<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
LITCHFIELD FINANCIAL CORPORATION
(NAME OF SUBJECT COMPANY)
LIGHTHOUSE ACQUISITION CORP.
TEXTRON FINANCIAL CORPORATION
(BIDDERS)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
536619 10 9
(CUSIP NUMBERS OF CLASS OF SECURITIES)
ELIZABETH C. PERKINS, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
TEXTRON FINANCIAL CORPORATION
40 WESTMINSTER STREET
PROVIDENCE, RI 02903
TELEPHONE: (401) 621-4244
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER)
COPY TO:
MARIO A. PONCE, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
TELEPHONE: (212) 455-2000
CALCULATION OF FILING FEE
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TRANSACTION VALUATION(1) AMOUNT OF FILING FEE(2)
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$183,000,000 $36,600
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</TABLE>
(1) Based on the offer to purchase all of the outstanding shares of Common
Stock of the Subject Company at $24.50 cash per share, 6,984,601 shares
of Common Stock issued and outstanding and 913,720 outstanding options
as of September 22, 1999, at prices ranging from $1.44 to $23.25.
(2) 1/50 of 1% of Transaction Valuation.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
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Amount Previously Paid: Filing Party:
Form or Registration No.: Date Filed:
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<PAGE> 2
This Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1")
relates to the offer by Lighthouse Acquisition Corp., a Massachusetts
corporation ("Purchaser") and a wholly owned subsidiary of Textron Financial
Corporation, a Delaware corporation ("TFC"), to purchase for cash all of the
outstanding shares of Common Stock, par value $0.01 per share (the "Shares"), of
Litchfield Financial Corporation, a Massachusetts corporation (the "Company"),
at a purchase price of $24.50 per Share net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated as of September 29, 1999 (the "Offer to Purchase"), a
copy of which is attached hereto as Exhibit (a)(1), and in the related Letter of
Transmittal (which, together with the Offer to Purchase, as amended from time to
time, constitute the "Offer"), a copy of which is attached hereto as Exhibit
(a)(2).
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Litchfield Financial Corporation.
The information set forth in Section 7 ("Certain Information Concerning the
Company") of the Offer to Purchase is incorporated herein by reference.
(b) The exact title of the class of equity securities being sought in the
Offer is Common Stock, par value $0.01 per share, of the Company. The
information set forth in the Introduction of the Offer to Purchase is
incorporated herein by reference.
(c) The information set forth in Section 6 ("Price Range of Shares;
Dividends") of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Statement is filed by Purchaser and TFC. The
information set forth in Section 8 ("Certain Information Concerning the
Purchaser, TFC and Textron") of the Offer to Purchase and in Schedule I thereto
is incorporated herein by reference.
(e) and (f) During the last five years, none of Purchaser, TFC or, to the
best knowledge of Purchaser, TFC or Textron, any of the persons listed in
Schedule I to the Offer to Purchase (i) has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation of such
laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) and (b) The information set forth in Section 8 ("Certain Information
Concerning the Purchaser, TFC and Textron"), Section 10 ("Background of the
Offer; Contacts with the Company") and Section 11 ("The Merger Agreement") of
the Offer to Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) and (b) The information set forth in Section 9 ("Source and Amount of
Funds") of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth in the Introduction, Section 10
("Background of the Offer; Contacts with the Company"), Section 11 ("The Merger
Agreement"), Section 12 ("Purpose of the Offer; The Merger; Plans for the
Company") and Section 14 ("Effect of the Offer on the Market for the Shares,
Nasdaq Listing and Exchange Act Registration") of the Offer to Purchase is
incorporated herein by reference.
(f)-(g) The information set forth in Section 14 ("Effect of the Offer on
the Market for the Shares, Nasdaq Listing and Exchange Act Registration") of the
Offer to Purchase is incorporated herein by reference.
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<PAGE> 3
Except as contemplated by the Merger Agreement (as defined in the Offer to
Purchase), neither TFC nor Purchaser has any plans or proposals which relate to
or would result in (x) the acquisition by any person of additional securities of
the Company or the disposition of securities of the Company, or (y) changes to
the Company's charter, bylaws or instruments corresponding thereto or other
action which may impede the acquisition of control of the Company by any person.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth in the Introduction and Section 8
("Certain Information Concerning the Purchaser, TFC and Textron") of and
Schedule I to the Offer to Purchase is incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES
The information set forth in the Introduction, Section 8 ("Certain
Information Concerning the Purchaser, TFC and Textron"), Section 10 ("Background
of the Offer; Contacts with the Company"), Section 11 ("The Merger Agreement")
and Section 12 ("Purpose of the Offer; The Merger; Plans for the Company") of
the Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Introduction and Section 17 ("Fees and
Expenses") of the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 8 ("Certain Information Concerning the
Purchaser, TFC and Textron") and Annex I of the Offer to Purchase is
incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) The information set forth in Section 11 ("The Merger Agreement") is
incorporated herein by reference.
(b) and (c) The information set forth in Section 16 ("Certain Legal Matters
and Regulatory Approvals") of the Offer to Purchase is incorporated herein by
reference.
(d) The information set forth in Section 14 ("Effect of the Offer on the
Market for the Shares, Nasdaq Listing and Exchange Act Registration") and
Section 16 ("Certain Legal Matters and Regulatory Approvals") of the Offer to
Purchase is incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase dated September 29, 1999.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter from the Dealer Manager to Brokers, Dealers, Commercial
Banks, Trust Companies and Nominees.
(a)(5) Letter to clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees.
3
<PAGE> 4
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Summary Advertisement as published on September 29, 1999.
(a)(8) Press Release issued by TFC and the Company on September 23, 1999.
(b) Not applicable.
(c) Agreement and Plan of Merger, dated as of September 22, 1999, by and
among Textron Financial Corporation, Lighthouse Acquisition Corp.
and Litchfield Financial Corporation.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
4
<PAGE> 5
SIGNATURE
After due inquiry and to the best of our knowledge and belief, we hereby
certify that the information set forth in this Statement is true, complete and
correct.
LIGHTHOUSE ACQUISITION CORP.
By: /s/ ELIZABETH C. PERKINS
------------------------------------
Name: Elizabeth C. Perkins
Title: Secretary
TEXTRON FINANCIAL CORPORATION
By: /s/ ELIZABETH C. PERKINS
------------------------------------
Name: Elizabeth C. Perkins
Title: Secretary
Date: September 29, 1999
5
<PAGE> 6
EXHIBIT INDEX
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EXHIBIT PAGE
NO. DESCRIPTION NO.
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(a)(1) Offer to Purchase dated September 29, 1999.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter from the Dealer Manager to Brokers, Dealers,
Commercial Banks, Trust Companies and Nominees.
(a)(5) Letter to clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) Summary Advertisement as published on September 29, 1999.
(a)(8) Press Release issued by TFC and the Company on September 23,
1999.
(b) Not applicable.
(c) Agreement and Plan of Merger, dated as of September 22,
1999, by and among Textron Inc., Lighthouse Acquisition
Corp. and Litchfield Financial Corporation.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
</TABLE>
6
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
LITCHFIELD FINANCIAL CORPORATION
AT
$24.50 NET PER SHARE
BY
LIGHTHOUSE ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
TEXTRON FINANCIAL CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, OCTOBER 27, 1999, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PURSUANT TO THE OFFER PRIOR TO THE EXPIRATION OF THE
OFFER SUCH NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE
"SHARES"), OF LITCHFIELD FINANCIAL CORPORATION (THE "COMPANY"), WHICH
CONSTITUTES MORE THAN 66 2/3% OF THE SHARES (DETERMINED ON A FULLY-DILUTED
BASIS) (II) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIOD UNDER
THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED. THE OFFER
IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE THE INTRODUCTION AND SECTIONS
1, 11 AND 15.
------------------------
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE MERGER AGREEMENT (AS
DEFINED BELOW) AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER
AND THE MERGER (EACH AS DEFINED BELOW), AND DETERMINED THAT THE TERMS OF THE
OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND
ITS STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE
OFFER AND TENDER THEIR SHARES TO THE PURCHASER PURSUANT TO THE OFFER.
------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (1) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal, mail or deliver the Letter of Transmittal (or such facsimile) and
any other required documents to the Depositary (as defined herein), and either
deliver the certificates representing the tendered Shares and any other required
documents to the Depositary or tender such Shares pursuant to the procedure for
book-entry transfer set forth in Section 3 or (2) request such stockholder's
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for such stockholder. Stockholders having Shares registered in the
name of a broker, dealer, commercial bank, trust company or other nominee must
contact such broker, dealer, commercial bank, trust company or other nominee if
they desire to tender Shares so registered.
A stockholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available, or who cannot deliver
the certificates for Shares and all other required documents to reach the
Depository on or prior to the Expiration Date (as defined herein), or who cannot
comply with the procedure for book-entry transfer on a timely basis, may tender
such Shares by following the procedures for guaranteed delivery set forth in
Section 3.
Questions and requests for assistance may be directed to Donaldson, Lufkin
& Jenrette Securities Corporation (the "Dealer Manager") or to D.F. King & Co.,
Inc. (the "Information Agent") at their respective addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Additional copies
of this Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery may also be obtained from the Information Agent or the
Dealer Manager, or from brokers, dealers, commercial banks or trust companies.
THE DEALER MANAGER FOR THE OFFER IS:
DONALDSON, LUFKIN & JENRETTE
September 29, 1999
<PAGE> 2
TABLE OF CONTENTS
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PAGE
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INTRODUCTION............................................................ 1
THE OFFER............................................................... 2
1. Terms of the Offer; Expiration Date......................... 2
2. Acceptance for Payment and Payment for Shares............... 3
3. Procedure for Tendering Shares.............................. 4
4. Withdrawal Rights........................................... 7
5. Certain Federal Income Tax Consequences..................... 8
6. Price Range of Shares; Dividends............................ 8
7. Certain Information Concerning the Company.................. 9
8. Certain Information Concerning the Purchaser, TFC and 15
Textron.....................................................
9. Source and Amount of Funds.................................. 17
10. Background of the Offer; Contacts with the Company.......... 17
11. The Merger Agreement........................................ 20
12. Purpose of the Offer; the Merger; Plans for the Company..... 30
13. Dividends and Distributions................................. 31
14. Effect of the Offer on the Market for the Shares, Nasdaq 32
Listing and Exchange Act Registration.......................
15. Certain Conditions of the Offer............................. 32
16. Certain Legal Matters and Regulatory Approvals.............. 34
17. Fees and Expenses........................................... 36
18. Miscellaneous............................................... 38
SCHEDULE I -- DIRECTORS AND EXECUTIVE OFFICERS.......................... I-1
ANNEX I -- CONSOLIDATED FINANCIAL STATEMENTS OF TFC AND SUPPLEMENTARY
DATA.................................................................. A-1
</TABLE>
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<PAGE> 3
To the Stockholders of
LITCHFIELD FINANCIAL CORPORATION
INTRODUCTION
Lighthouse Acquisition Corp. (the "Purchaser"), a Massachusetts corporation
and a wholly owned subsidiary of Textron Financial Corporation, a Delaware
corporation ("TFC"), hereby offers to purchase all of the outstanding shares of
common stock, par value $.01 per share (the "Shares") of Litchfield Financial
Corporation, a Massachusetts corporation (the "Company") at a purchase price of
$24.50 per Share, net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in this Offer to Purchase and in
the related Letter of Transmittal (which, together with this Offer to Purchase,
as amended from time to time, constitute the "Offer"). TFC is a wholly owned
subsidiary of Textron Inc., a Delaware corporation ("Textron").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, subject to Instruction 6 of the Letter of Transmittal, stock
transfer taxes on the transfer and sale of Shares pursuant to the Offer. The
Purchaser will pay all fees and expenses of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), which is acting as Dealer Manager for the Offer
(in such capacity, the "Dealer Manager"), EquiServe Limited Partnership which is
acting as the Depositary (in such capacity, the "Depositary"), and D.F. King &
Co., Inc., which is acting as the Information Agent (in such capacity, the
"Information Agent"), incurred in connection with the Offer. See Section 17.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS") HAS
APPROVED THE MERGER AGREEMENT (AS DEFINED BELOW) AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER (AS DEFINED BELOW), AND
DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE
BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES TO THE
PURCHASER PURSUANT TO THE OFFER.
The Board of Directors has received the oral and written opinions, each
dated September 22, 1999, of CIBC World Markets Corp., financial advisor to the
Company (the "Financial Advisor"), to the effect that, as of such dates and
based upon and subject to certain matters stated therein, from a financial point
of view the $24.50 per Share cash consideration to be received in the Offer and
the Merger by holders of Shares (other than Textron, TFC, the Purchaser or any
direct or indirectly wholly-owned subsidiary of Textron, TFC or the Purchaser)
is fair to such holders. A copy of the written opinion of the Financial Advisor
is attached to the Company's Solicitation/Recommendation Statement on Schedule
14D-9, which is being distributed to the stockholders of the Company, and
stockholders are urged to read the opinion carefully in its entirety for the
assumptions made, matters considered and limitations on the review undertaken by
the Financial Advisor.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PURSUANT TO THE OFFER PRIOR TO THE EXPIRATION DATE
(AS DEFINED IN SECTION 1) SUCH NUMBER OF SHARES WHICH CONSTITUTES MORE THAN
66 2/3% OF THE SHARES (DETERMINED ON A FULLY DILUTED BASIS) (THE "MINIMUM
CONDITION") AND (II) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING
PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS
AMENDED (THE "HSR ACT") (THE "HSR ACT CONDITION"). SEE SECTIONS 1, 11 AND 15. IF
THE PURCHASER PURCHASES AT LEAST THAT NUMBER OF SHARES NEEDED TO SATISFY THE
MINIMUM CONDITION, IT WILL BE ABLE TO EFFECT THE MERGER WITHOUT THE AFFIRMATIVE
VOTE OF ANY OTHER STOCKHOLDER OF THE COMPANY. SEE SECTION 12.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 22, 1999 (the "Merger Agreement"), by and among TFC, the
Purchaser and the Company. The Merger Agreement provides, among other things,
for the making of the Offer by the Purchaser, and further provides that,
following the completion of the Offer, upon the terms and subject to the
conditions of the Merger Agreement, and in accordance with the Massachusetts
Business Corporation Law (the "MBCL"), the Purchaser will be
1
<PAGE> 4
merged with and into the Company (the "Merger"). Following the Merger, the
Company will continue as the surviving corporation (the "Surviving Corporation")
and become a wholly owned subsidiary of TFC, and the separate corporate
existence of the Purchaser will cease. See Section 11.
At the effective time of the Merger (the "Effective Time"), each Share
issued and outstanding immediately prior to the Effective Time (other than (i)
Shares owned by the Company and Shares owned by TFC, the Purchaser or any other
direct or indirectly wholly-owned subsidiary of TFC or the Purchaser, which
shall be cancelled, and (ii) Shares, if any (collectively, "Dissenting Shares"),
held by stockholders who have properly exercised appraisal rights under Section
89 of the MBCL) will, by virtue of the Merger and without any action on the part
of the holders of the Shares, be cancelled, extinguished and converted into and
become a right to receive $24.50 in cash (the "Merger Consideration"), payable
to the holder thereof, without interest, upon surrender of the certificate
formerly representing such Share, less any required withholding taxes.
The Merger Agreement is more fully described in Section 11. Certain federal
income tax consequences of the sale of the Shares pursuant to the Offer and the
exchange of Shares for the Merger Consideration pursuant to the Merger are
described in Section 5.
The Company has represented to TFC and the Purchaser that as of the close
of business on September 22, 1999, there were 6,984,601 Shares issued and
outstanding and 913,720 Shares reserved for issuance upon exercise of
outstanding options. Based upon the foregoing, the Purchaser believes that
approximately 5,265,548 shares constitutes 66 2/3% of the outstanding Shares on
a fully-diluted basis.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
THE OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), the Purchaser will accept
for payment and pay for all Shares validly tendered on or prior to the
Expiration Date and not properly withdrawn as permitted by Section 4. The term
"Expiration Date" means 12:00 Midnight, New York City time, on Wednesday,
October 27, 1999, unless and until the Purchaser, in its sole discretion (but
subject to the terms and conditions of the Merger Agreement), shall have
extended the period during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by the Purchaser, shall expire.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, SATISFACTION OF THE
MINIMUM CONDITION AND THE HSR ACT CONDITION AND CERTAIN OTHER CONDITIONS. SEE
SECTION 15, WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER. SUBJECT TO THE
PROVISIONS OF THE MERGER AGREEMENT AND THE APPLICABLE RULES AND REGULATIONS OF
THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), THE PURCHASER
RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO WAIVE ANY OR ALL CONDITIONS TO
THE OFFER (OTHER THAN THE MINIMUM CONDITION) AND TO MODIFY THE TERMS OF THE
OFFER. SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT, INCLUDING THE
PROVISIONS OF THE MERGER AGREEMENT DESCRIBED IN THE NEXT TWO PARAGRAPHS, AND THE
APPLICABLE RULES AND REGULATIONS OF THE COMMISSION, IF BY THE EXPIRATION DATE
ANY OR ALL OF SUCH CONDITIONS TO THE OFFER HAVE NOT BEEN SATISFIED, THE
PURCHASER RESERVES THE RIGHT (BUT SHALL NOT BE OBLIGATED) TO (I) TERMINATE THE
OFFER AND RETURN ALL TENDERED SHARES TO TENDERING STOCKHOLDERS, (II) WAIVE SUCH
UNSATISFIED CONDITIONS AND PURCHASE ALL SHARES VALIDLY TENDERED OR (III) EXTEND
THE OFFER AND, SUBJECT TO THE TERMS OF THE OFFER (INCLUDING THE RIGHTS OF
STOCKHOLDERS TO WITHDRAW THEIR SHARES), RETAIN THE SHARES WHICH HAVE BEEN
TENDERED, UNTIL THE TERMINATION OF THE OFFER, AS EXTENDED.
Subject to the applicable rules and regulations of the Commission and the
provisions of the Merger Agreement, the Purchaser expressly reserves the right,
in its sole discretion, at any time and from time to time, and regardless of
whether or not any of the events set forth in Section 15 shall have occurred, to
(i) extend the period of time during which the Offer is open and thereby delay
acceptance for payment of, and the payment
2
<PAGE> 5
for, any Shares, by giving oral or written notice of such extension to the
Depositary or (ii) amend the Offer in any respect by giving oral or written
notice of such amendment to the Depositary. During any such extension, all
Shares previously tendered and not properly withdrawn will remain subject to the
Offer, subject to the right of a tendering stockholder to withdraw such
stockholder's Shares. Under the terms of the Merger Agreement, the Purchaser has
agreed with the Company that it will not, without the prior written consent of
the Company, (i) decrease the price per Share payable in the Offer to below
$24.50, (ii) change the form of consideration to be paid in the Offer, (iii)
reduce the maximum number of Shares to be purchased in the Offer or the Minimum
Condition, (iv) impose conditions to the Offer in addition to the Offer
conditions set forth in Annex A to the Merger Agreement (the "Offer Conditions")
or modify the Offer conditions in a manner adverse to the holders of Shares or
(v) amend any other term of the Offer in a manner adverse to the holders of the
Shares (provided that a waiver by Purchaser of any condition other than the
Minimum Condition shall not be deemed to be adverse to the holders of the
Shares).
Notwithstanding the foregoing, the Purchaser may, without the consent of
the Company, extend the Offer for up to five business days beyond the Expiration
Date if there shall not have been tendered sufficient Shares so that the Merger
could be effected without a meeting of the Company's stockholders in accordance
with Section 82 of the MBCL. The Purchaser shall have no obligation to pay
interest on the purchase price of tendered Shares. The rights reserved by the
Purchaser in this Section 1 are in addition to the Purchaser's rights to
terminate the Offer pursuant to Section 15.
If the Purchaser makes a material change in the terms of the Offer or if it
waives a material condition of the Offer, the Purchaser will disseminate
additional tender offer material and extend the Offer to the extent required by
Rules 14d-4(c), 14d-6(d) and 14e-1 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The minimum period during which an offer must
remain open following material changes in the terms of the Offer, other than a
change in price or a change in the percentage of securities sought, will depend
upon the facts and circumstances, including the materiality, of the changes.
With respect to a change in price or, subject to certain limitations, a change
in the percentage of securities sought, a minimum ten business day period from
the day of such change is generally required to allow for adequate dissemination
to stockholders. For purposes of the Offer, a "business day" means any day other
than a Saturday, Sunday, or a federal holiday and consists of the time period
from 12:01 A.M. through 12:00 Midnight, New York City time.
The Company has provided the Purchaser with the Company's stockholder list
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of Transmittal
and other relevant materials will be mailed by the Purchaser to record holders
of Shares and furnished to brokers, dealers, commercial banks, trust companies
and similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing, for subsequent transmittal to beneficial
owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of any such extension or amendment), the
Purchaser will accept for payment Shares that have been validly tendered and not
properly withdrawn on or prior to the Expiration Date as soon as practicable
after the Expiration Date. In addition, subject to applicable rules of the
Commission, the Purchaser expressly reserves the right to delay acceptance for
payment of or payment for Shares pending receipt of any other regulatory
approvals specified in Section 16. Any such delays will be effected in
compliance with Rule 14e-1(c) under the Exchange Act (relating to a bidder's
obligation to pay for or return tendered securities promptly after the
termination or withdrawal of such bidder's offer).
For information with respect to approvals required to be obtained prior to
the consummation of the Offer, including the HSR Act, see Section 16.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
certificates representing the Shares (the "Share
3
<PAGE> 6
Certificates"), or timely confirmation (a "Book-Entry Confirmation") of a
book-entry transfer of such Shares into the Depositary's account at The
Depositary Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in Section 3, (ii) the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message (as defined below) in connection
with a book-entry transfer, and (iii) any other documents required by the Letter
of Transmittal.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to and received by the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against such participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when the Purchaser gives oral or written notice to the
Depositary of the Purchaser's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from the Purchaser
and transmitting such payments to stockholders whose Shares have been accepted
for payment. Under no circumstances will interest on the purchase price for
Shares be paid by the Purchaser, regardless of any extension of the Offer or any
delay in making such payment. If, for any reason whatsoever, acceptance for
payment of or payment for any Shares tendered pursuant to the Offer is delayed
or the Purchaser is unable to accept for payment or pay for Shares tendered
pursuant to the Offer then, without prejudice to the Purchaser's rights set
forth herein, the Depositary may nevertheless, on behalf of the Purchaser and
subject to Rule 14e-1(c) under the Exchange Act, retain tendered Shares and such
Shares may not be withdrawn except to the extent that the tendering stockholder
is entitled to and duly exercises withdrawal rights as described in Section 4.
If any tendered Shares are not accepted for payment for any reason or if
Share Certificates are submitted for more Shares than are tendered, Share
Certificates evidencing unpurchased or untendered Shares will be returned
without expense to the tendering stockholder (or, in the case of Shares tendered
by book-entry transfer into the Depositary's account at a Book-Entry Transfer
Facility pursuant to the procedures set forth in Section 3, such Shares will be
credited to an account maintained at such Book-Entry Transfer Facility), as
promptly as practicable following the expiration, termination or withdrawal of
the Offer.
If, prior to the Expiration Date, Purchaser increases the consideration to
be paid per Share pursuant to the Offer, Purchaser will pay the increased
consideration for all Shares purchased pursuant to the Offer, whether or not
such Shares were tendered prior to the increase in consideration.
The Purchaser reserves the right to transfer or assign to any direct or
indirect wholly owned subsidiary or subsidiaries of TFC, the right to purchase
all of the Shares tendered pursuant to the Offer, but any such transfer or
assignment will not relieve the Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering stockholders to receive payment
for Shares validly tendered and accepted for payment pursuant to the Offer.
3. PROCEDURE FOR TENDERING SHARES
Valid Tenders. Except as set forth below, in order for Shares to be
validly tendered pursuant to the Offer, either (a) the Letter of Transmittal (or
a facsimile thereof), properly completed and duly executed, together with any
required signature guarantees, or an Agent's Message in connection with a
book-entry delivery of Shares, and any other documents required by the Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase on or prior to the Expiration
Date and either (i) Share Certificates evidencing tendered Shares must be
received by the Depositary at such address or (ii) such Shares must be tendered
pursuant to the procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Depositary, in each case on
4
<PAGE> 7
or prior to the Expiration Date or (b) the guaranteed delivery procedures
described below must be complied with by tendering stockholders.
Book-Entry Transfer. The Depositary will make a request to establish
accounts with respect to the Shares at the Book-Entry Transfer Facility for
purposes of the Offer within two business days after the date of this Offer to
Purchase. Any financial institution that is a participant in the system of the
Book-Entry Transfer Facility may make book-entry delivery of Shares by causing
the Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at such Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. However, although delivery of
Shares may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees, or an
Agent's Message in connection with a book-entry transfer, and any other
documents required by the Letter of Transmittal, must in any case be received by
the Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase on or prior to the Expiration Date, or the tendering stockholder
must comply with the guaranteed delivery procedures described below.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE DEPOSITARY.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF
BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. Signatures on Letters of Transmittal must be
guaranteed by a firm which is a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the Securities
Transfer Agents Medallion Program (each of the foregoing being referred to as an
"Eligible Institution"), except in cases where Shares are tendered (i) by a
registered holder of Shares who has not completed either the box labeled
"Special Payment Instructions" or the box labeled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal.
If the Share Certificates are registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made, or Share
Certificates not accepted for payment or not tendered are to be returned, to a
person other than the registered holder, the Share Certificates must be endorsed
or accompanied by appropriate stock powers, in either case, signed exactly as
the name of the registered holder appears on such certificates, with the
signatures on such certificates or stock powers guaranteed as aforesaid. See
Instructions 1 and 5 of the Letter of Transmittal.
If Share Certificates are forwarded separately to the Depositary, a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) must accompany each such delivery.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates are not immediately
available, or such stockholder cannot deliver the Share Certificates and all
other required documents to reach the Depositary on or prior to the Expiration
Date, or such stockholder cannot complete the procedure for delivery by
book-entry transfer on a timely basis, such Shares may nevertheless be tendered,
provided that all of the following conditions are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the
Purchaser, is received by the Depositary as provided below on or
prior to the Expiration Date; and
(iii) the Share Certificates (or a Book-Entry Confirmation),
representing all tendered Shares in proper form for transfer,
together with the Letter of Transmittal (or a facsimile thereof)
5
<PAGE> 8
properly completed and duly executed, with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and any other documents required by the Letter of
Transmittal are received by the Depositary within three trading days
after the date of execution of such Notice of Guaranteed Delivery. A
trading day is any day on which the Nasdaq National Market is open
for business.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, telex, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution and a representation that the
stockholder owns the Shares tendered within the meaning of, and that the tender
of the Shares effected thereby complies with, Rule 14e-4 under the Exchange Act,
each in the form set forth in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of Share Certificates for, or of Book-Entry
Confirmation with respect to, such Shares, a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof), together with any
required signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message), and any other documents required by the Letter of Transmittal.
Accordingly, payment might not be made to all tendering stockholders at the same
time and will depend upon when Share Certificates or Book-Entry Confirmations
with respect to such Shares are received into the Depositary's account at a
Book-Entry Transfer Facility.
Appointment as Proxy. By executing the Letter of Transmittal, a tendering
stockholder irrevocably appoints designees of the Purchaser and each of them as
such stockholder's attorneys-in-fact and proxies, with full power of
substitution, in the manner set forth in the Letter of Transmittal, to the full
extent of such stockholder's rights with respect to the Shares tendered by such
stockholder and accepted for payment by the Purchaser (and with respect to any
and all other Shares or other securities issued or issuable in respect of such
Shares on or after the date hereof). All such powers of attorney and proxies
shall be considered irrevocable and coupled with an interest in the tendered
Shares. Such appointment will be effective when, and only to the extent that,
the Purchaser accepts such Shares for payment. Upon such acceptance for payment,
all prior powers of attorney and proxies given by such stockholder with respect
to such Shares (and such other Shares, and other securities) will be revoked
without further action, and no subsequent powers of attorney and proxies may be
given nor any subsequent written consents executed (and, if given or executed,
will not be deemed effective). The designees of the Purchaser will, with respect
to the Shares (and such other Shares and other securities) for which such
appointment is effective, be empowered to exercise all voting and other rights
of such stockholder as they in their sole discretion may deem proper at any
annual or special meeting of the Company's stockholders or any adjournment or
postponement thereof, by written consent in lieu of any such meeting or
otherwise. The Purchaser reserves the right to require that, in order for Shares
to be deemed validly tendered, immediately upon the Purchaser's payment for such
Shares, the Purchaser must be able to exercise full voting rights with respect
to such Shares and other securities, including voting at any meeting of
stockholders.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Purchaser in its sole discretion, which
determination shall be final and binding. The Purchaser reserves the absolute
right to reject any and all tenders determined by it not to be in proper form or
the acceptance for payment of which may in the opinion of its counsel be
unlawful. The Purchaser also reserves the absolute right to waive any of the
conditions of the Offer (subject to the provisions of the Merger Agreement) or
any defect or irregularity in any tender of Shares of any particular stockholder
whether or not similar defects or irregularities are waived in the case of other
stockholders. No tender of Shares will be deemed to have been validly made until
all defects and irregularities have been cured or waived. None of the Purchaser,
TFC, any of their affiliates or assigns, the Dealer Manager, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. The Purchaser's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
6
<PAGE> 9
Backup Federal Income Tax Withholding and Substitute Form W-9. Under the
"backup withholding" provisions of federal income tax law, the Depositary may be
required to withhold 31% of the amount of any payments of cash pursuant to the
Offer. In order to avoid backup withholding, each stockholder surrendering
Shares in the Offer must, unless an exemption applies, provide the payor of such
cash with such stockholder's correct taxpayer identification number ("TIN") on a
substitute Form W-9 and certify, under penalties of perjury, that such TIN is
correct and that such stockholder is not subject to backup withholding. If a
stockholder does not provide its correct TIN or fails to provide the
certifications described above, the Internal Revenue Service ("IRS") may impose
a penalty on such stockholder and payment of cash to such stockholder pursuant
to the Offer may be subject to backup withholding of 31%. All stockholders
surrendering Shares pursuant to the Offer should complete and sign the
substitute Form W-9 included in the Letter of Transmittal to provide the
information and certification necessary to avoid backup withholding (unless an
applicable exemption exists and is proved in a manner satisfactory to the
Depositary). Certain stockholders (including, among others, all corporations and
certain foreign individuals and entities) are not subject to backup withholding.
Noncorporate foreign stockholders should complete and sign a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 9 of the
Letter of Transmittal.
Other Requirements. The Purchaser's acceptance for payment of Shares
tendered pursuant to any of the procedures described above will constitute a
binding agreement between the tendering stockholder and the Purchaser upon the
terms and subject to the conditions of the Offer, including the tendering
stockholder's representation and warranty that the stockholder is the holder of
the Shares within the meaning of, and that the tender of the Shares complies
with, Rule 14e-4 under the Exchange Act.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are
irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn
at any time on or prior to the Expiration Date and, unless theretofore accepted
for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any
time after November 27, 1999. If the Purchaser extends the Offer, is delayed in
its acceptance for payment of Shares or is unable to purchase Shares validly
tendered pursuant to the Offer for any reason, then, without prejudice to the
Purchaser's rights under the Offer, the Depositary may nevertheless, on behalf
of the Purchaser, retain tendered Shares and such Shares may not be withdrawn
except to the extent that tendering stockholders are entitled to withdrawal
rights as described in this Section 4. Any such delay in acceptance for payment
will be accompanied by an extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase. Any notice of withdrawal must specify the name of the person who
tendered the Shares to be withdrawn, the number of Shares to be withdrawn and
the name of the registered holder, if different from that of the person who
tendered such Shares. If Share Certificates to be withdrawn have been delivered
or otherwise identified to the Depositary, then prior to the physical release of
such certificates, the serial numbers shown on such certificates must be
submitted to the Depositary and the signatures on the notice of withdrawal must
be guaranteed by an Eligible Institution unless such Shares have been tendered
for the account of an Eligible Institution. If Shares have been tendered
pursuant to the procedure for book-entry transfer as set forth in Section 3, any
notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares, in which
case a notice of withdrawal will be effective if delivered to the Depositary by
any method of delivery described in the first sentence of this paragraph.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. None of the
Purchaser, TFC, any of their affiliates or assigns, the Dealer Manager, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or incur any liability for failure to give any such notification.
7
<PAGE> 10
Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn
will thereafter be deemed not to have been validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered at any time prior to the
Expiration Date by following one of the procedures described in Section 3.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The summary of tax
consequences set forth below is for general information only and is based on the
law as currently in effect. The tax treatment of each stockholder will depend in
part upon such stockholder's particular situation. Special tax consequences not
described herein may be applicable to particular classes of taxpayers, such as
financial institutions, broker-dealers, insurance companies, foreign
corporations, foreign partnerships, foreign trusts, foreign estates, persons who
are not citizens or residents of the United States, tax-exempt entities,
stockholders who acquired their Shares through the exercise of an employee stock
option or otherwise as compensation, and persons who received payments in
respect of options to acquire Shares. All stockholders should consult with their
own tax advisors as to the particular tax consequences of the Offer and the
Merger to them, including the applicability and effect of the alternative
minimum tax and any state, local or foreign income and other tax laws and
changes in such tax laws.
The receipt of cash pursuant to the Offer or the Merger will be a taxable
transaction for Federal income tax purposes under the Internal Revenue Code of
1986, as amended, and may also be a taxable transaction under applicable state,
local, foreign income or other tax laws. Generally, for Federal income tax
purposes, a stockholder will recognize gain or loss in an amount equal to the
difference between the cash received by the stockholder pursuant to the Offer or
the Merger and the stockholder's adjusted tax basis in the Shares tendered by
the stockholder and purchased pursuant to the Offer or the Merger. Gain or loss
will be calculated separately for each block of Shares tendered and purchased
pursuant to the Offer or converted in the Merger, as the case may be. For
Federal income tax purposes, such gain or loss will be a capital gain or loss if
the Shares are a capital asset in the hands of the stockholder, and a long-term
capital gain or loss if the stockholder's holding period is more than one year
as of the date the Purchaser accepts such Shares for payment pursuant to the
Offer or the effective date of the Merger, as the case may be. There are
limitations on the deductibility of capital losses. Capital gains of individuals
derived in respect of capital assets held for more than one year are eligible
for reduced rates of taxation which may vary depending upon the holding period
of such capital assets. Individuals should consult their own tax advisors with
respect to the tax consequences of this transaction.
6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed on the Nasdaq
National Market under the symbol "LTCH". The following table sets forth, for the
calendar quarters indicated, the high and low sales prices per Share on the
Nasdaq National Market as reported in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 (the "1998 Annual Report") with
respect to the fiscal years
8
<PAGE> 11
covered by such Annual Report and the amount of cash dividends paid or declared
per Share for each quarter based on publicly available sources. All share prices
have been adjusted for a 5% stock dividend in 1996.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
---- ---- ---------
<S> <C> <C> <C>
Year Ended December 31, 1999:
Third Quarter (through September 27, 1999)................ $24 1/8 $16 7/8 $ --
Second Quarter............................................ $19 1/4 $15 1/2 $ --
First Quarter............................................. $21 27/32 $14 1/2 $ --
</TABLE>
<TABLE>
<S> <C> <C> <C>
Year Ended December 31, 1998:
Fourth Quarter............................................ $19 5/8 $9 1/4 $0.07
Third Quarter............................................. $22 3/4 $15 $ --
Second Quarter............................................ $24 $18 1/4 $ --
First Quarter............................................. $24 $17 1/2 $ --
</TABLE>
<TABLE>
<S> <C> <C> <C>
Year Ended December 31, 1997:
Fourth Quarter............................................ $21 1/2 $16 1/2 $0.06
Third Quarter............................................. $21 3/4 $16 3/8 $ --
Second Quarter............................................ $17 $13 7/8 $ --
First Quarter............................................. $16 3/4 $14 $ --
</TABLE>
On August 23, 1999, one month prior to announcement of the Offer, the
closing sale price per Share of Company Common Stock reported on the Nasdaq
National Market was $19. On September 22, 1999, the last full trading day prior
to announcement of the Offer, the closing sale price per Share of Company Common
Stock reported on the Nasdaq National Market was $17 3/4. Stockholders are urged
to obtain a current market quotation for the Shares.
Pursuant to the Merger Agreement, the Company, among other things, has
agreed that it will not declare or pay dividends on, or make other distributions
in respect of, the Shares.
7. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning
the Company in this Section 7 and elsewhere in this Offer to Purchase has been
furnished by the Company or has been taken from or based upon the 1998 Annual
Report and other publicly available documents and records on file with the
Commission and other public sources. Although the Purchaser does not have any
knowledge that would indicate that any information concerning the Company
contained in such documents and records is untrue, neither TFC nor the Purchaser
assumes any responsibility for the accuracy or completeness of the information
contained therein, or for any failure by the Company to disclose events that may
have occurred and may affect the significance or accuracy of any information
concerning the Company, but which are unknown to TFC and the Purchaser.
General. The Company was incorporated in Massachusetts on November 18,
1988. The Company's principal executive offices are located at 430 Main Street,
Williamstown, Massachusetts 01267, and its telephone number is (413) 458-1000.
As of September 22, 1999, the Company had approximately 140 employees.
The Company is a diversified finance company that provides financing to
creditworthy borrowers for assets not typically financed by banks. The Company
provides such financing by purchasing consumer loans and by making loans to
businesses secured by consumer receivables or other assets. The Company
purchases consumer loans consisting primarily of loans to purchasers of rural
and vacation properties and vacation ownership interests (popularly known as
timeshare interests). The Company also provides financing, secured by
receivables, to rural land dealers, timeshare resort developers and other
finance companies and to dealers and developers for the acquisition and
development of rural land and timeshare resorts. In addition, the Company
purchases other loans, such as consumer home equity loans, mortgages and
construction loans and tax lien certificates, and provides financing to other
businesses secured by receivables or other assets.
