------------------
contractual and legal restrictions applicable to the Company (which the Company
represents and warrants are not material) or to the Purchaser (which the
Purchaser represents and warrants are not material), and upon reasonable
notice, each of the Company and the Purchaser shall (and shall cause each of
its Subsidiaries to) afford to officers, employees, counsel, accountants and
other authorized representatives of the other party (the "Respective
-----------
Representatives") access, during normal business hours throughout the period
- ---------------
prior to the Effective Time, to its properties, books and records (including
without limitation, the work papers of independent accountants) and, during
such period, shall (and shall cause each of its Subsidiaries to) furnish
promptly to such Respective Representatives all information concerning its
business, properties and personnel as may reasonably be requested, provided
that no investigation pursuant to this Section 6.9 shall affect or be deemed to
modify any of the respective representations or warranties made by the
Purchaser or the Company. Each of the Company and the Purchaser agrees that it
will not, and will cause its Respective Representatives not to, use any
information obtained pursuant to this Section 6.9 for any purpose unrelated to
the consummation of the transactions contemplated by this Agreement (including,
without limitation, the Purchaser Common Stock Offering). Subject to the
requirements of law, each party hereto will keep confidential, and will cause
its Respective Representatives to keep confidential, all information and
documents obtained pursuant to this Section 6.9 except as otherwise consented
to by the other party; provided, however, that neither the Purchaser
-------- -------
nor the Company shall be precluded from making any disclosure which it deems
required by law in connection with the transactions contemplated by this
Agreement (including, without limitation, the Purchaser Common Stock Offering).
In the event any party is required to disclose any information or documents
pursuant to the immediately preceding sentence, such party shall promptly give
written notice of such disclosure that is proposed to be made to the other
party so that the parties can work together to limit the disclosure to the
greatest extent possible and, in the event that either party is legally
compelled to disclose any information, to seek a protective order or other
appropriate remedy or both. Upon any
Page 75 of 106
<PAGE>
termination of this Agreement, each of the Company and the Purchaser will
collect and deliver to the other party all documents obtained pursuant to this
Section 6.9 or otherwise for such party or its Respective Representatives by it
or any of its Respective Representatives then in their possession and any
copies thereof. All requests for access to the Company or the Purchaser and
their respective Subsidiaries pursuant to this Section 6.9 shall be made
through their Respective Representatives named in the Purchaser Disclosure
Schedule or the Company Disclosure Schedule, as the case may be.
6.10. Supplements or Amendments.
-------------------------
(a) If at any time prior to the Company Shareholders' Meeting or
the Purchaser Stockholders' Meeting (whichever is later) any event with respect
to the Company or any of its Subsidiaries or any of their respective officers
and directors should occur which is required to be described in an amendment
of, or a supplement to, the Proxy Statement/Prospectus or the S-4 Registration
Statement, the Company shall notify the Purchaser thereof by reference to this
Section 6.10(a) and such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the shareholders of the Company and such amendment or
supplement shall comply with all provisions of applicable law. If at any time
prior to the Effective Time, the Company or any of its Subsidiaries or any of
their respective officers or directors becomes aware of any fact or condition
which would cause any material statement in the Proxy Statement/Prospectus or
in the prospectus relating to the Purchaser Common Stock Offering to have been
untrue or would cause the Proxy Statement/Prospectus or such other prospectus
to omit to state a material fact required to have been stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, the Company shall
promptly notify the Purchaser in writing of such fact or condition.
(b) If at any time prior to the Company Shareholders' Meeting or
the Purchaser Stockholders' Meeting (whichever is later) any event with respect
to the Purchaser, or any of its Subsidiaries or their respective officers or
directors should occur which is required to be described in an amendment of, or
a supplement to, the Proxy Statement/Prospectus or the S-4 Registration
Statement, the Purchaser shall notify the Company thereof by reference to this
Section 6.10(b) and such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Purchaser and such amendment or
supplement shall comply with all provisions of applicable law. If at any time
prior to the Effective Time, the Purchaser or any of its Subsidiaries or any of
their respective officers or directors becomes aware of any fact or condition
which would cause any material statement in the Proxy Statement/Prospectus to
Page 76 of 106
<PAGE>
have been untrue or would cause the Proxy Statement/Prospectus to omit to state
a material fact required to have been stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, the Purchaser shall promptly notify the Company in
writing of such fact or condition.
6.11. Directors' and Officers' Indemnification and Insurance.
------------------------------------------------------
(a) From and after the Effective Time, the Surviving Corporation
(the "Indemnifying Party") shall until the third anniversary of the
------------------
Effective Time indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof or who becomes prior to the
Effective Time, a director, officer, employee or agent of the Company or any of
its Subsidiaries (each, an "Indemnified Party") against (i) all losses,
-----------------
claims, damages, costs and expenses (including attorneys' fees), liabilities,
judgments and settlement amounts that are paid or incurred in connection with
any claim, action, suit, proceeding or investigation (whether civil, criminal,
administrative or investigative and whether asserted or claimed prior to, at or
after the Effective Time) that is based in whole or in part on, or arises in
whole or in part out of, the fact that such Indemnified Party is or was a
director, officer, employee or agent of the Company or any of its Subsidiaries
or in the case of a present or former director, officer or employee of the
Company or a Subsidiary, a fiduciary of any employee benefit plan or
arrangement of the Company or any of its Subsidiaries and, in either case
relates to or arises out of any action or omission occurring at or prior to the
Effective Time ("Indemnified Liabilities"), and (ii) all Indemnified
-----------------------
Liabilities based in whole or in part on, or arising in whole or in part out
of, or pertaining to this Agreement or the transactions contemplated hereby, in
each case to the full extent a corporation is permitted under applicable law to
indemnify its own directors, officers, employees or agents, as the case may be;
provided that no Indemnifying Party shall be liable for any settlement of
- --------
any claim effected without its written consent, which consent shall not be
unreasonably withheld. Without limiting the foregoing, in the event that any
such claim, action, suit, proceeding or investigation is brought against any
Indemnified Party (whether arising prior to or after the Effective Time), (w)
the Indemnifying Party will pay expenses in advance of the final disposition of
any such claim, action suit, proceeding or investigation to each Indemnified
Party to the full extent permitted by applicable law provided that the person
to whom expenses are advanced provides an undertaking to repay such advance if
it is ultimately determined that such person is not entitled to
indemnification; (x) the Indemnified Parties shall retain counsel reasonably
satisfactory to the Indemnifying Parties; (y) the Indemnifying Parties shall
pay all reasonable fees and expenses of such counsel for the Indemnified
Parties
Page 77 of 106
<PAGE>
(subject to the final sentence of this paragraph) promptly as statements
therefor are received; and (z) the Indemnifying Parties shall use all
commercially reasonable efforts to assist in the vigorous defense of any such
matter. Any Indemnified Party wishing to claim indemnification under this
Section, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Indemnifying Party, but the failure so to
notify an Indemnifying Party shall not relieve it from any liability which it
may have under this paragraph except to the extent such failure irreparably
prejudices such party. The Indemnified Parties as a group may retain only one
law firm to represent them with respect to each such matter unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
(b) The Surviving Corporation shall, until the third anniversary
of the Effective Time, cause to be maintained in effect, to the extent
available, the policies of directors' and officers' liability insurance
maintained by the Company and its Subsidiaries as of the date hereof (or
policies of at least the same coverage and amounts containing terms that are no
less advantageous to the insured parties) with respect to claims arising from
facts or events that occurred on or prior to the Effective Time; and in no
event shall the coverage for the transactions contemplated hereby be excluded;
provided that in no event shall the Surviving Corporation be obligated to
- --------
expend in order to maintain or procure insurance coverage pursuant to this
paragraph any amount per annum in excess of the aggregate premiums paid by the
Company and its Subsidiaries as of the date hereof for such purpose, but in
such case shall purchase as much coverage as possible for such maximum annual
amount; and provided, further, that in the event any claim or claims are
asserted or made within such three year period, the obligations of the
Surviving Corporation to maintain in effect insurance shall continue until the
disposition of any and all claims.