9
<PAGE> 12
Financial Information. Set forth below are certain selected consolidated
financial data which were derived from the Company's 1998 Annual Report and
quarterly report on Form 10-Q for the fiscal quarter ended June 30, 1999. More
comprehensive financial information is included in the reports (including
management's discussion and analysis of financial condition and results of
operations) and other documents filed by the Company with the Commission, and
the following financial data are qualified in their entirety by reference to
such reports and other documents including the financial information and related
notes contained therein. Such reports and other documents may be examined and
copies thereof may be obtained from the offices of the Commission and Nasdaq in
the manner set forth below.
10
<PAGE> 13
LITCHFIELD FINANCIAL CORPORATION
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ -------------------------
1998 1997 1996 1999 1998
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA (1):
Revenues:
Interest and fees on loans....... $ 25,736 19,374 $ 14,789 $ 16,364 $ 11,288
Gain on sale of loans............ 10,691 8,564 7,331 6,879 5,679
Servicing and other income....... 2,379 1,753 1,576 1,104 959
---------- ---------- ---------- ---------- ----------
Total revenues......... 38,806 29,691 23,696 24,347 17,926
---------- ---------- ---------- ---------- ----------
Expenses:
Interest expense............... 14,265 10,675 7,197 9,352 6,692
Salaries and employee
benefits.................... 4,806 3,399 2,824 2,704 2,280
Other operating expenses....... 3,834 3,480 3,147 2,039 1,869
Provision for loan losses...... 1,532 1,400 1,954 1,000 810
---------- ---------- ---------- ---------- ----------
Total expenses......... 24,437 18,954 15,122 15,095 11,651
---------- ---------- ---------- ---------- ----------
Income before income taxes and
distributions on
preferred securities........... 14,369 10,737 8,574 9,252 6,275
Provision for income taxes....... 5,537 4,134 3,301 3,562 2,416
Distributions on preferred
securities, net................ -- -- -- 205 --
---------- ---------- ---------- ---------- ----------
Income before extraordinary
item........................... 8,832 6,603 5,273 5,485 3,859
Extraordinary item (2)........... (77) (220) -- -- --
---------- ---------- ---------- ---------- ----------
Net income.................. $ 8,755 $ 6,383 $ 5,273 $ 5,485 $ 3,859
========== ========== ========== ========== ==========
Basic per common share amounts:
Income before extraordinary
item........................... $ 1.41 $ 1.19 $ .97 $ .80 $ .68
Extraordinary item............. (.01) (.04) -- -- --
---------- ---------- ---------- ---------- ----------
Net income per share........... $ 1.40 $ 1.15 $ 97 $ .80 $ .68
========== ========== ========== ========== ==========
Basic weighted average number of
shares outstanding............. 6,273,638 5,572,465 5,441,636 6,897,411 5,706,887
Diluted per common share amounts:
Income before extraordinary
item........................ $ 1.34 $ 1.12 $ .93 $ .76 $ .64
========== ========== ========== ========== ==========
Extraordinary item............. (.01) (.04) -- -- --
---------- ---------- ---------- ---------- ----------
Net income per share........... $ 1.33 $ 1.08 $ .93 $ .76 $ .64
========== ========== ========== ========== ==========
Diluted weighted average number
of shares outstanding.......... 6,604,367 5,909,432 5,682,152 7,189,488 6,069,164
Cash dividends declared per
Common share................... $ .07 $ .06 $ .05 $ -- $ --
OTHER STATEMENT OF INCOME DATA:
Income before extraordinary item
as a percentage of revenues.... 22.8% 22.2% 22.3% 22.5% 21.5%
Ratio of EBITDA to interest
expense (3).................... 2.13 2.17 2.38 2.10 2.13
Ratio of earnings to fixed
charges (4).................... 2.01 2.01 2.19 2.02 1.94
Return on average assets (5)..... 3.7% 3.8% 4.0% 3.4% 3.6%
Return on average equity (5)..... 13.2% 14.1% 13.3% 12.9% 13.8%
</TABLE>
11
<PAGE> 14
LITCHFIELD FINANCIAL CORPORATION
SUMMARY CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ JUNE 30,
1998 1997 1996 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total assets........................................ $293,882 $186,790 $152,689 $340,589
Loans held for sale (6)............................. 19,750 16,366 12,260 13,351
Other loans (6)..................................... 191,292 86,307 79,996 219,944
Retained interests in loan sales (6)................ 28,883 30,299 28,912 32,603
Secured debt........................................ 49,021 5,387 43,727 62,012
Unsecured debt...................................... 134,588 105,347 46,995 133,897
Stockholders' equity................................ 82,094 52,071 42,448 91,288
</TABLE>
- ---------------
(1) Certain amounts in the 1996 financial information have been restated to
conform to the 1997 through 1999 presentation.
(2) Reflects loss on early extinguishment of a portion of the 1992 Notes net of
applicable tax benefit of $138,000, for 1997, and of the term note payable,
net applicable tax benefit of $48,000, for 1998.
(3) The ratio of EBITDA to interest expense is required to be calculated for the
twelve month period immediately preceding each calculation date, pursuant to
the terms of the indentures to which the Company is subject. EBITDA is
defined as earnings before deduction of taxes, depreciation, amortization of
debt costs, and interest expense (but after deduction for any extraordinary
item).
(4) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items and fixed
charges. Fixed charges consist of interest charges and the amortization of
debt expense.
(5) Calculations are based on income before extraordinary item.
(6) Amount indicated is net of allowance for losses and recourse obligation on
retained interests in loan sales.
12
<PAGE> 15
The Shares are registered under the Exchange Act. Accordingly, the Company
is subject to the informational filing requirements of the Exchange Act and in
accordance therewith is obligated to file periodic reports, proxy statements and
other information with the Commission relating to its business, financial
condition and other matters. Information as of particular dates concerning the
Company's directors and officers, their remuneration, options granted to them,
the principal holders of the Company's securities and any material interest of
such persons in transactions with the Company is required to be disclosed in
such proxy statements and distributed to the Company's stockholders and filed
with the Commission. Such reports, proxy statements and other information should
be available for inspection at the public reference facilities of the Commission
located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should also be available for inspection and copying at prescribed rates at the
regional offices of the Commission located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. Such reports, proxy statements and other
information may also be obtained at the Web site that the Commission maintains
at http://www.sec.gov. Copies of this material may also be obtained by mail,
upon payment of the Commission's customary fees, from the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, such
material should also be available for inspection at the library of the Nasdaq
Stock Market, 1735 K Street, N.W., Washington, D.C. 20006. Except as otherwise
noted in this Offer to Purchase, all of the information with respect to the
Company set forth in this Offer to Purchase has been derived from publicly
available information.
Certain Projections. To the knowledge of TFC and the Purchaser, the
Company does not as a matter of course make public forecasts as to its future
operating performance. However, in connection with TFC's and the Purchaser's
business investigation of the Company and during the course of negotiations
between TFC and the Purchaser, the Company and their respective advisors
described in Section 10 of this Offer to Purchase, the Company provided TFC and
the Purchaser with certain projections of future loan originations by the
Company which TFC and the Purchaser believe are not publicly available. Neither
TFC nor the Purchaser has verified the accuracy of such projections. Such
projections covered the period through the fiscal year ending December 31, 2001
(the Company has not provided TFC or Purchaser with projections for periods
following such date) and, contained the following information regarding the
Company's future loan originations:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
---------------------------------
1999 2000 2001
--------- --------- ---------
(IN THOUSANDS OF DOLLARS)
(PROJECTED)
<S> <C> <C> <C>
Loan Originations..................................... $481,569 $700,000 $954,935
</TABLE>
It is the understanding of TFC and the Purchaser that the projections were
not prepared with a view to public disclosure or compliance with published
guidelines of the Commission or the guidelines of the American Institute of
Certified Public Accountants regarding projections or forecasts. The foregoing
summary of the projections is included herein only because such information was
provided to TFC and the Purchaser as described above.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
PROJECTIONS. THE COMPANY HAS ADVISED TFC AND THE PURCHASER THAT ITS INTERNAL
FINANCIAL FORECASTS (UPON WHICH THE PROJECTIONS PROVIDED TO TFC AND THE
PURCHASER WERE BASED) ARE, IN GENERAL, PREPARED SOLELY FOR INTERNAL USE AND
CAPITAL BUDGETING PURPOSES AND OTHER MANAGEMENT DECISIONS, AND ARE SUBJECTIVE IN
MANY RESPECTS AND THUS SUSCEPTIBLE TO INTERPRETATIONS AND PERIODIC REVISION
BASED ON ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENTS. THE PROJECTIONS ALSO
REFLECT NUMEROUS ASSUMPTIONS (NOT ALL OF WHICH WERE PROVIDED TO TFC OR THE
PURCHASER), ALL MADE BY MANAGEMENT OF THE COMPANY, WITH RESPECT TO INDUSTRY
PERFORMANCE, GENERAL BUSINESS, ECONOMIC, MARKET AND FINANCIAL CONDITIONS AND
13
<PAGE> 16
OTHER MATTERS, ALL OF WHICH ARE DIFFICULT TO PREDICT, MANY OF WHICH ARE BEYOND
THE COMPANY'S CONTROL AND NONE OF WHICH WAS SUBJECT TO APPROVAL BY EITHER TFC OR
THE PURCHASER. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE ASSUMPTIONS MADE
IN PREPARING THE PROJECTIONS WILL PROVE ACCURATE, AND ACTUAL RESULTS MAY BE
MATERIALLY GREATER OR LESS THAN THOSE CONTAINED IN THE PROJECTIONS. THE
INCLUSION OF THE FOREGOING SUMMARY OF THE PROJECTIONS IN THIS OFFER TO PURCHASE
SHOULD NOT BE REGARDED AS AN INDICATION THAT ANY OF TFC, THE PURCHASER, THE
COMPANY OR ANY OF THEIR RESPECTIVE REPRESENTATIVES CONSIDERED OR CONSIDER THE
PROJECTIONS TO BE A RELIABLE PREDICTION OF FUTURE EVENTS, AND THE PROJECTIONS
SHOULD NOT BE RELIED UPON AS SUCH. NONE OF TFC, THE PURCHASER, THE COMPANY OR
ANY OF THEIR REPRESENTATIVES ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY,
REASONABLENESS, ACCURACY OR COMPLETENESS OF THE PROJECTIONS. NONE OF TFC, THE
PURCHASER, THE COMPANY OR ANY OF THEIR REPRESENTATIVES HAS MADE, OR MAKES, ANY
REPRESENTATION TO ANY PERSON REGARDING THE INFORMATION CONTAINED IN THE
PROJECTIONS AND NONE OF THEM INTENDS TO UPDATE OR OTHERWISE REVISE THE
PROJECTIONS TO REFLECT CIRCUMSTANCES ARISING AFTER THE DATE WHEN MADE OR TO
REFLECT THE OCCURRENCE OF FUTURE EVENTS EVEN IN THE EVENT THAT ANY OR ALL OF THE
ASSUMPTIONS UNDERLYING THE PROJECTIONS ARE SHOWN TO BE IN ERROR.
14
<PAGE> 17
8. CERTAIN INFORMATION CONCERNING THE PURCHASER, TFC AND TEXTRON.
The Purchaser. The Purchaser is a newly formed Massachusetts corporation
organized at the direction of TFC in connection with the Offer and the Merger.
The address of the Purchaser is the same as the address of TFC.
TFC. TFC was incorporated on February 5, 1962, in the State of Delaware.
TFC is a diversified commercial finance company with active operations in three
segments: term loans and leases, revolving credit, and specialty finance. TFC's
term lending and leasing activity is focused in general aviation aircraft,
equipment and golf course facilities. Revolving credit products consist
primarily of dealer inventory finance, factoring, and working capital loans.
Specialty finance operations include broadcast media finance, franchise finance,
resort receivables, and structured investment grade transactions. TFC's other
financial services and products include transaction syndication, equipment
appraisal and management, portfolio servicing and insurance brokerage.
Since TFC's inception, all of its stock has been owned by Textron. TFC was
organized to finance the distribution of Textron products, but the scope of the
financial services offered by TFC has become progressively more diversified. As
of June 30, 1999, 26% of TFC's managed finance receivables were related to
Textron products. TFC has full recourse to Textron on approximately
three-quarters of managed Textron-related receivables.
TFC's financing activities are confined almost exclusively to commercial
markets and to lease and secured lending products. TFC's services are offered
primarily in North America and, to a minor extent, in South America, Europe and
Australia. TFC has approximately 26 offices nationwide, with division offices
and operation centers in East Hartford, CT, Atlanta, GA, Portland, OR, Columbus,
OH, King of Prussia, PA, Wichita, KS, Minneapolis, MN, Providence, RI and Ft.
Worth, TX. TFC's principal executive offices are located at 40 Westminster
Street, Providence, RI 02903.
The results of TFC's operations and balance sheet data for each of the
years in the three-year period ended January 2, 1999, and as of January 2, 1999,
January 3, 1998, and December 28, 1996, respectively, were derived from the
audited Consolidated Financial Statements of TFC, and the notes thereto, which
are set forth in full in Annex I to this Offer to Purchase. The data presented
below should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations set forth in Annex I of this Offer
to Purchase.
<TABLE>
<CAPTION>
SIX MONTHS ENDED AT OR FOR THE YEARS ENDED(1)
----------------------------- ------------------------------------
($ IN THOUSANDS) JUNE 30, 1999 JUNE 30, 1998 1998 1997 1996
---------------- ------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Finance charges and discounts.............. $ 168,739 $ 146,694 $ 297,091 $ 290,943 $ 281,830
Rental revenues on operating leases........ 8,136 8,645 17,181 18,664 19,071
Other income............................... 22,663 20,921 52,890 40,613 26,346
Net income................................. 34,417 31,622 69,576 67,741 58,339
BALANCE SHEET DATA
Total finance receivables.................. $3,988,590 $3,256,738 $3,611,397 $3,069,123 $3,172,824
Reserve for losses......................... 85,687 78,676 83,887 77,394 74,824
Operating lease equipment, net............. 111,602 122,874 118,590 111,518 127,691
Total assets...................... 4,165,020 3,395,195 3,784,538 3,177,965 3,269,141
Commercial paper & short-term debt......... 1,233,693 1,110,641 1,424,872 1,073,665 1,014,613
Long-term senior notes..................... 1,917,486 1,354,931 1,403,958 1,290,903 1,426,783
Deferred income taxes...................... 330,118 307,744 321,521 319,293 315,366
Shareholders equity........................ 496,469 439,598 472,452 405,876 411,715
External debt to shareholder's equity...... 6.35x 5.61x 5.99x 5.83x 5.93x
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
SIX MONTHS ENDED AT OR FOR THE YEARS ENDED(1)
----------------------------- ------------------------------------
($ IN THOUSANDS) JUNE 30, 1999 JUNE 30, 1998 1998 1997 1996
---------------- ------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SELECTED DATA AND RATIOS
PROFITABILITY
Net interest margins as a percentage of
average net investment (2)............... 6.30% 6.62% 6.88% 6.51% 6.15%
Return on equity........................... 14.3% 15.0% 16.2% 16.8% 14.8%
Return on average assets(3)................ 1.73% 1.91% 2.06% 2.07% 1.84%
Ratio of earnings to fixed charges......... 1.65x 1.67x 1.72x 1.70x 1.65x
Salaries and administrative expenses as a
percentage of average
managed receivables(4)................... 1.78% 1.71% 1.73% 1.54% 1.46%
CREDIT QAULITY
60+ days contractual delinquency as a
percentage of finance receivables(5)..... 1.26% 0.93% 0.87% 0.86% 0.75%
Nonperforming assets as a% of finance
assets................................... 1.74% 2.73% 2.3% 3.1% 3.6%
Reserves for losses as a percentage of
finance receivables...................... 2.2% 2.4% 2.3% 2.5% 2.4%
</TABLE>
- ---------------
(1) TFC's year-end dates conform with Textron's year-end which falls on the
nearest Saturday to December 31st. All interim periods are calendar month
end.
(2) Represents revenues earned less interest expense on borrowings as a
percentage of average finance assets. Average finance assets include finance
receivables plus operating leases.
(3) Average assets include finance receivables less allowance for loan loss,
operating leases and other assets. Investments in leveraged leases are not
net of deferred taxes.
(4) Average managed receivables include owned receivables plus receivables
serviced under securitizations, participations and third party portfolio
servicing agreements.
(5) Delinquency excludes captive receivables with recourse to Textron. Captive
receivables represent third party finance receivables originated in
connection with the sale or lease of Textron manufactured products.
Textron. Textron is a global multi-industry company with operations in
four business segments -- Aircraft, Automotive, Industrial and Finance. Textron
consists of two borrowing groups, Textron Finance and Textron Manufacturing.
Textron Finance consists of TFC, consolidated with its subsidiaries, which are
the entities through which Textron operates in the finance segment. Textron
Manufacturing is Textron Inc., the parent company, consolidated with the
entities through which Textron operates in the Aircraft, Automotive and
Industrial business segments. Textron's principal executive offices are located
at 40 Westminster Street, Providence, R.I. 02903. The telephone number of
Textron at such offices is (401) 421-2800.
Textron is subject to the informational filing requirements of the Exchange
Act and in accordance therewith is obligated to file periodic reports and other
information with the Commission relating to its business, financial condition
and other matters. Such reports and other information should be available for
inspection at the public reference facilities of the Commission located in
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also
be available for inspection and copying at prescribed rates at the regional
offices of the Commission located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300,
New York, New York 10048. Such reports and other information may also be
obtained at the Web site that the Commission maintains at http://www.sec.gov.
Copies of this material may also be obtained by mail, upon payment of the
Commission's customary fees, from the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549.
The name, citizenship, business address, present principal occupation or
employment and five-year employment history of each of the directors and
executive officers of the Purchaser, TFC and Textron are set forth on Schedule I
hereto.
None of the Purchaser, TFC, Textron nor, to the best knowledge of
Purchaser, TFC and Textron, any of the persons listed on Schedule I hereto or
any associate or majority-owned subsidiary of the Purchaser, TFC, Textron or any
of the persons so listed, beneficially owns or has a right to acquire directly
or indirectly any
16
<PAGE> 19
Shares, and none of the Purchaser, TFC, Textron nor, to the best knowledge of
the Purchaser, TFC and Textron, any of the entities referred to above, or any of
the respective executive officers, directors or subsidiaries of any of the
foregoing, has effected any transactions in the Shares during the past 60 days,
other than as set forth in Section 11.
Except as set forth in this Offer to Purchase, since January 1, 1996 there
have been no (i) transactions or series of similar transactions between any of
Textron, TFC, the Purchaser or, to the best knowledge of Textron, TFC and the
Purchaser, any of the persons listed in Schedule I hereto, on the one hand, and
the Company or any of its affiliates which are corporations or executive
officers, directors or affiliates of the Company which are not corporations, on
the other hand, involving an aggregate amount exceeding $40,000 or (ii)
contacts, negotiations or transactions between any of Textron, TFC, the
Purchaser or, to the best knowledge of Textron, TFC and the Purchaser, any of
the persons listed in Schedule I hereto, on the one hand, and the Company or its
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, a tender offer or other acquisition of securities, an election of
directors, or a sale or other transfer of a material amount of assets, in each
case other than as described in Section 11.
9. SOURCE AND AMOUNT OF FUNDS.
The total amount of funds required by the Purchaser to purchase all of the
outstanding Shares and pay related fees and expenses is expected to be
approximately $188 million. The Purchaser will obtain such funds through capital
contributions by TFC. TFC anticipates funding the capital contributions through
one or more of a combination of cash on hand, internally generated funds and
commercial paper.
It is anticipated that any indebtedness incurred by TFC in connection with
the Offer and the Merger will be repaid from funds generated internally by TFC
and its subsidiaries (including, after the Merger, if consummated, funds
generated by the surviving corporation and its subsidiaries), bank refinancing
or other sources. No final decisions have been made, however, concerning the
method TFC will employ to repay any such indebtedness. Such decisions, when
made, will be based on TFC's review from time to time of the advisability of
particular actions, as well as on prevailing interest rates and financial and
other economic conditions.
10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY.
In 1997, TFC and the Company had discussions regarding a business
combination. The parties determined not to pursue a transaction at such time.
In the summer of 1998, the Company was approached by an investment banker
to consider an acquisition proposal from a commercial bank. After some
discussions with the inquiring bank, the Company retained CIBC World Markets
Corp. ("CIBC World Markets") in July 1998 to serve as a financial advisor in
that proposed transaction. After a series of meetings with the inquiring bank,
it was concluded that the bank could not provide a form and level of
consideration acceptable to the Company. Due to the downturn in the capital
markets in the fall of 1998, the Company told its advisors that it would not
entertain any additional proposals.
In the spring of 1999, while the Company was developing its five-year
business plan, it decided to ask CIBC World Markets to assist in evaluating
means to fund its operations. The Company was exploring (i) the formation or
acquisition of an industrial loan corporation, a bank or unitary thrift; (ii) a
combination with a like-size specialty financial services company; (iii) a
strategic investment by a financial investor who would provide funding in
exchange for a minority interest in the Company; and (iv) the potential sale of
the Company.
An Offering Memorandum describing the Company was prepared in June of 1999.
CIBC World Markets approached eighty-three (83) large and mid-cap financial
services companies and financial investors in June and July of 1999. Of the
parties contacted by CIBC World Markets, forty-six (46) received a
Confidentiality Agreement, thirty-five (35) signed a Confidentiality Agreement
and thirty-four (34) subsequently received information on the Company. TFC was
not one of the parties to receive such information.
17
<PAGE> 20
In May of 1999, TFC began separately studying the possibility of a
strategic transaction with the Company. On June 30, 1999, Mr. David Wisen and
Mr. Richard Mitterling, officers of TFC, spoke on the telephone with Mr. Richard
Stratton, President and CEO of the Company, regarding an interest in exploring a
possible business combination with, or acquisition of, the Company.
On July 6, 1999, Messrs. Wisen, Mitterling and Stratton met in Hartford,
CT, to follow up their earlier telephonic discussions on the possibility of a
business combination.
On July 20, 1999, TFC executed a Confidentiality Agreement with CIBC World
Markets, as agent for the Company.
On July 22, 1999 Heather Sica and Ronald Rabidou met with representatives
of TFC in Hartford, CT to discuss the possibility of a business combination.
During the week of July 26, 1999 CIBC World Markets asked interested
parties to submit written preliminary non-binding indications of interest.
On August 10, 1999, the Company received a letter from TFC expressing TFC's
interest in acquiring 100% of the Common Stock of the Company for $24 per share
in cash, or alternatively, some other amount of non-cash form of consideration.
On August 18, 1999, Richard Stratton and Joseph Weingarten met with
representatives of TFC in Providence, RI, to further discuss the possibility of
a business combination.
On August 19, 1999, the Company's Board of Directors had discussions with
representatives of CIBC World Markets, who detailed the efforts of CIBC World
Markets since the spring of 1999 in exploring potential third-party transactions
on behalf of the Company. The CIBC World Markets representatives advised the
Board that it was their belief that the dissemination of information to
interested parties, along with CIBC World Markets' subsequent negotiations with
several of the recipients of that information, constituted a sufficient market
check to determine whether the approximate valuation that TFC placed on the
Company represented fair value to the stockholders of the Company, and that on
the basis of those efforts they felt it was unlikely that a third party would
offer more than the price offered by TFC. Following a discussion among the
members of the Board of Directors with respect to the proposed transaction and
its timing, impact on employees and relation to the market in general, the Board
authorized the Company to enter into a letter of understanding with TFC (the
"Letter of Understanding") providing for the conduct of a due diligence review
by TFC and the concurrent negotiation of an acquisition agreement relating to a
potential acquisition of the Company by TFC, and all the relevant terms of such
an acquisition, including price, and further providing that, in consideration of
the mutual efforts being expended in connection therewith, for the Company to
agree to not solicit other indications of interest for a period beginning with
the acceptance by TFC of the Letter of Understanding and ending on September 8,
1999; providing, however, that if Textron's Executive Leadership Team determined
to recommend the transaction to Textron's Board of Directors, the
non-solicitation period would extend to September 23, 1999.
On August 20, 1999, TFC executed the Letter of Understanding submitted by
the Company. On September 7, 1999, TFC informed the Company that Textron's
Executive Leadership Team had voted to recommend the proposed transaction to
Textron's Board of Directors, thus extending the non-solicitation period to
September 23, 1999 pursuant to the terms of the Letter of Understanding.
During the two weeks following August 20, 1999, representatives of TFC and
the Company negotiated the various aspects of the proposed offer. As a result of
these negotiations, TFC's offer was presented as a cash tender offer for all of
the outstanding shares of the Company's Common Stock, followed by a merger of
the Purchaser with and into the Company. Pursuant to the MBCL, such a merger
would be subject to the approval of two-thirds in interest of the holders of the
Shares, or, if TFC was able to obtain at least 90% of the outstanding Shares,
the approval of the Company's Board of Directors. TFC also completed its due
diligence review of the Company, thereby obviating the need to include a due
diligence condition in the Merger Agreement.
On September 9, 1999, counsel for TFC presented a proposed form of merger
agreement to the Company and its representatives, who distributed it among the
members of the Board of Directors and discussed it with them.
18
<PAGE> 21
On September 15, 1999, the Board of Directors met with its financial and
legal advisors to consider the proposed transaction. At this meeting, the
Company's advisors and members of senior management reported on the progress of
the proposed transaction, including the status of TFC's due diligence review,
the discussions management had conducted with TFC regarding the conduct of the
business following the consummation of the proposed transaction, the impact of
the proposed transaction on the Company's employees, and the possible roles for
members of current management following the proposed transaction. The Company's
legal advisor then outlined the material provisions of the draft Merger
Agreement from TFC, copies of which had been previously circulated to the
members of the Board. The representatives from CIBC World Markets explained the
approach CIBC World Markets would take over the upcoming week in order to assess
the fairness, from a financial point of view, of the proposed transaction. A
discussion followed among the members of the Board of Directors with respect to
the proposed transaction and its timing, impact on employees, and relation to
the market in general. In particular, they noted that the terms of the Merger
Agreement permitted the Board of Directors, if required in the exercise of the
Board's fiduciary duties, to withdraw its recommendation of the Merger and to
accept an acquisition proposal which is more favorable to the stockholders of
the Company upon payment of a break up fee and expense reimbursement.
The parties further negotiated the terms of the proposed Merger Agreement
during the following seven days. During this period, the Company continued to
conduct price negotiations with TFC. In addition, TFC negotiated the terms of an
employment agreement with Richard A. Stratton, President and Chief Executive
Officer of the Company, covering the period following the Merger, with the
understanding that such employment agreement would be signed contemporaneously
with the Merger Agreement.
On September 22, 1999, the Board of Directors of the Company met to discuss
the status of the offer from TFC. The Directors discussed at length the changes
which had been made to the offer, including the final offering price of $24.50
per share. CIBC World Markets also delivered to the Directors its oral opinion
that the consideration offered by TFC was fair to the Stockholders of the
Company from a financial point of view. At approximately 4:45 p.m., by unanimous
vote of all of the Directors present, the Board determined the Merger to be fair
and in the bests interests of the Company and its stockholders, approved the
Merger Agreement and the transactions contemplated thereby, including the
Merger, and recommended that the stockholders vote in favor of approval and
adoption of the Merger Agreement and the transactions contemplated thereby. The
Company and TFC issued a joint press release to such effect prior to the opening
of the market on the following day. The Board of Directors also considered
whether it was appropriate to approve a severance agreement for Joseph
Weingarten. After careful consideration, the Board of Directors determined that
it was in the best interest of the Stockholders to insure that all members of
senior management be given appropriate assurances that they would receive
severance benefits in the event that their employments were terminated following
an acquisition by TFC. Accordingly, the Board of Directors authorized the
execution of the severance agreement with Mr. Weingarten pursuant to which he
will be entitled to receive the same severance benefits as all other members of
the Company's senior management.
The Board of Directors, by unanimous vote of all of the Directors present,
approved the Merger Agreement and the transactions contemplated thereby and
determined that each of the Offer and the Merger is fair to, and in the best
interest of, the stockholders of the Company. The Board of Directors recommends
that all stockholders tender their Shares in response to the Offer and vote for
Shares in favor of the Merger.
In approving the Merger Agreement and the transactions contemplated
thereunder, and recommending that all stockholders tender their Shares in
response to the Offer and vote for Shares in favor of the Merger Agreement, the
Board of Directors considered the following material factors:
The Board of Directors and the Company's senior management have reviewed
the Company's strategic position in the specialty finance industry, the near and
longer term prospects for that industry, the consolidation trends within that
industry and the strategic alternatives available to the Company, all with a
view to maximizing stockholder value. In conducting its review, the Board of
Directors considered the Company's results of operations for the quarter ended
June 30, 1999, and for the six months then ended. The Board of Directors also
considered the recent trading prices of the Company's Common Stock. In light of
the Board's review of the Company's competitive position, recent operating
results and stock price, anticipated trends in the industry in which the Company
competes, and the price per Share being offered by TFC, the
19
<PAGE> 22
Board of Directors determined that it would be in the best interest of the
Company's stockholders to approve the Merger Agreement. In approving the Merger
Agreement and the transactions contemplated thereby and recommending that all
holders of Shares of the Company's Common Stock tender their Shares pursuant to
the Offer, the Board of Directors considered the following material factors:
(i) the terms of the Merger Agreement, and the fact that they were the
product of arm's length negotiations among the parties;
(ii) the trading price of shares of the Company's Common Stock since
its initial public offering, recent trends and the expected trading prices
for the foreseeable future;
(iii) the Company's projected financial performance, competitive
position and current trends in the specialty finance industry;
(iv) the results of the Company's discussions during 1998 and 1999,
and the results of the process undertaken by the Company in 1998 and 1999,
with respect to a potential sale of the Company, and the low likelihood
that a third party would propose a cash price higher than TFC's $24.50 per
share;
(v) the fact that TFC's offer was not subject to a financing
contingency or a contingency linked to the condition of the securities or
financial markets generally, but rather was subject only to the usual and
customary conditions;
(vi) views expressed by senior management at the meetings of the Board
of Directors held on August 19, 1999, September 15, 1999 and September 22,
1999 with respect to the results of operations of the Company;
(vii) the financial presentation of CIBC World Markets to the Board in
connection with the Offer and Merger, including its written opinion dated
September 22, 1999, to the effect that, as of such date and based upon and
subject to certain matters stated in its opinion, the $24.50 per Share cash
consideration to be received in the Offer and Merger by holders (other than
TFC and its affiliates) of Shares pursuant to the Merger Agreement was
fair, from a financial point of view, to such holders;
(viii) the fact that the terms of the Merger Agreement allow the Board
of Directors, if required by the Board's fiduciary duties, to withdraw its
recommendation of the Merger to accept an acquisition proposal which is
more favorable to the stockholders upon payment of a reasonable breakup fee
and reimbursement of expenses;
(ix) the fact that an affirmative vote of two-thirds of the
outstanding shares of the Company is required to approve and adopt the
Merger Agreement; and
(x) the availability of the dissenters' rights of appraisal in the
Merger.
The Board of Directors did not assign relative weight to the above factors
or determine that any factor was of particular importance. Rather, the Board of
Directors viewed its position and recommendations as being based on the totality
of the information presented to and considered by it.
On September 22, 1999, the Boards of Directors of TFC and Textron approved
the Merger Agreement and the transactions contemplated thereby.
11. THE MERGER AGREEMENT.
The following is a summary of the Merger Agreement, which summary is
qualified in its entirety by reference to the copy thereof filed as an exhibit
to the Tender Offer Statement on Schedule 14D-1.
The Offer. The Merger Agreement provides that no later than five business
days from and including the date of initial public announcement of the Merger
Agreement the Purchaser will commence the Offer. The parties to the Merger
Agreement have agreed in the Merger Agreement that the obligations of the
Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer will be subject only to the satisfaction or waiver of the conditions
described in Section 15 hereof, including the Minimum Condition. Under the
Merger Agreement, the Purchaser expressly reserves the right, in its sole
discretion, to waive any such condition (other than the Minimum Condition),
provided, that, without the prior written consent of the Company, the Purchaser
will not (i) decrease the amount to be paid per share in the Offer to below
$24.50,
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(ii) change the form of consideration to be paid in the Offer, (iii) reduce the
maximum number of Shares to be purchased in the Offer or the Minimum Condition,
(iv) impose conditions to the Offer in addition to the Offer conditions set
forth in Annex A to the Merger Agreement (the "Offer Conditions") or (v) amend
any other term of the Offer in a manner which, in the Company's reasonable
judgment, is adverse to the holders of the Shares or the Company (provided that
a waiver by Purchaser of any condition other than the Minimum Condition shall
not be deemed to be adverse to the holders of the Shares).
Notwithstanding the foregoing, Purchaser may, without the consent of the
Company, extend the Offer for an aggregate period of up to five business days
beyond the Expiration Date if there shall not have been tendered sufficient
Shares so that the Merger could be effected without a meeting of the Company's
stockholders in accordance with Section 82 of the MBCL. The Purchaser shall have
no obligation to pay interest on the purchase price of tendered Shares. The
rights reserved by the Purchaser in this Section 11 are in addition to the
Purchaser's rights to terminate the Offer pursuant to Section 15.
Company Board Representation. The Merger Agreement provides that, promptly
upon purchase by the Purchaser of Shares pursuant to the Offer, and from time to
time thereafter, the Purchaser shall be entitled to designate up to such number
of directors, rounded up to the next whole number, on the Board of Directors of
the Company as shall give the Purchaser representation on the Board of Directors
equal to the product of the total number of directors on such Board (including
any vacancies or unfilled newly-created directorships) multiplied by the
percentage that the aggregate number of Shares beneficially owned by the
Purchaser or any affiliate of the Purchaser bears to the total number of Shares
then outstanding, and the Company shall amend, or cause to be amended, its
by-laws to provide for the foregoing and shall, at such time, promptly take all
action necessary to cause the Purchaser's designees to be so elected, including
either increasing the size of the Board of Directors or securing the
resignations of incumbent directors or both. The Merger Agreement further
provides that the Company's obligations to appoint designees to its Board of
Directors will be subject to Section 14(f) of the Exchange Act and Rule 14f-1
thereunder.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, at the Effective Time and in accordance with the
MBCL, the Purchaser will be merged with and into the Company. As a result of the
Merger, the separate corporate existence of the Purchaser will cease and the
Company will continue as the Surviving Corporation.
The Merger Agreement provides that the Amended and Restated Articles of
Organization of the Company, as in effect immediately prior to Effective Time,
shall be the certificate of incorporation of the Surviving Corporation until
thereafter amended as provided by law. At the Effective Time, the by-laws of the
Purchaser as in effect immediately prior to the Effective Time will be the
by-laws of the Surviving Corporation, until thereafter altered, amended or
repealed as provided by law. The Merger Agreement provides that the directors of
the Purchaser immediately prior to the Effective Time will be the initial
directors of the Surviving Corporation and the officers of the Company
immediately prior to the Effective Time will be the initial officers of the
Surviving Corporation, each to hold office until their respective successor
shall be duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the certificate of incorporation and
by-laws of the Surviving Corporation.
The Merger Agreement provides that, at the Effective Time, each Share that
is issued and outstanding immediately prior to the Effective Time (other than
Shares owned by the Company or by TFC, the Purchaser or any direct or indirectly
wholly-owned subsidiary of the Company, TFC or the Purchaser, which shall be
cancelled, and other than Shares, if any (collectively, "Dissenting Shares"),
held by stockholders who have properly exercised appraisal rights under Section
89 of the MBCL) will, by virtue of the Merger and without any action on the part
of the Company, the Purchaser or the holders of the Shares, be cancelled,
extinguished and converted into and become a right to receive $24.50 in cash
(the "Merger Consideration"), payable to the holder thereof, without interest,
upon surrender of the certificate formerly representing such Share, less any
required withholding taxes. All Shares that are owned by the Company (as
treasury stock or otherwise) and all Shares owned by TFC, the Purchaser or any
direct or indirect wholly-owned subsidiary of the Company, TFC or the Purchaser,
if any, will be canceled and retired and cease to exist, and no cash or other
consideration will be delivered in exchange therefore.
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<PAGE> 24
The Merger Agreement provides that Shares that are issued and outstanding
immediately prior to the Effective Time and which are held by a stockholder who
has not voted in favor of the Merger and who is otherwise entitled to demand and
who properly demands appraisal for such Shares in accordance with all the
provisions of the MBCL concerning the rights of holders of Shares to dissent
from the Merger and require appraisal of their Shares will not be converted into
or exchangeable for the right to receive the Merger Consideration unless such
holder fails to perfect or otherwise effectively withdraws or loses such
holder's right to appraisal, if any. Such holders will be entitled to receive
the appraised value of such Shares held by them in accordance with the
applicable provisions of the MBCL. If, after the Effective Time, such holder
fails to perfect or loses its right to appraisal, each Share of such holder will
be treated as if it had been converted as of the Effective Time into the right
to receive the Merger Consideration, without any interest thereon.
The Merger Agreement provides that each share of common stock of the
Purchaser will be converted into one share of common stock of the Surviving
Corporation.