(c) In the event that any action, suit, proceeding or
investigation relating to this Agreement or to the transactions contemplated by
this Agreement is commenced, whether before or after the Closing, the parties
hereto agree to cooperate and use their respective reasonable efforts to
vigorously defend against and respond thereto.
(d) This Section 6.11 shall survive the Effective Time and is
intended to benefit the Indemnified Parties and their successors and assigns
and shall be binding on all successors and assigns of the Purchaser, the
Company and the Surviving Corporation.
Page 78 of 106
<PAGE>
(e) The Surviving Corporation shall honor, to the fullest extent
permitted by applicable law, all indemnification agreements existing as of the
date hereof between the Company and any of the Indemnified Parties.
6.12. Registration and Listing of Share Consideration.
-----------------------------------------------
(a) The Purchaser will cause to be registered, under the
applicable provisions of the Securities Act, the offer and sale in the Merger
of Share Consideration to be issued pursuant to this Agreement.
(b) The Purchaser will use its best efforts to cause the Share
Consideration to be listed on the AMEX, NYSE or NASDAQ.
6.13. Affiliates of the Purchaser and the Company. Prior to
-------------------------------------------
the Effective Time, the Company shall deliver to the Purchaser a letter
identifying all Persons who, at the time this Agreement is submitted for
approval to the shareholders of the Company, may be deemed to be "affiliates"
of the Company for purposes of Rule 145 under the Securities Act (the "Rule
-----
145 Affiliates") or who may otherwise be deemed to be Affiliates of the
- --------------
Company. The Company shall use all reasonable efforts to cause each person who
is identified as a Rule 145 Affiliate in such list to deliver to the Purchaser
on or prior to the Effective Time, a written agreement, in the form to be
approved by the parties hereto, that such Rule 145 Affiliate will not sell,
pledge, transfer or otherwise dispose of any shares of Preferred Stock issued
to such Rule 145 Affiliate pursuant to the Merger, except pursuant to an
effective registration statement or in compliance with Rule 145 or an exemption
from the registration requirements of the Securities Act.
6.14. Consents. Between the date hereof and the Closing Date,
--------
the Company and the Purchaser shall use their respective best efforts, without
payment of any consideration to the persons or entities from whom or which
consents or agreements are required, to obtain at the earliest practicable
date, and prior to the Closing Date, all consents and agreements of third
parties necessary for the performance by the Company and the Purchaser of their
respective obligations under this Agreement or any agreement referred to herein
or contemplated hereby or to the consummation of the transactions contemplated
hereby or thereby except for those consents and agreements which, if not
obtained, would not have a Company Material Adverse Effect or a Purchaser
Material Adverse Effect. No consideration, whether such consideration shall
consist of the payment of money or shall take any other form, for any such
consent or agreement necessary to the consummation of the transactions
contemplated hereby shall be given or promised by either of the Company or the
Purchaser or any of their respective Subsidiaries without the prior written
approval of the other party.
Page 79 of 106
<PAGE>
6.15. Filings and Authorizations. The Company and the
--------------------------
Purchaser shall, as promptly as practicable following the execution and
delivery of this Agreement, file or supply, or cause to be filed or supplied,
all notifications, reports and other information required to be filed or
supplied pursuant to the HSR Act and applicable state insurance laws in
connection with the transactions contemplated by this Agreement. In addition
to and not in limitation of the foregoing, each of the parties will (x) take
promptly all actions necessary to make the filings required of the Purchaser
and the Company or their affiliates under the HSR Act, (y) comply at the
earliest practicable date with any request for additional information received
by such party or its affiliates from the Federal Trade Commission (the
"FTC") or the Antitrust Division of the Department of Justice (the
---
"Antitrust Division") pursuant to the HSR Act, and (z) cooperate with the
------------------
other party in connection with such party's filings under the HSR Act and in
connection with resolving any investigation or other inquiry concerning the
Merger or the other matters contemplated by this Agreement commenced by either
the FTC or the Antitrust Division or state attorneys general. Each of the
Company and the Purchaser will proceed diligently and in good faith and will
use all commercially reasonable efforts to do, or cause to be done, all things
necessary, proper or advisable to, as promptly as practicable, (i) make, or
cause to be made, all such other filings and submissions, as may be required to
consummate the Merger and the other transactions contemplated hereby in
accordance with the terms of this Agreement, (ii) obtain, or cause to be
obtained, all authorizations, approvals, consents and waivers from all persons
and governmental authorities necessary to be obtained in order to consummate
such transfer and such transactions and (iii) take, or cause to be taken, all
other actions necessary, proper or advisable in order to fulfill their
respective obligations hereunder.
6.16. Further Assurances; Notice of Breach; Cure. At any time
------------------------------------------
and from time to time after the Closing, the parties agree to use their best
efforts to cooperate with each other, to execute and deliver such other
documents, instruments of transfer or assignment (which documents and
instruments must be in form reasonably satisfactory to each party executing the
same), files, books and records and do all such further acts and things as may
reasonably be required to carry out the transactions contemplated hereunder.
Each party shall promptly notify the other party in writing of any information
delivered to or obtained by such party which would prevent the satisfaction of
any condition set forth in Article 7 or consummation of the transactions
contemplated by this Agreement, or would indicate a breach of the
representations or warranties of any of the parties to this Agreement. After
giving or receiving notice that any representation, warranty or covenant set
forth herein has been breached or that any condition set forth in Article 7
cannot be satisfied, the affected party shall have 15 days to cure same or to
demonstrate to the other
Page 80 of 106
<PAGE>
party's reasonable satisfaction that such breach or condition both is curable
and will be cured prior to the estimated Effective Time. If such party fails
to cure or demonstrate such ability to cure such breach or satisfy such
condition, the other party shall have the right to waive the breach or failure
of condition unless the nature of such breach or failure of condition renders
closing under this Agreement impossible. If such breach or failure of
condition is not waived, this Agreement may be terminated in accordance with
Section 8.1.
6.17. Continuation of Compensation and Employee Benefit Plans.
-------------------------------------------------------
The Purchaser and the Company acknowledge and agree that the Purchaser shall
have the sole and exclusive right to determine its future benefit and
employment policies and that it is not intended that, and in no event shall,
the provisions of this Section 6.17 create any right or interest of any person
(including, without limitation, the Company or any employee of the Company or
any ERISA Subsidiary). The Purchaser acknowledges that it intends to cause the
Surviving Corporation to establish or continue to maintain as of the Closing
Date, benefit plans and programs providing benefits for non-union employees of
the Company or any ERISA Subsidiary that in the aggregate (as to the current
and former employee groups, respectively) are at least approximately equivalent
to the benefits being provided for such employees of the Company and any ERISA
Subsidiary under the Company Employee Plans existing immediately before the
Closing Date. Effective as of the Closing Date, Purchaser shall cause the
Surviving Corporation to assume all duties, obligations and liabilities with
respect to the compensation and benefits payable to or on account of current or
former employees of the Company or any ERISA Subsidiary with respect to the
relationship of such employee(s) with any such entities.