The Merger Agreement provides that each option granted to a Company
employee or director pursuant to the Company's 1990 Stock Option Plan, as
amended and 1995 Stock Option Plan for Non-Employee Directors, as amended
(together, the "Stock Plans") to acquire shares of Company Common Stock (each
such option hereinafter is referred to as an "Option") that is outstanding
immediately prior to the Effective Time, whether or not then vested or
exercisable, shall, effective as of immediately prior to the Effective Time, be
canceled and the holder thereof shall be entitled to receive at the Effective
Time or as soon as practicable thereafter from the Company in consideration for
such cancellation an amount in cash equal to the product of (1) the number of
Shares previously subject to such Option and (2) the excess, if any, of the
Merger Consideration over the exercise price per share of such Option (subject
to any applicable withholding taxes).
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including,
without limitation, representations and warranties by the Company as to the
Company's organization and authorizations, capital stock, subsidiaries,
noncontravention and consents, filings with the Commission, financial
statements, no material adverse change, legal proceedings, subsequent events,
commissions and fees, offering documents, employee benefit plans, compliance
with the law, intellectual property, taxes and opinion of financial advisor.
Some of the representations are qualified by the limitation that, in order for
the representation to have been breached, the event breaching the representation
must have a Material Adverse Effect. A "Material Adverse Effect" as to the
Company means any change or effect that would (i) be materially adverse to the
business, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole or (ii) prevent or materially delay the
consummation of the Offer or the Merger; provided, however, that a decline in
the price of the Company's Common Stock as traded on the Nasdaq National Market
as a result of certain changes in the Company's accounting practices shall not
be deemed to have a Material Adverse Effect unless it is otherwise a result of
an event or occurrence that is materially adverse to the business, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole.
In addition, the Merger Agreement contains representations and warranties
of TFC and the Purchaser concerning their organization, authorization of the
agreement, noncontravention and consents, commissions and fees, and funds.
Agreements of the Company, the Purchaser and TFC.
Conduct of Business Pending the Merger. Pursuant to the Merger Agreement,
the Company has covenanted and agreed that, prior to the Effective Time, the
Company and its subsidiaries will conduct their operations according to their
ordinary and usual course of business and consistent with past practice. The
Merger Agreement further provides that, without limiting the generality of the
foregoing, and except as expressly contemplated by the Merger Agreement, prior
to the Effective Time, neither the Company nor any of its subsidiaries will,
without the prior written consent of TFC:
(a) amend or otherwise change its articles of organization or by-laws
or equivalent organizational documents;
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(b) issue, deliver, sell, pledge, dispose of or encumber, or authorize
or commit to the issuance, sale, pledge, disposition or encumbrance of, (i)
any shares of capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock, or any other ownership interest (including but not limited
to stock appreciation rights or phantom stock), of the Company or any of
its subsidiaries (except for the issuance of up to 913,720 Shares required
to be issued pursuant to the terms of options outstanding as of September
22, 1999 or (ii) any assets of the Company or any of its subsidiaries,
except in the ordinary course of business and in a manner consistent with
past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contributions to, or investments in,
any other person (other than in the ordinary course of business consistent
with past practice) and other than existing committed facilities; (iii)
enter into any contract or agreement other than in the ordinary course of
business consistent with past practice; or (iv) authorize or capital
expenditures (during any three month period) which are, in the aggregate,
in excess of $25,000 for the Company and its subsidiaries taken as a whole;
(f) except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of the
Merger Agreement or as provided in the Merger Agreement, increase the
compensation or fringe benefits of any of its directors, officers or
employees, except for increases in salary or wages of employees of the
Company or its subsidiaries who are not officers of the Company in the
ordinary course of business in accordance with past practice, or grant any
severance or termination pay not currently required to be paid under
existing severance plans to or enter into any employment, consulting or
severance agreement or arrangement with any present or former director,
officer or other employee of the Company or any of its subsidiaries, or
establish, adopt, enter into or amend or terminate any collective
bargaining agreement or employee benefit plan, including, but not limited
to, bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any directors, officers or employees;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
practices or principles used by it, other than discontinuance of the gain
on sale method;
(h) make any material tax election, change any annual tax accounting
period, change any method of tax accounting, file any amended tax return or
settle or compromise any material federal, state, local or foreign tax
liability;
(i) settle or compromise any pending or threatened suit, action or
claim which is material or which relates to the transactions contemplated
hereby;
(j) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries not constituting
an inactive subsidiary (other than the Merger);
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), 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 financial statements of the Company or incurred in
the ordinary course of business and consistent with
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<PAGE> 26
past practice and (ii) of liabilities required to be paid, discharged or
satisfied pursuant to the terms of any contract in existence on the date of
the Merger Agreement;
(l) (i) make or commit to make any financial services loan;
(ii) make or commit to make any other loan except as specifically
provided in clauses (iii) through (ix) of this paragraph (l);
(iii) purchase or commit to purchase consumer land loans from a
single dealer exceeding an aggregate amount of (y) $1,000,000 in the
case of a dealer that is an approved dealer as of the date of the Merger
Agreement or (z) $2,500,000 in the case of a dealer that becomes an
approved dealer on or after the date of the Merger Agreement;
(iv) purchase or commit to purchase consumer timeshare loans from a
single seller exceeding an aggregate amount of (y) $500,000 in the case
of a seller that is an approved seller as of the date of the Merger
Agreement or (z) $1,000,000 in the case of a seller that becomes an
approved seller on or after the date of the Merger Agreement;
(v) make or commit to make loans for the acquisition and/or
construction of timeshare units that exceed (y) $2,500,000 in the case
of a new loan to an approved borrower (or group of affiliated borrowers)
as of the date of the Merger Agreement; provided however, that any
increase in an existing commitment shall not exceed $1,000,000, and
provided, further, that any additional loans or increases as described
in this clause (y) shall not cause the aggregate commitments to such
borrower to exceed $2,500,000 or (z) $2,000,000 in the case of a
borrower (or group of affiliated borrowers) which becomes an approved
borrower on or after the date of the Merger Agreement;
(vi) make or commit to make loans for the acquisition and/or
development of landlots that exceed (y) $500,000 in the case of a new
loan to an approved borrower (or group of affiliated borrowers) as of
the date of the Merger Agreement; provided however, that any increase in
an existing commitment shall not exceed $100,000, and provided, further,
that any additional loans or increases as described in this clause (y)
shall not cause the aggregate commitments to such borrower to exceed
$1,500,000 or (z) $1,000,000 in the case of a borrower (or group of
affiliated borrowers) which becomes an approved borrower on or after the
date of the Merger Agreement;
(vii) make or commit to make loans for the finance or purchase of
land (not including consumer loans as provided in clause (iii) of this
paragraph (l) that exceed (y) $1,000,000 in the case of a new loan to an
approved borrower (or group of affiliated borrowers) as of the date of
the Merger Agreement; provided however, that any increase in an existing
commitment shall not exceed $250,000, and provided, further, that any
additional loans or increases as described in this clause (y) shall not
cause the aggregate commitments to such borrower to exceed $2,500,000 or
(z) $500,000 in the case of a borrower (or group of affiliated
borrowers) which becomes an approved borrower on or after the date of
the Merger Agreement;
(viii) make or commit to make loans for the finance or purchase of
timeshare units (not including consumer loans as provided in clause (iv)
of Section 5.1(l) above) that exceed (y) $5,000,000 in the case of a new
loan to an approved borrower (or group of affiliated borrowers) as of
the date of the Merger Agreement; provided however, that any increase in
an existing commitment shall not exceed $2,500,000, and provided,
further,that any additional loans or increases as described in this
clause (y) shall not cause the aggregate commitments to such borrower to
exceed $5,000,000 or (z) $5,000,000 in the case of a borrower (or group
of affiliated borrowers) which becomes an approved borrower on or after
the date of the Merger Agreement; or
(ix) purchase or commit to purchase any tax lien certificate
greater than $500,000;
provided, that nothing in this paragraph (l) shall prohibit the Company from
honoring any contractual obligation in existence on the date of the Merger
Agreement.
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(m) refinance or restructure any existing loan, except in the ordinary
course of business consistent with past practice and prudent lending
practices;
(n) make any material changes in its polices or practices concerning
loan underwriting and credit scoring, or which persons may approve loans or
credit scoring;
(o) except in the ordinary course of business consistent with past
practice and prudent business practices, enter into any securities
transaction for its own account or purchase or otherwise acquire any
investment security for its own account other than (A) securities backed by
the full faith and credit of the United States or an agency thereof and (B)
other readily marketable securities not in excess of $100,000.
(p) foreclose upon or otherwise take title to or possession or control
of any real property (other than residential property) without first
obtaining a phase one environmental report thereon;
(q) enter into any new, or modify, amend or extend the terms of any
existing, contracts relating to the purchase or sale of financial or other
futures, or any put or call option relating to cash, securities or
commodities or any interest rate swap agreements or other agreements
relating to the hedging of interest rate risk, except in the ordinary
course of business consistent with past practices and prudent business
practices; or
(r) take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in paragraphs (a) through (q) or
any action which would make any of the representations or warranties of the
Company contained in the Merger Agreement untrue and incorrect as of the
date when made if such action had then been taken, or would result in any
of the Offer Conditions not being satisfied.
No Solicitation of Transactions. The Merger Agreement provides that the
Company, its affiliates and their respective officers, directors, employees,
representatives and agents shall immediately cease any existing discussions or
negotiations, if any, with any parties conducted theretofore with respect to any
acquisition or exchange of all or any material portion of the assets of, or any
equity interest in, the Company or any of its subsidiaries or any business
combination with or involving the Company or any of its subsidiaries. The Merger
Agreement also provides that, at any time prior to consummation of the Offer,
the Company may, directly or indirectly, furnish information and access, in each
case only in response to a request for such information or access to any person
made after the date thereof which was not encouraged, solicited or initiated by
the Company or any of its affiliates or any of its or their respective officers,
directors, employees, representatives or agents after the date thereof, pursuant
to appropriate confidentiality agreements, and may participate in discussions
and negotiate with such person concerning any merger, sale of assets, sale of
shares of capital stock or similar transaction (including an exchange of stock
or assets) involving the Company or any subsidiary or division of the Company,
in each case (whether furnishing information and access or participating in
discussions and negotiations) only if such person has submitted a written
proposal to the Board of Directors of the Company relating to any such
transaction and the Board by majority vote determines in good faith, based upon
the advice of outside counsel to the Company, that failing to take such action
would constitute a breach of the Board's fiduciary duty under applicable law.
The Board is required to provide a copy of any such written proposal to TFC
immediately after receipt thereof, notify TFC immediately if any proposal (oral
or written) is made and in such notice indicate in reasonable detail the
identity of the offeror and the terms and conditions of any proposal and keep
TFC promptly advised of all developments which could reasonably be expected to
culminate in the Board of Directors withdrawing, modifying or amending its
recommendation of the Offer, the Merger and the other transactions contemplated
by the Merger Agreement. Except as set forth in Section 6.5 of the Merger
Agreement, neither the Company or any of its affiliates, nor any of its or their
respective officers, directors, employees, representatives or agents shall,
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than TFC and
the Purchaser, any affiliate or associate of TFC and Purchaser or any designees
of TFC or Purchaser) concerning any merger, sale of any material portion or
assets, sale of any of the shares of capital stock or similar transactions
(including an exchange of stock or assets) involving the Company or any
subsidiary or division of the Company; provided, that the Board of Directors of
the Company may take, and disclose to the Company's stockholders, a position
contemplated
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by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any
tender offer; provided, further, that the Board of Directors may not recommend
that the stockholders of the Company tender their Shares in connection with any
such tender offer unless the Board by majority vote shall have determined in
good faith, based upon the advice of outside counsel to the Company, that
failing to take such action would constitute a breach of the Board's fiduciary
duty under applicable law. The Merger Agreement provides that the Company shall
not release any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which the Company is a party, unless
the Board by majority vote shall have determined in good faith, based upon the
advice of outside counsel to the Company, that failing to release such third
party or waive such provisions would constitute a breach of the fiduciary duties
of the Board of Directors under applicable law.
Meeting of Stockholders; Proxy Statement. The Merger Agreement provides
that if required by applicable law in order to consummate the Merger, the
Company will duly call, give notice of, convene and hold a meeting of its
stockholders ("Stockholders Meeting") promptly after the consummation of the
Offer to consider and vote upon the Merger Agreement and the Merger. At the
Stockholders Meeting, TFC and the Purchaser will cause all Shares then owned by
them and their subsidiaries to be voted in favor of the approval and adoption of
the Merger Agreement and approval of the Merger. If the Stockholders Meeting is
called, the Company will prepare and file with the Commission a proxy statement
(the "Proxy Statement") to be mailed to the stockholders of the Company in
connection with the meeting of such stockholders to consider and vote upon the
Merger and, except if the Board of Directors by majority vote determines in good
faith, based on the advice of outside legal counsel to the Company that to do so
would constitute a breach of fiduciary duty under applicable law, include in the
Proxy Statement the unanimous recommendation of the Board of Directors that the
stockholders of the Company vote in favor of the approval and adoption of the
Merger Agreement and the transactions contemplated thereby. As soon as
practicable following the consummation of the Offer, the Company will file the
Proxy Statement with the Commission. The Company, TFC and the Purchaser will use
their reasonable best efforts to respond promptly to all comments of and
requests by the Commission and to cause the Proxy Statement and all required
amendments and supplements thereto to be mailed to holders of Shares entitled to
vote at the Stockholders Meeting at the earliest practicable time following
expiration or termination of the Offer. The Merger Agreement provides that in
the event that the Purchaser shall acquire at least 90% of the outstanding
Shares, the Company will, at the request of the Purchaser, take all necessary
and appropriate action to cause the Merger to become effective as soon as
reasonably practicable after such acquisition, without a meeting of the
Company's stockholders, in accordance with Section 82 of the MBCL.
Access to Information; Confidentiality. The Merger Agreement provides
that, prior to the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, directors, employees, auditors and other agents to,
afford the officers, employees, auditors and other agents of TFC complete
access, consistent with applicable law, at all reasonable times to its officers,
employees, agents, properties, offices, plants and other facilities and to all
books and records, and shall furnish TFC with all financial, operating and other
data and information as TFC through its officers, employees or agents may from
time to time reasonably request. Information obtained by TFC or the Purchaser
will be subject to the confidentiality agreement between the Company and TFC
(the "Confidentiality Agreement").
Public Disclosures. The Merger Agreement provides that TFC and the Company
will consult with each other before issuing any press release or otherwise
making any public statements with respect to the Offer or the Merger and will
not issue any such press release or make any such public statement prior to such
consultation and without the consent of the other party, except as may be
required by applicable law or any listing agreement with its securities
exchange.
Indemnification and Insurance. The Merger Agreement provides that TFC will
use its reasonable best efforts to cause to be maintained in effect for six
years from the Effective Time the current policies of the directors' and
officers' liability insurance maintained by the Company (provided that TFC may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not materially less advantageous) with respect to matters
occurring prior to the Effective Time to the extent available; provided,
however, that in no event will TFC or the Company be required to expend more
than an amount per year equal to 150% of current annual premiums paid by the
Company (which the Company represented and warranted in
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the Merger Agreement to be not more than $46,000) to maintain or procure
insurance coverage pursuant to the Merger Agreement.
The Merger Agreement also provides that, for six years after the Effective
Time, TFC will or will cause the Surviving Corporation to indemnify and hold
harmless each present and former director and officer of the Company, determined
as of the Effective Time and their heirs and representatives (the "Indemnified
Parties"), against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, "Costs")
(but only to the extent such Costs are not otherwise covered by insurance and
paid) incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative
(collectively, "Claims"), arising out of or pertaining to matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent permitted under
applicable law (and TFC will, or will cause the Surviving Corporation to, also
advance expenses as incurred to the fullest extent permitted under applicable
law provided the person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification).
The Merger Agreement further provides that any Indemnified Party wishing to
claim indemnification as described above, upon learning of any such Claim, shall
promptly notify TFC thereof, but the failure to so notify shall not relieve TFC
of any liability it may have to such Indemnified Party if such failure does not
materially prejudice TFC. In the event of any such Claim (whether arising before
or after the Effective Time), (i) TFC or the Surviving Corporation shall have
the right to assume the defense thereof and TFC shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if TFC or the Surviving Corporation elects not
to assume such defense, or counsel for the Indemnified Parties advises that
there are issues that raise conflicts of interest between TFC or the Surviving
Corporation and the Indemnified Parties, the Indemnified Parties may retain
counsel satisfactory to them, and TFC or the Surviving Corporation shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that TFC shall
be obligated to pay for only one firm of counsel for all Indemnified Parties in
any jurisdiction unless the use of one counsel for such Indemnified Parties
would present such counsel with a conflict of interest, (ii) the Indemnified
Parties will cooperate in the defense of any such matter and (iii) TFC shall not
be liable for any settlement effected without its prior written consent, which
consent shall not be unreasonably withheld; and provided, further, that TFC
shall not have any obligation to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final, that the indemnification of such Indemnified Party in the
manner contemplated hereby is prohibited by applicable law.
Further Assurances. The Merger Agreement provides that, subject to the
other provisions of the Merger Agreement, each of the parties will use its best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
the Merger Agreement, including, without limitation, the Offer and the Merger,
which efforts shall include, without limitation, using its reasonable best
efforts to promptly make all required regulatory filings and applications
including, without limitation, responding promptly to requests for further
information and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts with the Company and its subsidiaries and TFC and its
subsidiaries as are necessary for the consummation of the transactions
contemplated by the Merger Agreement and to fulfill the conditions to the Offer
and the Merger.
Notice of Subsequent Events. The Merger Agreement provides that each party
will give the other party notice of the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty contained in the Merger Agreement to be untrue or
inaccurate and any failure of a party to comply or satisfy any covenant,
condition or agreement to be complied with under the Merger Agreement.
Employment; Employee Welfare. The Merger Agreement provides that TFC will
maintain for a period of one year following the Effective Time employee benefit
plans and programs, for the benefit of employees of
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<PAGE> 30
the Company and its subsidiaries (other than those employees covered by
collective bargaining arrangements) that are in the aggregate no less favorable
in the aggregate than those provided to TFC's similarly situated employees,
pursuant to the plans, programs and arrangements (other than those related to
the equity securities of the Company) of TFC and its subsidiaries as in effect
on the date of the Merger Agreement (the "Existing Plans"). TFC will credit the
prior service of all employees of the Company and its subsidiaries for purposes
of determining the eligibility, and vesting under any employee benefit plan
provided by TFC for the benefit of the employees. Employees covered by
collective bargaining agreements shall be provided with such benefits as shall
be required under the terms of any applicable collective bargaining agreement.
In addition, the Surviving Corporation will assume and honor in accordance with
their terms all existing employment and severance agreements and arrangements
which are set forth in the Company Disclosure Schedule.
Conditions to the Merger. The Merger Agreement provides that the
respective obligations of each party to effect the Merger is subject to the
satisfaction, at or prior to the Effective Time, of each of the following
conditions: (i) if required by the MBCL, the Merger Agreement shall have been
adopted by the affirmative vote of the stockholders of the Company by the
requisite vote in accordance with the Company's Certificate of Incorporation and
the MBCL; (ii) no statute, rule, regulation, executive order, decree, ruling,
injunction or other order (whether temporary, preliminary or permanent) shall
have been enacted, entered, promulgated or enforced by any United States,
foreign, federal or state court or governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger; (iii) the
Purchaser shall have purchased Shares pursuant to the Offer; and (iv) any
waiting period applicable to the Merger under the HSR Act shall have terminated
or expired. The conditions to the Merger set forth above are different from the
conditions to the Offer, which are set forth in Section 15.
Termination; Fees and Expenses. The Merger Agreement provides that it may
be terminated at any time and the Offer and Merger may be abandoned at any time
prior to the Effective Time:
(a) by mutual written consent of TFC, the Purchaser and the Company;
(b) by TFC or the Company if any court of competent jurisdiction or
other governmental body located or having jurisdiction within the United
States shall have issued a final order, injunction, decree, judgment or
ruling or taken any other final action restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, injunction, decree,
judgment, ruling or other action is or shall have become final and
nonappealable;
(c) by TFC if due to an occurrence or circumstance which resulted in a
failure to satisfy any of the Offer Conditions, the Purchaser shall have
(i) terminated the Offer or (ii) failed to pay for Shares pursuant to the
Offer on or prior to the Outside Date (as defined below);
(d) by the Company (only following the Outside Date, in the case of
clause (ii)(B) of this paragraph) if (i) there shall have been a material
breach of any covenant or agreement on the part of TFC or the Purchaser
contained in the Merger Agreement which materially adversely affects TFC's
or the Purchaser's ability to consummate (or materially delays commencement
or consummation of) the Offer, and which shall not have been cured prior to
the earlier of (A) 10 business days following notice of such breach and (B)
two business days prior to the date on which the Offer expires, (ii)
Purchaser shall have (A) terminated the Offer or (B) failed to pay for
Shares pursuant to the Offer on or prior to the Outside Date (unless such
termination or failure is caused by or results from the failure of any
representation or warranty of the Company to be true and correct in any
material respect or the failure of the Company to perform in any material
respect any of its covenants or agreements contained in the Merger
Agreement) or (iii) prior to the purchase of Shares pursuant to the Offer,
any person shall have made a bona fide offer to acquire the Company (A)
that the Board of Directors of the Company by majority vote determines in
its good faith judgment is more favorable to the Company and the Company's
stockholders than the Offer and the Merger and (B) as a result of which the
Board of Directors by majority vote determines in good faith, based upon
the advice of outside counsel to the Company, that it is obligated by its
fiduciary obligations under applicable law to terminate the Merger
Agreement, provided that such termination under this clause (iii) shall not
be effective until the Company has made payment of the full fee and expense
reimbursement required to be paid as described below; and
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(e) by TFC prior to the purchase of Shares pursuant to the Offer, if
(i) there shall have been a breach of any representation, warranty,
covenant or agreement on the part of the Company contained in the Merger
Agreement which is reasonably likely to have a Material Adverse Effect on
the Company or which materially adversely affects (or materially delays)
the consummation of the Offer, which shall not have been cured prior to the
earlier of (A) 10 business days following notice of such breach and (B) two
business days prior to the date on which the Offer expires, (ii) the Board
shall have withdrawn or modified (including by amendment of the Schedule
14D-9) in a manner adverse to the Purchaser its approval or recommendation
of the Offer, the Merger Agreement or the Merger or shall have recommended
another offer or transaction, or shall have resolved to effect any of the
foregoing, or (iii) the Minimum Condition shall not have been satisfied by
the expiration date of the Offer as it may have been extended pursuant
hereto and on or prior to such date (A) any person (including the Company
but not including TFC or the Purchaser) shall have made a public
announcement, disclosure or communication to the Company with respect to a
Third Party Acquisition (as defined below) or (B) any person (including the
Company or any of its affiliates or subsidiaries), other than TFC or any of
its affiliates shall have become (and remain at the time of termination)
the beneficial owner of 20% or more of the Shares (unless such person shall
have tendered and not withdrawn such person's Shares pursuant to the
Offer). The "Outside Date" is the latest to occur (but in no event later
than 90 days following the date of the Merger Agreement) of (i) the date
that is 60 days following the date of the Merger Agreement and (ii)
provided that the Minimum Condition has been satisfied within 60 days
following the date of the Merger Agreement, the date on which either (x)
the applicable waiting period under the HSR Act shall have expired or been
terminated or (y) the final terms of a consent decree between TFC and the
appropriate governmental authority with respect to the Offer and the Merger
shall have been agreed to.
The Merger Agreement provides that if:
(i) (x) TFC terminates the Merger Agreement pursuant to paragraph
(e)(i) above and (y) prior to such termination a proposal or offer with
respect to a Third Party Acquisition shall have been made to the Company
and (z) within 12 months after such termination, the Company enters into an
agreement with respect to a Third Party Acquisition, or a Third Party
Acquisition occurs; or
(ii) (x) the Company terminates the Merger Agreement pursuant to
paragraph (d)(iii) above or (y) the Company terminates the Merger Agreement
pursuant to paragraph (d)(ii)(B) above and at such time TFC would have been
permitted to terminate the Merger Agreement under paragraph (e)(ii) or
(iii) above or (z) TFC terminates the Merger Agreement pursuant to
paragraph (e)(ii) or (iii) above;
then the Company shall pay to TFC and the Purchaser, within three business days
following the execution and delivery of such agreement or such occurrence, as
the case may be, or simultaneously with any termination contemplated by
paragraph (a)(ii) above, a fee, in cash, of $5.5 million (less any amounts
previously paid as described in the next paragraph) provided, however, that the
Company in no event shall be obligated to pay more than one such fee with
respect to all such agreements and occurrences and such termination. "Third
Party Acquisition" means the occurrence of any of the following events: (i) the
acquisition of the Company by merger or similar business combination by any
person other than TFC, the Purchaser or any affiliate thereof (a "Third Party");
(ii) the acquisition by a Third Party of 20% or more of the book or fair market
value of the consolidated assets of the Company and its subsidiaries, taken as a
whole; or (iii) the acquisition by a Third Party of 20% or more of the
outstanding Shares.
The Merger Agreement provides that, upon the termination thereof (i) under
circumstances in which TFC shall have been entitled to terminate the Agreement
pursuant to paragraph (e)(i) above (whether or not expressly terminated on such
basis) or (ii) if any of the representations and warranties of the Company
contained in the Merger Agreement were untrue or incorrect in any material
respect when made and at the time of termination remained untrue or incorrect in
any material respect and such misrepresentation materially adversely affected
the consummation (or materially delayed commencement or consummation) of the
Offer, then the Company shall reimburse TFC, the Purchaser and their affiliates
(not later than three
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business days after submission of statements therefor) for all actual documented
out-of-pocket fees and expenses actually incurred by any of them or on their
behalf in connection with the Offer and the Merger and the consummation of all
transactions contemplated by the Merger Agreement (including, without
limitation, fees and disbursements payable to financing sources, investment
bankers, counsel to the Purchaser or TFC or any of the foregoing, and
accountants) up to a maximum amount of $1,000,000. Unless required to be paid
earlier pursuant to paragraph (d) above, the Company shall in any event pay the
amount requested within three business days of such request, subject to the
Company's right to demand a return of any portion as to which invoices are not
received in due course after request by the Company.
The Merger Agreement further provides that, except as otherwise
specifically provided therein, each party shall bear its own expenses in
connection with the Merger Agreement and the transactions contemplated thereby.
12. PURPOSE OF THE OFFER; THE MERGER; PLANS FOR THE COMPANY.
Purpose. The purpose of the Offer is to acquire control of, and the entire
equity interest in, the Company. The Offer is being made pursuant to the Merger
Agreement. As promptly as practicable following consummation of the Offer and
after satisfaction or waiver of all conditions to the Merger set forth in the
Merger Agreement, the Purchaser intends to acquire the remaining equity interest
in the Company not acquired in the Offer by consummating the Merger.
Vote Required to Approve the Merger. The Board of Directors of the Company
has approved the Merger Agreement in accordance with the MBCL. If required for
approval of the Merger, the Company has agreed, subject to the satisfaction of
the conditions to the Merger set forth in the Merger Agreement, in accordance
with and subject to the MBCL, to duly convene a meeting of its stockholders as
promptly as practicable following the purchase of Shares pursuant to the Offer
for the purpose of considering and taking action on the Merger Agreement. If
stockholder approval is required, the Merger Agreement must be approved by the
vote of the holders of two-thirds of the outstanding Shares. As a result, if the
Minimum Condition is satisfied, the Purchaser will have the power to approve the
Merger Agreement without the affirmative vote of any other stockholder.
The Merger Agreement provides that, notwithstanding the foregoing, in the
event that the Purchaser shall acquire at least 90% of the outstanding Shares,
the Company shall, at the Purchaser's request, take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders, in accordance with Section 82 of the MBCL.
THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY,
CONSENT OR AUTHORIZATION FOR OR WITH RESPECT TO THE ANNUAL MEETING OR ANY
SPECIAL MEETING OF THE COMPANY'S STOCKHOLDERS OR ANY ACTION IN LIEU THEREOF. ANY
SUCH SOLICITATION WHICH THE PURCHASER OR THE COMPANY MAY MAKE WILL BE MADE ONLY
PURSUANT TO SEPARATE PROXY MATERIALS IN COMPLIANCE WITH SECTION 14(a) OF THE
EXCHANGE ACT.
Appraisal Rights. Stockholders do not have appraisal rights as a result of
the Offer. However, if the Merger is consummated, stockholders of the Company at
the time of the Merger who do not vote in favor of the Merger and comply with
all statutory requirements will have the right under the MBCL to demand
appraisal of, and receive payment in cash of the fair value of, their Shares
outstanding immediately prior to the effective date of the Merger in accordance
with Sections 89 and 90 of the MBCL.
Under the MBCL, stockholders who properly demand appraisal and otherwise
comply with the applicable statutory procedures will be entitled to receive a
judicial determination of the fair value of their Shares (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
and to receive payment of such fair value in cash. Any such judicial
determination of the fair value of such Shares could be based upon
considerations other than or in addition to the price paid in the Offer and the
Merger and the market value of the Shares. In Piemonte v. New Boston Garden
Corp., the Massachusetts Supreme Judicial Court approved, but did not require,
that the appraisal value of stock be determined by assessing "the
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market value, the earnings value, and the net asset value of the stock, followed
by" assigning a percentage weight to each based on the relative importance of
that value to the stock in the particular circumstances.
THE FOREGOING SUMMARY OF THE RIGHTS OF STOCKHOLDERS DOES NOT PURPORT TO BE
A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING
TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS. THE PRESENTATION AND EXERCISE OF
APPRAISAL RIGHTS REQUIRE STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE
MASSACHUSETTS LAW.
The foregoing description of certain provisions of the MBCL is not
necessarily complete and is qualified in its entirety by reference to the MBCL.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act
which is applicable to certain "going private" transactions and which may under
certain circumstances be applicable to the Merger following the purchase of
Shares pursuant to the Offer in which the Purchaser seeks to acquire any
remaining Shares. Rule 13e-3 should not be applicable to the Merger if the
Merger is consummated within one year after the expiration or termination of the
Offer and the price paid in the Merger is not less than the per Share price paid
pursuant to the Offer. However, in the event that the Purchaser is deemed to
have acquired control of the Company pursuant to the Offer and if the Merger is
consummated more than one year after completion of the Offer or an alternative
acquisition transaction is effected whereby stockholders of the Company receive
consideration less than that paid pursuant to the Offer, in either case at a
time when the Shares are still registered under the Exchange Act, the Purchaser
may be required to comply with Rule 13e-3 under the Exchange Act. If applicable,
Rule 13e-3 would require, among other things, that certain financial information
concerning the Company and certain information relating to the fairness of the
Merger or such alternative transaction and the consideration offered to minority
stockholders in the Merger or such alternative transaction, be filed with the
Commission and disclosed to stockholders prior to consummation of the Merger or
such alternative transaction. The purchase of a substantial number of Shares
pursuant to the Offer may result in the Company being able to terminate its
Exchange Act registration. See Section 14. If such registration were terminated,
Rule 13e-3 would be inapplicable to any such future Merger or such alternative
transaction.
Plans for the Company. If the Purchaser obtains control of the Company
pursuant to the Offer, TFC expects to conduct a detailed review of the Company
and its businesses, assets, corporate structure, capitalization, operations,
properties, policies, management and personnel and to consider what, if any,
changes would be desirable in light of the circumstances that then exist. Such
changes could include changes in the Company's businesses, corporate structure,
articles of organization, by-laws, capitalization, board of directors,
management or dividend policy.
Except as described in this Offer to Purchase, neither TFC nor the
Purchaser has any present plans or proposals that would relate to or result in
an extraordinary corporate transaction such as a merger, reorganization or
liquidation involving the Company or any of its subsidiaries or a sale or other
transfer of a material amount of assets of the Company or any of its
subsidiaries, any material change in the capitalization or dividend policy of
the Company or any other material change in the Company's corporate structure or
business or the composition of its Board of Directors or management.
13. DIVIDENDS AND DISTRIBUTIONS. If on or after the date of the Merger
Agreement (except as set forth in the Merger Agreement -- See Section 6), the
Company should declare or pay any cash or stock dividend or other distribution
on, or issue any right with respect to, the Shares that is payable or
distributable to stockholders of record on a date prior to the transfer to the
name of the Purchaser or the nominee or transferee of the Purchaser on the
Company's stock transfer records of such Shares that are purchased pursuant to
the Offer, then without prejudice to the Purchaser's rights under Section 15,
(i) the purchase price payable per Share by the Purchaser pursuant to the Offer
will be reduced to the extent any such dividend or distribution is payable in
cash and (ii) any non-cash dividend, distribution (including additional Shares)
or right received and held by a tendering stockholder shall be required to be
promptly remitted and transferred by the tendering stockholder to the Depositary
for the account of the Purchaser, accompanied by appropriate documentation of
transfer. Pending such remittance or appropriate assurance thereof, the
Purchaser will, subject to applicable law, be entitled to all rights and
privileges as owner of any such non-cash dividend, distribution or right and
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may withhold the entire purchase price or deduct from the purchase price the
amount or value thereof, as determined by the Purchaser in its sole discretion.
14. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, NASDAQ LISTING AND
EXCHANGE ACT REGISTRATION. The purchase of Shares pursuant to the Offer will
reduce the number of Shares that might otherwise trade publicly and will reduce
the number of holders of Shares. This could adversely affect the liquidity and
market value of the remaining Shares held by the public. Depending upon the
number of Shares purchased pursuant to the Offer, the Shares may no longer meet
the requirements of Nasdaq for continued inclusion on the Nasdaq National
Market. If as a result of the purchase of Shares pursuant to the Offer or
otherwise, the Shares no longer meet the requirements of Nasdaq for continued
inclusion on Nasdaq and the Shares are no longer included on Nasdaq, as the case
may be, the market for the Shares could be adversely affected.
In the event that the Shares no longer meet the requirements of Nasdaq, it
is possible that such Shares would continue to trade on other securities
exchanges or in the over-the-counter market and that price quotations would be
reported by such exchanges or through other sources. However, the extent of the
public market for the Shares and the availability of such quotations would
depend upon such factors as the number of stockholders and/or the aggregate
market value of the Shares remaining at such time, the interest in maintaining a
market in the Shares on the part of securities firms, the possible termination
of registration under the Exchange Act as described below and other factors. The
Purchaser cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on the
market price for or marketability of the Shares.
The Shares are currently registered under the Exchange Act. The purchase of
Shares pursuant to the Offer may result in the Shares becoming eligible for
deregistration under the Exchange Act. Registration of the Shares may be
terminated upon application of the Company to the Commission if the Shares are
not listed on a national securities exchange and there are fewer than 300 record
holders. The termination of the registration of the Shares under the Exchange
Act would substantially reduce the information required to be furnished by the
Company to holders of the Shares and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b), the requirement of furnishing a proxy statement in connection with
stockholders' meetings and the requirements of Rule 13e-3 under the Exchange Act
with respect to "going private" transactions, no longer applicable to the
Shares. Furthermore, "affiliates" of the Company and persons holding "restricted
securities" of the Company may be deprived of the ability to dispose of the
securities pursuant to Rule 144 under the Securities Act of 1933.
15. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision
of the Offer, but subject to the terms and conditions of the Merger Agreement,
the Purchaser shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act (relating to the Purchaser's obligation to pay for or return
tendered Shares promptly after termination or withdrawal of the Offer), pay for
any Shares tendered pursuant to the offer, and may postpone the acceptance for
payment or, subject to the restriction referred to above, payment for any Shares
tendered pursuant to the Offer, and may amend or terminate the offer (whether or
not any Shares have theretofore been purchased or paid for) to the extent
permitted by the Merger Agreement if, (i) at the expiration of the Offer, the
Minimum Condition has not been satisfied or (ii) at any time prior to the
Expiration Date:
(a) there shall have been entered any order, preliminary or permanent
injunction, decree, judgment or ruling in any action or proceeding before
any court or governmental, administrative or regulatory authority or
agency, or any statute, rule or regulation enacted, entered, enforced,
promulgated, amended or issued that is applicable to TFC, the Purchaser,
the Company or any subsidiary or affiliate of the Purchaser or the Company
or the Offer or the Merger, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency that is
reasonably likely to have the effect of : (i) making illegal or otherwise
directly or indirectly restraining or prohibiting the making of the Offer
in accordance with the terms of the Merger Agreement, the acceptance for
payment of, or payment for, some of or all the Shares by the Purchaser or
any of its affiliates or the consummation of the Merger; (ii) prohibiting
the ownership or operation by the Company or any of its subsidiaries, or
TFC or any of its subsidiaries, of all or any material portion of the
business or assets of the Company or any of its
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subsidiaries, taken as a whole, or TFC or its subsidiaries, taken as a
whole, or (iii) materially limiting the ownership or operation by the
Company or any of its subsidiaries, or TFC or any of its subsidiaries, of
all or any material portion of the business or assets of the Company or any
of its subsidiaries, taken as a whole, or TFC or its subsidiaries, taken as
a whole (other than, in either case, assets or businesses of the Company or
its subsidiaries that are not material (measured in relation to the
combined assets or revenues of the Company and its subsidiaries, taken as a
whole)) or compelling TFC or any of its subsidiaries to dispose of or hold
separate all or any portion of the businesses or assets of the Company or
any of its subsidiaries or TFC or any of its subsidiaries (other than, in
either case, assets or businesses of the Company or its subsidiaries that
are not material (measured in relation to the combined assets or revenues
of the Company and its subsidiaries, taken as a whole)), as a result of the
transactions contemplated by the Offer or the Merger Agreement; (iv)
imposing limitations on the ability of TFC, the Purchaser or any of TFC's
affiliates effectively to acquire or hold or to exercise full rights of
ownership of the Shares, including without limitation the right to vote any
Shares acquired or owned by TFC or Purchaser or any of its affiliates on
all matters properly presented to the stockholders of the Company,
including without limitation the adoption and approval of the Merger
Agreement and the Merger or the right to vote any shares of capital stock
of any subsidiary directly or indirectly owned by the Company; or (v)
requiring divestiture by TFC or the Purchaser or any of their affiliates of
any Shares;
(b) there shall have occurred any event, other than events arising out
of the announcement of the Offer and the transactions contemplated by the
Merger Agreement, that is reasonably likely to have a Material Adverse
Effect;
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices (other than suspensions or limitations
triggered on the New York Stock Exchange by price fluctuations on a trading
day) for, securities on any national securities exchange or in the
over-the-counter market in the United States, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, (iii) any material limitation (whether or not mandatory) by
any government or governmental, administrative or regulatory authority or
agency in the United States on the extension of credit by banks or other
lending institutions, (iv) a commencement of a war directly involving the
United States and materially adversely affecting (or material delaying) the
consummation of the Offer or (v) in the case of any of the foregoing
existing at the time of commencement of the Offer, a material acceleration
or worsening thereof;
(d)(i) it shall have been publicly disclosed or the Purchaser shall
have otherwise learned that beneficial ownership (determined for the
purposes of this paragraph as set forth in Rule 13d-3 promulgated under the
Exchange Act) of more than 20% of the outstanding Shares has been acquired
by any corporation (including the Company or any of its subsidiaries or
affiliates), partnership, person or other entity or group (as defined in
Section 13(d)(3) of the Exchange Act), other than TFC or any of its
affiliates; or (ii) (A) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified in a manner adverse to
TFC or the Purchaser the approval or recommendation of the Offer, the
Merger or the Merger Agreement, or approved or recommended any takeover
proposal or any other acquisition of Shares other than the Offer and the
Merger, (B) any such corporation, partnership, person or other entity or
group shall have entered into a definitive agreement or an agreement in
principle with the Company with respect to a tender offer or exchange offer
for any Shares or a merger, consolidation or other business combination
with or involving the Company or any of its subsidiaries, or (C) the Board
of Directors of the Company or any committee thereof shall have resolved to
do any of the foregoing;
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified by reference to materiality or a
Material Adverse Effect shall not be true and correct, or any such
representations and warranties that are not so qualified shall not be true
and correct in all material respects, in each case as if such
representations and warranties were made at the time of such determination;
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(f) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed or
complied with by it under the Merger Agreement;
(g) the Merger Agreement shall have been terminated in accordance with
its terms or the Offer shall have been terminated with the consent of the
Company; or
(h) any waiting periods under the HSR Act applicable to the purchase
of Shares pursuant to the Offer or the Merger, and any applicable waiting
periods under any foreign statutes or regulations, shall not have expired
or been terminated;
(i) the Company shall have terminated the employment agreement of
Richard A. Stratton, without the prior written consent of the Purchaser; or
(j) the Company shall not have obtained the consent of each member of
the Board of Directors of the Company to the cancellation of all options
held by such Directors as contemplated by the Merger Agreement;
which, in the reasonable judgment of the Purchaser with respect to each and
every matter referred to above and regardless of the circumstances (except for
any action or inaction by the Purchaser or any of its affiliates constituting a
breach of the Merger Agreement) giving rise to any such condition, makes it
inadvisable to proceed with the Offer or with such acceptance for payment of or
payment for Shares or to proceed with the Merger.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances giving rise to any
such condition (except for any action or inaction by the Purchaser or any of its
affiliates constituting a breach of the Merger Agreement) or (other than the
Minimum Condition) may be waived by the Purchaser in whole or in part at any
time and from time to time in its sole discretion (subject to the terms of the
Merger Agreement). The failure by the Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right, the waiver
of any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
16. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.
General. Except as set forth below, neither the Purchaser, nor TFC is
aware of any licenses or other regulatory permits that appear to be material to
the business of the Company and its subsidiaries, taken as a whole, that might
be adversely affected by the Purchaser's acquisition of Shares (and the indirect
acquisition of the stock of the Company's subsidiaries) as contemplated herein,
or of any filings, approvals or other actions by or with any domestic (Federal
or state), foreign or supranational governmental authority or administrative or
regulatory agency that would be required prior to the acquisition of Shares (or
the indirect acquisition of the stock of the Company's subsidiaries) by the
Purchaser pursuant to the Offer as contemplated herein. Should any such approval
or other action be required, it is TFC's present intention to seek such approval
or action. There can be no assurance that any such approval or other action, if
needed, would be obtained without substantial conditions or that adverse
consequences might not result to the business of the Company, TFC or the
Purchaser or that certain parts of the businesses of the Company, TFC or the
Purchaser might not have to be disposed of or held separate or other substantial
conditions complied with in order to obtain such approval or other action or in
the event that such approval was not obtained or such other action was not
taken, any of which could cause the Purchaser to elect (subject to the terms of
the Merger Agreement) to terminate the Offer without the purchase of the Shares
thereunder. The Purchaser's obligation under the Offer to accept for payment and
pay for Shares is subject to certain conditions, including conditions relating
to the legal matters discussed in this Section 16.
State Takeover Laws. A number of states have adopted takeover laws and
regulations which purport to varying degrees to be applicable to attempts to
acquire securities of corporations which are incorporated in such states or
which have or whose business operations have substantial economic effects in
such states, or
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which have substantial assets, security holders, principal executive offices or
principal places of business therein. In 1982, the Supreme Court of the United
States, in Edgar v. Mite Corp., invalidated on constitutional grounds the
Illinois Business Takeovers Act, which as a matter of state securities law made
takeovers of corporations meeting certain requirements more difficult, and the
reasoning in such decision is likely to apply to certain other state takeover
statutes. However, in 1987, in CTS Corp. v. Dynamics Corp. of America, the
Supreme Court of the United States held that the State of Indiana could, as a
matter of corporate law and in particular those aspects of corporate law
concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without the prior
approval of the remaining stockholders, provided that such laws were applicable
only under certain conditions. Subsequently, in TLX Acquisition Corp. v. Telex
Corp., a Federal district court in Oklahoma ruled that the Oklahoma statutes
were unconstitutional insofar as they applied to corporations incorporated
outside Oklahoma in that they would subject such corporations to inconsistent
regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a Federal district
court in Tennessee ruled that four Tennessee takeover statutes were
unconstitutional as applied to corporations incorporated outside Tennessee. This
decision was affirmed by the United States Court of Appeals for the Sixth
Circuit. In December 1988, a Federal district court in Florida held in Grand
Metropolitan PLC v. Butterworth that the provisions of the Florida Affiliated
Transactions Act and the Florida Control Share Acquisition Act were
unconstitutional as applied to corporations incorporated outside of Florida.
Except as described herein, the Purchaser has not attempted to comply with
any state takeover statutes in connection with the Offer. The Purchaser reserves
the right to challenge the validity or applicability of any state law allegedly
applicable to the Offer and nothing in this Offer to Purchase nor any action
taken in connection herewith is intended as a waiver of that right. In the event
that any state takeover statute is found applicable to the Offer, the Purchaser
might be unable to accept for payment or purchase Shares tendered pursuant to
the Offer or be delayed in continuing or consummating the Offer. In such case,
the Purchaser may not be obligated to accept for purchase or pay for, any Shares
tendered. See Section 16. Pursuant to the Merger Agreement, the Company has
represented to TFC that the Company has taken all action necessary so as to
render the limitations on business combinations contained in Chapter 110D and
Chapter 110F, Section 1, of the Massachusetts Corporation Related Laws
inapplicable to the Offer and the Merger.
Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the Federal Trade Commission ("FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied.
TFC and the Company filed on September 27, 1999 with the FTC and the
Antitrust Division a Premerger Notification and Report Form in connection with
the purchase of Shares pursuant to the Offer. Under the provisions of the HSR
Act applicable to the Offer, the purchase of Shares pursuant to the Offer may
not be consummated until the expiration of a 15-calendar day waiting period
following the filing by TFC, unless both the Antitrust Division and the FTC
terminate the waiting period prior thereto. If, within such 15-calendar day
waiting period, either the Antitrust Division or the FTC requests additional
information or documentary material from TFC, the waiting period would be
extended for an additional 10 calendar days following substantial compliance by
TFC with such request. Thereafter, the waiting period could be extended only by
court order. If the acquisition of Shares is delayed pursuant to a request by
the FTC or the Antitrust Division for additional information or documentary
material pursuant to the HSR Act, the Offer may, but need not (except as
otherwise provided in the Merger Agreement), be extended and in any event the
purchase of and payment for Shares will be deferred until 10 days after the
request is substantially complied with, unless the waiting period is sooner
terminated by the FTC and the Antitrust Division. See Section 2. Only one
extension of such waiting period pursuant to a request for additional
information is authorized by the HSR Act and the rules promulgated thereunder,
except by court order. Any such extension of the waiting period will not give
rise to any withdrawal rights not otherwise provided for by applicable law. See
Section 4.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
the Purchaser pursuant to the Offer. At any time before or after the purchase by
the Purchaser of Shares pursuant to the Offer, either of the FTC and the
35
<PAGE> 38
Antitrust Division could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
purchase of Shares pursuant to the Offer or seeking the divestiture of Shares
purchased by the Purchaser or the divestiture of substantial assets of TFC, its
subsidiaries or the Company. Private parties and state attorneys general may
also bring legal action under Federal or state antitrust laws under certain
circumstances.
Based upon an examination of publicly available information relating to the
businesses in which the Company and its subsidiaries are engaged, TFC and the
Purchaser believe that the acquisition of Shares pursuant to the Offer would not
violate the antitrust laws. There can be no assurance, however, that a challenge
to the Offer on antitrust grounds will not be made or, if such challenge is
made, what the outcome will be. See Section 15 for certain conditions to the
Offer, including conditions with respect to litigation and certain government
actions.
Margin Credit Regulations. Federal Reserve Board Regulations G, T, U and X
(the "Margin Credit Regulations") restrict the extension or maintenance of
credit for the purpose of buying or carrying margin stock, including the Shares,
if the credit is secured directly or indirectly thereby. Such secured credit may
not be extended or maintained in an amount that exceeds the maximum loan value
of the margin stock. Under the Margin Credit Regulations, the Shares are
presently margin stock and the maximum loan value thereof is generally 50% of
their current market value. The definition of "indirectly secured" contained in
the Margin Credit Regulations provides that the term does not include an
arrangement with a customer if the lender in good faith has not relied upon
margin stock as collateral in extending or maintaining the particular credit.
State Mortgage Banker and Lender Licenses. The Company has represented in
the Merger Agreement that, in order for the Surviving Corporation to conduct its
business after the Merger as it is presently conducted by the Company, the
Surviving Corporation must hold certain state mortgage banker, supervised
lending and certain other licenses in a number of states. The Company has
represented that certain of such licenses require notification to the applicable
state regulatory authority of the transactions contemplated by the Merger
Agreement, whereas other such licenses require the consent of the applicable
state regulatory authority.
17. FEES AND EXPENSES. Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") is acting as Dealer Manager in connection with the Offer and serving as
TFC's exclusive financial advisor in connection with the transactions pursuant
to the Merger Agreement. As compensation for its services, DLJ will receive (a)
a retainer fee of $25,000 and (b) an additional fee of $1,725,000 (against which
the retainer fee will be credited), payable promptly upon consummation of the
Offer. If, in connection with the termination or abandonment of a proposed
transaction with TFC and the Company during the term of TFC's engagement letter
with DLJ or within twelve months thereafter, TFC receives any "break up" or
similar fee or any profit arising from any shares of the Company or its
affiliates in connection with such a transaction, then DLJ will be entitled to a
termination fee equal to 5% of such break-up or similar fee, plus $100,000
(against which the retainer fee will be credited). TFC will also reimburse DLJ
for all reasonable out-of-pocket expenses including reasonable fees and expenses
of its legal counsel, and has also agreed to indemnify DLJ and certain related
parties against certain liabilities, including certain liabilities under the
Federal securities laws, arising out of the engagement. In the ordinary course
of business, Donaldson, Lufkin & Jenrette and its affiliates may actively trade
or hold the securities of TFC and the Company for their account or for the
account of customers and, accordingly, may at any time hold a long or short
position in such securities.
The Purchaser has retained D. F. King & Co., Inc. to act as the Information
Agent and EquiServe Limited Partnership to act as the Depositary in connection
with the Offer. The Information Agent may contact holders of Shares by mail,
telephone, telex, telegraph and personal interview and may request brokers,
dealers and other nominee stockholders to forward the Offer materials to
beneficial owners. The Information Agent and the Depositary will receive
reasonable and customary compensation for services relating to the Offer and
will be reimbursed for certain out-of-pocket expenses. The Purchaser and TFC
have also agreed to indemnify the Information Agent and the Depositary against
certain liabilities and expenses in connection with the Offer, including certain
liabilities under the Federal securities laws.
36
<PAGE> 39
The Purchaser will not pay any fees or commissions to any broker or dealer
or any other person for soliciting tenders of Shares pursuant to the Offer
(other than to the Dealer Manager, the Information Agent and the Depositary).
Brokers, dealers, commercial banks and trust companies will, upon request, be
reimbursed by the Purchaser for customary mailing and handling expenses incurred
by them in forwarding offering materials to their customers.
18. MISCELLANEOUS. The Offer is being made solely by this Offer to
Purchase and the related Letter of Transmittal and is being made to all holders
of Shares. The Purchaser is not aware of any state where the making of the Offer
is prohibited by administrative or judicial action pursuant to any valid state
statute. If the Purchaser becomes aware of any valid state statute prohibiting
the making of the Offer or the acceptance of Shares pursuant thereto, the
Purchaser will make a good faith effort to comply with any such state statute.
If after such good faith effort, the Purchaser cannot comply with such state
statute, the Offer will not be made to nor will tenders be accepted from or on
behalf of the holders of Shares in such state. In any jurisdiction where the
securities, blue sky or other laws require the Offer to be made by a licensed
broker or dealer, the Offer shall be deemed to be made on behalf of the
Purchaser by the Dealer Manager or one or more registered brokers or dealers
that are licensed under the laws of such jurisdiction.
The Purchaser and TFC have filed with the Commission a Schedule 14D-1
(including exhibits) pursuant to Rule 14d-3 under the Exchange Act, furnishing
certain additional information with respect to the Offer. Such statement and any
amendments thereto, including exhibits, may be inspected and copies may be
obtained from the offices of the Commission (except that they will not be
available at the regional offices of the Commission) in the manner set forth in
Section 8 of this Offer to Purchase.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR TFC NOT CONTAINED HEREIN OR IN THE
LETTER OF TRANSMITTAL AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
LIGHTHOUSE ACQUISITION CORP.
TEXTRON FINANCIAL CORPORATION
September 29, 1999
37
<PAGE> 40
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
1. Directors of the Purchaser. The name, business address, age, present
principal occupation or employment and five-year employment history of each
director of the Purchaser are set forth below. All directors listed below are
citizens of the United States of America. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to employment with
Purchaser. Unless otherwise indicated the business address of each such director
and officer is c/o Textron Financial Corporation, 40 Westminster Street,
Providence, Rhode Island 02903.
<TABLE>
<CAPTION>
AGE, PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME BUSINESS ADDRESS EMPLOYMENT HISTORY
---- ---------------- ---------------------------------
<S> <C> <C>
Stephen A. Giliotti Mr. Giliotti, 51, has been a Director
of the Purchaser since its formation on
September 21, 1999. He has been
Chairman, President and Chief Executive
Officer of TFC since 1999. He was
President of TFC from 1995 to 1999 and
Executive Vice President and Chief
Operating Officer of TFC from 1994 to
1995.
Buell J. Carter Mr. Carter, 53, has been a Director of
the Purchaser since its formation on
September 21, 1999. He has been
Executive Vice President and Chief
Operating Officer of TFC since 1999. He
was Senior Vice President -- Operations
of TFC from 1997 to 1999 and Vice
President, Division Manager, Asset
Based Finance of TFC from 1991 to 1997.
Elizabeth C. Perkins Ms. Perkins, 45, has been a Director of
the Purchaser since its formation on
September 21, 1999. She has been Senior
Vice President and General Counsel of
TFC since 1994.
</TABLE>
2. Executive Officers of the Purchaser. The name, business address, age,
present principal occupation or employment and five-year employment history of
each executive officer of the Purchaser are set forth below. All executive
officers listed below are citizens of the United States of America. Unless
otherwise indicated, each occupation set forth opposite an individual's name
refers to employment with Purchaser. Unless otherwise indicated the business
address of each such director and officer is c/o Textron Financial Corporation,
40 Westminster Street, Providence, Rhode Island 02903.
<TABLE>
<CAPTION>
AGE, PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME BUSINESS ADDRESS EMPLOYMENT HISTORY
---- ---------------- ---------------------------------
<S> <C> <C>
Buell J. Carter Mr. Carter has been the President of
the Purchaser since its formation on
September 21, 1999. For additional
information, see "Directors of the
Purchaser," above.
</TABLE>
I-1
<PAGE> 41
<TABLE>
<CAPTION>
AGE, PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME BUSINESS ADDRESS EMPLOYMENT HISTORY
---- ---------------- ---------------------------------
<S> <C> <C>
Elizabeth C. Perkins Ms. Perkins has been the Secretary of
the Purchaser since its formation on
September 21, 1999. For additional
information, see "Directors of the
Purchaser," above.
Brian F. Lynn Mr. Lynn has been the Treasurer of the
Purchaser since its formation on
September 21, 1999.
</TABLE>
3. Directors of TFC. The name, business address, age, present principal
occupation or employment and five-year employment history of each director of
TFC are set forth below. All directors listed below are citizens of the United
States of America. Unless otherwise indicated, each occupation set forth
opposite an individual's name refers to employment with TFC. Unless otherwise
indicated, the business address of each such director is c/o Textron Inc., 40
Westminster Street, Providence, Rhode Island 02903.
<TABLE>
<CAPTION>
AGE, PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME BUSINESS ADDRESS EMPLOYMENT HISTORY
---- ---------------- ---------------------------------
<S> <C> <C>
Edward C. Arditte Mr. Arditte, 45, has been a TFC
Director since May of 1997. He has been
Vice President and Treasurer of Textron
since 1997 and was Vice President
Finance of Business Development,
Textron Fastening Systems, from 1995 to
1997, and Vice
President -- Communications and Risk
Management of Textron from 1994 to
1995.
Lewis B. Campbell Mr. Campbell, 53, has been a TFC
Director since January of 1993. He has
been Chairman and Chief Executive
Officer of Textron since 1999 and was
President and Chief Executive Officer
from 1998 to 1999, and President and
Chief Operating Officer of Textron from
1994 to 1998.
Stephen A. Giliotti c/o Textron Financial Mr. Giliotti, 51, has been a TFC
Corporation Director since December of 1994. For
40 Westminster Street additional information, see "Directors
Providence, RI 02903 of the Purchaser" above.
John A. Janitz Mr. Janitz, 56, has been a TFC Director
since May 1999. He has been President
and Chief Operating Officer of Textron
Inc. since 1999. He was Chairman,
President and Chief Executive Officer
of Textron Automotive Company From 1996
to 1999, and Executive Vice President,
General Manager, Occupant Restraint,
Seat Belt and Fasteners of TRW, Inc.
from 1990 to 1996.
</TABLE>
I-2
<PAGE> 42
<TABLE>
<CAPTION>
AGE, PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME BUSINESS ADDRESS EMPLOYMENT HISTORY
---- ---------------- ---------------------------------
<S> <C> <C>
Wayne W. Juchatz Mr. Juchatz, 52, has been a TFC
Director since May of 1995. He has been
Executive Vice President and General
Counsel of Textron since 1995, and was
Executive Vice President, General
Counsel and Secretary of RJ Reynolds
Co. from 1994 to 1995.
</TABLE>
I-3
<PAGE> 43
4. Executive Officers of TFC. The name, business address, age, present
principal occupation or employment and five-year employment history of each
executive officer of TFC are set forth below. All executive officers listed
below are citizens of the United States of America. Unless otherwise indicated,
each occupation set forth opposite an individual's name refers to employment
with TFC. Unless otherwise indicated, the business address of each such officer
is c/o Textron Financial Corporation, 40 Westminster Street, Providence, Rhode
Island 02903.
<TABLE>
<CAPTION>
AGE, PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME BUSINESS ADDRESS EMPLOYMENT HISTORY
---- ---------------- ---------------------------------
<S> <C> <C>
Stephen A. Giliotti See "Directors of the Purchaser" above.
Buell J. Carter See "Directors of the Purchaser" above.
Andrew M. Chester Mr. Chester, 45, has been Senior Vice
President, Human Resources since 1998.
He was Vice President, Human Resources
from 1989 to 1998.
Thomas J. Cullen Mr. Cullen, 43, has been Senior Vice
President and Chief Financial Officer
since 1997. He was Senior Vice
President, Finance from 1995 to 1997
and was Vice President, and Controller
from 1992 to 1995. He was formerly
Senior Manager at Ernst & Young.
O. Lewis Humphrey Mr. Humphrey, 52, has been Senior Vice
President and Chief Credit Officer
since 1995. He was Vice President,
Corporate Investment Control from 1991
to 1995.
John W. Mayers, Jr. Mr. Mayers, 45, has been Senior Vice
President, Corporate Development since
1999. He was Vice President, Risk
Management and Insurance for Textron
from 1997 to 1999 and was Director,
Risk Management and Insurance for
Textron from 1993 to 1997.
Dan R. McCullough Mr. McCullough, 55, has been Senior
Vice President, Operations since 1995.
He was Vice President Vendor Finance
and Floorplan Finance from 1991 to
1995.
Richard H. Mitterling Mr. Mitterling, 52, has been Senior
Vice President, Operations since 1998.
He was Vice President, Division
Manager, Resort Receivable Division
from 1994 to 1998.
</TABLE>
I-4
<PAGE> 44
<TABLE>
Ronald W. Oake Mr. Oake, 55, has been Senior Vice
President, Operations since 1999. He was
Vice President, Division Manager, Floorplan
Finance Division from 1998 to 1999;
General Manager of Avco Financial Services
from 1995 to 1998; and was Vice President,
Operations, Floorplan Finance Division from
1992 to 1995.
<S> <C> <C>
Elizabeth C. Perkins See "Directors of the Purchaser" above.
David A. Raspallo Mr. Raspallo, 40, has been Senior Vice
President and Chief Information Officer
since 1998. He was Vice President,
Financial Segments TFC/AFS from 1998 to
1999 and was Vice President, Information
Systems from 1993 to 1998.
Barry L. Elfstrom Mr. Elfstrom, 47, has been Vice President,
Controller Financial Reporting since 1999.
He was Vice President and Controller or
Assistant Controller 1986 to 1999.
Brian F. Lynn Mr. Lynn, 39, has been Vice President and
Treasurer since 1999. He was Vice
President, Division Manager, Vendor Finance
Division from 1996 to 1999 and was Vice
President and Treasurer from 1994 to 1996.
Eric Salander Mr. Salander, 40, has been Vice President,
Finance since 1999. He was Vice President,
Strategic Planning from 1996 to 1999. He
was Vice President Administration for AAA
South Central NE from 1995 to 1996 and was
Manager at Ernst & Young from 1989 to 1995.
Kathleen A. Smith Ms. Smith, 50, has been Vice President, Tax
since 1998. She was Assistant Vice
President, Tax from 1996 to 1998 and was
Senior Manager of Tax for Lefkowitz,
Garfunkel, Champi & DiRenzo from 1992 to
1996.
</TABLE>
I-5
<PAGE> 45
5. Directors of Textron. The name, business address, age, present principal
occupation or employment and five-year employment history of each director and
executive officer of Textron are set forth below. All directors listed below are
citizens of the United States of America except for Mr. Gagne (who is a citizen
of Canada). Unless otherwise indicated, each occupation set forth opposite an
individual's name refers to employment with Textron. Unless otherwise indicated
the business address of each such director is c/o Textron Inc., 40 Westminster
Street, Providence, Rhode Island 02903.
<TABLE>
<CAPTION>
AGE, PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME BUSINESS ADDRESS EMPLOYMENT HISTORY
---- ---------------- ---------------------------------
<S> <C> <C>
H. Jesse Arnelle Womble, Carlyle, Sandridge & Rice Mr. Arnelle, 65, was a senior partner in the law
200 W. Second Street firm of Arnelle, Hastie, McGee, Willis & Greene,
Winston-Salem, NC 27102 San Francisco, with which he had been associated
from 1985 through his retirement in 1996.
Following his retirement, he became Of Counsel to
the North Carolina law firm of Womble, Carlyle,
Sandridge & Rice. Mr. Arnelle is a director of FPL
Group, Inc., Waste Management, Inc., Eastman
Chemical Corporation, Armstrong World Industries
and Union Pacific Resources, Inc. and served from
November 1990 through 1998 as a director of Wells
Fargo Bank, N.A. and Wells Fargo & Company.
Teresa Beck 1681 South Mowhawk Way Ms. Beck, 45, is the former President of American
Salt Lake City, UT 84108 Stores Company, one of the nation's largest food
and drug retailers. She joined American Stores
Company in 1982 and progressed through various
executive positions. Ms. Beck was named Senior
Vice President of Finance and Assistant Secretary
in 1989, became Executive Vice President,
Administration in 1992 and Executive Vice
President, Finance in 1994 and assumed the
additional position of Chief Financial Officer
from 1995. She became President in 1998 and served
in that capacity until 1999 when she left the
Company.
Lewis B. Mr. Campbell, 53, is Chairman and Chief Executive
Campbell Officer of Textron. He joined Textron in 1992 as
Executive Vice President and Chief Operating
Officer, became President and Chief Operating
Officer in 1994, assumed the title of Chief
Executive Officer and relinquished the title of
Chief Operating Officer in July 1998 and assumed
the title of Chairman and relinquished the title
of President in February 1999. Prior to joining
Textron he was a Vice President of General Motors
Corporation and General Manager of its GMC Truck
Division. Mr. Campbell is a director of Bristol
Myers Squibb Co.
R. Stuart Ruddick Corporation Mr. Dickson, 70, was Chairman of the Board of
Dickson 2000 First Union Plaza Ruddick Corporation, a diversified holding company
Charlotte, NC 28282 with interests in industrial sewing thread and
regional supermarkets, from 1968 until 1994. Mr.
Dickson currently serves as Chairman of the
Ruddick Executive Committee. Mr. Dickson is a
director of Ruddick Corporation, First Union
Corporation, PCA International, United Dominion
Industries and Dimon Incorporated.
</TABLE>
I-6
<PAGE> 46
<TABLE>
Lawrence K. Fish Citizens Financial Group, Inc. Mr. Fish, 54, is Chairman, President and Chief Executive
One Citizens Plaza Officer of Citizens Financial Group, Inc., a multi-state
Providence, RI 02903 bank holding company headquartered in Providence,
Rhode Island, a position he has held since joining the
bank in 1992. He is a director of the Royal Bank of
Scotland Group. Mr. Fish is a member of the Federal
Reserve Advisory Council and the past co-chair of the
Rhode Island Economic Development Council.
<S> <C> <C>
Joe T. Ford ALLTEL Corporation Mr. Ford, 62, is Chairman of the Board and chief
One Allied Drive executive officer of ALLTEL Corporation, a
Little Rock, AR 72202 telecommunications and information services company. He
was named President of ALLTEL upon its formation in 1983
from a merger between Allied Telephone Company in Little
Rock and Mid-Continental Telephone Corporation, became
chief executive officer in 1987 and assumed his current
position in 1991. Mr. Ford is a director of The Dial
Corporation.
Paul E. Gagne Krager, Inc. Mr. Gagne, 53, was President and Chief Executive Officer
3285 Bedford Road of Avenor Inc., a forest products company, and is now a
Montreal, Quebec H35 1G5 consultant in the area of corporate strategic planning
Canada and acquisitions. He joined Avenor in 1976, became
President and chief operating officer in 1990 and
assumed the additional position of chief executive
officer in 1991 serving in that capacity until November
1997, when he left the company. In 1998, Mr. Gagne
joined Kroger Inc., a major privately held producer of
paper and tissue, as advisor, corporate strategy and
acquisitions. He is a director of Inmet Mining
Corporation, Wajax Limited, Celanese Canada Limited and
Kroger Tissue Group (U.K.), and a member of the board of
the C.D. Howe Institute.
John A. Janitz Mr. Janitz, 56, is President and Chief Operating Officer
of Textron. He joined Textron in 1996 as Chairman,
President and Chief Executive Officer of Textron
Automotive Company and assumed his present position in
March 1999. From 1990 to 1996 he was Executive Vice
President and General Manager of TRW Inc.'s Occupant
Restraint Group based in Cleveland, Ohio, a worldwide
business that develops, manufactures and markets air
bags, seat belts and fastening systems. Prior to joining
TRW, he was President of Wickes Manufacturing Company,
an automotive supplier based in Southfield, Michigan.
John D. Macomber JDM Investment Group Mr. Macomber, 71, is Principal of JDM Investment Group,
2806 N Street, N.W. a private investment firm. He joined the firm as
Washington, DC 20007 Principal in 1992. He served as Chairman and President
of the Export-Import Bank of the United States from 1989
to 1992. Mr. Macomber was chief executive officer of
Celanese Corporation, a diversified chemical company,
from 1977 to 1986 and also served as Chairman from 1980
to 1986. He is a director of The Brown Group, Inc., IRI
International, Lehman Brothers Holdings Inc., and
Mettler-Toledo International Inc.
</TABLE>
I-7
<PAGE> 47
<TABLE>
Dana G. Mead Tenneco, Inc. Mr. Mead, 63, is Chairman and chief executive officer of
1275 King Street Tenneco Inc., a global manufacturing company that owns
Greenwich, CT 06831 and manages businesses in two sectors: automotive parts
and packaging. He joined the company as President and
chief operating officer in 1992 and assumed his current
position in 1994. Prior to joining Tenneco, Mr. Mead was
Executive Vice President and a director of International
Paper Company, a manufacturer of paper, pulp and wood
products. Mr. Mead is also a director of Pfizer Inc., the
Zurich Insurance Group, Unisource Worldwide, Inc. and
Newport News Shipbuilding Inc., a former Tenneco
subsidiary.
<S> <C> <C>
Brian H. Rowe GE Aircraft Engines Mr. Rowe, 68, is the retired Chairman and now a
General Electric Company consultant of GE Aircraft Engines, General Electric
1 Newmann Way, N178 Company, a manufacturer of combustion turbine engines for
Cincinnati, OH 45215 aircraft, marine and industrial applications. He joined
General Electric in 1957, became President and Chief
Executive Officer of GEAE in 1979 and Chairman in 1993,
serving in that capacity until his retirement in 1994.
Mr. Rowe is a director of Atlas Air, Inc., B/E Aerospace,
Canadian Marconi, Fifth Third Bank, Stewart & Stevenson
Services, Inc., Cincinnati Bell Inc., Convergys and
Dynatech Corporation.
Sam F. Segnar 10077 Grogan's Mill Road Mr. Segnar, 72, is the retired Chairman and Chief
Suite 530 Executive Officer of Enron Corporation and former
The Woodlands, TX 77380 Chairman of the Board of Vista Chemical Co. and
Collecting Bank, N.A., Houston, TX. Mr. Segnar is a
director of Seagull Energy Corporation and Gulf States
Utilities Company, and an advisory director of Pilko and
Associates Inc.
Jean Head Sisco Sisco Associates Mrs. Sisco, 74, is a partner in the international trade
5335 Wisconsin Avenue consulting firm of Sisco Associates. She is a director of
Suite 440 The Neiman Marcus Group, Inc., Newmont Mining
Washington, DC 20015-2034 Corporation, Chiquita Brands International, Inc., K-Tron
International, Inc., American Funds -- Series I and
Socrates Technology. She held various executive offices
with the Washington, D.C. department store chain of
Woodward & Lothrop from 1950 to 1974. She served as a
consultant on governmental and public affairs to the
American Retail Federation from 1974 to 1977 and is a
past Chairman and a director of the National Association
of Corporate Directors.
Martin D. Walker M. A. Hanna Company Mr. Walker, 67, is Chairman of M. A. Hanna Company, an
200 Public Square international specialty chemicals company. He held the
Suite 36-50000 position of Chairman and Chief Executive Officer from
Cleveland, OH 44114-2304 September 1986 until December 1996, and then continued as
chairman of the board until June 1997, when he retired.
Mr. Walker was again elected to Chairman and Chief
Executive Officer in October 1998 and relinquished the
title of Chief Executive Officer in June 1989. He is a
director of Comerica, Inc., The Timken Company, The
Goodyear Tire & Rubber Co. and Lexmark International,
Inc.
</TABLE>
I-8
<PAGE> 48
<TABLE>
Thomas B. Massachusetts Mutual Life Mr. Wheeler, 63, is Chairman of Massachusetts Mutual
Wheeler Insurance Company Life Insurance Company. He was a member of the
1295 State Street Massachusetts Mutual field sales force from 1962 to
Springfield, MA 01111 1983, served as Executive Vice President of
Massachusetts Mutual's insurance and financial
management line from 1983 to 1986, became President
and chief operating officer in 1987, President and Chief
Executive Officer in 1988 and Chairman and Chief
Executive Officer in 1996. He relinquished the title of
Chief Executive Officer in January 1999. He is a director
of The Bank of Boston Corporation and Chairman of
Oppenheimer Acquisition Corp. and David L. Babson &
Co. Inc.
<S> <C> <C>
</TABLE>
6. Executive Officers of Textron. The name, business address, age, present
principal occupation or employment and five-year employment history of each
executive officer of TFC are set forth below. All executive officers listed
below are citizens of the United States of America. Unless otherwise indicated,
each occupation set forth opposite an individual's name refers to employment
with TFC. The business address of each such executive officer is c/o Textron
Inc., 40 Westminster Street, Providence, Rhode Island 02903.
<TABLE>
<CAPTION>
AGE, PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR
NAME BUSINESS ADDRESS EMPLOYMENT HISTORY
---- ---------------- ---------------------------------
<S> <C> <C>
Lewis B.
Campbell See "Directors of TFC" above.
John A. Janitz See "Directors of TFC" above.
John D. Butler Mr. Butler, 52, is Executive Vice President
Administration and Chief Human Resources Officer,
a title he assumed in January 1999. He previously
was Executive Vice President and Chief Human
Resources Officer (1997 to December 1998) and Vice
President Personnel of General Motors
International Operations, Zurich, Switzerland
(1993 to 1997).
Mary L. Howell Ms. Howell, 47, is Executive Vice President
Government, International, Communications and
Investor Relations, a title she assumed in July
1998. She previously was Executive Vice President
Government and International (1995 to July 1998)
and Senior Vice President Government and
International Relations (1993 to 1995).
Wayne W. Juchatz See "Directors and executive officers of
Purchaser" above.
Stephen L. Key Mr. Key, 56, is Executive Vice President and Chief
Financial Officer, a title he assumed in 1995. He
previously was Executive Vice President and Chief
Financial Officer of ConAgra, Inc. (1992 to 1995).
</TABLE>
7. Ownership of Shares by Directors and Officers of Purchaser, TFC or
Textron. None.
I-9
<PAGE> 49
ANNEX I
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Textron Financial Corporation
We have audited the accompanying consolidated balance sheet of Textron
Financial Corporation as of January 2, 1999 and January 3, 1998, and the related
consolidated statements of income, cash flows, and changes in shareholder's
equity for each of the three years in the period ended January 2, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Textron
Financial Corporation at January 2, 1999 and January 3, 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended January 2, 1999, in conformity with generally accepted
accounting principles.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
January 26, 1999
A-1
<PAGE> 50
TEXTRON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
For each of the three years in the period ended January 2, 1999
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Finance charges and discounts............................... $297,091 $290,943 $281,830
Rental revenues on operating leases......................... 17,181 18,664 19,071
Other income................................................ 52,890 40,613 26,346
-------- -------- --------
367,162 350,220 327,247
Expenses
Interest.................................................... 155,126 153,127 146,615
Selling and administrative.................................. 71,587 57,757 50,121
Provision for losses........................................ 20,483 22,824 26,350
Depreciation of equipment on operating leases............... 7,340 8,433 8,437
-------- -------- --------
254,536 242,141 231,523
-------- -------- --------
Income before income taxes.................................. 112,626 108,079 95,724
Income taxes................................................ 43,050 40,338 37,385
-------- -------- --------
Net income.................................................. $ 69,576 $ 67,741 $ 58,339
======== ======== ========
</TABLE>
See notes to consolidated financial statements
A-2
<PAGE> 51
TEXTRON FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3,
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and equivalents........................................ $ 22,396 $ 13,597
Finance receivables, net of unearned income:
Installment contracts.................................. 1,338,644 1,140,460
Floorplan receivables.................................. 572,289 408,721
Revolving loans........................................ 555,571 392,787
Finance leases......................................... 424,436 392,326
Leveraged leases....................................... 345,873 329,811
Golf course and resort mortgages....................... 342,844 355,357
Commercial real estate mortgages....................... 31,740 49,661
---------- ----------
Total finance receivables......................... 3,611,397 3,069,123
Allowance for losses on receivables.................... (83,887) (77,394)
---------- ----------
Finance receivables -- net.................................. 3,527,510 2,991,729
Equipment on operating leases -- net........................ 118,590 111,518
Other assets................................................ 116,042 61,121
---------- ----------
Total assets...................................... $3,784,538 $3,177,965
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Accrued interest and other liabilities...................... $ 143,316 $ 81,812
Amounts due to Textron Inc.................................. 18,419 6,416
Deferred income taxes....................................... 321,521 319,293
Debt........................................................ 2,828,830 2,364,568
---------- ----------
Total liabilities................................. 3,312,086 2,772,089
---------- ----------
Shareholder's equity
Common stock, $100 par value (4,000 shares authorized; 2,500
shares issued and outstanding)............................ 250 250
Capital surplus............................................. 155,171 95,871
Retained earnings........................................... 317,031 309,755
---------- ----------
Total shareholder's equity........................ 472,452 405,876
---------- ----------
Total liabilities and shareholder's equity........ $3,784,538 $3,177,965
========== ==========
</TABLE>
See notes to consolidated financial statements
A-3
<PAGE> 52
TEXTRON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For each of the three years in the period ended January 2, 1999
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 69,576 $ 67,741 $ 58,339
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase (decrease) in accrued interest and other
liabilities....................................... 42,209 (4,901) (4,532)
Provision for losses................................ 20,483 22,824 26,350
Depreciation and amortization....................... 13,716 11,221 10,936
Deferred income taxes............................... 2,228 3,927 12,625
Leveraged lease earnings in excess of cash
received.......................................... (7,646) (5,162) (7,707)
Gain on receivables securitization.................. (3,400) (3,500) --
Other............................................... 7,141 462 2,860
---------- ---------- ----------
Net cash provided by operating activities...... 144,307 92,612 98,871
CASH FLOWS FROM INVESTING ACTIVITIES:
Finance receivables originated or purchased.............. (4,069,256) (2,711,680) (2,287,293)
Finance receivables repaid or sold....................... 3,458,873 2,444,301 2,090,923
Proceeds from receivables securitization................. 259,577 373,046 --
Acquisitions, net of cash acquired....................... (203,203) -- --
Purchase of assets for operating leases.................. (36,840) (38,073) (52,572)
Proceeds from disposition of operating lease and other
assets................................................. 25,892 45,409 43,061
Other capital expenditures............................... (12,948) (7,443) (2,559)
Proceeds from real estate owned.......................... 2,028 5,460 6,134
Other investments........................................ (5,997) -- --
---------- ---------- ----------
Net cash provided by (used in) investing
activities................................... (581,874) 111,020 (202,306)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt................. 370,000 200,000 345,000
Principal payments on long-term debt..................... (304,311) (335,880) (185,128)
Net increase in commercial paper......................... 188,176 23,313 10,034
Net increase (decrease) in short-term bank debt.......... 163,031 35,739 (5,182)
Proceeds from issuance of non-recourse debt.............. 60,404 -- --
Principal payments on non-recourse debt.................. (39,937) (38,938) (34,882)
Net increase (decrease) in amounts due to Textron Inc.... 12,003 (7,744) 6,576
Capital contribution from Textron Inc.................... 59,300 -- --
Dividends paid to Textron Inc............................ (62,300) (73,580) (29,100)
---------- ---------- ----------
Net cash provided by (used in) financing
activities................................... 446,366 (197,090) 107,318
---------- ---------- ----------
Net increase in cash..................................... 8,799 6,542 3,883
Cash and equivalents at beginning of year................ 13,597 7,055 3,172
---------- ---------- ----------
Cash and equivalents at end of year...................... $ 22,396 $ 13,597 $ 7,055
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
A-4
<PAGE> 53
TEXTRON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
For each of the three years in the period ended January 2, 1999
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED
STOCK SURPLUS EARNINGS TOTAL
------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance December 30, 1995........................... $250 $ 95,871 $286,355 $382,476
Net income.......................................... -- -- 58,339 58,339
Dividends to Textron Inc............................ -- -- (29,100) (29,100)
---- -------- -------- --------
Balance December 28, 1996........................... 250 95,871 315,594 411,715
Net income.......................................... -- -- 67,741 67,741
Dividends to Textron Inc............................ -- -- (73,580) (73,580)
---- -------- -------- --------
Balance January 3, 1998............................. 250 95,871 309,755 405,876
Net income.......................................... -- -- 69,576 69,576
Capital contribution from Textron................... -- 59,300 -- 59,300
Dividend to Textron Inc............................. -- -- (62,300) (62,300)
---- -------- -------- --------
Balance January 2, 1999............................. $250 $155,171 $317,031 $472,452
==== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
A-5
<PAGE> 54
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Textron Financial Corporation ("TFC") is a diversified commercial finance
company offering specialized lending for equipment finance, revolving credit
arrangements and leveraged leasing. TFC originates loan and lease transactions
for numerous industries including aircraft, golf, timeshare resorts,
transportation and machine tool. TFC's other financial services and products
include syndications, asset management, portfolio servicing and insurance
brokerage. TFC is a subsidiary of Textron Inc. ("Textron"), a $10 billion
global, multi-industry company with market-leading businesses in Aircraft,
Automotive, Industrial and Finance. At January 2, 1999, TFC's finance
receivables which were related to Textron or Textron's products comprised 27% of
TFC's total managed finance receivables. TFC's principal markets are located in
North America.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
TFC and its subsidiaries, all of which are wholly-owned. All significant
inter-company transactions are eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in those statements and
accompanying notes. Actual results may differ from such estimates.
Finance Charges, Discounts and Investment Tax Credits
Finance charges and discounts include interest on loans, capital lease
earnings and discounts on certain revolving credit arrangements. Finance charges
and investment tax credits are recognized in finance charge revenues using the
interest method to produce a constant rate of return over the terms of the
receivables. Accrual of interest income is suspended for accounts which are
contractually delinquent by more than three months, unless collection is not
doubtful. In addition, detailed reviews of loans may result in earlier
suspension if collection is doubtful. Accrual of interest is resumed when the
loan becomes contractually current, and suspended interest income is recognized
at that time.
Other Income
Other income includes late charges, prepayment penalties, residual gains
and other miscellaneous fees which are primarily recognized as income when
received.
Other income also includes gains on the sale of loans and leases. When TFC
sells loans and leases in securitizations, it retains interest-only strips,
subordinated tranches, servicing rights, and cash reserve accounts. Gain or loss
on sale depends in part on the previous carrying amount of retained interest,
allocated in proportion to their fair value. Subsequent to the sales, certain
retained interests are carried at fair value and accounting for other retained
interests is based in part on fair values. TFC generally estimates fair value
based on the present value of future cash flows expected under management's best
estimates of the key assumptions-credit losses, prepayment speeds, forward yield
curves, and discount rates commensurate with the risks involved.
Finance Receivable Origination Fees and Costs
Fees received and direct loan origination costs are deferred and amortized
to finance charge revenues over the contractual lives of the respective
receivables using the interest method. Unamortized amounts are recognized in
revenues when receivables are sold or paid in full.
A-6
<PAGE> 55
Allowance for Losses on Receivables
Provisions for losses on finance receivables are charged to income in
amounts sufficient to maintain the allowance at a level considered adequate to
cover losses in the existing receivable portfolio. Management evaluates the
allowance by examining current delinquencies, the characteristics of the
existing accounts, historical loss experience, the value of the underlying
collateral and general economic conditions and trends.
Finance receivables are written off when they are deemed uncollectible.
Finance receivables are written down to the fair value (less estimated costs to
sell) of the related collateral when the collateral is repossessed or when no
payment has been received for six months, unless management deems the receivable
collectible. Foreclosed real estate loans and repossessed assets are transferred
out of finance receivables into other assets at the lower of fair value (less
estimated costs to sell) or the outstanding loan balance. The difference between
the amount transferred and the outstanding loan balance is written off. The
carrying value of real estate owned is periodically reevaluated, and where
appropriate, adjustments are made through a valuation allowance to reflect
subsequent changes in fair value, but the carrying amount is never increased
above the amount originally transferred.
Equipment on Operating Leases
Income from operating leases is recognized in equal amounts over the lease
term. The cost of such assets is capitalized and depreciated to estimated
residual values using the straight-line method over the estimated useful lives
of the assets or the lease term.
Employee Benefits
The Company participates in a Textron pension plan which provides pension
benefits to substantially all of the Company's employees. The benefits are based
on the employees' compensation and years of service. Textron's funding policy is
consistent with the funding requirements of federal law and regulation. Plan
assets consist principally of corporate and government bonds and common stocks.
Pension cost in 1998, 1997 and 1996 was $1.2 million, $0.9 million and $0.7
million, respectively.
Foreign Currency Exchange Contracts
TFC has entered into foreign currency exchange contracts to minimize its
currency exchange risk on its foreign currency receivables and debt. Gains and
losses on foreign currency exchange contracts that hedge foreign currency
receivables and debt are recognized in income as the exchange rates change and
offset foreign currency gains and losses on the foreign currency receivables and
debt. While TFC is exposed to credit loss in the event of nonperformance by the
other parties to the contracts, TFC does not anticipate nonperformance by any of
those parties. Foreign currency exchange gains and losses in 1998, 1997 and 1996
were not material.
Interest Rate Exchange Agreements
As part of managing interest rate exposure on its variable interest rate
borrowings, TFC is a party to various interest rate exchange agreements. While
TFC is exposed to credit loss for the periodic settlement of amounts due under
such agreements in the event of nonperformance by the counterparties, TFC does
not anticipate nonperformance by any of those parties. TFC currently minimizes
this potential for risk by entering into contracts exclusively with major,
financially sound counterparties having no less than a long-term bond rating of
"A" by continuously monitoring the counterparties' credit rating and by limiting
exposure with any one financial institution. The risk of loss in the event of
nonperformance by the counterparties was insignificant at January 2, 1999.
Interest differentials to be paid or received are accrued and recognized in
interest expense over the lives of the agreements.
Fees and expenses incurred to enter into interest rate exchange agreements
are deferred and subsequently amortized to expense over the terms of the
agreements.
A-7
<PAGE> 56
Income Taxes
TFC's revenues and expenses are included in Textron's consolidated tax
return. Current tax expense is based on allocated federal tax charges and
benefits on the basis of statutory U.S. tax rates applied to the Company's
taxable income or loss included in Textron's consolidated returns.
Deferred income taxes are recognized for temporary differences between the
financial reporting basis and income tax basis of assets and liabilities, based
on enacted tax rates expected to be in effect when such amounts are expected to
be realized or settled.
Intangible Assets
Goodwill is amortized over its estimated period of benefit on a
straight-line basis; other intangible assets, including internal-use software,
are amortized on a straight-line basis over their estimated lives. No
amortization period exceeds 25 years.
Fair Value of Financial Instruments
Fair values of financial instruments are based upon estimates at a specific
point in time using available market information and appropriate valuation
methodologies. These estimates are subjective in nature and involve
uncertainties and significant judgment in the interpretation of current market
data. Therefore, the fair values presented are not necessarily indicative of
amounts TFC could realize or settle currently. TFC does not necessarily intend
to dispose of or liquidate such instruments prior to maturity.
Cash and Equivalents
Cash and equivalents consist of cash in banks and overnight interest
bearing deposits in banks.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
NOTE 2
RELATIONSHIP WITH TEXTRON INC.
TFC is a wholly-owned subsidiary of Textron and derives a portion of its
business from financing the sale and lease of products manufactured and sold by
Textron. TFC recognized finance charge revenues from Textron and affiliates (net
of payments or reimbursements for interest charged at more or less than market
rates on Textron manufactured products) of $3.7 million in 1998, $0.1 million in
1997, with no net revenue in 1996 and operating lease revenues of $10.8 million
in 1998, $13.3 million in 1997 and $13.7 million in 1996. In 1998, 1997 and
1996, TFC paid Textron $980.4 million, $736.3 million and $662.9 million,
respectively, for the purchase of receivables and operating lease assets.
TFC and Textron are parties to several agreements, collectively referred to
as operating agreements, which govern many areas of the TFC-Textron
relationship.
Under operating agreements with Textron, TFC has recourse to Textron with
respect to certain finance receivables and operating leases. Finance receivables
of $540.2 million at January 2, 1999 and $518.9 million at January 3, 1998 and
operating leases of $76.6 million at both January 2, 1999 and January 3, 1998
were subject to recourse to Textron or due from Textron. In addition, TFC had
recourse to Textron on subordinated certificates of $27 million and $16 million
at year-end 1998 and 1997, respectively, and on cash reserves of $10 million and
$6 million at year-end 1998 and 1997 respectively. Both the subordinated
certificates and the cash reserves were related to receivable securitizations.
Under the operating agreements between Textron and TFC, Textron has made
available to TFC a $100 million line of credit for junior subordinated
borrowings at the prime interest rate (7.75% at January 2, 1999). TFC had no
borrowings under this line at January 2, 1999 or January 3, 1998. In addition,
Textron has
A-8
<PAGE> 57
agreed to lend TFC, interest-free, an amount not to exceed the deferred income
tax liability of Textron attributable to the manufacturing profit deferred for
tax purposes on products manufactured by Textron and financed by TFC. TFC had
borrowings from Textron of $18.8 million at January 2, 1999 ($20.2 million at
January 3, 1998) under this arrangement, which are reflected in Amounts due to
Textron Inc. and in Accrued Interest and Other Liabilities on TFC's consolidated
balance sheet.
Textron has also agreed with TFC to cause TFC's pretax income available for
fixed charges to be not less than 125% of its fixed charges and its consolidated
shareholder's equity to be not less than $200 million. No related payments were
required for 1998, 1997 or 1996.
TFC has an income tax liability of $4.6 million at January 2, 1999, as
compared to an income tax receivable of $5.8 million at January 3, 1998. These
amounts are included in Accrued Interest and Other Liabilities on TFC's
consolidated balance sheet, and will be settled with Textron as Textron manages
its consolidated federal tax position.
NOTE 3
ACQUISITIONS
During 1998, TFC acquired two businesses -- Systran Financial Services
Corporation and Business Leasing Group. These transactions were accounted for
using the purchase method. Each company's results of operations are included in
TFC's consolidated financial statements from the date of each acquisition.
Systran Financial Services Corporation, a receivable factoring company, was
acquired in the first quarter of 1998. The total purchase price was $22.8
million. The fair value of the assets acquired was $67.5 million and liabilities
assumed were $59.2 million. The goodwill associated with this transaction is
being amortized over 25 years.
Business Leasing Group, an equipment leasing division of a commercial bank,
was acquired on December 31, 1998. The total purchase price was $186.4 million.
TFC is in the process of finalizing the purchase price allocation for this
acquisition.
Had the acquisitions occurred on January 4, 1998, the effect on TFC's 1998
results would not have been material. Consequently, pro forma information has
not been presented.
NOTE 4
RECEIVABLE SECURITIZATIONS
TFC securitized $273 million and $401 million of loan and lease receivables
in the third quarters of 1998 and 1997, respectively. These transactions
resulted in gains of $3.4 million and $3.5 million in 1998 and 1997,
respectively. Retained interests in transferred assets consist primarily of
subordinated certificates totaling $27 million at year-end 1998 and $16 million
at year-end 1997, as well as interest-only securities. Additionally, $4 million
of proceeds were used to fund a restricted cash reserve to support the 1998
transaction, as compared to $6 million in 1997. Both the subordinated
certificates and the cash reserve are included in Other Assets on TFC's
consolidated balance sheet. TFC did not recognize a servicing asset or
liability.
Interest-only securities represent the right to receive certain cash flows
which exceed the amount of cash flows sold in TFC's securitized contract sale.
Interest-only securities generally represent the value of interest to be
collected on the underlying financial contracts of the securitization over the
sum of the interest to be paid to security classes sold, contractual servicing
fees and credit losses. These cash flows are projected and discounted over the
expected life of the financial contracts using prepayment, default, loss and
interest rate assumptions that TFC believes market participants would use for
similar financial instruments.
TFC has entered into certain interest rate exchange agreements to mitigate
its exposure to decreases in interest rates on its interest-only securities.
Under the interest rate exchange agreements, TFC makes periodic variable rate
payments based upon the prime rate and the one and six month London Interbank
Offered Rate (LIBOR) and receives fixed rate payments. These interest rate
exchange agreements are adjusted periodically
A-9
<PAGE> 58
to match the amortization of the variable rate contracts in the securitized
portfolio and are summarized in the following table:
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
------- -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Prime rate.................................................. 7.75% 8.50%
One-Month LIBOR............................................. 4.94% --
----- -----
1998 Securitization
Notional principal -- variable............................ --
payments tied to the prime rate........................... $55.3 --
Fixed Rate................................................ 7.94%
----- -----
Notional principal -- variable............................ --
Payments tied to LIBOR................................. $34.3 --
Fixed rate............................................. 5.13%
Six-month LIBOR............................................. 4.94% 5.72%
----- -----
1997 Securitization
Notional principal variable
payments tied to the prime rate........................ $46.6 $69.5
Fixed rate........................................... 8.77% 8.77%
----- -----
Notional principal -- variable
Payments tied to LIBOR................................. $21.2 $44.4
Fixed rate........................................... 5.97% 5.97%
===== =====
</TABLE>
Interest rate floor agreements, entered into through AAA-rated
counterparties to the Textron Financial Corporation Receivables Trust 1998-A and
1997-A (the Trusts), provide a minimum interest rate on variable rate
receivables held by the Trusts and are tied to both the prime rate and the one-
and six-month LIBOR. These interest rate floor agreements are adjusted
periodically to match the amortization of the variable rate contracts in the
securitized portfolio and are summarized as follows:
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
------- -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Prime rate.................................................. 7.75% 8.50%
One-month LIBOR............................................. 4.94% --
----- -----
1998 Securitization
Notional principal tied to the prime rate.............. $57.6 --
Floor rate............................................. 8.50% --
Notional principal tied to LIBOR....................... $36.5 --
----- -----
Floor rate.................................................. 5.34%
Six-month LIBOR............................................. 4.94% 5.72%
1997 Securitization
Notional principal tied to the prime rate.............. $70.5 $72.5
Floor rate............................................. 8.50% 8.50%
Notional principal tied to LIBOR....................... $37.1 $45.7
Floor rate............................................. $5.65% $5.65%
----- -----
</TABLE>
TFC also has a securitization program consisting of a $160 million interest
in a designated pool of installment contracts. Subsequent collections of
installment contracts sold typically are reinvested in the pool of eligible
assets to maintain an aggregate outstanding balance of sold installment
contracts at a constant amount. Receivables sold which remained uncollected at
January 2, 1999 were $160 million. The ongoing purchase arrangement is
discretionary on the part of both parties and has been extended through 2000.
A-10
<PAGE> 59
NOTE 5
FINANCE RECEIVABLES
Contractual Maturities
The contractual maturities of finance receivables outstanding at January 2,
1999 were as follows:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER TOTAL
---------- -------- -------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Installment contracts....................... $ 306,325 $224,078 $185,854 $134,902 $113,532 $373,953 $1,338,644
Floorplan receivables....................... 435,811 102,048 34,004 426 -- -- 572,289
Revolving loans............................. 376,286 19,882 57,400 91,259 8,726 2,018 555,571
Finance leases.............................. 101,276 93,066 90,320 53,279 35,384 51,111 424,436
Leveraged leases............................ 3,553 8,458 (4,411) (6,240) (5,286) 349,799 345,873
Golf course and resort mortgages............ 18,291 56,782 73,830 21,290 56,368 116,283 342,844
Commercial real estate mortgages............ 22,080 9,660 -- -- -- -- 31,740
---------- -------- -------- -------- -------- -------- ----------
Total finance receivables........... $1,263,622 $513,974 $436,997 $294,916 $208,724 $893,164 $3,611,397
========== ======== ======== ======== ======== ======== ==========
</TABLE>
Finance receivables often are repaid or refinanced prior to contractual
maturity. Accordingly, the foregoing tabulation should not be regarded as a
forecast of future cash collections. During 1998 and 1997, cash collections of
finance receivables (excluding proceeds from sales of receivable portfolios)
were $3.41 billion and $2.29 billion, respectively. Revolving loans generally
have terms of one to three years, and at times convert to term loans that
contractually amortize over an average term of seven years. Floorplan and
revolving loans are cyclical and result in cash turnover that is several times
larger than contractual maturities. In 1998, such cash turnover was 4.0 times
contractual maturities. Finance leases include residual values expected to be
realized at contractual maturity. The ratio of cash collections (net of finance
charges) to average net receivables, excluding floorplan and revolving
receivables, was approximately 56% in 1998 and 48% in 1997. Leveraged leases
reflect contractual maturities net of contractual non-recourse debt payments and
include residual values expected to be realized at contractual maturity.
Installment contracts have initial terms generally ranging from one to 12
years. Commercial real estate and golf course mortgages have initial terms
generally ranging from three to seven years with amortization periods from 15 to
20 years. Finance leases have initial terms generally up to 12 years. Leveraged
leases have initial terms up to approximately 30 years. Floorplan and revolving
receivables generally mature within one year.
Finance leases and installment contracts are secured by the financed
equipment and, in some instances, by the personal guarantee of the principals or
recourse arrangements with the originating vendor. Golf course and resort
mortgages are generally secured by real property and are limited to 70% or less
of the property's appraised market value at loan origination. Commercial real
estate loans are secured by real property and are generally limited to 80% or
less of the property's appraised market value at loan origination. Leveraged
leases are secured by the ownership of the leased asset. Floorplan receivables
are secured by the inventory of the financed distributor or dealer and, in some
programs, by recourse arrangements with the originating manufacturer. Revolving
loans consist of loans secured by pools of vacation interval notes receivable
and the underlying real property, trade receivables, inventory, and plant and
equipment.
TFC's finance receivables are diversified across geographic region,
borrower industry and type of collateral. TFC's owned and securitized receivable
geographic concentrations at January 2, 1999 were as follows: Southeast 25%; Far
West 16%; Southwest 10%; Great Lakes 10%; Mideast 10%; Plains 9%; New England
5%; other domestic 4%; and international 11%. TFC's most significant collateral
concentration was aircraft, which accounted for 26% of owned and securitized
receivables at January 2, 1999. There were no significant industry
concentrations at January 2, 1999.
A-11
<PAGE> 60
Loan Impairment
At January 2, 1999 and January 3, 1998, TFC had nonaccrual loans and leases
totaling $69.9 million and $85.6 million, respectively. Approximately $46.5
million and $63.5 million of these respective amounts were considered impaired,
which excludes finance leases and homogeneous loan portfolios. TFC's nonaccrual
loans consist primarily of delinquent and/or restructured commercial real estate
loans. Cash payments, including finance charges on nonaccrual accounts,
generally are applied to reduce loan principal. The allowance for losses on
receivables related to impaired loans was $14.9 million at January 2, 1999 and
$13.5 million at January 3, 1998. The average recorded investment in impaired
loans during 1998 and 1997 was $50.7 million and $67.5 million, respectively.
Nonaccrual accounts resulted in TFC's revenues being reduced by $5.1 million in
1998, $5.6 million in 1997 and $6.1 million in 1996. No interest income was
recognized using the cash basis method.
Finance Leases
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Total minimum lease payments receivable.................. $390,232 $348,886
Estimated residual values of leased equipment............ 130,403 130,732
-------- --------
520,635 479,618
Unearned income.......................................... (96,199) (87,292)
-------- --------
Net investment in finance leases......................... $424,436 $392,326
======== ========
</TABLE>
Minimum lease payments due under finance leases for each of the next five
years and the aggregate amounts due thereafter are as follows: $117.3 million in
1999; $101.6 million in 2000; $81.5 million in 2001; $38.5 million in 2002;
$23.7 million in 2003; and $27.6 million thereafter.
Leveraged Leases
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Rental receivable (net of principal and interest on
non-recourse debt)..................................... $200,134 $188,151
Estimated residual values of leased assets............... 428,809 425,222
Less unearned income..................................... (283,070) (283,562)
-------- --------
Investment in leveraged leases........................... 345,873 329,811
Deferred income taxes arising from leveraged leases...... (255,034) (253,123)
Fees payable............................................. (1,607) (2,854)
-------- --------
Net investment in leveraged leases....................... $ 89,232 $ 73,834
======== ========
</TABLE>
Approximately 63% of TFC's investment in leveraged leases is collateralized
by real estate. TFC has a forward interest rate exchange arrangement which will
have the effect of fixing interest rates at 7.5% on $60 million of non-recourse
debt beginning in 1999.
A-12
<PAGE> 61
The components of income from leveraged leases were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income recognized including investment tax
credits......................................... $16,426 $14,717 $15,446
Income tax expense................................ (6,237) (5,089) (5,324)
------- ------- -------
Income from Leveraged leases...................... $10,189 $ 9,628 $10,122
======= ======= =======
</TABLE>
Allowance for Losses on Receivables
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year............................ $ 77,394 $ 74,824
Provision for losses on receivables..................... 18,033 21,124
Receivable charge-offs.................................. (21,181) (24,848)
Recoveries of prior charge-offs......................... 4,860 6,294
Acquisitions............................................ 4,781 --
-------- --------
Balance at end of year.................................. $ 83,887 $ 77,394
======== ========
</TABLE>
Managed Finance Receivables
TFC manages finance receivables for a variety of investors, participants
and third party portfolio owners.
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Owned receivables.................................... $3,611,397 $3,069,123
Securitized receivables.............................. 616,220 520,676
---------- ----------
4,227,617 3,589,799
Non-recourse participations.......................... 228,357 174,377
Third party portfolio servicing...................... 30,908 51,437
SBA sales agreements................................. 21,958 13,732
---------- ----------
Total managed finance receivables.................... $4,508,840 $3,829,345
========== ==========
</TABLE>
NOTE 6
EQUIPMENT ON OPERATING LEASES
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Equipment on Operating leases, at cost.................. $147,261 $137,249
Accumulated depreciation................................ (28,671) (25,731)
-------- --------
Net investment in operating leases...................... $118,590 $111,518
======== ========
</TABLE>
Initial lease terms of rental equipment range from one year to ten years.
Future minimum rental payments on operating leases at January 2, 1999 were $14.3
million in 1999; $11.7 million in 2000; $10.3 million in 2001; $11.5 million in
2002; $4.7 million in 2003; and $3.9 million thereafter.
A-13
<PAGE> 62
NOTE 7
OTHER ASSETS
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Real estate owned....................................... $ 17,412 $13,960
Real estate valuation allowance......................... (5,783) (3,333)
-------- -------
Net real estate owned................................... 11,629 10,627
Subordinated certificates............................... 27,214 16,181
Goodwill -- net......................................... 27,093 --
Fixed assets -- net..................................... 19,853 9,660
Trustee cash reserve.................................... 10,210 6,009
Interest-only securities................................ 8,668 8,941
Repossessed equipment................................... 5,149 3,182
Other................................................... 6,226 6,521
-------- -------
Total other assets............................ $116,042 $61,121
======== =======
</TABLE>
Sales of real estate owned totaled $2.0 million in 1998 and $5.4 million in
1997, of which TFC received $2.0 million and $5.4 million in cash in 1998 and
1997, respectively.
The cost of fixed assets is being depreciated based on estimated useful
lives of the assets using the straight-line method. Depreciation expense was
$3.5 million in 1998, $2.1 million in 1997 and $1.6 million in 1996.
REAL ESTATE VALUATION ALLOWANCE
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year.............................. $3,333 $ 2,633
Provision for losses on real estate owned................. 2,450 1,700
Charge-offs............................................... -- (1,000)
------ -------
Balance at end of year.................................... $5,783 $ 3,333
====== =======
</TABLE>
NOTE 8
DEBT AND CREDIT FACILITIES
<TABLE>
<CAPTION>
JAN. 2, 1999 JAN. 3, 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Commercial paper............................... $1,185,591 $ 997,415
Short-term bank debt........................... 239,281 76,250
---------- ----------
Total short-term debt..................... 1,424,872 1,073,665
Long-term debt:
5.72% -- 5.86% notes; due 2000 to 2001......... 33,000 21,000
6.13% -- 6.51% notes; due 1999 to 2001......... 204,000 112,000
7.14% -- 7.67% notes; due 1999 to 2000......... 234,958 258,903
Variable rate notes due 1999 to 2001........... 932,000 899,000
---------- ----------
Total long-term debt...................... 1,403,958 1,290,903
---------- ----------
Total debt................................ $2,828,830 $2,364,568
========== ==========
</TABLE>
TFC has lines of credit with a bank group aggregating $1.2 billion at
January 2, 1999, of which $400 million will expire in 1999 and $800 million will
expire in 2003. TFC's lines of credit, including the line of credit with
Textron, not used or reserved as support for commercial paper or short-term bank
borrowings at January 2, 1999 were $114.4 million. TFC generally pays fees in
support of these lines.
A-14
<PAGE> 63
The weighted average interest rates on short-term borrowings, before
consideration of the effect of interest rate exchange agreements, were as
follows:
<TABLE>
<CAPTION>
JAN. 2, JAN. 3, DEC. 28,
1999 1998 1996
------- ------- --------
<S> <C> <C> <C>
Commercial paper................................... 6.12% 6.14% 5.64%
Short-term bank debt............................... 6.91% 5.54% 5.56%
</TABLE>
The corresponding weighted average interest rates on these borrowings
during the last three years were 5.83% in 1998, 5.77% in 1997 and 5.65% in 1996.
Weighted average interest rates have been determined by relating interest costs
for each year to the daily average dollar amounts outstanding.
Interest on TFC's variable rate notes is tied predominantly to the
three-month LIBOR for U.S. dollar deposits. The weighted average interest rate
on these notes was 5.79% at January 2, 1999 and 6.11% at January 3, 1998.
The amount of net assets available for dividends and other payments to
Textron is restricted by the terms of TFC's lending agreements. As of January 2,
1999, approximately $168.9 million of net assets was unrestricted and available
to be transferred to Textron. The lending agreements also contain various
restrictive provisions regarding additional debt (not in excess of 800% of
consolidated net worth and qualifying subordinated obligations), the creation of
liens and the maintenance of a fixed charges coverage ratio of no less than
125%.
Required principal payments during the next five years on debt outstanding
at January 2, 1999 (excluding short-term debt) are as follows: $558.5 million in
1999; $507.5 million in 2000; and $338.0 million in 2001.
Cash payments made by TFC for interest were $152.9 million in 1998, $153.0
million in 1997 and $149.8 million in 1996.
NOTE 9
INTEREST RATE EXCHANGE AGREEMENTS
Under interest rate exchange agreements, TFC makes periodic fixed payments
in exchange for periodic variable payments and vice versa. TFC has entered into
such agreements to mitigate its exposure to increases in interest rates on a
portion of its fixed and variable debt.
Interest rate exchange agreements, excluding those related to
securitizations, were designated against long-term notes and had the effect of
adjusting the average rate of interest during the year to 6.03% from 5.96% on a
variable rate notes and to 6.79% from 6.89% on the long-term fixed rate notes.
Interest rate exchange agreements in effect on January 2, 1999 will expire in
1999.
<TABLE>
<CAPTION>
JAN. 2, 1999 JAN. 3, 1998
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Weighted average original term.................. 2.5 years 2.7 years
---------- ----------
Notional principal-fixed rate payments.......... $ 250,000 $ 450,000
Fixed weighted average interest rate............ 6.26% 6.02%
Variable weighted average interest rate......... 5.27% 5.89%
Notional principal -- variable rate payments.... $ 50,000 $ 50,000
Fixed weighted average interest rate............ 6.30% 6.30%
Variable weighted average interest rate......... 5.22% 5.94%
========== ==========
</TABLE>
A-15
<PAGE> 64
NOTE 10
INCOME TAXES
The components of income taxes were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................ $35,445 $33,187 $21,301
State.......................................... 5,377 3,224 3,459
------- ------- -------
Total current income taxes..................... 40,822 36,411 24,760
Deferred:
Federal........................................ 544 3,045 9,700
State.......................................... 1,684 882 2,925
------- ------- -------
Total deferred income taxes.................... 2,228 3,927 12,625
------- ------- -------
Total income taxes............................. $43,050 $40,338 $37,385
======= ======= =======
</TABLE>
Cash paid for income taxes was $26.1 million in 1998, $44.3 million in 1997
and $24.7 million in 1996. The federal statutory income tax rate is reconciled
to the effective income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate................... 35.0% 35.0% 35.0%
State income taxes.................................. 4.1 2.6 4.3
Tax exempt interest................................. (0.3) (0.4) (0.4)
Other, net.......................................... (0.6) 0.1 0.2
---- ---- ----
Effective income tax rate........................... 38.2% 37.3% 39.1%
==== ==== ====
</TABLE>
The components of TFC's deferred tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3,
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for losses on receivables................. $ 31,599 $ 29,798
Earnings on nonaccrual loans........................ 2,674 4,682
Other............................................... 12,002 2,508
-------- --------
Total deferred tax assets........................... 46,275 36,988
======== ========
Deferred tax liabilities:
Leveraged leases.................................... 255,034 253,123
Finance leases...................................... 76,179 70,310
Equipment on operating leases....................... 25,719 20,139
Other............................................... 10,864 12,709
-------- --------
Total deferred tax liabilities...................... 367,796 356,281
-------- --------
Net deferred tax liabilities........................ $321,521 $319,293
</TABLE>
NOTE 11
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating the fair
value of TFC's financial instruments:
Finance Receivables
The estimated fair values of fixed rate installment contracts, real estate
loans, floorplan receivables and revolving loans were estimated based on
discounted cash flow analyses using interest rates currently being
A-16
<PAGE> 65
offered for similar loans to borrowers of similar credit quality. Estimated
future cash flows were adjusted for TFC's estimates of prepayments, refinances
and loan losses based on internal historical data. The estimated fair values of
all variable rate receivables approximated the net carrying value of such
receivables. The estimated fair values of nonperforming loans were based on
independent appraisals, discounted cash flow analyses using risk adjusted
interest rates, or TFC valuations based on the fair value of the related
collateral. The fair values of TFC's finance leases, leveraged leases and
operating leases ($424.4 million, $345.9 million and $118.6 million, net
carrying amount, respectively, at January 2, 1999 and $392.3 million, $329.8
million and $111.5 million, net carrying amount, respectively, at January 3,
1998) are not required to be disclosed under generally accepted accounting
principles. As a result, a significant portion of the assets which are included
in TFC's asset and liability management strategy are excluded from this fair
value disclosure.
Debt, Interest Rate Exchange Agreements and Foreign Currency Exchange
Agreements
The estimated fair value of fixed rate debt was determined by either
independent investment bankers or discounted cash flow analyses using interest
rates for similar debt with maturities similar to the remaining terms of the
existing debt. The fair values of variable rate debt and short-term borrowings
supported by credit facilities approximated their carrying values. The estimated
fair values of interest rate exchange agreements and foreign currency exchange
agreements were determined by independent investment bankers and represent the
estimated amounts that TFC would be required to pay to (or collect from) a third
party to assume TFC's obligations under the agreements.
The carrying values and estimated fair values of TFC's financial
instruments for which it is practicable to calculate a fair value are as
follows:
<TABLE>
<CAPTION>
JANUARY 2, 1999 JANUARY 3, 1998
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Installment contracts........................ $1,338,644 $1,343,642 $1,140,460 $1,142,651
Floorplan receivables........................ 572,289 571,810 408,721 408,105
Revolving loans.............................. 555,571 555,577 392,787 392,787
Golf course and resort mortgages............. 342,844 347,988 355,357 355,826
Commercial real estate mortgages............. 31,740 18,015 49,661 34,251
Subordinated certificates.................... 27,214 27,214 16,181 16,181
Trustee cash reserve......................... 10,210 10,210 6,009 6,009
Interest-only securities..................... 8,668 8,668 8,941 8,941
Investments in equity partnerships........... 5,997 5,997 -- --
Allowance for loan losses.................... (67,024) -- (66,806) --
---------- ---------- ---------- ----------
$2,826,153 $2,889,121 $2,311,311 $2,364,751
LIABILITIES
Commercial paper and short-term bank debt.... $1,424,872 $1,424,872 $1,073,665 $1,073,665
Variable rate long-term notes................ 932,000 932,000 899,000 899,000
Fixed rate long-term debt.................... 471,958 479,075 391,903 407,492
Amounts due to Textron Inc................... 18,810 15,662 20,151 16,502
Foreign currency exchange agreements......... -- (55) -- (13)
Interest rate exchange agreements............ -- 1,301 -- 429
---------- ---------- ---------- ----------
$2,847,640 $2,852,855 $2,384,719 $2,397,075
========== ========== ========== ==========
</TABLE>
NOTE 12
COMMITMENTS
TFC makes future loan commitments to accommodate the financial needs of its
customers, for which TFC receives commitment fees. Loan commitments of $432.4
million were outstanding at January 2, 1999. Generally, interest rates on these
commitments are not set until the loans are funded; therefore, TFC is not
A-17
<PAGE> 66
exposed to interest rate changes. Loan commitments have credit risk essentially
the same as that involved in extending loans to customers and are subject to
TFC's normal credit policies. Creditworthiness and collateral are both
considered before a loan commitment is approved.
TFC's offices are occupied under non-cancelable operating leases expiring
on various dates through 2004. Rental expense was $3.5 million in 1998 ($2.5
million in 1997 and $2.3 million in 1996). Future minimum rental commitments for
all non-cancelable operating leases in effect at January 2, 1999 approximated
$2.9 million for 1999; $2.0 million for 2000; $1.2 million for 2001; $0.9
million for 2002; $0.6 million for 2003; and $0.3 million thereafter. Of these
amounts, $0.9 million per year through the year 2000 and $0.3 million in 2001
are payable to Textron.
NOTE 13
CONTINGENCIES
There are pending or threatened against TFC and its subsidiaries lawsuits
and other proceedings. Among these suits and proceedings are some which seek
compensatory, treble or punitive damages in substantial amounts. These suits and
proceedings are being defended or contested on behalf of TFC and its
subsidiaries. On the basis of information presently available, TFC believes any
such liability would not have a material effect on TFC's net income or financial
condition.
NOTE 14
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
At year-end 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, which requires segment data to be measured and analyzed on a basis
that is consistent with how business activities are reported internally for
management. The Company's operating segments are organized based on the nature
of products and services provided. The accounting policies for these segments
are the same as those described for the consolidated entity.