6.18. Cooperation on Litigation. The Purchaser and the
-------------------------
Company agree to furnish or cause to be furnished to each other, upon
reasonable request, as promptly as practicable, such information (including
access to books and records) and assistance as is reasonably necessary for the
preparation for or the prosecution or defense of any suit, action, litigation
or arbitration or other proceeding or investigation against the Purchaser or
the Company, respectively. The party requesting such information and
assistance shall reimburse the other party for all reasonable out-of-pocket
costs and expenses incurred by such party in providing such information and in
rendering such assistance.
6.19. Capital Contribution to Surviving Corporation. The
---------------------------------------------
Purchaser agrees to raise $30,000,000 (the "Capital Contribution Amount")
---------------------------
either (i) as additional proceeds in the Purchaser Common Stock Offering (in
excess of the funds necessary for the Aggregate Cash Consideration Fund) or
(ii) if, in the judgment of the Purchaser the pricing of the Purchaser Common
Stock Offering would be adversely affected by attempting to raise
Page 81 of 106
<PAGE>
such additional proceeds in such offering, in the debt market; provided,
--------
however, that Purchaser may not raise more than $15,000,000 of the Capital
- -------
Contribution Amount in the debt market without the prior written consent of the
Board of Directors of the Company. The Purchaser shall at the Effective Time
make a capital contribution to the Surviving Corporation in an amount equal to
the Capital Contribution Amount.
ARTICLE 7
CONDITIONS TO CLOSING
---------------------
7.1. Conditions to Obligations of the Parties. The respective
----------------------------------------
obligations of each party to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to the Closing Date, of each
of the following conditions, unless waived in writing by the party being
benefitted thereby, to the extent permitted by applicable law.
(a) Company's Shareholders' Approval. The Company shall have
--------------------------------
obtained the Company's Shareholders' Approval from the requisite holders of
Shares in accordance with applicable law and the Certificate of Incorporation
and Bylaws of the Company.
(b) Purchaser's Stockholders' Approval. The Purchaser shall
----------------------------------
have obtained the Purchaser's Stockholders' Approval from the requisite holders
of shares of Purchaser Common Stock in accordance with applicable law and the
Certificate of Incorporation and Bylaws of the Purchaser.
(c) Government Consents. All (i) Authorizations specified in
-------------------
the Company Disclosure Schedule and the Purchaser Disclosure Schedule and (ii)
other Authorizations required in connection with the execution and delivery of
this Agreement and the performance of the obligations hereunder shall have been
made or obtained in each case without limitation or restriction unacceptable to
the Purchaser in its reasonable judgment, except, in the case of Authorizations
referred to in clause (ii) above, where the failure to have obtained such
Authorizations could not reasonably be expected (so far as can be foreseen at
the time) to have a Purchaser Material Adverse Effect or a Company Material
Adverse Effect, as the case may be.
(d) No Suits nor Injunctions. There shall be no suits,
------------------------
actions, inquiry, investigations nor proceedings, nor shall there be in effect
any Order or injunction of any court or Governmental Body of competent
jurisdiction, restraining, enjoining or otherwise preventing consummation of
the transactions contemplated by this Agreement or permitting such consummation
only subject to any condition or restriction unacceptable to the Purchaser in
its reasonable judgment.
Page 82 of 106
<PAGE>
(e) Registration Statement. The S-4 Registration Statement
----------------------
shall have been declared effective and shall be effective at the Effective
Time, and no stop order suspending effectiveness shall have been issued, no
action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary approvals under state securities laws or the Securities Act or
Exchange Act relating to the issuance or trading of the Purchaser Common Stock
and Preferred Stock shall have been received.
(f) Listing of Purchaser Shares on Exchange. The shares of
---------------------------------------
Preferred Stock and Purchaser Common Stock required to be issued hereunder
shall have been approved for listing on the Exchange, subject only to official
notice of issuance.
(g) Purchaser Common Stock Offering. The Purchaser Common
-------------------------------
Stock Offering shall have been consummated in accordance with its terms and the
terms of the underwriting agreement entered into in connection therewith and
the net proceeds received by the Purchaser pursuant thereto shall not have been
less than the Aggregate Cash Consideration Amount.
7.2. Conditions to Obligations of the Purchaser. The
------------------------------------------
obligations of the Purchaser to consummate the transactions contemplated by
this Agreement are subject to the fulfillment at or prior to the Effective Time
of each of the following conditions, any or all of which may be waived in whole
or part by the Purchaser to the extent permitted by applicable law:
(a) Representations and Warranties True. Each of the
-----------------------------------
representations and warranties made by the Company in this Agreement shall be
true and correct in all material respects as of the Closing Date as though made
on and as of the Closing Date or, in the case of representations and warranties
made as of a specified date earlier than the Closing Date, on and as of such
earlier date, and the Company shall have delivered to the Purchaser a
certificate, dated the Closing Date and executed on behalf of the Company by
its Chairman of the Board, President or any Executive or Senior Vice President,
to such effect.
(b) Performance. The Company shall have performed or
-----------
complied in all material respects with all agreements and conditions contained
herein required to be performed or complied with by it prior to or at the time
of the Closing.
(c) Compliance Certificate. The Company Closing shall have
----------------------
delivered to the Purchaser a certificate, dated the Closing Date, signed by the
President or any Vice President of the Company, certifying as to the
fulfillment of the precedent conditions specified herein.
(d) Opinion of Counsel for the Company. The Purchaser shall
----------------------------------
have received from Baker, Donelson, Bearman & Caldwell,
Page 83 of 106
<PAGE>
P.C. or other counsel for the Company satisfactory to the Purchaser an opinion,
dated the Closing Date, in substantially the form set forth in Schedule 7.2
hereto.
(e) Proceedings. All corporate proceedings taken by the
-----------
Company in connection with the transactions contemplated hereby and all
documents incident thereto shall reasonably be satisfactory in all respects to
the Purchaser and the Purchaser's counsel, and the Purchaser and Purchaser's
counsel shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
(f) Certain Disclosures. The S-4 Registration Statement, at
-------------------
the time it shall have been declared effective, shall disclose no information
in existence on the date hereof materially adverse with respect to the
Company's business, properties, operations, condition (financial or other) or
prospects not previously disclosed in the Company SEC Reports or this
Agreement.
(g) Third Party Consents. All required authorizations,
--------------------
consents or approvals of any third party (other than a Governmental Body), the
failure to obtain which could have a Company Material Adverse Effect, shall
have been obtained.
(h) Fairness Opinion. The Purchaser shall have received a
----------------
written opinion of Stephens, dated the date of the Proxy Statement/Prospectus,
to the effect that the financial terms of the Merger are fair from a financial
point of view to the Purchaser and its stockholders.
7.3. Conditions to Obligations of the Company. The
----------------------------------------
obligations of the Company to consummate the transactions contemplated by this
Agreement are subject to the fulfillment at or prior to the Effective Time of
each of the following conditions, any or all of which may be waived in whole or
in part by the Company to the extent permitted by applicable law.