The Company evaluates the performance of its operating segments primarily
on the basis of revenues, income before taxes, and finance assets. Details of
total revenues, income before taxes, and finance assets by operating segment are
provided below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
1998 % 1997 % 1996 %
---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Revenues
Term loans and leases.................. $ 216,643 59 $ 240,419 69 $ 228,088 70
Revolving loans and leases............. 87,835 24 62,784 18 54,493 17
Specialty finance...................... 62,685 17 45,364 13 36,200 11
Commercial real estate................. (1) -- 1,653 -- 8,466 2
---------- --- ---------- --- ---------- ---
Total Revenue............................... $ 367,162 100 $ 350,220 100 $ 327,247 100
Income before taxes(1)(2)
Term loans............................. $ 70,304 $ 81,809 $ 70,954
Revolving loans and leases............. 26,398 18,524 17,879
Specialty finance...................... 26,752 19,509 17,105
Commercial real estate................. (10,828) (11,763) (10,214)
---------- ---------- ----------
Total income before taxes................... $ 112,626 $ 108,079 $ 95,724
</TABLE>
A-18
<PAGE> 67
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
1998 % 1997 % 1996 %
---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Finance assets(3)
Term loans............................. $2,145,854 $1,939,622 $2,244,305
Revolving loans and leases............. 831,165 548,215 480,147
Specialty finance...................... 722,653 643,143 481,797
Commercial real estate................. 30,315 49,661 94,266
---------- ---------- ----------
Total Finance Receivables................... $3,729,987 $3,180,641 $3,300,515
</TABLE>
- ---------------
(1) Interest expense is allocated to each segment in proportion to its net
investment in finance assets. Net investment in finance assets includes
deferred income taxes, security deposits and other specifically identified
liabilities. The interest allocated matches variable rate debt with variable
rate finance assets and fixed rate debt with fixed rate finance assets.
(2) Indirect expenses are allocated to each segment based on the utilization of
such resources. Some allocations are based on the segments proportion of net
investment in finance assets, headcount, number of transactions, computer
resources and senior management time.
(3) Finance assets include finance receivables and equipment on operating
leases, net of accumulated depreciation. Excludes repossessed assets and
beneficial interests in securitized assets (classified as other assets in
TFC's Consolidated Balance Sheet).
NOTE 15
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
----------------- ----------------- ----------------- -----------------
1998 1997 1998 1997 1998 1997 1998 1997
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................................... $85,390 $82,789 $90,870 $89,378 $98,509 $91,509 $92,393 $86,544
Expenses...................................... 60,812 58,901 63,898 62,528 65,365 61,954 64,461 58,758
Net income.................................... 15,074 14,473 16,548 16,331 20,317 19,004 17,637 17,933
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
A-19
<PAGE> 68
TEXTRON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
REVENUES
Finance charges and discounts............................. $168,739 $146,694
Rental revenues on operating leases....................... 8,136 8,645
Other income.............................................. 22,663 20,921
-------- --------
199,538 176,260
EXPENSES
Interest.................................................. 85,467 76,360
Selling and administrative................................ 42,695 34,484
Provision for losses...................................... 11,706 10,271
Depreciation of equipment on operating leases............. 3,565 3,595
-------- --------
143,433 124,710
Income before income taxes.................................. 56,105 51,550
Income taxes................................................ 21,688 19,928
-------- --------
NET INCOME.................................................. $ 34,417 $ 31,622
======== ========
</TABLE>
A-20
<PAGE> 69
TEXTRON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 2, 1999
------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and equivalents...................................... $ 12,149 $ 22,396
Finance receivables, net of unearned income:
Installment contracts.................................. 1,508,308 1,338,644
Floorplan receivables.................................. 615,203 572,289
Revolving loans........................................ 595,169 555,571
Finance leases......................................... 520,237 424,436
Golf course and resort mortgages....................... 387,138 342,844
Leveraged leases....................................... 348,448 345,873
Commercial real estate mortgages....................... 14,087 31,740
---------- ----------
Total finance receivables......................... 3,988,590 3,611,397
Allowance for losses on receivables......................... (85,687) (83,887)
---------- ----------
Finance receivables -- net........................ 3,902,903 3,527,510
Equipment on operating leases -- net........................ 111,602 118,590
Other assets................................................ 138,366 116,042
---------- ----------
Total assets...................................... $4,165,020 $3,784,538
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accrued interest and other liabilities.................... $ 165,226 $ 143,316
Amounts due to Textron Inc................................ 22,028 18,419
Deferred income taxes..................................... 330,118 321,521
Debt...................................................... 3,151,179 2,828,830
---------- ----------
Total liabilities................................. 3,668,551 3,312,086
SHAREHOLDER'S EQUITY
Common stock, $100 par value (4,000 shares authorized;
2,500 shares issued and outstanding)................... 250 250
Capital surplus........................................... 163,471 155,171
Retained earnings......................................... 332,748 317,031
---------- ----------
Total shareholder's equity........................ 496,469 472,452
---------- ----------
Total liabilities and shareholder's equity........ $4,165,020 $3,784,538
========== ==========
</TABLE>
A-21
<PAGE> 70
TEXTRON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 34,417 $ 31,622
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase in accrued interest and other liabilities..... 21,206 31,162
Provision for losses................................... 11,706 10,271
Deferred income taxes.................................. 8,597 (11,549)
Depreciation and amortization.......................... 7,700 5,728
Leveraged lease noncash earnings....................... (701) (3,522)
Other.................................................. (5,950) 7,625
----------- -----------
Net cash provided by operating activities......... 76,975 71,337
CASH FLOWS FROM INVESTING ACTIVITIES:
Finance receivables originated or purchased................. (2,129,783) (1,857,093)
Finance receivables repaid or sold.......................... 1,837,821 1,749,074
Acquisitions, net of cash acquired.......................... (53,152) (16,762)
Proceeds from disposition of operating lease and other
assets.................................................... 17,706 13,001
Purchase of assets for operating leases..................... (14,302) (27,904)
Other capital expenditures.................................. (5,059) (4,555)
Proceeds from real estate owned............................. 2,312 2,028
Other investments........................................... (10,053) --
----------- -----------
Net cash used in investing activities............. (354,510) (142,211)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................... 660,000 300,000
Net decrease in short-term debt............................. (189,320) (3,926)
Principal payments on long-term debt........................ (141,472) (283,338)
Principal payments on non-recourse debt..................... (53,271) (26,969)
Net increase (decrease) in commercial paper................. (1,859) 40,902
Net increase in amounts due to Textron Inc.................. 3,609 51,026
Capital contributions from Textron Inc...................... 8,300 22,800
Dividends paid to Textron Inc............................... (18,700) (20,700)
----------- -----------
Net cash provided by financing activities......... 267,287 79,795
----------- -----------
NET INCREASE (DECREASE) IN CASH............................. (10,248) 8,921
Cash and equivalents at beginning of year................... 22,397 13,597
----------- -----------
Cash and equivalents at end of period....................... $ 12,149 $ 22,518
=========== ===========
</TABLE>
A-22
<PAGE> 71
TEXTRON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED
STOCK SURPLUS EARNINGS TOTAL
------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance January 3, 1998................................ $250 $ 95,871 $309,755 $405,876
Net income............................................. -- -- 69,576 69,576
Capital contribution from Textron Inc.................. -- 59,300 -- 59,300
Dividend to Textron Inc................................ -- -- (62,300) (62,300)
---- -------- -------- --------
Balance January 2, 1999................................ 250 155,171 317,031 472,452
Net income............................................. -- -- 34,417 34,417
Capital contribution from Textron Inc.................. -- 8,300 -- 8,300
Dividend to Textron Inc................................ -- -- (18,700) (18,700)
---- -------- -------- --------
Balance June 30, 1999.................................. $250 $163,471 $332,748 $496,469
==== ======== ======== ========
</TABLE>
A-23
<PAGE> 72
TEXTRON FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of TFC included in the 1998 Annual
Report include additional notes, which should be read in conjunction with the
consolidated financial statements included in this Financial and Statistical
Summary.
The accompanying consolidated financial statements include the accounts of
TFC and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions are eliminated. The consolidated financial statements
are unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of TFC's consolidated financial position at June 30, 1999 and
January 2, 1999 and its consolidated results of operations for each of the
respective three and six month periods ended June 30, 1999 and 1998 and its
consolidated cash flows for each of the six month periods ended June 30, 1999
and 1998.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
NOTE 2. CASH AND EQUIVALENTS
Cash and equivalents consist of cash in banks and overnight interest
bearing deposits in banks.
NOTE 3. ACQUISITION
On March 31, 1999, TFC acquired an asset portfolio from Southern Capital
Corporation. The total purchase price was $52.8 million. The fair value of the
assets acquired was $50.3 million. The goodwill associated with this transaction
is being amortized over 10 years.
Had the acquisition occurred on January 3, 1999, the effect on TFC's 1999
results would not have been material. Consequently, pro forma information has
not been presented.
NOTE 4. LOAN IMPAIRMENT
TFC measures reserves for credit losses on non-homogeneous impaired loans
based on the present value of expected future cash flows discounted at the
loan's effective interest rate, or at the observable market price or at the fair
value of collateral if the loan is collateral dependent. This evaluation is
inherently subjective as it requires estimates, including the amount and timing
of future cash flows expected to be received on impaired loans, that are likely
to differ from actual results.
Accrual of interest income is suspended for accounts which are
contractually delinquent by more than three months, unless collection is not
doubtful. Cash payments on nonaccrual accounts, including finance charges,
generally are applied to reduce loan principal. At June 30, 1999, TFC had
nonaccrual loans and leases totaling $53.5 million and $69.9 million on January
2, 1999, of which approximately $32.8 million and $46.5 million, respectively,
was considered impaired, excluding finance leases and homogeneous loan
portfolios. The allowance for losses on receivables related to impaired loans
was $11.5 million at June 30, 1999 and $14.9 million at January 2, 1999. The
average recorded investment in impaired loans during the first six months of
1999 was $44.4 million and $61.2 million in the corresponding period in 1998.
Nonaccrual loans resulted in TFC's revenues being reduced by approximately $2.4
million and $2.9 million for the first six months of 1999 and 1998,
respectively, and by approximately $0.9 million and $1.5 million for the second
quarters of 1999 and 1998, respectively. No interest income was recognized using
the cash basis method.
A-24
<PAGE> 73
NOTE 5. MANAGED FINANCE RECEIVABLES
TFC manages finance receivables for a variety of investors, participants
and third party portfolio owners.
<TABLE>
<S> <C> <C>
Owned receivables........................................... $3,988,590 $3,611,397
Securitized receivables..................................... 505,120 616,220
---------- ----------
4,493,710 4,227,617
Non-recourse participations................................. 308,970 228,357
Third party portfolio servicing............................. 58,301 30,908
SBA sales agreements........................................ 26,143 21,958
---------- ----------
Total managed finance receivables........................... $4,887,124 $4,508,840
========== ==========
</TABLE>
NOTE 6. DEBT AND CREDIT FACILITIES
<TABLE>
<CAPTION>
JUNE 30, JANUARY 2,
1999 1999
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Commercial paper............................................ $1,183,732 $1,185,591
Other short-term debt....................................... 49,961 239,281
---------- ----------
Total short-term debt............................. 1,233,693 1,424,872
Long-term debt:
5.66%-5.86% notes; due 2000 to 2002......................... 233,000 33,000
6.13%-6.51% notes; due 2000 to 2001......................... 112,500 204,000
7.14%-7.67% notes; due 1999 to 2000......................... 184,986 234,958
Variable rate notes; due 1999 to 2001....................... 1,387,000 932,000
---------- ----------
Total long-term debt.............................. 1,917,486 1,403,958
---------- ----------
Total debt........................................ $3,151,179 $2,828,830
========== ==========
</TABLE>
Combined commercial paper and short-term bank debt weighted average
interest rates, before consideration of the effect of interest rate exchange
agreements, have been determined by relating the annualized interest cost to the
daily average dollar amounts outstanding. The combined weighted average interest
rate during the six months ended June 30, 1999 was 5.22%. The combined weighted
average interest rate, before consideration of the effect of interest rate
exchange agreements, at June 30, 1999 was 5.11%.
Interest on variable rate notes is tied predominantly to the three-month
London Interbank Offered Rate for U.S. dollar deposits. The weighted average
interest rate on variable rate notes at June 30, 1999 was 5.27%.
The terms of certain of the Company's loan agreements and credit facilities
limit the payment of dividends to $193 million at June 30, 1999. In the first
six months of 1999, TFC paid dividends of $18.7 million.
TFC has entered into a revolving credit facility with Textron whereby TFC
can borrow up to $1.25 billion from Textron. As of June 30, 1999, nothing was
outstanding under this agreement and the agreement was cancelled. The maximum
amount outstanding under this facility during the first six months of 1999 was
$1.0 billion. The interest rate was at a rate equivalent to the Federal Reserve
Banks' A2/P2 commercial paper rate on the date the funds are drawn upon.
Approximately $14.6 million of interest expense related to this facility is
included in TFC's consolidated financial statements for the six months ended
June 30, 1999.
A-25
<PAGE> 74
NOTE 7. INTEREST RATE EXCHANGE AGREEMENTS
Under interest rate exchange agreements, TFC makes period fixed payments in
exchange for periodic variable payments and vice versa. TFC has entered into
such agreements to mitigate its exposure to increases in interest rates on a
portion of its fixed and variable debt.
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 2, 1999
------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Weighted average original term.............................. 1.9 years 2.5 years
-------- --------
Notional principal -- fixed rate payments................... $400,000 $250,000
Fixed weighted average interest rate........................ 5.87% 6.26%
Variable weighted average interest rate..................... 5.23% 5.27%
-------- --------
Notional principal -- variable rate payments................ $ -- $ 50,000
Fixed weighted average interest rate........................ -- 6.30%
Variable weighted average interest rate..................... -- 5.22%
-------- --------
</TABLE>
NOTE 8. INTEREST RATE EXCHANGE AGREEMENTS FOR RECEIVABLE SECURITIZATIONS
TFC has entered into certain interest rate exchange agreements to mitigate
its exposure to decreases in interest rates on its interest-only securities.
Under the interest rate exchange agreements, TFC makes periodic variable rate
payments based upon the prime rate and the one- and six-month London Interbank
Offered Rate (LIBOR) and receives fixed rate payments. These interest rate
exchange agreements are adjusted periodically to match the amortization of the
variable rate contracts in the securitized portfolio and are summarized in the
following table:
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 2, 1999
------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Prime rate.................................................. 7.75% 7.75%
One-month LIBOR............................................. 5.24% 4.94%
===== =====
1998 Securitization
Notional principal -- variable payments tied to the
prime rate............................................ $47.9 $55.3
Fixed rate............................................. 7.94% 7.94%
----- -----
Notional principal -- variable payments tied to
LIBOR................................................. $22.6 $34.3
Fixed rate............................................. 5.13% 5.13%
===== =====
Six-month LIBOR............................................. 5.65% 4.94%
===== =====
1997 Securitization
Notional principal -- variable payments tied to the
prime rate............................................ $17.1 $46.6
Fixed rate............................................. 8.77% 8.77%
----- -----
Notional principal -- variable payments tied to
LIBOR................................................. $15.2 $21.2
Fixed rate............................................. 5.97% 5.97%
===== =====
</TABLE>
Interest rate floor agreements, entered into through AAA-rated
counterparties to the Textron Financial Corporation Receivables Trusts 1998-A
and 1997-A (the Trusts), provide a minimum interest rate on variable rate
receivables held by the Trusts and are tied to both the prime rate and the one-
and six-month LIBOR. These interest rate floor agreements are adjusted
periodically to match the amortization of the variable rate contracts in the
securitized portfolio and are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 2, 1999
------------- ---------------
<S> <C> <C>
Prime rate.................................................. 7.75% 7.75%
One-month LIBOR............................................. 5.24% 4.94%
===== =====
1998 Securitization
Notional principal -- variable payments tied to the
prime rate............................................ $51.1 $57.6
Floor rate............................................. 8.50% 8.50%
----- -----
Notional principal -- variable payments tied to
LIBOR................................................. $23.1 $36.5
Floor rate............................................. 5.34% 5.34%
===== =====
</TABLE>
A-26
<PAGE> 75
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 2, 1999
------------- ---------------
<S> <C> <C>
Six-month LIBOR............................................. 5.65% 4.94%
===== =====
1997 Securitization
Notional principal -- variable payments tied to the
prime rate............................................ $17.1 $70.5
Floor rate............................................. 8.50% 8.50%
----- -----
Notional principal -- variable payments tied to
LIBOR................................................. $15.2 $37.1
Floor rate............................................. 5.65% 5.65%
===== =====
</TABLE>
TFC also has a securitization program consisting of a $150 million interest
in a designated pool of installment contracts. Subsequent collections of
installment contracts sold are typically reinvested in the pool of eligible
assets to maintain an aggregate outstanding balance of sold installment
contracts at a constant amount. Receivables sold which remained uncollected at
June 30, 1999 were $150 million. The ongoing purchase arrangement is
discretionary on the part of both parties and has been extended through 2000.
NOTE 9. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
At year-end 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, which requires segment data to be measured and analyzed on a basis
that is consistent with how business activities are reported internally for
management. The Company's operating segments are organized based on the nature
of products and services provided. The accounting policies for these segments
are the same as those described for the consolidated entity.
The Company evaluates the performance of its operating segments primarily
on the basis of revenues, income before taxes, and finance assets. Details of
total revenues, income before taxes and finance assets by operating segment are
provided below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
---------------- ----------------
JUNE 30, JUNE 30,
1999 % 1998 %
---------- --- ---------- ---
<S> <C> <C> <C> <C>
Revenues
Term loans.......................................... $ 116,803 58 $ 105,586 59
Revolving loans and leases.......................... 49,960 25 41,610 24
Specialty finance................................... 32,715 17 29,065 17
Commercial real estate.............................. 60 -- (1) --
---------- --- ---------- ---
Total Revenue............................................ $ 199,538 100 $ 176,260 100
Income before taxes(1)(2)
Term loans.......................................... $ 31,901 $ 31,707
Revolving loans and leases.......................... 13,721 12,960
Specialty finance................................... 12,278 11,971
Commercial real estate.............................. (1,795) (5,088)
---------- ----------
Total income before taxes................................ $ 56,105 $ 51,550
Finance assets(3)
Term loans.......................................... $2,403,420 $1,961,291
Revolving loans and leases.......................... 925,085 748,584
Specialty finance................................... 757,600 635,328
Commercial real estate.............................. 14,087 34,409
---------- ----------
Total Finance Receivables................................ $4,100,192 $3,379,612
</TABLE>
- ---------------
(1) Interest expense is allocated to each segment in proportion to its net
investment in finance assets. Net investment in finance assets includes
deferred income taxes, security deposits and other specifically identified
liabilities. The interest allocated matches variable rate debt with variable
rate finance assets and fixed rate debt with fixed rate finance assets.
A-27
<PAGE> 76
(2) Indirect expenses are allocated to each segment based on the utilization of
such resources, some allocations are based on the segments proportion of net
investment in finance assets, headcount, numbers of transactions, computer
resources and senior management time.
(3) Finance assets include finance receivables and equipment on operating
leases, net of accumulated depreciation. Excludes repossessed assets and
beneficial interests in securitized assets (classified as other assets in
TFC's Consolidated Balance Sheet).
A-28
<PAGE> 77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
TFC utilizes a broad base of financial resources for its liquidity and
capital requirements. Cash is provided from operations and several different
sources of borrowings, including the issuance of commercial paper and short-term
bank debt, sales of medium- and long-term debt in the U.S. and foreign financial
markets and junior subordinated borrowings under a $100 million line of credit
with Textron. For liquidity purposes, TFC has a policy of maintaining sufficient
unused lines of credit to support its outstanding commercial paper and
short-term bank debt. TFC has line of credit agreements of $1.2 billion, of
which $400 million will expire in 2000 and $800 million will expire in 2003.
TFC's lines of credit not used or reserved as support for commercial paper and
bank borrowings were $16 million at June 30, 1999, as compared to $114 million
at January 2, 1999.
In 1999, TFC entered into a short-term promissory note program with Textron
at market rates of interest. As of June 30, 1999, TFC had no borrowings under
this program and the agreement was cancelled.
TFC has two medium-term note facilities, totaling $1.5 billion, under Rule
144A of the Securities Act of 1933, as amended. Proceeds from issuances of these
facilities have been used to refinance maturing commercial paper and long-term
debt and to fund receivable growth. During 1998, TFC issued $237 million of
variable rate notes and $133 million of fixed rate notes through these
facilities. At January 2, 1999, TFC had $472 million available through its
medium-term note facilities. During the first six months of 1999, TFC issued
$200 million of fixed rate notes and $405 million of variable rate notes through
these facilities. At June 30, 1999, TFC had $117 million available through its
medium-term note facilities.
Cash flows from operations during the first six months of 1999 were $77
million, as compared to $71 million in the corresponding period last year. The
increase in operating cash flows primarily reflects higher net income and the
timing of income tax payments, partially offset by an increase in other assets
and the timing of the payments of accrued interest and other liabilities. Cash
flows used in investing activities were funded from the collection of
receivables and through the issuance of long- and short-term bank debt.
Short-term borrowings decreased by $191 million and long-term borrowings
increased by $519 million. Borrowings under a junior subordinated facility
increased by $4 million, reflecting the funding of finance receivables related
to Textron's manufacturing divisions. During the first six months of 1999,
Textron contributed capital of $8.3 million to TFC to finance an acquisition.
Cash flows provided by operations were $144 million in 1998, as compared to
$93 million in 1997. The increase in operating cash flows primarily reflects the
timing of the payments of income taxes and accrued interest and other
liabilities, and includes increase in payables for receivable additions
originated in late December. Cash flows from operations of $93 million in 1997
were $6 million less than in 1996. The decrease from 1996 is primarily due to
the timing of income tax payments and a non-cash gain on a receivables
securitization, partially offset by a 7% increase in income before provision for
losses. Cash flows used in investing activities in 1998 were funded from the
collection of receivables and through the issuance of long-term bank debt.
Short-term borrowings increased by $351 million and $59 million in 1998 and
1997, respectively, reflecting the financing of acquisitions and receivable
growth. Long-term borrowings increased in 1998 by $66 million as compared to a
decrease of $136 million in the prior year. The increase in 1998 reflects
refinancing of short-term debt. The decrease in 1997 reflected the use of
proceeds from a securitization of receivables. In 1998, TFC paid dividends to
Textron of $62.3 million as compared to $73.6 million in 1997. The decrease was
primarily due to additional dividends paid in 1997 for the purpose of adjusting
TFC's leverage.
Because the finance business involves the purchase and carrying of
receivables, a relatively high ratio of borrowings to net worth is customary.
Debt as a percentage of total capitalization was 86%, unchanged from year-end.
Commercial paper and short-term debt as a percentage of total debt was 39% at
June 30, 1999, down from 50% at year-end.
A-29
<PAGE> 78
TFC's ratio of income to fixed charges decreased to 1.65 during the first
six months of 1999, as compared to a ratio of 1.67 for the same period last
year. The decrease is attributable to a 12% increase in interest expense, versus
an 11% increase in income before interest expense and income taxes.
TFC's ratio of income to fixed charges was 1.72 in 1998 (1.70 in 1997 and
1.65 in 1996). The ratio increased in 1998 due to a 4% increase in income before
income taxes, partially offset by an increase in interest expense.
FINANCE RECEIVABLES
Total finance receivables increased to $3.989 billion at June 30, 1999, up
from $3.611 billion at January 2, 1999. Equipment on operating leases at June
30, 1999 decreased to $112 million, as compared to $119 million at year-end. The
increase in receivables primarily relates to growth in term loan segment, which
included an acquisition of a portfolio of equipment loans and leases, as well as
growth in the revolving credit segment. In 1998, owned finance receivables
increased 18% from $3.086 billion at January 3, 1998. The increase reflects
growth in TFC's revolving credit segment, and the aircraft finance business of
the term loan segment. Receivables growth also reflects the acquisitions of an
equipment finance portfolio and a receivable factoring company. Managed finance
receivables, defined as owned receivables plus receivables serviced under
securitizations, participations, and third-party portfolio servicing agreements,
increased to $4.887 billion from $4.509 billion at year-end.
Finance receivable additions for the first six months of 1999 were $2.130
million, as compared to $1.857 million for the corresponding period in 1998. The
increase in additions was due to growth in the term loan, revolving credit and
specialty finance segments. Finance receivable additions in 1998 were $4.009
billion, as compared to $2.712 billion of additions in 1997. The increase in
additions was primarily due to growth in the revolving credit segment and golf
and aircraft financing in the term loan segment.
NONPERFORMING ASSETS
Nonperforming assets were $70 million at June 30, 1999, down from $87
million at year-end. This decrease was primarily due to a decrease in the real
estate portfolio, partially offset by an increase in nonperforming assets in the
term loan portfolio. Nonperforming commercial real estate assets represent 27%
of total nonperforming assets, down from 44% at year-end. Nonperforming assets
decreased 13% to $87 million at January 2, 1999, from $99 million at January 3,
1998. The improvement relates to a decrease in nonperforming real estate,
partially offset by increases in the revolving and term loan portfolios.
Nonaccrual commercial real estate loans were $32 million in 1998 and $50 million
in 1997. Commercial real estate owned was $6 million in 1998 ($9 million in
1997), and other real estate owned was $5 million in 1998 and $2 million in
1997, net of valuation allowances.
The allowance for losses on receivables as a percentage of nonperforming
assets increased to 123% at June 30, 1999 from 97% at year-end. The increase
from year-end primarily reflects a decrease of nonperforming assets, principally
in the commercial real estate portfolio.
INTEREST RATE SENSITIVITY
Management's strategy of matching interest-sensitive assets with
interest-sensitive liabilities limits the company's risk to changes in interest
rates and includes entering into interest rate exchange agreements as part of
this matching strategy. At June 30, 1999, TFC's interest-sensitive liabilities
in excess of interest-sensitive assets were $378 million, net of $400 million of
fixed-rate interest rate exchange agreements. Interest-sensitive liabilities in
excess of interest-sensitive assets were $463 million at January 2, 1999, net of
$300 million of interest rate exchange agreements ($250 million fixed rate and
$50 million variable rate). The change in the Company's net position does not
reflect a change in management's match funding strategy.
A-30
<PAGE> 79
FINANCIAL RISK MANAGEMENT
As part of managing its interest rate risks, TFC utilizes interest rate
exchange agreements. The objective of TFC's use of such agreements is not to
speculate for profit, but generally to convert variable rate debt into fixed
rate debt with respect to specific liabilities. These agreements do not involve
a high degree of complexity or risk. TFC does not trade interest rate exchange
agreements or enter into leveraged interest rate exchange agreements. The
difference between the variable rate TFC received and the fixed rate TFC paid on
the interest rate exchange agreements increased interest expense by $1.3 million
in the first six months in 1999 and $0.9 million in the corresponding period in
1998. The net effect of these agreements increased TFC's interest expense by
$2.0 million in 1998, $1.2 million in 1997 and $2.5 million in 1996.
TFC manages its foreign currency exposure by funding certain foreign
currency denominated assets with liabilities in the same currency and, as such,
certain exposures are naturally offset. In addition, as part of managing its
foreign currency exposure, TFC enters into foreign currency forward exchange
contracts. The objective of such agreements is to manage the exposure to changes
in currency rates.
RESULTS OF OPERATIONS
REVENUES
For six months ended June 30, 1999 vs. June 30, 1998
Revenues for the first six months of 1999 increased by $23.3 million, or
13%, as compared to the corresponding six month period last year, on a 20%
higher level of average finance receivables. The increase in revenue is
primarily due to increases in average finance receivables and other income,
partially offset by lower finance receivable yields. Finance receivable yields
decreased to 9.61% for the six months ended June 30, 1999, as compared to 10.13%
in the corresponding period in 1998. The change reflects a decrease in the prime
rate during the first six months from the corresponding period in 1998 and a
change in portfolio mix. The increase in other income primarily reflects an
increase in syndication income, partially offset by a decrease in prepayment
income. Operating lease rental revenue of $8.1 million decreased from $8.6
million in the corresponding period in 1998, on 7% lower average operating lease
assets.
Years ended 1998 vs. 1997 and 1996
Total revenues in 1998 increased $17 million from 1997, to $367 million,
reflecting a higher level of average finance receivables and higher other
income. Total revenues in 1997 were $350 million, as compared to $327 million in
1996.
Finance charge revenues increased 2% in 1998, as compared to a 3% increase
in 1997. The 1998 results reflect a 2% higher level of average owned finance
receivables while yields on owned finance receivables remained constant at 10.0%
for both 1998 and 1997. Finance charge revenues of $291 million increased 3% in
1997, as compared to a 4% increase in 1996. The 1997 results reflect a 3% higher
level of average owned finance receivables and constant finance receivables
yields at 10.0% in both 1997 and 1996.
Rental revenue from operating leases in 1998 was $17 million, down from $19
million in both 1997 and 1996, on lower average operating lease assets of 3% in
1998 and 2% in 1997. Other income of $53 million in 1998 increased by $12
million from 1997, reflecting higher syndications fees, residual income,
servicing fees and prepayment income. Other income of $41 million in 1997
increased by $14 million from 1996, reflecting higher syndications fees, a $3.5
million gain on a securitization of Textron-related receivables and higher
prepayment income.
INTEREST EXPENSE
Six months ended June 30, 1999 vs. June 30, 1998
Interest expense for the six months ended June 30, 1999 was $9.5 million
higher than the amount reported during the first six months of 1998. Interest
expense reflects a 26% increase in average debt
A-31
<PAGE> 80
outstanding and a decrease in the average borrowing rate to 5.56% for the six
months ended June 30, 1999, as compared to 6.22% for the first six months of
1998. The decrease in the average borrowing rate for the six months ended June
30, 1999, as compared to the same period last year, is primarily attributable to
lower short-term interest rates reflecting a lower prevailing interest rate
environment, partially offset by higher credit spreads in January in TFC's
commercial paper program.
Years ended 1998 vs. 1997 and 1996
Interest expense of $155 million in 1998 increased 1%, or $2 million, from
1997, reflecting a 2% increase in average debt outstanding, partially offset by
a decrease in the cost of borrowed funds. TFC's average borrowing rate primarily
reflects a reduction in long-term variable rate debt costs. Interest expense of
$153 million in 1997 increased 4%, or $6 million, from 1996, reflecting a 4%
increase in average debt outstanding and an increase in the cost of borrowed
funds. TFC's average borrowing rate was 6.2% in 1998, 6.3% in 1997 and 6.2% in
1996.
INTEREST MARGIN
Six months ended June 30, 1999 vs. June 30, 1998
TFC's earnings are influenced by the interest margin earned on finance
receivables (i.e., the excess of revenues over interest expense on borrowings).
Interest margin decreased to 6.30% from 6.62%, as compared to the corresponding
period last year, reflecting a decrease in interest earned on variable rate
receivables due to lower prevailing interest rates, slower growth in fee income
and competitive pressures.
Years ended 1998 vs. 1997 and 1996
Interest margin increased to 6.88% in 1998 from 6.51% in 1997, primarily
reflecting higher other income and a lower average borrowing rate. The increase
was partially offset by a decrease in variable rate receivables which are
generally tied to changes in the prime rate offered by major U.S. banks and the
London Interbank Offered Rate (LIBOR). These decreases preceded a decrease in
short-term borrowing costs in the fourth quarter of 1998.
Interest margin increased to 6.51% in 1997 from 6.15% in 1996, primarily
reflecting higher other income which included a gain on a receivable
securitization. The increase was partially offset by an increase in short-term
interest rates on borrowings that preceded the repricing of TFC's variable rate
receivables, which are generally tied to changes in the prime rate offered by
major U.S. banks and LIBOR, and competitive pressures.
OPERATING EXPENSES
Six months ended June 30, 1999 vs. June 30, 1998
Selling and administrative expenses increased by $8.2 million for the first
six months of 1999, as compared to the first six months of 1998, reflecting
higher expenses related to the acquisition of a small-ticket vendor equipment
leasing division, growth in managed receivables, growth in businesses with
higher operating expenses and investments in start-up fee initiatives.
Years ended 1998 vs. 1997 and 1996
Selling and administrative expenses of $72 million in 1998 increased by $14
million from 1997, as compared to an increase of $8 million in 1997 from 1996.
The increase in 1998 principally reflects higher expenses related to an
acquisition of a receivable factoring company, growth in managed receivables and
growth in businesses with higher operating expenses. The 1997 increase
principally reflects higher expenses related to the growth of managed finance
receivables, an increase in collection expenses related to the equipment
portfolio and a change in business mix.
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<PAGE> 81
PROVISION FOR LOSSES
Six months ended June 30, 1999 vs. June 30, 1998
The provision for losses of $11.7 million increased by $1.4 million for the
first six months of 1999, as compared to the corresponding period in 1998. The
increase in the provision is related to higher provision for losses in the term
loan and revolving credit segments, partially offset by a lower provision in the
commercial real estate portfolio in 1999 as compared to 1998.
The allowance for looses on receivables increased to $86 million at June
30, 1999, as compared to $84 million at the end of 1998. This increase
represents general strengthening of reserves for receivable growth. Net
charge-offs were $8.9 million in the first six months of 1999, as compared to
$8.2 million in the corresponding period of 1998. Approximately $2.3 million of
net charge-offs were related to commercial real estate assets, as compared to
$3.4 million in the corresponding period in 1998.
Years ended 1998 vs. 1997 and 1996
The provision for losses of $20 million in 1998 decreased from $23 million
in 1997. The decrease in the 1998 provision for losses reflects lower real
estate charge-offs and lower nonperforming assets. The provision for losses in
1997 decreased by $3 million from $26 million in 1996, reflecting lower real
estate charge-offs, higher recoveries of previously charged off aircraft and
equipment loans and lower nonperforming assets.
The allowance for losses on receivables was $84 million at January 2, 1999
and $77 million at January 3, 1998. The increase is primarily related to
portfolio growth. Net charge-offs were $16 million in 1998, as compared to $20
million in 1997 and $27 million in 1996 (including $1 million and $2 million
charged to the real estate owned valuation allowance in 1997 and 1996,
respectively). Net charge-offs related to commercial real estate assets were $5
million in 1998, down from $6 million in 1997. Equipment related net charge-offs
decreased to $11 million in 1998, as compared to $14 million in 1997. The
allowance for losses as a percent of receivables was 2.3% at January 2, 1999,
and 2.5% at January 3, 1998 (2.7% and 3.0% excluding receivables with recourse
to Textron in 1998 and 1997, respectively).
Although management believes it has made adequate provision for anticipated
losses, realization of these assets remains subject to uncertainties. Subsequent
evaluations of nonperforming assets, in light of factors then prevailing,
including economic conditions, may require additional increases in the allowance
for losses for such assets.
NET INCOME
Six months ended June 30, 1999 vs. June 30, 1998
Net income for the first six months of 1999 was $34.4 million, 9% higher
than the corresponding period of 1998. Earnings were favorably impacted by
higher average receivables and fee income. The favorable results were partially
offset by lower finance yields, an increase in selling and administrative
expenses and a higher provision for losses.
Years ended 1998 vs. 1997 and 1996
Net income increased by 3% to $70 million in 1998. Net income was favorably
affected by an increase in other income, higher average managed finance
receivables, a lower provision for losses and lower borrowing costs, partially
offset by a higher tax provision rate and higher selling and administrative
expenses. Net income increased by 16% in 1997, to $68 million, favorably
affected by an increase in other income, higher average managed finance
receivables, a lower provision for losses and a lower tax provision rate,
partially offset by higher borrowing costs and higher selling and administrative
expenses.
YEAR 2000 COMPUTER CONVERSION
Many computer programs, including those used by TFC and TFC's suppliers and
customers, use only two digits to identify a year and were not designed to
handle years beginning after 1999. These programs, some of
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<PAGE> 82
which are critical to our operation, could fail to operate properly after 1999
unless they are modified. As of June 30, 1999, TFC substantially completed and
tested the necessary modifications to its critical operations' computer
programs. TFC is also working with its principal suppliers and customers to
ensure that it will not be affected by Year 2000 problems in their computer
programs. Management believes TFC's Year 2000 Program will solve any remaining
issues in a timely fashion without having a material adverse effect on TFC's
business operations or financial condition. The remaining cost of the Year 2000
compliance effort is not expected to be material. However, it is possible that
unanticipated problems may arise in the course of TFC's implementation of its
Year 2000 Program. In addition, while monitoring of Year 2000 readiness by TFC's
suppliers and customers is a major part of the Year 2000 Program, TFC has very
limited ability to ensure Year 2000 readiness by such parties. TFC could also be
affected by failure of government agencies, in the U.S. and elsewhere, to
maintain governmental services that are essential to TFC's operations. TFC
cannot identify all possible worst case Year 2000 scenarios. However, the most
reasonably likely worse case scenario would be the inability of third parties,
including utilities, to deliver supplies and services that are critical to TFC's
operations and that could not quickly be replaced by other suppliers or
internally. In such a situation, operations at the affected TFC facilities would
be interrupted, with adverse effects on TFC's financial results.
Contingency plans to cover situations in which Year 2000 problems arise
despite TFC's efforts are substantially ready.
Through June 1999, TFC incurred $6.5 million of cost related to the
replacement of systems to meet TFC business requirements. These costs were
capitalized in accordance with TFC policy. TFC's cost directly related to making
its systems Year 2000 compliant were expensed as incurred. Such expense was $0.2
million through June 30, 1999. The remaining cost of the Year 2000 effort is not
expected to be material.
Forward looking statements herein relating to Year 2000 issues, including
expectations of readiness, possible effects on TFC and similar matters, are
subject to the risks described in this section.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires that companies
capitalize certain internal-use software once certain criteria are met. The
statement is effective for financial statements of fiscal years beginning after
December 15, 1998.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities." SOP
98-5 will require all costs of start-up activities, including organization
costs, to be expensed as incurred. This statement is effective for financial
statements of fiscal years beginning after December 15, 1998.
In June 1998, the Financial Accounting Standards Board issued FAS 133,
"Accounting for Derivative Instruments and Hedging Activities." FAS 133 requires
entities to recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. This statement is effective for fiscal
years beginning after June 15, 1999.
These statements will not have a material effect on TFC's financial
position or results of operations when adopted.
RISK MANAGEMENT
TFC's business activities contain various elements of risk. TFC considers
the principal types of risk to be:
- Credit risk;
- Asset/liability risk (including interest rate and foreign exchange risk);
and
- Liquidity risk.
Proper management of these risks is essential to maintaining profitability.
Accordingly, TFC has designed its risk management systems and procedures to
identify and quantify these risks. TFC has established
A-34
<PAGE> 83
appropriate policies and sets prudent limits in these areas. TFC's management of
these risks, and its compliance with these policies and limits, is continuously
monitored by means of administrative and information systems.
Credit Risk Management
TFC manages credit risk through:
- Underwriting procedures;
- Centralized approval of individual transactions exceeding certain dollar
limits; and
- Active portfolio and account management.
TFC has developed underwriting procedures for each business unit that
assesses a prospective borrower's ability to perform in accordance with proposed
loan terms. These procedures include:
- Analyzing business or property cash flows and collateral values;
- Performing financing sensitivity analyses; and
- Assessing potential exit strategies.
Certain receivables transactions are originated with the intent of fully or
partially selling them. This strategy provides an additional tool to manage
credit risk.
TFC has developed a tiered credit approval system which allows certain
transaction types and dollar amounts to be approved at the business unit level.
The delegation of credit authority is done under strict policy guidelines. TFC
business units are also subject to semi-annual audits by TFC's Corporate
Investment Control Department.
Transactions outside of business unit authority require the approval of a
Group Investment Control officer and/or TFC's Credit Committee, which is
comprised of its Chairman, President and Chief Executive Officer, Executive Vice
President and Chief Operating Officer, Senior Vice President and Chief Credit
Officer, Senior Vice President and Chief Financial Officer, and Senior Vice
President, General Counsel and Secretary.
TFC controls the credit risk associated with its portfolio by limiting
transaction sizes, as well as diversifying transactions by: (1) industry, (2)
geographic area, (3) property type and (4) borrower. Through these practices,
TFC identifies and limits exposure to unfavorable risks and seeks favorable
financing opportunities. Management reviews receivable aging trends and watch
list reports, and conducts regular business reviews, in order to monitor
business unit portfolio performance.
Geographic Concentration -- TFC continuously monitors its portfolio to
avoid any undue geographic concentration in any region of the U.S. or in any
foreign country. The largest concentration of domestic receivables was in the
Southeastern United States representing 25% of TFC's total owned and securitized
portfolio at June 30, 1999. International receivables are mostly generated in
support of Textron product sales. At June 30, 1999 international receivables
represented 11% of TFC's total owned and securitized portfolio, with no single
country representing more than 6%.
Asset/Liability Risk Management
The Company continuously measures and quantifies: (1) interest rate risk,
(2) foreign exchange risk, and (3) liquidity risk, in each case taking into
account the effect of derivatives hedging activity. TFC uses derivatives as an
integral part of its asset/liability management program, in order to reduce:
- Interest rate exposure arising from mismatches between assets and
liabilities; and
- Foreign currency exposure arising from changes in exchange rates.
The Company does not use derivative products for the purpose of generating
earnings from changes in market conditions. Before entering into a derivative
transaction, the Company determines that a high correlation exists between the
change in value of the hedged transaction and the value of the derivative. When
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<PAGE> 84
TFC executes a transaction, it designates the derivative to specific debt. The
risk that a derivative will become an ineffective hedge is generally limited to
the possibility that an asset being hedged will prepay before the related
derivative matures. Accordingly, after the inception of a hedge transaction, TFC
monitors the effectiveness of derivatives through an ongoing review of the
amounts and maturities of assets, liabilities and swap positions. This
information is reviewed by TFC's Treasurer and Chief Financial Officer so that
appropriate remedial action can be taken, as necessary.
TFC carefully manages exposure to counterparty risk in connection with its
derivatives transactions. In general, the Company limits its transactions to
counterparties having ratings of at least "A" by Standard & Poors Rating
Service, or "A2" by Moody's Investor Service. Total notional counterparty
exposure is limited to $500 million. This maximum notional exposure equates to
approximately $15 million of potential credit exposure (within two standard
deviations of probability) for the types of derivative transactions typically
entered into by TFC (e.g. interest rate swaps, basis swaps, and short-term
currency swaps and forward contracts).
Interest Rate Risk Management -- TFC manages interest rate risk by
monitoring the duration and interest rate sensitivity of its assets, and by
incurring liabilities (either directly or synthetically with derivatives) having
a similar duration and interest sensitivity profile. TFC's internal policies
limit the aggregate mismatch of interest sensitive assets and liabilities to 10%
of total assets.
From a quantitative perspective, TFC assesses its exposure to interest rate
changes using an analysis that measures the potential loss in net income, over a
12 month period, resulting from a hypothetical increase in interest rates of 100
basis points across all maturities occurring at the outset of the measurement
period (sometimes referred to as a "shock test"). The Company also assumes in
its analysis that: prospective receivables additions will be perfectly match
funded, existing portfolio will not prepay, and all other relevant factors will
remain constant. Applying this "shock test" model to TFC's asset and liability
position as of June 30, 1999, the Company's net income for the following
12-month period would be reduced by approximately $1.9 million.
Foreign Exchange Risk Management -- A small portion of the finance assets
owned by TFC are located outside of the United States. These receivables are
generally in support of Textron's overseas product sales and are predominantly
denominated in U.S. dollars. TFC presently has foreign currency receivables
denominated in Canadian and Australian dollars. In order to minimize the effect
of fluctuations in foreign currency exchange rates in TFC's financial results,
the Company enters into forward exchange contracts, on a monthly basis, in
amounts sufficient to hedge TFC's total asset exposure. As a result, TFC has no
material exposure to changes in foreign currency exchange rates.
Liquidity Risk Management
The Company uses cash to fund asset growth and to meet debt obligations and
other commitments. TFC's primary sources of funds are:
- commercial paper borrowings;
- issuances of medium-term notes and other term debt securities; and
- syndication, securitization or sale of receivables.
All commercial paper borrowings are fully backed by committed bank lines,
providing liquidity in the event of capital market dislocation. TFC generally
maintains less than 50% of debt obligations in commercial paper and short-term
debt. If TFC is unable to access these markets on acceptable terms, it can draw
on its bank credit facilities and use cash flow from operations and portfolio
liquidations to satisfy its liquidity needs.
Forward Looking Information
Certain statements in this Offer to Purchase, and other oral and written
statements made by TFC from time to time, are forward-looking statements,
including those that discuss strategies, goals, outlook or other non-historical
matters; or project revenues, income, returns or other financial measures. These
forward-looking statements are subject to risks and uncertainties that may cause
actual results to differ materially from those
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<PAGE> 85
contained in the statements, including the following: (a) the extent to which
TFC is able to successfully integrate acquisitions, (b) changes in worldwide
economic and political conditions and associated impact on interest and foreign
exchange rates, (c) the level of sales of Textron products for which TFC offers
financing, (d) the ability to maintain credit quality and control costs when
entering new markets, (e) the actions of our competitors and our ability to
respond, and (f) our ability to attract and retain qualified and experienced
personnel.
A-37
<PAGE> 86
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each stockholder
of the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Depositary as follows:
The Depositary for the Offer is:
EQUISERVE LIMITED PARTNERSHIP
<TABLE>
<S> <C> <C>
By Hand: By Mail: By Overnight Courier Delivery:
Securities Transfer & EquiServe Limited Partnership EquiServe Limited Partnership
Reporting Services, Inc. Corporate Actions Corporate Actions
c/o EquiServe Limited P.O. Box 9573 40 Campanelli Drive
Partnership Boston, MA 02205-9573 Braintree, MA 02184
100 Williams Street, Galleria
New York, NY 10038
</TABLE>
By Facsimile Transmission:
(for Eligible Institutions Only)
(781) 575-4826
Confirm by telephone:
(781) 575-4816
Any questions and requests for assistance may be directed to the
Information Agent or the Dealer Manager at their respective telephone numbers
and addresses listed below. Additional copies of this Offer to Purchase, the
Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained
from the Information Agent. You may also contact your broker, dealer, commercial
bank or trust company for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 269-5550
All Others Call Toll Free: (800) 431-9646
THE DEALER MANAGER FOR THE OFFER IS:
DONALDSON, LUFKIN & JENRETTE
277 Park Avenue
New York, New York 10172
Call Collect: (212) 892-7700
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
LITCHFIELD FINANCIAL CORPORATION
PURSUANT TO THE OFFER TO PURCHASE
DATED SEPTEMBER 29, 1999
BY
LIGHTHOUSE ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
TEXTRON FINANCIAL CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, OCTOBER 27, 1999, UNLESS THE OFFER IS EXTENDED.
THE DEPOSITARY FOR THE OFFER IS:
EQUISERVE LIMITED PARTNERSHIP
<TABLE>
<S> <C> <C>
By Hand: By Mail: By Overnight Courier Delivery:
Securities Transfer & EquiServe Limited Partnership EquiServe Limited Partnership
Reporting Services, Inc. Corporate Actions Corporate Actions
c/o EquiServe Limited Partnership P.O. Box 9573 40 Campanelli Drive
100 Williams Street, Galleria Boston, MA 02205-9573 Braintree, MA 02184
New York, NY 10038
</TABLE>
Facsimile:
(for Eligible Institutions Only)
(781) 575-4826
Confirm by telephone:
(781) 575-4816
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN
AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders if
certificates for Shares (as defined below) are to be forwarded herewith or,
unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if
tenders of Shares (as defined herein) are to be made by book-entry transfer into
the account of EquiServe Limited Partnership as Depositary (the "Depositary"),
at the Depository Trust Company ("DTC") (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as
defined below). Stockholders who tender Shares by book-entry transfer are
referred to herein as "Book-Entry Stockholders".
Holders of Shares whose certificates for such Shares (the "Share
Certificates") are not immediately available or who cannot deliver their Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase), or who
cannot complete the procedure for book-entry transfer on a timely basis, must
tender their Shares according to the guaranteed delivery procedure set forth in
Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO
A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
<PAGE> 2
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) & ADDRESSES OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS SHARE CERTIFICATE(S) AND SHARE(S)
NAME(S) APPEAR(S) ON CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
SHARE REPRESENTED NUMBER OF
CERTIFICATE BY SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
<S> <C> <C> <C>
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TOTAL SHARES
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by Book-Entry Stockholders.
** Unless otherwise indicated, all Shares represented by certificates
delivered to the Depositary will be deemed to have been tendered. See
Instruction 4.
- -------------------------------------------------------------------------------
[ ]CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN
ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY
AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER
FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution:
---------------------------------------------
Check box of Book-Entry Transfer Facility (check one):
[ ] The Depository Trust Company
Account Number
----------------------------------
Transaction Code Number
---------------------------------
[ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):
--------------------------------------------
Window Ticket Number (if any):
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
------------------------
Name of Institution that Guaranteed Delivery:
------------------------------
If delivered by Book-Entry Transfer, check box of Book-Entry Transfer
Facility (check one):
[ ] The Depository Trust Company
Account Number
----------------------------------
Transaction Code Number
----------------------------------
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Lighthouse Acquisition Corp., a
Massachusetts corporation (the "Purchaser") which is a wholly owned subsidiary
of Textron Financial Corporation, a Delaware corporation ("TFC"), the above-
described shares of common stock, par value $.01 per share (the "Shares") of
Litchfield Financial Corporation, a Massachusetts corporation, (the "Company")
at a purchase price of $24.50 per Share, net to the seller in cash without
interest thereon, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated September 29, 1999 (the "Offer to Purchase") and in this
Letter of Transmittal (which, as amended from time to time, together constitute
the "Offer"). The undersigned understands that the Purchaser reserves the right
to transfer or assign, in whole or from time to time in part, to any direct or
indirect wholly owned subsidiary or subsidiaries of TFC, the right to purchase
all or any portion of the Shares tendered pursuant to the Offer, receipt of
which is hereby acknowledged.
Subject to, and effective upon, acceptance for payment for the Shares
tendered herewith in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Purchaser all
right, title and interest in and to all of the Shares that are being tendered
hereby and any and all dividends, distributions (including additional Shares) or
rights declared, paid or issued with respect to the tendered Shares on or after
the date hereof and payable or distributable to the undersigned on a date prior
to the transfer to the name of the Purchaser or nominee or transferee of the
Purchaser on the Company's stock transfer records of the Shares tendered
herewith (collectively, a "Distribution"), and appoints the Depositary the true
and lawful agent and attorney-in-fact of the undersigned with respect to such
Shares (and any Distribution) with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest) to
(a) deliver such Share Certificates (as defined herein) (and any Distribution)
or transfer ownership of such Shares (and any Distribution) on the account books
maintained by a Book-Entry Transfer Facility, together in either case with
appropriate evidences of transfer, to the Depositary for the account of the
Purchaser, (b) present such Shares (and any Distribution) for transfer on the
books of the Company and (c) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Shares (and any Distribution), all in
accordance with the terms and subject to the conditions of the Offer.
The undersigned irrevocably appoints designees of the Purchaser as such
stockholder's proxy, with full power of substitution, to the full extent of such
stockholder's rights with respect to the Shares tendered by such stockholder and
accepted for payment by the Purchaser and with respect to any and all other
shares or other securities issued or issuable in respect of such Shares on or
after the date hereof. Such appointment will be effective when, and only to the
extent that, the Purchaser accepts such Shares for payment. Upon such acceptance
for payment, all prior proxies given by such stockholder with respect to such
Shares (and such other shares and securities) will be revoked without further
action, and no subsequent proxies may be given nor any subsequent written
consents executed (and, if given or executed, will not be deemed effective). The
designees of the Purchaser will be empowered to exercise all voting and other
rights of such stockholder as they in their sole discretion may deem proper at
any annual or special meeting of the Company's stockholders or any adjournment
or postponement thereof, by written consent in lieu of any such meeting or
otherwise. The Purchaser reserves the right to require that, in order for Shares
to be deemed validly tendered, immediately upon the Purchaser's payment for such
Shares the Purchaser must be able to exercise full voting rights with respect to
such Shares.
The undersigned hereby represents and warrants that (a) the undersigned has
full power and authority to tender, sell, assign and transfer the Shares (and
any Distribution) tendered hereby and (b) when the Shares are accepted for
payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title to the Shares (and any Distribution), free and clear of all
liens, restrictions, charges and encumbrances, and the same will not be subject
to any adverse claim. The undersigned, upon request, will execute and deliver
any additional documents deemed by the Depositary or the Purchaser to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby (and any Distribution). In addition, the undersigned
shall promptly remit and transfer to the Depositary for the account of the
Purchaser any and all Distributions in respect of the Shares tendered hereby,
accompanied by appropriate documentation of transfer; and pending such
remittance or appropriate assurance thereof, the Purchaser will be, subject to
applicable law, entitled to all rights and privileges as owner of any such
Distribution and may withhold the entire purchase price or deduct from the
purchase price the amount or value thereof, as determined by the Purchaser in
its sole discretion.
<PAGE> 4
All authority herein conferred or agreed to be conferred shall not be
affected by and shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Tenders of
Shares made pursuant to the Offer are irrevocable, except that Shares tendered
pursuant to the Offer may be withdrawn at any time prior to the Expiration Date
(as defined in the Offer to Purchase) and, unless theretofore accepted for
payment by the Purchaser pursuant to the Offer, may also be withdrawn at any
time after November 27, 1999. See Section 4 of the Offer to Purchase.
The undersigned understands that tenders of Shares pursuant to any of the
procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Purchaser upon the terms and subject to the conditions set forth in the
Offer, including the undersigned's representation that the undersigned owns the
Shares being tendered.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or issue or return any
certificate(s) for Shares not tendered or not accepted for payment in the
name(s) of the registered holder(s) appearing under "Description of Shares
Tendered." Similarly, unless otherwise indicated herein under "Special Delivery
Instructions," please mail the check for the purchase price and/or any
certificates) for Shares not tendered or not accepted for payment (and
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) appearing under "Description of Shares Tendered." In the event that
both the Special Delivery Instructions and the Special Payment Instructions are
completed please issue the check for the purchase price and/or any
certificate(s) for Shares not tendered or accepted for payment in the name of,
and deliver such check and/or such certificates to, the person or persons so
indicated. Unless otherwise indicated herein under "Special Payment
Instructions," please credit any Shares tendered herewith by book-entry transfer
that are not accepted for payment by crediting the account at the Book-Entry
Transfer Facility (as defined herein) designated above. The undersigned
recognizes that the Purchaser has no obligation, pursuant to the Special Payment
Instructions, to transfer any Shares from the name(s) of the registered
holder(s) thereof if the Purchaser does not accept for payment any of the Shares
so tendered.
<PAGE> 5
------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificate(s) for Shares not tendered or not
accepted for payment and/or the check for the purchase price of Shares
accepted for payment are to be issued in the name of someone other than
the undersigned or if Shares tendered by book-entry transfer which are not
accepted for payment are to be returned by credit to an account maintained
at a Book-Entry Transfer Facility other than the account indicated above.
Issue: [ ] check
[ ] certificates to:
Name
------------------------------------------------------
(Please Print)
Address
---------------------------------------------------
-----------------------------------------------------------
(Include Zip Code)
-----------------------------------------------------------
(Tax Id. or Social Security No.)
(See Substitute Form W-9)
[ ] Credit Shares tendered by book-entry transfer that are not accepted
for payment to the Book-Entry Transfer Facility account.
-----------------------------------------------------------
(DTC Account No.)
-----------------------------------------------------------
-----------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificate(s) for Shares not tendered or not
accepted for payment and/or the check for the purchase price of Shares
accepted for payment are to be sent to someone other than the undersigned
at an address other than that shown above.
Issue: [ ] check
[ ] certificates to:
Name
------------------------------------------------------
(Please Print)
Address
---------------------------------------------------
-----------------------------------------------------------
(Include Zip Code)
-----------------------------------------------------------
(Tax Id. or Social Security No.)
(See Substitution Form W-9)
-----------------------------------------------------------
<PAGE> 6
SIGN HERE
AND COMPLETE SUBSTITUTE FORM W-9
X
------------------------------------------------------------------------------
X
------------------------------------------------------------------------------
(Signature(s) of Stockholder(s))
Dated: , 1999
------------------------------
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Share Certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the following information
and see Instruction 5.)
Name(s)
------------------------------------------------------------------------
(Please Print)
Capacity (full title)
-----------------------------------------------------------------
Address
-------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number
-----------------------------------------------------
Tax Identification or Social Security Number
----------------------------------------------
COMPLETE SUBSTITUTE FORM W-9
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Authorized Signature
----------------------------------------------------------------
Name(s)
------------------------------------------------------------------------
Name of Firm
---------------------------------------------------------------------
(Please Print)
Address
-------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number
-----------------------------------------------------
Dated: , 1999
------------------------------
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this
Letter of Transmittal (a) if this Letter of Transmittal is signed by the
registered holder(s) of Shares (which term, for purposes of this document, shall
include any participant in the Book-Entry Transfer Facility whose name appears
on a security position listing as the owner of Shares tendered) herewith, unless
such holder(s) has completed either the box entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions" above, or (b)
if such Shares are tendered for the account of a firm which is a bank, broker,
dealer, credit union, savings association or other entity which is a member in
good standing of the Securities Transfer Agents Medallion Program (each of the
foregoing being referred to as an "Eligible Institution"). In all other cases,
all signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 5 of this Letter of Transmittal.
2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed
by stockholders either if certificates are to be forwarded herewith or, unless
an Agent's Message is utilized, if tenders are to be made pursuant to the
procedure for tender by book-entry transfer set forth in Section 3 of the Offer
to Purchase. Share Certificates evidencing tendered Shares, or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of Shares
into the Depositary's account at the Book-Entry Transfer Facility, as well as
this Letter of Transmittal (or a facsimile hereof), properly completed and duly
executed, with any required signature guarantees, or an Agent's Message in
connection with a book-entry transfer, and any other documents required by this
Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth herein prior to the Expiration Date (as defined in Section 1
of the Offer to Purchase). Stockholders whose Share Certificates are not
immediately available or who cannot deliver their Share Certificates and all
other required documents to the Depositary prior to the Expiration Date or who
cannot complete the procedure for delivery by book-entry transfer on a timely
basis may tender their Shares by properly completing and duly executing a Notice
of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth
in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) such
tender must be made by or through an Eligible Institution; (ii) a properly
completed and duly executed Notice of Guaranteed Delivery, substantially in the
form made available by the Purchaser, must be received by the Depositary prior
to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry
Confirmation) representing all tendered Shares, in proper form for transfer, in
each case together with the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees
(or, in the case of a book-entry delivery, an Agent's Message) and any other
documents required by this Letter of Transmittal, must be received by the
Depositary within three Nasdaq National Market trading days after the date of
execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of
the Offer to Purchase. If Share Certificates are forwarded separately to the
Depositary, a properly completed and duly executed Letter of Transmittal must
accompany each such delivery.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY
TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY
(INCLUDING, IN THE CASE OF BOOK ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution of
this Letter of Transmittal (or a facsimile hereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares and any other required
information should be listed on a separate signed schedule attached hereto.
4. PARTIAL TENDERS. (Not Applicable to Book-Entry Stockholders) If fewer
than all the Shares evidenced by any Share Certificates submitted are to be
tendered, fill in the number of Shares which are to be tendered in the box
entitled "Number of Shares Tendered". In such case, new Share Certificates for
the Shares that were evidenced by your old Share Certificates, but were not
tendered by you, will be sent to you, unless otherwise provided in the
appropriate box on this Letter of Transmittal, as soon as practicable after the
Expiration Date. All Shares represented by Share Certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
<PAGE> 8
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Share Certificate(s), without alteration, enlargement or any
change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
Share Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any Share Certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Purchaser of their authority so to act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of Share Certificates or
separate stock powers are required unless payment is to be made to or Share
Certificates for Shares not tendered or not purchased are to be issued in the
name of a person other than the registered holder(s). Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the certificate(s) listed, the Share Certificate(s) must
be endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear on the certificate(s).
Signatures on such certificates or stock powers must be guaranteed by an
Eligible Institution.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, the Purchaser will pay any stock transfer taxes with respect to the transfer
and sale of Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price is to be made to, or if certificate(s) for Shares
not tendered or accepted for payment are to be registered in the name of, any
person other than the registered holder(s), or if tendered certificate(s) are
registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s) or such person) payable on account of the transfer
to such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes or an exemption therefrom, is submitted.
Except as otherwise provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificate(s) listed in this Letter of
Transmittal.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued
in the name of, and/or certificates for Shares not tendered or not accepted for
payment are to be issued or returned to, a person other than the signer of this
Letter of Transmittal or if a check and/or such certificates are to be returned
to a person other than the person(s) signing this Letter of Transmittal or to an
address other than that shown in this Letter of Transmittal, the appropriate
boxes on this Letter of Transmittal must be completed. A Book-Entry Stockholder
may request that Shares not accepted for payment be credited to such account
maintained at the Book-Entry Transfer Facility as such Book-Entry Stockholder
may designate under "Special Payment Instructions". If no such instructions are
given, such Shares not accepted for payment will be returned by crediting the
account at the Book-Entry Transfer Facility designated above.
8. WAIVER OF CONDITIONS. Subject to the terms and conditions of the
Merger Agreement (as defined in the Offer to Purchase), the conditions of the
Offer (other than the Minimum Condition (as defined in the Offer to Purchase))
may be waived by the Purchaser in whole or in part at any time and from time to
time in its sole discretion.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a stockholder whose tendered Shares are accepted for payment is
required to provide the Depositary with such stockholder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Depositary is
not provided with the correct TIN, the Internal Revenue Service may subject the
stockholder or other payee to a $50 penalty. In addition, payments that are made
to such stockholder or other payee with respect to Shares purchased pursuant to
the Offer may be subject to 31% backup withholding.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, the stockholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for more instructions.
<PAGE> 9
If backup withholding applies, the Depositary is required to withhold 31%
of any such payments made to the stockholder or other payee. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the
tendering stockholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 3 is checked,
the stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Depositary.
The stockholder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the record owner of the
Shares or of the last transferee appearing on the transfers attached to, or
endorsed on, the Shares. If the Shares are in more than one name or are not in
the name of the actual owner, consult the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for additional
guidance on which number to report.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests
for assistance may be directed to the Dealer Manager or the Information Agent at
their respective addresses and telephone numbers set forth below. Additional
copies of the Offer to Purchase, this Letter of Transmittal and the Notice of
Guaranteed Delivery may also be obtained from the Information Agent or the
Dealer Manager or from brokers, dealers, commercial banks or trust companies.
11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate
representing Shares has been lost, destroyed or stolen, the stockholder should
promptly notify the Depositary. The stockholder will then be instructed as to
the steps that must be taken in order to replace the certificate. This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost or destroyed certificates have been followed.
12. DIVIDENDS. Pursuant to the Merger Agreement, the Company, among other
things, has agreed that it will not declare or pay dividends on, or make other
distributions in respect of, the Shares.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER
WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER OR THE NOTICE OF
GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE.
<PAGE> 10
- --------------------------------------------------------------------------------
PAYER'S NAME: EQUISERVE LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT ---------------------------------
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Social Security Number
OR
---------------------------------
Employer Identification Number
-------------------------------------------------------------------------------------------
PART 2--CERTIFICATION--Under Penalties of Perjury, PART 3--
DEPARTMENT OF THE I Certify that: Awaiting TIN [ ]
TREASURY
INTERNAL REVENUE SERVICE (1) The number shown on this form is my correct
Taxpayer Identification Number (or I am
PAYER'S REQUEST FOR waiting for a number to be issued to me) and
TAXPAYER IDENTIFICATION
NUMBER (TIN) (2) I am not subject to backup withholding because
(a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject
to backup withholding as a result of a failure
to report all interest or dividends, or (c)
the IRS has notified me that I am no longer
subject to backup withholding.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATE INSTRUCTIONS--
You must cross out item (2) in Part 2 above if you have been notified by the
IRS that you are currently subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out such item (2).
SIGNATURE ___________________________________________________________ DATE ,
1999
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable payments made to me will be withheld.
SIGNATURE _______________________________________ DATE ___________________ ,
1999
- --------------------------------------------------------------------------------
<PAGE> 11
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 269-5550
All Others Call Toll-Free: (800) 431-9646
THE DEALER MANAGER FOR THE OFFER IS:
DONALDSON, LUFKIN & JENRETTE
277 Park Avenue
New York, New York 10172
Call Collect: (212) 892-7700
September 29, 1999
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
TO
TENDER SHARES OF COMMON STOCK
OF
LITCHFIELD FINANCIAL CORPORATION
As set forth in Section 3 of the Offer to Purchase described below, this
instrument or one substantially equivalent hereto must be used to accept the
Offer (as defined below) if certificates for Shares (as defined below) are not
immediately available or the certificates for Shares and all other required
documents cannot be delivered to EquiServe Limited Partnership (the
"Depositary") on or prior to the Expiration Date (as defined in Section 1 of the
Offer to Purchase) or if the procedure for delivery by book-entry transfer
cannot be completed on a timely basis. This instrument may be delivered by hand
or transmitted by facsimile transmission or mailed to the Depositary.
THE DEPOSITARY FOR THE OFFER IS:
EQUISERVE LIMITED PARTNERSHIP
<TABLE>
<S> <C> <C>
By Hand: By Mail: By Overnight Courier Delivery:
Securities Transfer & EquiServe Limited Partnership EquiServe Limited Partnership
Reporting Services, Inc. Corporate Actions Corporate Actions
c/o EquiServe Limited P.O. Box 9573 40 Campanelli Drive
Partnership Boston, MA 02205-9573 Braintree, MA 02184
100 Williams Street, Galleria
New York, NY 10038
</TABLE>
Facsimile:
(for Eligible Institutions Only)
(781) 575-4826
Confirm by telephone:
(781) 575-4816
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box in the Letter of Transmittal.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tender(s) to Lighthouse Acquisition Corp., a
Massachusetts corporation, which is a wholly owned subsidiary of Textron
Financial Corporation, a Delaware corporation ("TFC"), upon the terms and
subject to the conditions set forth in the Offer to Purchase dated September 29,
1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which,
as amended from time to time, together constitute the "Offer"), receipt of which
is hereby acknowledged, the number of shares of common stock, par value $.01 per
share (the "Shares"), of Litchfield Financial Corporation, a Massachusetts
corporation, pursuant to the guaranteed delivery procedure set forth in Section
3 of the Offer to Purchase.
Signature(s)
-----------------------------------------------
Name(s) of Record Holders
- -----------------------------------------------------------
Please Type or Print
Number of Shares
-------------------------------------------
Certificate Nos. (if Available)
- -----------------------------------------------------------
- -----------------------------------------------------------
Dated , 1999
------------------------
Address(es)
-------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
Zip Code
Area Code and Tel. No(s)
------------------------------------
Check box if Shares will be tendered by book-entry transfer:
[ ] The Depository Trust Company
Account Number
----------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a bank, broker, dealer, credit union,
savings association or other entity which is a member in good standing of the
Securities Transfer Agents Medallion Program, (a) represents that the above
named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule
14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"),
(b) represents that such tender of Shares complies with Rule 14e-4 and (c)
guarantees to deliver to the Depositary either the certificates evidencing all
tendered Shares, in proper form for transfer, or to deliver Shares pursuant to
the procedure for book-entry transfer into the Depositary's account at The
Depository Trust Company (the "Book-Entry Transfer Facility"), in either case
together with the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees or an
Agent's Message (as defined in the Offer to Purchase) in the case of a
book-entry delivery, and any other required documents, all within three Nasdaq
National Market trading days after the date hereof.
- ------------------------------------------------------------
Name of Firm
- ------------------------------------------------------------
Address
- ------------------------------------------------------------
Zip Code
- ------------------------------------------------------------
Area Code and Tel. No
- ------------------------------------------------------------
Authorized Signature
Name
--------------------------------------------------------
Please Type or Print
Title
-------------------------------------------------------
Dated , 1999
--------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES FOR
SHARES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE> 1
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 PARK AVENUE
NEW YORK, NEW YORK 10172
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
LITCHFIELD FINANCIAL CORPORATION
AT
$24.50 NET PER SHARE
BY
LIGHTHOUSE ACQUISITION CORP.,
A WHOLLY OWNED SUBSIDIARY OF
TEXTRON FINANCIAL CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, OCTOBER 27, 1999, UNLESS THE OFFER IS EXTENDED.
September 29, 1999
TO BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES:
We have been appointed by Lighthouse Acquisition Corp., a Massachusetts
corporation (the "Purchaser"), which is a wholly owned subsidiary of Textron
Financial Corporation, a Delaware corporation ("TFC"), to act as dealer manager
in connection with the Purchaser's offer to purchase for cash all the
outstanding shares of common stock, par value $.01 per share (the "Shares"), of
Litchfield Financial Corporation, a Massachusetts corporation (the "Company"),
at a purchase price of $24.50 per Share, net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated September 29, 1999 (the "Offer to Purchase"), and in
the related Letter of Transmittal (which, as amended from time to time, together
constitute the "Offer") enclosed herewith. Holders of Shares whose certificates
for such Shares (the "Share Certificates") are not immediately available or who
cannot deliver their Share Certificates and all other required documents to
EquiServe Limited Partnership (the "Depositary") prior to the Expiration Date
(as defined in the Offer to Purchase), or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Shares according to the
guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase.
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Shares registered in your name or in the name of
your nominee.
Enclosed herewith for your information and forwarding to your clients for
whom you hold Shares registered in your name or in the name of your nominee are
copies of the following documents:
1. THE OFFER TO PURCHASE.
2. THE LETTER OF TRANSMITTAL to tender Shares for your use and for the
information of your clients. Facsimile copies of the Letter of Transmittal
may be used to tender Shares.
3. THE NOTICE OF GUARANTEED DELIVERY for Shares to be used to accept
the Offer if Share Certificates are not immediately available or if such
certificates and all other required documents cannot be delivered to the
Depositary by the Expiration Date or if the procedure for book-entry
transfer cannot be completed by the Expiration Date.
<PAGE> 2
4. THE LETTER TO STOCKHOLDERS of the Company from the Chairman of the
Board and President and Chief Executive Officer of the Company, accompanied
by the Company's Solicitation/Recommendation Statement on Schedule 14D-9,
which includes the recommendation of the Board of Directors of the Company
that stockholders accept the Offer and tender their Shares to the Purchaser
pursuant to the Offer.
5. A printed form of letter which may be sent to your clients for
whose accounts you hold Shares registered in your name or in the name of
your nominee, with space provided for obtaining such clients' instructions
with regard to the Offer.
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
7. A return envelope addressed to the Depositary.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 27, 1999, UNLESS THE
OFFER IS EXTENDED.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 22, 1999 (the "Merger Agreement"), by and among TFC, the
Purchaser and the Company. The Merger Agreement provides, among other things,
for the making of the Offer by the Purchaser, and further provides that,
following the completion of the Offer, upon the terms and subject to the
conditions of the Merger Agreement, and in accordance with the Massachusetts
Business Corporation Law, the Purchaser will be merged with and into the Company
(the "Merger"). Following the Merger, the Company will continue as the surviving
corporation and become a wholly owned subsidiary of TFC, and the separate
corporate existence of the Purchaser will cease.
The Board of Directors of the Company has approved, by unanimous vote of
the directors, the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger and determined that terms of the Offer and
the Merger are fair to, and in the best interests of, the holders of the Shares
and recommends that the holders of the Shares accept the Offer and tender their
Shares to the Purchaser pursuant to the Offer.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PURSUANT TO THE OFFER PRIOR TO THE EXPIRATION DATE
(AS DEFINED IN SECTION 1 OF THE OFFER TO PURCHASE) SUCH NUMBER OF SHARES WHICH
CONSTITUTES MORE THAN 66 2/3% OF THE SHARES (DETERMINED ON A FULLY DILUTED
BASIS) (THE "MINIMUM CONDITION"), AND (II) THE EXPIRATION OR TERMINATION OF ANY
APPLICABLE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT
OF 1976, AS AMENDED.
In order to take advantage of the Offer, (i) a duly executed and properly
completed Letter of Transmittal and any required signature guarantees, or an
Agent's Message (as defined in the Offer to Purchase) in connection with a
book-entry delivery of Shares, and other required documents should be sent to
the Depositary, and (ii) either Share Certificates representing the tendered
Shares should be delivered to the Depositary, or such Shares should be tendered
by book-entry transfer into the Depositary's account maintained at the
Book-Entry Transfer Facility (as described in the Offer to Purchase), all in
accordance with the instructions set forth in the Letter of Transmittal and the
Offer to Purchase.
The Purchaser will not pay any commissions or fees to any broker, dealer or
other person (other than the Dealer Manager, the Depositary and D.F. King & Co.,
Inc. (the "Information Agent") (as described in the Offer to Purchase)) for
soliciting tenders of Shares pursuant to the Offer. The Purchaser will, however,
upon request, reimburse you for customary clerical and mailing expenses incurred
by you in forwarding any of the enclosed materials to your clients. The
Purchaser will pay or cause to be paid any stock transfer taxes payable on the
transfer of Shares to it, except as otherwise provided in Instruction 6 of the
Letter of Transmittal.
2
<PAGE> 3
Inquiries you may have with respect to the Offer should be addressed to the
Information Agent or the undersigned, at the respective addresses and telephone
numbers set forth on the back cover of the Offer to Purchase. Additional copies
of the enclosed materials may be obtained from the Information Agent.
Very truly yours,
Donaldson, Lufkin & Jenrette
Securities Corporation
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF THE PURCHASER, TFC, THE DEALER MANAGER, THE
COMPANY, THE DEPOSITARY OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF
THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY
DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE
ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
LITCHFIELD FINANCIAL CORPORATION
AT
$24.50 NET PER SHARE
BY
LIGHTHOUSE ACQUISITION CORP.,
A WHOLLY OWNED SUBSIDIARY OF
TEXTRON FINANCIAL CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, OCTOBER 27, 1999, UNLESS THE OFFER IS EXTENDED.
TO OUR CLIENTS:
Enclosed for your consideration is an Offer to Purchase dated September 29,
1999 (the "Offer to Purchase"), and the related Letter of Transmittal relating
to an offer by Lighthouse Acquisition Corp., a Massachusetts corporation (the
"Purchaser"), which is a wholly owned subsidiary of Textron Financial
Corporation, a Delaware corporation ("TFC"), to purchase all of the outstanding
shares of common stock, par value $.01 per share (the "Shares"), of Litchfield
Financial Corporation, a Massachusetts corporation (the "Company"), at a
purchase price of $24.50 per Share, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in the Offer to
Purchase and in the related Letter of Transmittal (which, as amended from time
to time, together constitute the "Offer"). Holders of Shares whose certificates
for such Shares (the "Share Certificates") are not immediately available or who
cannot deliver their Share Certificates and all other required documents to
EquiServe Limited Partnership, (the "Depositary") prior to the Expiration Date
(as defined in the Offer to Purchase), or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Shares according to the
guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase.
WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER
OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR
ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of such Shares held by us for your account, pursuant to the
terms and subject to the conditions set forth in the Offer to Purchase.
Your attention is directed to the following:
1. The tender price is $24.50 per share, net to the seller in cash,
without interest thereon.