(a) Representations and Warranties True. Each of the
-----------------------------------
representations and warranties made by the Purchaser in this Agreement shall be
true and correct in all material respects as of the Closing Date as though made
on and as of the Closing Date or, in the case of representations and warranties
made as of a specified date earlier than the Closing Date, on and as of such
earlier date and the Purchaser shall have delivered to the Company a
certificate, dated the Closing Date and executed on behalf of the Purchaser by
its Chairman of the Board, President, Chief Operating Officer or Secretary, to
such effect.
(b) Performance. The Purchaser shall have performed or
-----------
complied in all material respects with all agreements and conditions contained
herein required to be performed or complied with by it prior to or at the time
of the Closing.
Page 84 of 106
<PAGE>
(c) Compliance Certificate. The Purchaser shall have
----------------------
delivered to the Company a certificate, dated the date of the Closing, signed
by the Chairman of the Board, President, Chief Operating Officer, or Secretary
of the Purchaser, certifying as to the fulfillment of the precedent conditions
specified herein.
(d) Opinion of Counsel for the Purchaser. The Company shall
------------------------------------
have received from Anderson Kill Olick & Oshinsky, P.C. or other counsel for
the Purchaser satisfactory to the Company an opinion, dated the Closing Date,
in substantially the form set forth in Schedule 7.3 hereto.
(e) Proceedings. All corporate proceedings taken by the
-----------
Purchaser in connection with the transactions contemplated hereby and all
documents incident thereto shall reasonably be satisfactory in all respects to
the Company and the Company's special counsel, and the Company and the
Company's special counsel shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.
(f) Third Party Consents. All required authorizations,
--------------------
consents or approvals of any third party (other than a Governmental Body), the
failure to obtain which could have a Purchaser Material Adverse Effect, shall
have been obtained.
(g) Fairness Opinion. The Company shall have received a
----------------
written opinion of R-H, dated the date of the Proxy Statement/Prospectus, to
the effect that the consideration to be received pursuant to the Merger by the
holders of Shares is fair from a financial point of view to such holders.
(h) Certain Disclosure. The S-4 Registration Statement, at
------------------
the time it shall have been declared effective, shall disclose no information
in existence on the date hereof materially adverse with respect to the
Purchaser's business, properties, operations, condition (financial or
otherwise) or prospects not previously disclosed in the Purchaser SEC Reports
or this Agreement.
(i) Opinion Regarding Tax Consequences. The Company shall
----------------------------------
have received an opinion of Anderson Kill Olick & Oshinsky, P.C. or other
counsel of Purchaser satisfactory to the Company dated the date of the Proxy
Statement/Prospectus to the effect that the Merger shall be treated for federal
income tax purposes as a tax-free reorganization.
ARTICLE 8
TERMINATION AND ABANDONMENT;
BREAK-UP FEE AND EXPENSE REIMBURSEMENT
--------------------------------------
Page 85 of 106
<PAGE>
8.1. Termination Rights. This Agreement shall terminate on
------------------
the Final Termination Date unless prior thereto the Offering Pricing Date has
occurred on or prior to such date. This Agreement may be terminated at an
earlier time upon the mutual written consent of the parties. In addition,
either party may terminate this Agreement prior to the Final Termination Date
by delivery of written notice to such effect to the other party (a) in
accordance with termination rights specifically provided elsewhere in this
Agreement, (b) in the event that any condition precedent to the closing of the
Merger has not been or cannot be satisfied within the time periods (including
any grace or cure periods) and in the manner provided herein, and (c) in the
event that a party breaches in some material respect a representation, warranty
or covenant contained herein and such party fails to cure or demonstrate an
ability to cure such breach within the time period provided in Section 6.16.
8.2. Termination Expenses and Liability.
----------------------------------
(a) General Provision. Unless a party is entitled pursuant
-----------------
to the provisions of subsections (b), (c), (d) or (e) below to receive expense
reimbursement or any termination payment, or unless a party commits a willful
breach of any representation, warranty or covenant contained herein, upon a
termination of this Agreement by either party, each party shall bear its own
costs and expenses and neither party shall have any liability to the other in
connection with or following any valid termination of this Agreement. Upon a
willful breach of any representation, warranty or covenant made by a party
herein, such party shall have such liability for breach of contract and shall
pay such damages as may be determined by a court of law or equity. It is
understood that any failure on the part of the Purchaser to fulfill the
covenant set forth in Section 6.19 shall not constitute a wilful breach of a
covenant for purposes of this subsection (a).
(b) Expense Recoupment - Company. Upon a termination of this
----------------------------
Agreement by either party, the Company shall be entitled to be reimbursed by
the Purchaser promptly after such termination for the actual, documented
out-of-pocket expenses incurred by the Company in connection with this
Agreement and the transactions contemplated hereby, up to a $1,000,000 maximum,
if the reason for such termination is the Purchaser has committed a material
but non-willful breach of any representation, warranty or covenant herein which
shall not have been cured within any applicable time period or the Purchaser
shall be unable to comply with the condition set forth in Section 7.3(a)
relating to representations and warranties.
(c) Expense Recoupment - the Purchaser. Upon a termination
----------------------------------
of this Agreement by either party, the Purchaser shall be entitled to be
reimbursed by the Company promptly after such termination for the actual,
documented out-of-pocket
Page 86 of 106
<PAGE>
expenses incurred by the Purchaser in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the expenses
incurred in connection with the Purchaser Common Stock Offering), up to
$1,000,000 maximum, if the reason for such termination is one of the following:
(i) the Company has committed a material but non-willful breach of any
representation, warranty or covenant herein which shall not have been cured
within any applicable time period or the condition set forth in Section 7.2(a)
relating to representations and warranties shall otherwise not be capable of
being satisfied, (ii) a Transaction Moratorium Period shall have continued for
not less than 30 days, or (iv) the Company shall have withdrawn or modified its
recommendation for the Company Shareholders' Approval.
(d) Termination Fee - the Purchaser. In the event (i) the
-------------------------------
Company fails to obtain Company Shareholders' Approval and this Agreement is
terminated, or (ii) the Purchaser has elected to terminate this Agreement under
Section 6.3(b) or (iii) the Board of Directors of the Company has withdrawn or
modified its recommendation to its shareholders as contemplated by Section
6.3(a) and this Agreement is terminated or (iv) the condition set forth in
Section 7.3 relating to the receipt by the Company of a fairness opinion has
not been satisfied, then the Company and its successors shall owe the Purchaser
(in addition to any expense reimbursement provided for in Section 8.2(c)) a
termination fee of $2,750,000 (subject to reduction by the amount of any credit
pursuant to the last sentence of this subsection), payable in immediately
available funds, if, within six months from the date of a termination of this
Agreement, an Acquisition Transaction is publicly announced, an Acquisition
Transaction closes or an agreement to consummate an Acquisition Transaction is
signed. Such termination fee shall be paid on the date of closing of any such
Acquisition Transaction; provided, however, that any amount previously
-------
paid by the Company to the Purchaser as an expense recoupment pursuant to
subsection (c) of this Section 8.2 shall apply as a credit against any amount
payable by the Company under this subsection.
ARTICLE 9
MISCELLANEOUS
-------------
9.1. Expenses. Except as otherwise provided in Section 8.2,
--------
each party shall bear its own expenses, including the fees and expenses of any
attorneys, accountants, investment bankers, brokers, finders or other
intermediaries or other Persons engaged by it, incurred connection with this
Agreement and the transactions contemplated hereby.
9.2. Public Disclosure. Except as may be required to comply
-----------------
with the requirements of applicable law, or otherwise to
Page 87 of 106
<PAGE>
comply with the terms and conditions of this Agreement, in which case prior
notice thereof shall, to the extent practicable, be given to the other party
hereto, and reasonable efforts to obtain such party approval shall be made, the
parties hereto agree that no press release or similar public announcement or
communication will be made or caused to be made concerning the execution or
performance of this Agreement without the prior approval of the other party.
9.3. Governing Law; Consent to Jurisdiction. This Agreement
--------------------------------------
shall be deemed to be made in and in all respects shall be interpreted,
construed and governed by and in accordance with the laws of the State of
Delaware (without regard to principles of conflicts of law) applicable to
agreements made and to be entirely performed within such state. The Company
and the Purchaser irrevocably agree that any legal action or proceeding arising
out of or in connection with this Agreement, or the transactions contemplated
hereby, shall be brought in the United States District Court for the Southern
District of New York. Any and all service of process and any other notice in
any such action, suit or proceeding shall be effective against any party if
given personally or by registered or certified mail, return receipt requested,
or by any other means of mail that requires a signed receipt, postage prepaid,
mailed to such party as herein provided.
9.4. Notices. Any notices or other communications required
-------
under this Agreement shall be in writing, shall be deemed to have been given
and received when delivered in person, or addressed
(a) if to the Purchaser to:
Danielson Holding Corporation
767 Third Avenue
New York, NY 10017
Attention: C. Kirk Rhein, Jr.
Telephone: (212) 888-0347
Fax: (212) 735-0003
with a copy to:
Anderson Kill Olick & Oshinsky, P.C.
1251 Avenue of the Americas
New York, NY 10020-1182
Attention: Michael W. Stamm
Telephone: (212) 278-1702
Fax: (212) 728-1733
(b) if to the Company to:
Midland Financial Group, Inc.
825 Crossover Lane
Page 88 of 106
<PAGE>
Suite 112
Memphis, TN 38117-4936
Attention: Joseph W. McLeary
Telephone: (901) 680-9100
Fax: (901) 638-6395
with a copy to:
Baker, Donelson, Bearman & Caldwell, P.C.
165 Madison Avenue
First Tennesee Building, 20th Floor
Memphis, TN 38103
Attention: Charles T. Tuggle, Jr.
Telephone: (901) 577-2267
Fax: (901) 577-2303
or at such other place or places or to such other person or persons as shall be
designated in writing by the parties to this Agreement in the manner herein
provided.
9.5. Headings. Article, section and paragraph headings
--------
contained in this Agreement are for reference purposes only and shall not in
any way affect the meaning or interpretation of this Agreement.
9.6. Counterparts. This Agreement may be executed in one or
------------
more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original,
but all of which taken together shall constitute one and the same instrument.
9.7. Assignment. This Agreement may not be assigned by a
----------
party hereto without the prior written consent of the other hereto. This
Agreement shall be binding upon and inure to the benefit of successors and
assigns of the parties hereto.
9.8. Severability. If any provision of this Agreement is held
------------
to be unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to
the fullest extent possible. In any event, all other provisions of this
Agreement shall be deemed valid and enforceable to the fullest extent
permitted.
9.9. Waivers and Amendments. This Agreement may be amended,
----------------------
superseded, canceled, renewed or extended, and the terms hereof may be waived,
at any time, but only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege, or any single or partial exercise of any such right,
power or privilege, preclude
Page 89 of 106
<PAGE>
any further exercise thereof or the exercise of any other such right, power or
privilege.
9.10. No Third Party Beneficiaries. Except as provided in
----------------------------
Section 6.10 nothing in this Agreement shall convey any rights or remedies upon
any person or entity that is not a party to this Agreement or a permitted
assignee of a party to this Agreement.
9.11. Entire Agreement. This Agreement, the Schedules and
----------------
Exhibits hereto and any collateral agreements executed in connection with the
consummation of the transactions contemplated herein, constitute the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior written or oral understandings,
agreements or undertakings with respect thereto.
9.12. Survival. Notwithstanding any provision of this
--------
Agreement to the contrary, the representations and warranties of the Company
and the Purchaser contained in this Agreement shall not survive, and shall be
of no force and effect following, the Closing Date of the Merger.
Page 90 of 106
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first written above.
MIDLAND FINANCIAL GROUP, INC.
/s/ Joesph W. McLeary
By: ------------------------------
Name: _______________________
Title: Chairman & CEO
DANIELSON HOLDING CORPORATION
By: /s/ C. Kirk Rhein, Jr.
------------------------------
Name: __________________
Title: President & CEO
MISSION SUB E, INC.
By: /s/ C. Kirk Rhein, Jr.
------------------------------
Name: __________________
Title: President & CEO
Page 91 of 106
<PAGE>
EXHIBIT 1A
CERTIFICATE OF DESIGNATION
PREFERENCES, RIGHTS AND LIMITATIONS
OF
SERIES A CUMULATIVE PERPETUAL PREFERRED STOCK
OF
DANIELSON HOLDING CORPORATION
---------------------------------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
---------------------------------------------
___________________, _______________ of Danielson Holding
Corporation ( the "Corporation"), a corporation organized and existing under
the General Corporation Law of the State of Delaware, does hereby certify that
the following resolution was duly adopted by the Board of Directors of the
Corporation (the "Board of Directors") by unanimous written consent thereto
effective _______, 1996, and that such resolution is in full force and effect
upon the date of this Certificate.
"RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of the Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation")
there hereby is created, from the ______ shares of authorized but
unissued shares of Preferred Stock of the Corporation, par value
$________ per share, authorized in Article __ of the Certificate of
Incorporation (the "Preferred Stock"), a series of Series A Cumulative
Perpetual Preferred Stock of the Corporation consisting of ____ shares,
which series shall have the following powers, designation, preferences
and relative, participating, optional and other special rights, and the
following qualifications, limitations and restrictions (in addition to
those set forth in the Certificate of Incorporation):
1. Designation and Amount; No Fractional Shares. The
--------------------------------------------
designation of the Series of Preferred Stock created by this resolution shall
be Series A Cumulative Preferred Stock, par value $____ per share (the "Series
A Preferred Stock"), and the number of shares constituting such series shall be
______. The Series A Preferred Stock shall be issuable solely in whole shares.
Page 92 of 106
<PAGE>
2. Stated Value. The stated value (the "Stated Value") of
------------
each such share of Series A Preferred Stock is $________.
3. Dividends.
---------
(a) the holders of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of
Directors, out of funds at the time legally available therefor,
cumulative cash dividends accruing at a per share rate of ___% per
annum, and no more, quarterly in arrears on the 15th day of March,
June, September and December of each year, commencing
_______________, 1996 (each, a "Dividend Payment Date") (except
that if any such date is a Saturday, Sunday or legal holiday, then
such dividend shall be payable on the next day that is not a
Saturday, Sunday or legal holiday) to holders of records as they
appear upon the stock transfer books of the Corporation on such
record dates, not less than 10 nor more than 60 days preceding the
payment dates for such dividends, as are fixed by the Board of
Directors (each, a "Record Date"). For purposes hereof, the term
"legal holiday" shall mean any day on which banking institutions
are authorized to close in New York City. The Series A Preferred
Stock will not participate in dividends with the Common Stock, par
value $.10 per share, of the Corporation (the "Common Stock"). The
date of initial issuance of shares of Series A Preferred Stock is
hereinafter referred to as the "Issue Date". Dividends payable on
the Series A Preferred Stock (i) for any period other than a full
dividend period, shall be computed on the basis of a 360-day year
consisting of twelve 30-day months and (ii) for each full dividend
period, shall be computed by dividing the annual dividend rate by
four.