2. The Offer is made for all of the outstanding Shares.
3. The Offer is being made pursuant to an Agreement and Plan of
Merger, dated as of September 22, 1999 (as may be amended from time to
time, the "Merger Agreement"), by and among TFC, the Purchaser and the
Company. The Merger Agreement provides, among other things, that, subject
to the terms and conditions of the Merger Agreement, subsequent to the
consummation of the Offer, the Purchaser will merge with and into the
Company (the "Merger"). At the effective time of the Merger (the "Effective
Time,") each Share issued and outstanding immediately prior to the Merger
(other than Shares held in the treasury of the Company and Shares, if any,
owned by the Purchaser, TFC or any direct or indirect subsidiary of TFC or
of the Company and other than Shares, if any, held by stockholders who have
not voted in favor of the Merger Agreement or consented to in writing and
have timely delivered to the Company demand for appraisal of such Shares in
accordance with the
<PAGE> 2
Massachusetts Business Corporation Law) shall be cancelled, extinguished,
and converted automatically into the right to receive $24.50 in cash,
without interest.
4. The Board of Directors of the Company has approved, by unanimous
vote of the directors, the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and determined
that the terms of the Offer and the Merger are fair to, and in the best
interests of, the holders of Shares and recommends that holders of Shares
accept the Offer and tender their Shares to the Purchaser pursuant to the
Offer.
5. The Offer and withdrawal rights will expire at 12:00 Midnight, New
York City time, on Wednesday, October 27, 1999, unless the Offer is
extended.
6. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares pursuant to the
Offer.
7. The Offer is conditioned upon, among other things, (i) there being
validly tendered and not withdrawn pursuant to the Offer prior to the
expiration of the Offer such number of Shares which constitutes more than
66 2/3% of the Shares (determined on a fully-diluted basis) and (ii) the
expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
The Offer is being made solely by the Offer to Purchase and the related
Letter of Transmittal and is being made to all holders of Shares. The Purchaser
is not aware of any state where the making of the Offer is prohibited by
administrative or judicial action pursuant to any valid state statute. If the
Purchaser becomes aware of any valid state statute prohibiting the making of the
Offer or the acceptance of Shares pursuant thereto, the Purchaser will make a
good faith effort to comply with any such state statute. If, after such good
faith effort, the Purchaser cannot comply with such state statute, the Offer
will not be made to, nor will tenders be accepted from or on behalf of, the
holders of Shares in such state. In any jurisdiction where the securities, blue
sky or other laws require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of the Purchaser by Donaldson
Lufkin & Jenrette Securities Corporation, the Dealer Manager for the Offer, or
one or more registered brokers or dealers that are licensed under the laws of
such jurisdiction.
If you wish to have us tender any or all of the Shares held by us for your
account, please instruct us by completing, executing and returning to us the
instruction form contained in this letter. If you authorize a tender of your
Shares, all such Shares will be tendered unless otherwise specified in such
instruction form. Your instructions should be forwarded to us in ample time to
permit us to submit a tender on your behalf prior to the expiration of the
Offer.
2
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO
THE OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
LITCHFIELD FINANCIAL CORPORATION
BY
LIGHTHOUSE ACQUISITION CORP.,
A WHOLLY OWNED SUBSIDIARY OF
TEXTRON FINANCIAL CORPORATION
The undersigned acknowledge(s) receipt of your letter enclosing the Offer
to Purchase dated September 29, 1999 (the "Offer to Purchase") and the related
Letter of Transmittal pursuant to an offer by Lighthouse Acquisition Corp., a
Massachusetts corporation, which is a wholly owned subsidiary of Textron
Financial Corporation, a Delaware corporation, to purchase all of the
outstanding shares of common stock, par value $.01 per share (the "Shares"), of
Litchfield Financial Corporation, a Massachusetts corporation, at a purchase
price of $24.50 per Share, net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in the Offer to Purchase
and the related Letter of Transmittal.
This will instruct you to tender the number of Shares indicated below (or,
if no number is indicated below, all Shares which are held by you for the
account of the undersigned), upon the terms and subject to the conditions set
forth in the Offer to Purchase and in the related Letter of Transmittal
furnished to the undersigned.
Number of Shares
to be Tendered*
--------------------- Shares
Date:
-------------------------------------------
- ---------------
* Unless otherwise indicated, it will be assumed that all of your Shares held by
us for your account are to be tendered.
SIGN HERE
---------------------------------------------------
Signature(s)
---------------------------------------------------
Please Print Name(s)
---------------------------------------------------
---------------------------------------------------
Address
---------------------------------------------------
Area Code and Telephone Number
---------------------------------------------------
Tax Identification or Social
Security Number
3
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE (YOU)
TO GIVE THE PAYER. -- Social security numbers have nine digits separated by two
hyphens: i.e., 000-00-0000. Employee identification numbers have nine digits
separated by only one hyphen: i.e., 00-0000000. The table below will help
determine the number to give the payer. All "Section" references are to the
Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue
Service.
- ---------------------------------------------------------
- ---------------------------------------------------------
<TABLE>
<CAPTION>
FOR THIS TYPE OF ACCOUNT: GIVE THE
SOCIAL
SECURITY
NUMBER OF --
<C> <S> <C>
1. Individual The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or
valid trust under state
law
5. Sole proprietorship The owner(3)
- ---------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF --
- ---------------------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or The legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational, or other
tax-exempt organization
account
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a state or local government,
school district, or prison)
that receives agricultural
program payments
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE:If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Card, at the local
Social Administration office, or Form SS-4, Application for Employer
Identification Number, by calling 1 (800) TAX-FORM, and apply for a number. If
you have applied for a TIN check the box in Part 3 of the Form W-9.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from withholding include:
- An organization exempt from tax under Section 501(a), an individual
retirement account (IRA), or a custodial account under Section 403(b)(7), if
the account satisfies the requirements of Section 401(f)(2).
- The United States or a state thereof, the District of Columbia, a possession
of the United States, or a political subdivision or wholly-owned agency or
instrumentality of any one or more of the foregoing.
- An international organization or any agency or instrumentality thereof.
- A foreign government and any political subdivision, agency or instrumentality
thereof.
Payees that may be exempt from backup withholding include:
- A corporation.
- A financial institution.
- A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
- A real estate investment trust.
- A common trust fund operated by a bank under Section 584(a).
- An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- A middleman known in the investment community as a nominee or who is listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
- A futures commission merchant registered with the Commodity Futures Trading
Commission.
- A foreign central bank of issue.
Payments of dividends and patronage dividends generally exempt from backup
withholding include:
- Payments to nonresident aliens subject to withholding under Section 1441.
- Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- Payments of patronage dividends not paid in money.
- Payments made by certain foreign organizations.
- Section 404(k) payments made by an ESOP.
Payments of interest generally exempt from backup withholding include:
- Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or more
and you have not provided your correct taxpayer identification number to the
payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
- Payments described in Section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under Section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid to you.
Certain payments, other than payments of interest, dividends, and patronage
dividends, that are exempt from information reporting are also exempt from
backup withholding. For details, see the regulations under sections 6041, 6041A,
6042, 6044, 6045, 6049, 6050A and 6050N.
Exempt payees described above must file Form W-9 or a substitute Form W-9 to
avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER,
FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART 2 OF THE
FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
PRIVACY ACT NOTICE. -- Section 6109 requires you to provide your correct
taxpayer identification number to payers, who must report the payments to tje
IRS. The IRS uses the number for identification purposes and may also provide
this information to various government agencies for tax enforcement or
litigation purposes. Payers must be given the numbers whether or not recipients
are required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to payer. Certain penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish
your taxpayer identification number to a payer, you are subject to a penalty of
$50 for each such failure unless your failure is due to reasonable cause and not
to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
<PAGE> 1
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares (as defined below). The Offer (as defined below) is made
solely by the Offer to Purchase dated September 29, 1999 and the related Letter
of Transmittal (and any amendments thereto) and is being made to all holders of
Shares. The Purchaser (as defined below) is not aware of any state where the
making of the Offer is prohibited by administrative or judicial action pursuant
to any valid state statute. If the Purchaser becomes aware of any state where
the making of the Offer is prohibited, the Purchaser will make a good faith
effort to comply with any such statute. If, after such good faith effort, the
Purchaser cannot comply with any such statute, the Offer will not be made to
(nor will tenders be accepted from or on behalf of) the holders of Shares in
such state. In those jurisdictions where the securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Purchaser by Donaldson, Lufkin & Jenrette
Securities Corporation or one or more registered brokers or dealers licensed
under the laws of such jurisdictions.
Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock of
Litchfield Financial Corporation at $24.50 Net Per Share by Lighthouse
Acquisition Corp., a wholly owned subsidiary of Textron Financial Corporation
Lighthouse Acquisition Corp., a Massachusetts corporation (the "Purchaser") and
a wholly-owned subsidiary of Textron Financial Corporation, a Delaware
corporation (the "Parent"), hereby offers to purchase for cash all of the
outstanding shares of common stock, par value $0.01 per share (the "Shares"),
of Litchfield Financial Corporation, a Massachusetts corporation (the
"Company"), at a purchase price of $24.50 per Share, net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated September 29, 1999 (the "Offer to
Purchase") and in the related Letter of Transmittal (which, as amended from
time to time, together constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, OCTOBER 27, 1999, UNLESS THE OFFER IS EXTENDED.
The offer is conditioned upon, among other things, (1) there being validly
tendered and not properly withdrawn prior to the expiration of the offer
two-thirds of the shares of common stock of Litchfield Financial Corporation
(determined on a fully-diluted basis) (the "Minimum Condition") and (2) the
expiration or termination of any waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as
of September 22, 1999 (as amended from time to time, the "Merger Agreement"),
among the Parent, the Purchaser and the Company. The Merger Agreement provides,
among other things, for the making of the Offer by the Purchaser, and further
provides that, following the completion of the Offer, upon the terms and
subject to the conditions of the Merger Agreement and the Massachusetts
Business Corporation Law ("MBCL"), the Purchaser will be merged with and into
the Company (the "Merger"). The purpose of the Offer is to acquire control of,
and the entire equity interest in, the Company. Following the consummation of
the Offer and after satisfaction or waiver of all conditions to the Merger set
forth in the Merger Agreement, the Purchaser intends to acquire the remaining
equity interest in the Company not acquired by the Offer by consummating the
Merger. At the effective time of the Merger (the "Effective Time"), each Share
issued and
<PAGE> 2
outstanding immediately prior to the Effective Time (other than (1) any Shares
held by Parent, the Purchaser, any wholly-owned subsidiary of Parent or the
Purchaser, in the treasury of the Company or by any wholly-owned subsidiary of
the Company, which Shares, by virtue of the Merger, shall be cancelled and shall
cease to exist with no payment being made with respect thereto, and (2) Shares,
if any, held by stockholders who have not voted in favor of the Merger Agreement
or consented thereto in writing and have timely delivered to the Company demand
for appraisal of such Shares in accordance with the MBCL) will, by virtue of the
Merger and without any action on the part of the holders be cancelled,
extinguished and converted into the right to receive $24.50 in cash payable to
the holder thereof, and without interest, upon surrender of the certificate
formerly representing such Share. The Merger Agreement is more fully described
in Section 11 of the Offer to Purchase.
The Board of Directors of the Company has unanimously determined that the
Merger Agreement and the transactions contemplated thereby, including each of
the Offer and the Merger, are fair to, and in the best interests of the
stockholders of, the Company and recommends that all stockholders accept the
Offer and tender all of their Shares to the Purchaser.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when the Purchaser gives oral or written notice to
EquiServe Limited Partnership (the "Depositary") of the Purchaser's acceptance
for payment of such Shares pursuant to the Offer. Upon the terms and subject to
the conditions of the Offer, payment for Shares accepted for payment pursuant
to the Offer will be made by deposit of the purchase price therefor with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving payments from the Purchaser and transmitting such payments to
stockholders whose Shares have been accepted for payment. Under no
circumstances will interest on the Purchase Price for Shares be paid,
regardless of any extension of the Offer or any delay in making such payment.
In all cases, payment for Shares tendered and accepted for payment pursuant to
the Offer will be made only after timely receipt by the Depositary of (i)
certificates representing such Shares (the "Share Certificates") or timely
confirmation of a book-entry transfer of such Shares into the Depositary's
account at the Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in Section 3 of the Offer to Purchase,
(ii) the Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, with any required signature guarantees, or an Agent's Message
(as defined in Section 2 of the Offer to Purchase) in connection with a
book-entry transfer and (iii) any other documents required by the Letter of
Transmittal.
Subject to the provisions of the Merger Agreement and the applicable rules and
regulations of the Securities and Exchange Commission (the "Commission"), the
Purchaser reserves the right, in its sole discretion, to waive any or all
conditions to the Offer (other than the Minimum Condition) and to make any
other changes in the terms and conditions to the Offer. Subject to the
provisions of the Merger Agreement and the applicable rules and regulations of
the Commission, if by the Expiration Date any or all of such Offer conditions
have not been satisfied, the Purchaser reserves the right (but shall not be
obligated) to (i) terminate the Offer and return all tendered Shares to
tendering stockholders, (ii) waive such unsatisfied conditions (other than the
Minimum Condition) and purchase all Shares validly tendered or (iii) extend the
Offer and, subject to the terms of the Offer (including the rights of
stockholders to withdraw their Shares), retain the Shares which have been
tendered, until the termination of the Offer, as extended.
Subject to the applicable rules and regulations of the Commission and the terms
of the Merger Agreement, the Purchaser expressly reserves the right, in its
sole discretion, at any time and from time to time, and regardless of whether
or not
<PAGE> 3
any of the events set forth in Section 15 of the Offer to Purchase shall have
occurred or shall have been determined by the Purchaser to have occurred, to (i)
extend the period of time during which the Offer is open and thereby delay
acceptance for payment of, and the payment for, any Shares, by giving oral or
written notice of such extension to the Depositary and (ii) amend the Offer in
any respect by giving oral or written notice of such amendment to the
Depositary.
Any extension, delay, termination, waiver or amendment will be followed as
promptly as practicable by public announcement thereof to be made no later than
9:00 A.M., New York City time, on the next business day after the previously
scheduled Expiration Date. During any such extension, all Shares previously
tendered and not properly withdrawn will remain subject to the Offer, subject
to the rights of a tendering stockholder to withdraw such stockholder's Shares.
The term "Expiration Date" means 12:00 Midnight, New York City time, on
Wednesday, October 27, 1999, unless and until the Purchaser, in its discretion
(but subject to the terms and conditions of the Merger Agreement), shall have
extended the period during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by the Purchaser, shall expire.
Tenders of Shares made pursuant to the Offer are irrevocable, except that
Shares tendered pursuant to the Offer may be withdrawn at any time on or prior
to the Expiration Date and, unless theretofore accepted for payment by the
Purchaser pursuant to the Offer, may also be withdrawn at any time after
November 27, 1999. For a withdrawal to be effective, a written, telegraphic,
telex or facsimile transmission notice of withdrawal must be timely received by
the Depositary at one of its addresses set forth on the back cover of the Offer
to Purchase. Any notice of withdrawal must specify the name of the person who
tendered the Shares to be withdrawn, the number of Shares to be withdrawn and
the name of the registered holder, if different from that of the person who
tendered such Shares. If Share Certificates to be withdrawn have been delivered
or otherwise identified to the Depositary, then prior to the physical release
of such certificates, the name of the registered holder (if different from the
tendering stockholder) and the serial numbers shown on such certificates must
be submitted to the Depositary and the signature(s) on the notice of withdrawal
must be guaranteed by an Eligible Institution (as defined in Section 3 of the
Offer to Purchase) unless such Shares have been tendered for the account of an
Eligible Institution. If Shares have been tendered pursuant to the procedure
for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any
notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares, in which
case a notice of withdrawal will be effective if delivered to the Depositary by
any method of delivery described in the second sentence of this paragraph. All
questions as to the form and validity (including time of receipt) of any notice
of withdrawal will be determined by the Purchaser, in its sole discretion,
whose determination will be final and binding. None of the Purchaser, the
Parent, any of their affiliates, successors or assigns, the Dealer Manager, the
Depositary, the Information Agent or any person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to give such notification. Withdrawal of Shares
may not be rescinded. Any Shares properly withdrawn will thereafter be deemed
not to have been validly tendered for purposes of the Offer. However, withdrawn
Shares may be re-tendered at any time prior to the Expiration Date by following
one of the procedures described in Section 3 of the Offer to Purchase.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
<PAGE> 4
The Company has provided the Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to
holders of Shares. The Offer to Purchase and the related Letter of Transmittal
and other relevant materials will be mailed by the Purchaser to record holders
of Shares and furnished to brokers, dealers, commercial banks, trust companies
and similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a
clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
The Offer to purchase and the related Letter of Transmittal contain important
information which should be read carefully before any decision is made with
respect to the Offer.
Questions and requests for assistance may be directed to the Dealer Manager or
the Information Agent as set forth below. Requests for copies of the Offer to
Purchase and the related Letter of Transmittal and all other tender offer
materials may be directed to the Information Agent or the above-described
brokers, dealers, commercial banks and trust companies, and copies will be
furnished promptly at the Purchaser's expense. The Purchaser will not pay any
fees or commissions to any broker or dealer or any other person (other than the
Dealer Manager and the Information Agent) for soliciting tenders of Shares
pursuant to the Offer.
The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 269-5550
All Others Call Toll Free: (800) 431-9646
The Dealer Manager for the Offer is:
Donaldson, Lufkin & Jenrette
277 Park Avenue
New York, New York 10172
(Call Collect) (212) 892-7700
September 29, 1999
<PAGE> 1
TFC TEXTRON
THE FIRST CHOICE
TEXTRON FINANCIAL CORPORATION 40 Westminster Street
Subsidiary of Textron Inc. Providence, Rhode Island 02903
(401) 621-4200
INVESTOR CONTACTS:
Mary Lovejoy -- Textron Vice President, Communications and Investor Relations
401-457-6009
Ronald E. Rabidou -- Litchfield Chief Financial Officer
413-458-1000, ext. 160
MEDIA CONTACT:
David Wisen -- Textron Financial Vice President, Corporate Development
401-621-4480
TEXTRON FINANCIAL CORPORATION AGREES TO ACQUIRE
LITCHFIELD FINANCIAL CORPORATION
SPECIALIZED COMMERCIAL FINANCE COMPANY TO SIGNIFICANTLY ENHANCE
TEXTRON FINANCIAL'S RESORT AND RECREATION PORTFOLIO
PROVIDENCE, RHODE ISLAND AND WILLIAMSTOWN, MASSACHUSETTS -- SEPTEMBER 23,
1999 -- Textron Financial Corporation and Litchfield Corporation (NASDAQ:LTCH)
today announced the signing of a definitive merger agreement whereby Textron
Financial Corporation will acquire the entire outstanding capital stock of
Litchfield for $24.50 per share in a cash transaction valued at approximately
$183 million. The Boards of Directors of Textron Inc. and Litchfield have
approved the agreement.
Litchfield is a commercial finance company specializing in
receivables-based finance agreements for the vacation ownership (timeshare)
industry and other commercial finance niches. With estimated fiscal 1999
revenues of $51 million and over $550 million in managed finance receivables,
Litchfield has a ten-year track record of over 20% annual earnings growth.
<PAGE> 2
- more -
Textron Financial to Acquire Litchfield Financial / 2
This agreement provides for an all-cash tender offer by Textron
Financial for all of Litchfield's outstanding shares of common stock, commencing
within five business days. The tender is expected to close by late October,
1999, unless extended, and is subject to the valid tender of at least 66.66% of
the outstanding Litchfield shares on a fully diluted basis, and to customary
government filings and other customary conditions.
"Litchfield bolsters Textron Financial Corporation's competitive
position in one of our fastest-growing core niches -- resort and recreation
finance. It also complements our existing portfolio by adding other niches
consistent with TFC's strategy. We have known Litchfield management for a long
time. Their track record and culture mirror our own, and we are eager to have
this highly successful organization join our family of businesses," remarked
Stephen A. Giliotti, Textron Financial Corporation Chairman, President and CEO.
Richard A. Stratton, President and CEO of Litchfield commented, "This is
a great combination of skills, culture and resources. Our timeshare and
factoring lending groups will complement Textron Financial's resort and
recreation finance and factoring businesses, which focus on slightly different
market segments. Our land receivables, tax lien and financial services
businesses will provide Textron Financial new opportunities in growing markets.
And by improving our access to lower cost capital, the combination will enable
us to expand the growth of our core businesses." Mr. Stratton will remain
President of Litchfield and will also become Senior Vice President - Operations
of Textron Financial Corporation.
The tender offer for shares of Litchfield common stock will be made only
through definitive tender offer documents, which will be filed with the
Securities and Exchange Commission and mailed to the shareholders of
Litchfield. Following completion of the tender offer, it is contemplated that
the holders of any then-outstanding shares of common stock will receive, in a
second-step merger, the same $24.50 per share cash consideration as holders
will receive in the tender offer.
- more -
<PAGE> 3
Textron Financial to Acquire Litchfield Financial / 3
With 140 employees, Litchfield has offices in Williamstown,
Massachusetts; Atlanta, Georgia; Denver, Colorado; and Scottsdale, Arizona. The
company's customers consist of developers of vacation ownership (timeshare)
properties and rural land, small finance companies, and municipalities selling
real estate tax liens. More information is available at www.ltchfld.com.
With over $5 billion in managed receivables and a twenty-year history of
record earnings, Textron Financial Corporation is a diversified commercial
finance company with three groups of products and services: term financing for
Aircraft, Equipment and Golf (including the financing of Textron products);
revolving credit arrangements; and specialty finance. Other services include
syndications, asset management, portfolio servicing and insurance brokerage.
More information is available at www.tfc.textron.com.
Textron Financial Corporation is a subsidiary of Textron Inc. (NYSE:
TXT), a $10 billion, global, multi-industry company with market-leading
operations in Aircraft, Automotive, Industrial and Finance. Textron has a
workforce of over 64,000 employees and major manufacturing facilities in 23
countries. Textron is among Fortune magazine's "America's Most Admired
Companies."
XXX
<PAGE> 1
EXECUTION COPY
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AGREEMENT AND PLAN OF MERGER
Among
TEXTRON FINANCIAL CORPORATION,
LIGHTHOUSE ACQUISITION CORP.
and
LITCHFIELD FINANCIAL CORPORATION
Dated as of September 22, 1999
----------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
THE OFFER.................................................................................1
SECTION 1.1 The Offer....................................................................1
SECTION 1.2 Company Action...............................................................2
ARTICLE II
THE MERGER................................................................................3
SECTION 2.1 The Merger...................................................................3
SECTION 2.2 Closing; Effective Time......................................................4
SECTION 2.3 Effects of the Merger........................................................4
SECTION 2.4 Articles of Organization; By-Laws............................................4
SECTION 2.5 Directors and Officers.......................................................4
SECTION 2.6 Conversion of Securities.....................................................4
SECTION 2.7 Treatment of Options.........................................................5
SECTION 2.8 Dissenting Shares............................................................5
SECTION 2.9 Surrender of Shares; Stock Transfer Books....................................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................7
SECTION 3.1 Organization and Qualification; Subsidiaries.................................7
SECTION 3.2 Articles of Organization and By-Laws.........................................7
SECTION 3.3 Capitalization...............................................................8
SECTION 3.4 Authority Relative to This Agreement.........................................9
SECTION 3.5 No Conflict; Required Filings and Consents...................................9
SECTION 3.6 Compliance..................................................................10
SECTION 3.7 SEC Filings; Financial Statements...........................................10
SECTION 3.8 Absence of Certain Changes or Events........................................11
SECTION 3.9 Absence of Litigation.......................................................12
SECTION 3.10 Employee Benefit Plans.....................................................12
SECTION 3.11 Tax Matters................................................................13
SECTION 3.12 Offer Documents; Proxy Statement...........................................14
SECTION 3.13 Environmental Matters......................................................15
SECTION 3.14 Real Estate Matters........................................................17
SECTION 3.15 Loans; Investments.........................................................18
SECTION 3.16 Licenses...................................................................21
SECTION 3.17 Allowance for Possible Loan Losses.........................................21
SECTION 3.18 Brokers....................................................................22
SECTION 3.19 Sole Representations and Warranties........................................22
</TABLE>
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER...................................22
SECTION 4.1 Corporate Organization......................................................22
SECTION 4.2 Authority Relative to This Agreement........................................22
SECTION 4.3 No Conflict; Required Filings and Consents..................................23
SECTION 4.4 Offer Documents; Proxy Statement............................................23
SECTION 4.5 Brokers.....................................................................24
SECTION 4.6 Funds.......................................................................24
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER...................................................24
SECTION 5.1 Conduct of Business of the Company Pending the Merger.......................24
ARTICLE VI
ADDITIONAL AGREEMENTS....................................................................27
SECTION 6.1 Stockholders Meeting........................................................27
SECTION 6.2 Proxy Statement.............................................................27
SECTION 6.3 Company Board Representation; Section 14(f).................................28
SECTION 6.4 Access to Information; Confidentiality......................................29
SECTION 6.5 No Solicitation of Transactions.............................................29
SECTION 6.6 Employee Benefits Matters...................................................30
SECTION 6.7 Directors' and Officers' Indemnification and Insurance......................31
SECTION 6.8 Intentionally Omitted.......................................................32
SECTION 6.9 Notification of Certain Matters.............................................32
SECTION 6.10 Further Action; Commercially Reasonable Efforts............................33
SECTION 6.11 Public Announcements.......................................................34
SECTION 6.12 Disposition of Litigation..................................................34
ARTICLE VII
CONDITIONS OF MERGER.....................................................................34
SECTION 7.1 Conditions to Obligation of Each Party to Effect the Merger.................34
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER........................................................35
SECTION 8.1 Termination.................................................................35
SECTION 8.2 Effect of Termination.......................................................36
SECTION 8.3 Fees and Expenses...........................................................36
SECTION 8.4 Amendment...................................................................38
</TABLE>
ii
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SECTION 8.5 Waiver......................................................................38
ARTICLE IX
GENERAL PROVISIONS.......................................................................38
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements..................38
SECTION 9.2 Notices.....................................................................38
SECTION 9.3 Certain Definitions.........................................................39
SECTION 9.4 Severability................................................................40
SECTION 9.5 Entire Agreement; Assignment................................................40
SECTION 9.6 Parties in Interest.........................................................41
SECTION 9.7 Governing Law...............................................................41
SECTION 9.8 Headings....................................................................41
SECTION 9.9 Counterparts................................................................41
SECTION 9.10 Specific Performance.......................................................41
</TABLE>
Annex A - Offer Conditions
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER, dated as of September 22, 1999 (the
"Agreement"), among TEXTRON FINANCIAL CORPORATION, a Delaware corporation
("Parent"), LIGHTHOUSE ACQUISITION CORP., a Massachusetts corporation and a
wholly owned subsidiary of Parent ("Purchaser"), and LITCHFIELD FINANCIAL
CORPORATION, a Massachusetts corporation (the "Company").
WHEREAS, the Board of Directors of the Company has determined that it
is in the best interests of the Company and the stockholders of the Company to
enter into this Agreement with Parent and Purchaser, providing for the merger
(the "Merger") of Purchaser with the Company in accordance with the
Massachusetts Business Corporation Law ("MBCL"), upon the terms and subject to
the conditions set forth herein; and
WHEREAS, the Board of Directors of Parent and Purchaser have each
approved the Merger of Purchaser with the Company in accordance with the MBCL
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.1 The Offer. (a) Provided that this Agreement shall not have
been terminated in accordance with Section 8.1 and no event shall have occurred
and no circumstance shall exist which would result in a failure to satisfy any
of the conditions or events set forth in Annex A hereto (the "Offer
Conditions"), Purchaser shall, as soon as reasonably practicable after the date
hereof (and in any event within five business days from the date of initial
public announcement of the execution hereof), commence an offer (the "Offer") to
purchase for cash all of the issued and outstanding shares of Common Stock, par
value $0.01 per share (referred to herein as either the "Shares" or "Company
Common Stock"), of the Company at a price of $24.50 per Share, net to the seller
in cash. The obligation of Purchaser to accept for payment Shares tendered
pursuant to the Offer shall be subject only to the satisfaction or waiver by
Purchaser of the Offer Conditions. Purchaser expressly reserves the right, in
its sole discretion, to waive any such condition (other than the Minimum
Condition as defined in the Offer Conditions) and make any other changes in the
terms and conditions of the Offer, provided that, unless previously approved by
the Company in writing, no change may be made which changes the Minimum
Condition or decreases the price per Share payable in the Offer, changes the
form of consideration payable in the Offer (other than by adding consideration),
reduces the maximum number of Shares to be purchased in the Offer, or amends the
terms or Offer Conditions in a manner which, in the Company's reasonable
judgment, is adverse to the holders of the Shares or the Company, or which
imposes conditions or terms to the Offer in addition to those set forth herein.
Purchaser covenants and agrees that, subject to the terms and conditions of this
Agreement, including but not limited to the Offer Conditions, it will accept for
payment and pay for Shares as soon as it is permitted to do so under applicable
law; provided that
<PAGE> 6
2
Purchaser shall have the right, in its sole discretion, to extend the Offer for
up to five business days, notwithstanding the prior satisfaction of the Offer,
solely if necessary in order to attempt to satisfy the requirements of Section
82 of the MBCL. It is agreed that the Offer Conditions are for the benefit of
Purchaser and may be asserted by Purchaser regardless of the circumstances
giving rise to any such condition (except for any action or inaction by
Purchaser or Parent constituting a breach of this Agreement) or, except with
respect to the Minimum Condition, may be waived by Purchaser, in whole or in
part at any time and from time to time, in its sole discretion. Subject to the
terms and conditions of the Offer, Parent and Purchaser will each use reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the Offer.
(b) As soon as reasonably practicable on the date the Offer is
commenced, Purchaser shall file a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") with respect to the Offer with the Securities and Exchange
Commission (the "SEC"). The Schedule 14D-1 shall contain an Offer to Purchase
and forms of the related letter of transmittal (which Schedule 14D-1, Offer to
Purchase and other documents, together with any supplements or amendments
thereto, are referred to herein collectively as the "Offer Documents"). Parent
and Purchaser agree that the Company and its counsel shall be given an
opportunity to review the Schedule 14D-1 before it is filed with the SEC.
Parent, Purchaser and the Company each agrees promptly to correct any
information provided by it for use in the Offer Documents that shall have become
false or misleading in any material respect, and Parent and Purchaser further
agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to
be filed with the SEC and the other Offer Documents as so corrected to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws.
SECTION 1.2 Company Action. (a) The Company hereby approves of and
consents to the Offer and represents and warrants that: (i) its Board of
Directors, at a meeting duly called and held on September 22, 1999, has
unanimously (A) determined that this Agreement and the transactions contemplated
hereby, including the Offer and the Merger, are advisable and are fair to and in
the best interests of the holders of Shares and the Company, (B) approved this
Agreement and the transactions contemplated hereby, including each of the Offer
and the Merger, and (C) resolved to recommend that the stockholders of the
Company accept the Offer, tender their Shares to Purchaser thereunder and
approve this Agreement and the transactions contemplated hereby (it being
understood that, notwithstanding anything in this Agreement to the contrary, if
the Company's Board of Directors by majority vote shall have determined in good
faith, based upon the advice of outside counsel to the Company, that failure to
modify or withdraw its recommendation would constitute a breach of the Board's
fiduciary duty under applicable law, the Board of Directors may so modify or
withdraw its recommendation); and (ii) CIBC World Markets (the "Financial
Advisor") has delivered to the Board of Directors of the Company its written
opinion that, subject to the limitations and qualifications stated therein, the
consideration to be received by holders of Shares, other than Parent and
Purchaser, pursuant to the Offer and the Merger is fair to such holders from a
financial point of view. The Company has been authorized by the Financial
Advisor to permit, subject to prior review by such Financial Advisor, the
inclusion of such fairness opinion (or a reference thereto with the consent of
the Financial Adviser) in the Schedule 14D-9 referred to below and the Proxy
Statement referred to in Section 3.12. The Company hereby consents to the
inclusion in the Offer
<PAGE> 7
3
Documents of the recommendations of the Company's Board of Directors described
in this Section 1.2(a).
(b) The Company shall file with the SEC, contemporaneously with the
commencement of the Offer pursuant to Section 1.1, a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "Schedule 14D-9"), containing the recommendations of the Company's
Board of Directors described in Section 1.2(a)(i) and shall promptly mail the
Schedule 14D-9 to the stockholders of the Company. The Schedule 14D-9 and all
amendments thereto will comply in all material respects with the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder. The Company, Parent and Purchaser each
agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 that shall have become false or misleading in any material
respect, and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws.
(c) In connection with the Offer, if requested by Purchaser, the
Company shall promptly furnish Purchaser with mailing labels, security position
listings, any non-objecting beneficial owner lists and any available listings or
computer files containing the names and addresses of the record holders of
Shares, each as of a recent date, and shall promptly furnish Purchaser with such
additional information (including but not limited to updated lists of
stockholders, mailing labels, security position listings and non-objecting
beneficial owner lists) and such other assistance as Parent, Purchaser or their
agents may reasonably require in communicating the Offer to the record and
beneficial holders of Shares. Subject to the requirements of law, and except for
such steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer and the Merger, Parent, Purchaser
and each of their affiliates and associates shall hold in confidence the
information contained in any of such lists, labels or additional information
and, if this Agreement is terminated, shall promptly deliver to the Company all
copies and extracts of such information then in their possession or under their
control.
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the conditions
of this Agreement and in accordance with the MBCL, at the Effective Time (as
defined in Section 2.2), Purchaser shall be merged with and into the Company. As
a result of the Merger, the separate corporate existence of Purchaser shall
cease and the Company shall continue as the surviving corporation of the Merger
(the "Surviving Corporation"). At Parent's election, any direct or indirect
subsidiary of Parent other than Purchaser may be merged with and into the
Company instead of the Purchaser. In the event of such an election, the parties
agree to execute an appropriate amendment to this Agreement in order to reflect
such election.
<PAGE> 8
4
SECTION 2.2 Closing; Effective Time. Subject to the provisions of
Article VII, the closing of the Merger (the "Closing") shall take place in New
York City at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue,
New York, New York, as soon as practicable but in no event later than the first
business day after the satisfaction or waiver of the conditions set forth in
Article VII, or at such other place or at such other date as Parent and the
Company may mutually agree. The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date." At the Closing, the parties
hereto shall cause the Merger to be consummated by filing this Agreement or
articles of merger (the "Certificate of Merger") with the Secretary of State of
the Commonwealth of Massachusetts, in such form as required by and executed in
accordance with the relevant provisions of the MBCL (the date and time of the
filing of the Certificate of Merger with the Secretary of State of the
Commonwealth of Massachusetts (or such later time as is specified in the
Certificate of Merger) being the "Effective Time").
SECTION 2.3 Effects of the Merger. The Merger shall have the effects
set forth in the applicable provisions of the MBCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Purchaser shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Purchaser shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 2.4 Articles of Organization; By-Laws. (a) At the Effective
Time and without any further action on the part of the Company and Purchaser,
the Amended and Restated Articles of Organization of the Company (as amended,
the "Articles of Organization"), as in effect immediately prior to the Effective
Time, shall be the articles of organization of the Surviving Corporation until
thereafter and further amended as provided therein and under the MBCL.
(b) At the Effective Time and without any further action on the part
of the Company and Purchaser, the By-Laws of Purchaser, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation
and thereafter may be amended or repealed in accordance with their terms or the
Articles of Organization of the Purchaser and as provided by law.
SECTION 2.5 Directors and Officers. The directors of Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Organization and By-Laws of the Surviving Corporation (directors of the Company
shall tender their resignations effective upon the Effective Time), and the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed (as the case may be) and
qualified. Nothing herein shall be deemed to limit the ability of Parent to
cause the Surviving Corporation to elect or appoint different or additional
officers.
SECTION 2.6 Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Purchaser, the Company or
the holders of any of the following securities:
<PAGE> 9
5
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be canceled pursuant to Section
2.6(b) and any Dissenting Shares (as defined in Section 2.8(a))) shall be
canceled, extinguished and converted into the right to receive $24.50 in
cash or any higher price that may be paid pursuant to the Offer (the
"Merger Consideration") payable to the holder thereof, without interest,
upon surrender of the certificate formerly representing such Share in the
manner provided in Section 2.9, less any required withholding taxes.
(b) Each share of Company Common Stock held in the treasury of the
Company and each Share owned by Parent, Purchaser or any other direct or
indirect subsidiary of Parent or of the Company, in each case immediately
prior to the Effective Time, shall be canceled and retired without any
conversion thereof and no payment or distribution shall be made with
respect thereto.
(c) Each share of common stock of Purchaser issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation.
SECTION 2.7 Treatment of Options. Immediately prior to the Effective
Time, each outstanding stock option and any related stock appreciation right
granted to employees and non-employee directors of the Company and its
subsidiaries (together, an "Option"), whether or not then exercisable or vested,
shall be canceled by the Company, and the holder thereof shall be entitled to
receive at the Effective Time or as soon as practicable thereafter from the
Company in consideration for such cancellation an amount in cash equal to the
product of (a) the number of Shares previously subject to such Option and (b)
the excess, if any, of the Merger Consideration over the exercise price per
Share previously subject to such Option (such payment to be net of applicable
withholding taxes).
SECTION 2.8 Dissenting Shares. (a) Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that are issued and
outstanding immediately prior to the Effective Time and which are held by
stockholders who have not voted in favor of or consented to the Merger and shall
have delivered a written demand for appraisal of such shares of Company Common
Stock in the time and manner provided in Section 89 of the MBCL and shall not
have failed to perfect or shall not have effectively withdrawn or lost their
rights to appraisal and payment under the MBCL (the "Dissenting Shares") shall
not be converted into the right to receive the Merger Consideration, but shall
be entitled to receive the consideration as shall be determined pursuant to
Sections 89 and 90 of the MBCL; provided, however, that if such holder shall
have failed to perfect or shall have effectively withdrawn or lost his, her or
its right to appraisal and payment under the MBCL, such holder's shares of
Company