(b) Dividends on the shares of Series A Preferred Stock
shall be cumulative from the Issue date whether or not there shall
be funds legally available for the payment thereof. Subject to the
next succeeding sentence, if there shall be outstanding shares of
any other series of Preferred Stock ranking junior to or on a
parity with the Series A Preferred Stock as to dividends, no
dividends (other than dividends payable solely in additional shares
of such other series) shall be declared or paid or set apart for
payment on any such other series for any period unless full
cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof
is set apart for such payment on the Series A Preferred Stock for
all dividend periods terminating on or prior to the date of payment
of such dividends. If dividends on the Series A Preferred
Page 93 of 106
<PAGE>
Stock and on any other series of Preferred Stock ranking on a
parity as to dividends with the Series A Preferred Stock are in
arrears, in making any dividend payment on account of such arrears,
the Corporation shall make payments ratably upon all outstanding
shares of the Series A Preferred Stock and shares of such other
series of Preferred Stock in proportion to the respective amounts
of dividends in arrears on the Series A Preferred Stock and on such
other series of Preferred Stock to the date of such dividend
payment. Holders of shares of Series A Preferred Stock shall not
be entitled to any dividend, whether payable in cash, property or
stock, in excess of full cumulative dividends on such shares. No
interest, or sum of money in lieu of interest, shall be payable
with respect to any dividend payment or payments which may be in
arrears.
(c) Unless full cumulative dividends on all outstanding
shares of the Series A Preferred Stock shall have been paid or
declared and set aside for payment for all past dividend periods,
no dividend shall be declared, paid or set apart for payment or any
other distribution (whether in cash or obligations of the
Corporation or other properties, other than dividends payable
solely in additional shares of Common Stock or other junior stock)
upon the Common Stock or upon any other stock ranking junior to the
Series A Preferred Stock as to dividends or the distribution of
assets upon liquidation, dissolution or winding up, nor shall any
Common Stock or any other stock of the Corporation ranking junior
to or on a parity with Series A Preferred Stock as to dividends or
the distribution of assets upon liquidation, dissolution or winding
up be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by
the Corporation (except by conversion into or exchange for stock of
the Corporation ranking junior to the Series A Preferred Stock as
to dividends and the distribution of assets upon liquidation,
dissolution or winding up).
4. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or
involuntary, the holders of Series A Preferred Stock shall be
entitled to receive out of the assets of the Corporation available
for distribution to stockholders an amount equal to the Stated
Value per share plus an amount equal to any accrued and unpaid
dividends thereon (whether or not
Page 94 of 106
<PAGE>
declared) to and including the date of such distribution, and no
more, before any payment or distribution shall be made to the
holders of Common Stock or any other class or series of stock of
the Corporation ranking junior to the Series A Preferred Stock as
to the distribution of assets upon liquidation, dissolution or
winding up. After payment of such liquidating distributions, the
holders of shares of Series A Preferred Stock will not be entitled
to any further participation in any distribution of assets by the
Corporation.
(b) In the event the assets of the Corporation available
for distribution to stockholders upon any liquidation, dissolution
or winding up of the affairs of the Corporation, whether voluntary
or involuntary, shall be insufficient to pay in full the amounts
payable with respect to the Series A Preferred Stock pursuant to
Section 4(a) and any other shares of Preferred Stock ranking on a
parity with the Series A Preferred Stock as to the distribution of
assets, the holders of Series A Preferred Stock and the holders of
such other Preferred Stock shall share ratably in any distribution
of assets of the Corporation in proportion to the full respective
preferential amounts to which they are entitled.
(c) The merger or consolidation of the Corporation into or
with any other corporation, the merger or consolidation of any
other corporation into or with the Corporation or the sale of the
assets of the Corporation substantially as an entirety shall not be
deemed a liquidation, dissolution or winding up of the affairs of
the Corporation within the meaning of this Section 4.
5. Redemption.
----------
(a) The Corporation, at its option, may redeem any or all
shares of Series A Preferred Stock, at any time or from time to
time, on or after _________, 2001 at a redemption price per share
equal to the Stated Value thereof, plus an amount equal to accrued
and unpaid dividends thereon (whether or not declared) to and
including the date of redemption (the "Redemption Price").
(b) If less than all the outstanding shares of Series A
Preferred Stock are to be redeemed, the shares to be redeemed shall
be selected pro rata as nearly as practicable or by lot.
Page 95 of 106
<PAGE>
(c) Notice of any redemption shall be given by first class
mail, postage prepaid, mailed not less than 30 nor more than 90
days prior to the date fixed for redemption to the holders of
record of the shares of Series A Preferred Stock to be redeemed, at
their respective addresses appearing on the books of the
Corporation. Such notice shall state: (i) the date fixed for
redemption; (ii) the Redemption Price; (iii) the number of shares
of Series A Preferred Stock to be redeemed and if less than all the
shares held by such holder are to be redeemed, the number of such
shares to be so redeemed from such holder; (iv) the place where
certificates for such shares are to be surrendered for payment of
the Redemption Price; and (v) that after such date fixed for
redemption the shares to be redeemed shall not accrue dividends.
Such notice shall be deemed to have been duly given to any holder
of the Series A Preferred Stock within the meaning of the foregoing
provisions when the same shall have been mailed as aforesaid.
Accidental failure to mail any such notice to one or more of such
holders shall not affect the validity of such redemption as to the
other holders. Subject to Section 5(d) below, if such notice is
mailed as aforesaid, and if on or before the date fixed for
redemption, funds sufficient to redeem the shares called for
redemption are set aside by the Corporation in trust for the
account of the holders of the shares to be redeemed,
notwithstanding the fact that any certificate for shares called for
redemption shall not have been surrendered for cancellation, on and
after the redemption date the shares represented thereby so called
for redemption shall be deemed to be no longer outstanding,
dividends thereon shall cease to accrue and all rights of the
holders of such shares as stockholders of the Corporation shall
cease (except the right to receive the Redemption Price, without
interest, upon surrender of the certificate representing such
shares). Upon surrender in accordance with the aforesaid notice of
the certificate for any shares so redeemed (duly endorsed or
accompanied by appropriate instruments of transfer, if so required
by the Corporation in such notice), the holders of record of such
shares shall be entitled to receive the Redemption Price, without
interest. Notwithstanding the foregoing, however, as and to the
extent that the Corporation is required under the abandoned
property laws of any jurisdiction to escheat any redemption funds
held in trust for the benefit of any holder, the Corporation shall
be absolved of any further obligation or liability to such holder
to the full extent provided by any such law. In case fewer than
all the shares represented by any such certificate are redeemed, a
new certificate shall be issued
Page 96 of 106
<PAGE>
representing the unredeemed shares without cost to the holder
thereof.
(d) At the option of the Corporation, if notice of
redemption is mailed as aforesaid, and if prior to the date fixed
for redemption, funds sufficient to pay in full the Redemption
Price are deposited in trust for the account of the holders of the
shares to be redeemed, with a bank or trust company named in such
notice doing business in the Borough of Manhattan, City of New
York, State of New York, and having capital and surplus of at least
$100 million (which bank or trust company also may be the transfer
agent and/or paying agent for the Series A Preferred Stock)
notwithstanding the fact that any certificate(s) for shares called
for redemption shall not have been surrendered for cancellation, on
and after such date of deposit the shares represented thereby so
called for redemption shall be deemed to be no longer outstanding,
and all rights of the holders of such shares as shareholders of the
Corporation shall cease, except the right of the holders thereof to
receive out of the funds so deposited in trust the Redemption
Price, without interest, upon surrender of the certificate(s)
representing such shares. Unless otherwise required by law, any
funds so deposited with such bank or trust company which shall
remain unclaimed by the holders of shares called for redemption at
the end of two years after the redemption date shall be repaid to
the Corporation, on demand, and thereafter the holder of any such
shares shall look only to the Corporation for the payment, without
interest, of the Redemption Price. Notwithstanding the foregoing,
however, as and to the extent that the Corporation is required
under the abandoned property laws of any jurisdiction to escheat
any redemption funds held in trust for the benefit of any holder,
the Corporation shall be absolved of any further obligation or
liability to such holder to the full extent provided by any such
laws.
(e) Any provision of this section 5 to the contrary
notwithstanding, in the event that any quarterly dividend payable
on the Series A Preferred Stock shall be in arrears and until all
such dividends in arrears shall have been paid or declared and set
apart for payment, the Corporation shall not redeem any shares of
Series A Preferred Stock unless all outstanding shares of Series A
Preferred Stock are simultaneously redeemed and shall not purchase
or otherwise acquire any shares of Series A Preferred Stock except
in accordance with a purchase or exchange offer made on the same
terms to all holders of record
Page 97 of 106
<PAGE>
of Series A Preferred Stock for the purchase of all outstanding
shares thereof.
6. No Sinking Fund. The shares of Series A Preferred Stock
---------------
shall not be subject to the operation of any mandatory purchase, retirement or
sinking fund.
7. Voting Rights. Other than as required by applicable law,
-------------
the Series A Preferred Stock shall not have any voting powers either general or
special, except that:
(a) Unless the vote or consent of the holders of a greater
number of shares shall then be required by law, the affirmative
vote or consent of the holders of at least 66-2/3% of all of the
shares of the Series A Preferred Stock and any other series of
Preferred Stock, at the time outstanding, given in person or by
proxy, either in writing or by a vote at a meeting called for the
purpose at which the holders of shares of the Series A Preferred
Stock and any such other series of Preferred Stock shall vote
together as a separate class, shall be necessary for authorizing,
effecting or validating the amendment, alteration or repeal of any
of the provisions of the Certificate of Incorporation, as amended
or of any amendment or supplement thereto (including any
certificate of designation or any similar document relating to any
series of Preferred Stock) of the Corporation or the by-laws of the
Corporation, which would adversely affect the preferences, rights,
powers or privileges, qualifications, limitations and restrictions
of the Series A Preferred Stock and any such other series of
Preferred Stock. If the Series A Preferred Stock (but not all
other series of Preferred Stock outstanding) are affected by the
above-described actions in this Section 7(a), the Series A
Preferred Stock shall, in addition, be entitled to vote on such
actions separately as a class, and shall approve such actions by
the affirmative vote or consent of the holders of at least 66-2/3%
of all of the shares of Series A Preferred Stock.
(b) Unless the vote or consent of the holders of a greater
number of shares shall then be required by law, the affirmative
vote or consent of the holders of at least 66-2/3% of all of the
shares of Series A Preferred Stock and any other series of
Preferred Stock of the Corporation ranking on a parity with shares
of the Series A Preferred Stock, either as to dividends or the
distribution of assets upon liquidation, dissolution or winding up,
at the time outstanding, given in person or by proxy, whether in
writing or by a vote at a meeting called for the purpose at which
the
Page 98 of 106
<PAGE>
holders of shares of the Series A Preferred Stock and any such
other series of Preferred Stock shall vote together as a single
class without regard to series, shall be necessary to create,
authorize or issue, or reclassify any authorized stock of the
Corporation into, or create, authorize or issue, any obligation or
security convertible into or evidencing a right to purchase, any
shares of any class of stock of the Corporation ranking prior to
the Series A Preferred Stock or ranking prior to any other series
of Preferred Stock which ranks on a parity with the Series A
Preferred Stock as to dividends or the distribution of assets upon
liquidation, dissolution or winding up. Notwithstanding the above,
no vote of Series A Preferred Stock is required for the creation of
an issue of stock ranking prior to the Series A Preferred Stock as
to dividends or the distribution of assets upon liquidation,
dissolution or winding up if a notice of redemption has been given
for the Series A Preferred Stock as provided herein and the
---
proceeds of the sale of such new issue of stock are used to retire
or redeem any or all of the Series A Preferred Stock.
(c) Unless the vote or consent of the holders of a greater
number of shares shall then be required by law, the affirmative
vote or consent of the holders of a majority of all of the shares
of Series A Preferred Stock and any other series of Preferred Stock
of the Corporation ranking junior to or on a parity with shares of
the Series A Preferred Stock, either as to dividends or the
distribution of assets upon the liquidation, dissolution or winding
up, shall be required to increase the authorized amount of
Preferred Stock, or to create any series of Preferred Stock ranking
on a parity with the Series A Preferred Stock, either as to
dividends or the distribution of assets upon liquidation,
dissolution or winding up.
(d) Whenever, at any time or times, dividends payable on
the shares of Series A Preferred Stock shall be in arrears in an
amount equal to at least six full quarterly dividends (whether or
not such arrearage occurred in consecutive periods) on shares of
the Series A Preferred Stock at the time outstanding, the holders
of the outstanding shares of Series A Preferred Stock shall have
the exclusive right, voting separately as a class together with
holders of shares of any one or more other series of Preferred
Stock ranking on a parity with the Series A Preferred Stock either
as to dividends or the distribution of assets upon liquidation,
dissolution or winding up and upon which like voting rights have
been conferred and are exercisable, to elect two directors of the
Corporation
Page 99 of 106
<PAGE>
for one-year terms at the Corporation's next annual meeting of
stockholders and at each subsequent annual meeting of stockholders.
At elections for such directors, each holder of Series A Preferred
Stock shall be entitled to one vote for each share held (the
holders of shares of any other series of Series A Preferred Stock
ranking on such a parity being entitled to such number of votes, if
any, for each share of stock held as may be granted to them). Upon
the vesting of such rights of the holders of Series A Preferred
Stock, the maximum authorized number of members of the Board of
Directors shall automatically be increased by two and the two
vacancies so created shall be filled by vote of the holders of the
outstanding shares of Series A Preferred Stock (either alone or
together with the holders of shares of any one or more other series
of Preferred Stock ranking on such a parity) as set forth herein.
The right of the holders of Series A Preferred Stock, voting
separately as a class to elect (either alone or together with the
holders of shares of any one or more other series of Preferred
Stock ranking on such a parity) members of the Board of Directors
as aforesaid shall continue until such time as all dividends
accumulated on the Series A Preferred Stock shall have been paid in
full or declared and set apart for payment, at which time such
right shall immediately terminate, except as herein or by law
expressly provided, subject to revesting in the event of each and
every subsequent default of the character above mentioned.
(e) Upon termination of such special voting rights
attributable to all holders of the Series A Preferred Stock and any
other series or Preferred Stock ranking on a parity with the Series
A Preferred Stock as to dividends or the distribution of assets
upon liquidation, dissolution or winding up and upon which like
voting rights have been conferred and are exercisable, the term of
office of each director elected by the holders of shares of Series
A Preferred Stock and such parity Preferred Stock (a "Preferred
Stock Director") pursuant to such special voting rights shall
immediately terminate and the number of directors constituting the
entire Board of Directors shall be reduced by the number of
Preferred Stock Directors. Any Preferred Stock Director may be
removed by, and shall not be removed otherwise than by, the vote of
the holders of record of a majority of the outstanding shares of
Series A Preferred Stock and all other series of Preferred Stock
ranking on a parity with the Series A Preferred Stock with respect
to dividends who were entitled to participate in such Preferred
Stock Director's election, voting as a separate class, at a
Page 100 of 106
<PAGE>
meeting called for such purposes. If the office of any Preferred
Stock Director becomes vacant by reason of death, resignation,
retirement, disqualification, removal from office, or otherwise,
the remaining Preferred Stock Director may choose a successor who
shall hold office for the unexpired term in respect of which such
vacancy occurred.
8. Ranking. Any class or classes of stock of the
-------
Corporation shall be deemed to rank:
(a) prior to the Series A Preferred Stock, as to dividends
or as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or
priority to the holders of Series A Preferred Stock,
(b) on a parity with the Series A Preferred Stock, as to
dividends or as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per
share thereof are different from those of the Series A Preferred
Stock, if the holders of such class of stock and the Series A
Preferred Stock shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up,
as the case may be, in proportion to their respective amounts of
accrued and unpaid dividends per share or liquidation prices,
without preferences or priority one over the other, and
(c) junior to the Series A Preferred Stock, as to dividends
or as to the distribution of assets upon liquidation, dissolution
or winding up, if such stock shall be Common Stock or if the
holders of Series A Preferred Stock shall be entitled to receipt of
dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the
holders of shares of such stock.
9. Status of Acquired Shares. Shares of Series A Preferred
-------------------------
Stock redeemed by the Corporation, or otherwise acquired by the Corporation,
will be restored to the status of authorized but unissued shares of the
Corporation's preferred stock, without designation as to class, and may
thereafter be issued, but not as shares of Series A Preferred Stock.
10. Conversion and Preemptive Rights. The Series A Preferred
--------------------------------
Stock is not entitled to any conversion, preemptive or
Page 101 of 106
<PAGE>
subscription rights with respect to any securities of the Corporation.
11. Severability of Provisions. Whenever possible, each
--------------------------
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by
or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
unenforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid
under applicable law.
IN WITNESS WHEREOF, Danielson Holding Corporation has caused this
Certificate to be signed and attested by the undersigned, this ___ of
________________, 1996.
DANIELSON HOLDING CORPORATION
By: _________________________
Attest:
______________________
Page 102 of 106
<PAGE>
SCHEDULE 7.2
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority
to own, operate and lease its properties and to carry on its
business as it is now being conducted.
2. The Company has full legal power and authority to
execute and deliver the Merger Agreement and to consummate the
transactions contemplated thereby. The execution and delivery of
the Merger Agreement and the consummation of the transactions
contemplated thereby have been duly and validly authorized by all
necessary corporate action on the part of the Company. The Merger
Agreement has been duly and validly executed and delivered by the
Company and constitutes a legal, valid and binding agreement of the
Company enforceable in accordance with its terms. The
enforceability of the Company's obligations under the Merger
Agreement may be limited by an implied covenant of good faith and
fair dealing, by general equitable principles (whether considered
in a proceeding in equity or at law) and by bankruptcy, insolvency,
fraudulent conveyance or transfer, reorganization, moratorium or
other similar laws now or hereafter in effect, relating to or
affecting creditors' rights or remedies generally.
3. The authorized capital stock of the Company consists of
__________ shares of Common Stock. As of the date hereof, before
giving effect to the Merger, _________ shares of Common Stock are
outstanding and no shares are held in the Company's treasury.
4. All consents, approvals and authorizations of or
declaration or filings with any Governmental Entity that are by law
required to be obtained or made by the Company for or in connection
with the execution or delivery by the Company of the Merger
Agreement or the consummation by the Company of the transactions
contemplated thereby have been obtained or made.
5. Neither the execution and delivery of the Merger
Agreement nor the consummation of the transactions contemplated
thereby nor compliance by the Company with any of the provisions of
the Merger
Page 103 of 106
<PAGE>
Agreement will: (i) conflict with or result in any breach of any
provision of the Certificate of Incorporation or By-Laws or other
governing instruments of the Company; (ii) to the best of our
knowledge, except as set forth on Schedule 4.5 to the Merger
Agreement, require any consent, approval or notice under or
conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which the Company or any Significant
Subsidiary is a party or by which any of them or any material
portion of their properties or assets may be bound; or (iii) to the
best of our knowledge, violate any order, writ, injunction,
determination, award, decree, law, statute, rule or regulation
applicable to the Company or any Significant Subsidiary or any
material portion of their properties or assets; provided that
--------
we express no opinion in the foregoing clauses (ii) and (iii) with
respect to matters that could not reasonably be expected to result
in a Company Material Adverse Effect.
Page 104 of 106
<PAGE>
SCHEDULE 7.3
1. The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority
to own, operate and lease its properties and to carry on its
business as it is now being conducted.
2. The Purchaser has full legal power and authority to
execute and deliver the Merger Agreement and to consummate the
transactions contemplated thereby. The execution and delivery of
the Merger Agreement and the consummation of the transactions
contemplated thereby have been duly and validly authorized by all
necessary corporate action on the part of the Purchaser. The
Merger Agreement has been duly and validly executed and delivered
by the Purchaser and constitutes a legal, valid and binding
agreement of the Purchaser enforceable in accordance with its
terms. The enforceability of the Purchaser's obligations under the
Merger Agreement may be limited by an implied covenant of good
faith and fair dealing, by general equitable principles (whether
considered in a proceeding in equity or at law) and by bankruptcy,
insolvency, fraudulent conveyance or transfer, reorganization,
moratorium or other similar laws now or hereafter in effect,
relating to or affecting creditors' rights or remedies generally.
3. The authorized capital stock of the Purchaser consists of
__________ shares of Common Stock. As of the date hereof, before
giving effect to the Merger, _________ shares of Common Stock are
outstanding, ______ shares are held in the Purchaser's treasury,
______ shares are reserved for issuance pursuant to outstanding
Options, and ____ shares of are Preferred Stock, none which are
issued or outstanding.
4. All consents, approvals and authorizations of or
declaration or filings with any Governmental Entity that are by law
required to be obtained or made by the Purchaser for or in
connection with the execution or delivery by the Purchaser of the
Merger Agreement or the consummation by the Purchaser of the
transactions contemplated thereby have been obtained or made.
Page 105 of 106
<PAGE>
5. Neither the execution and delivery of the Merger
Agreement nor the consummation of the transactions contemplated
thereby nor compliance by the Purchaser with any of the provisions
of the Merger Agreement will: (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or
By-Laws or other governing instruments of the Purchaser; (ii) to
the best of our knowledge, except as set forth on Schedule 5.5 to
the Merger Agreement, require any consent, approval or notice under
or conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which the Purchaser or any Significant
Subsidiary is a party or by which any of them or any material
portion of their properties or assets may be bound; or (iii) to the
best of our knowledge, violate any order, writ, injunction,
determination, award, decree, law, statute, rule or regulation
applicable to the Purchaser or any Significant Subsidiary or any
material portion of their properties or assets; provided that
--------
we express no opinion in the foregoing clauses (ii) and (iii) with
respect to matters that could not reasonably be expected to result
in a Purchaser Material Adverse Effect.
Page 106 of 106
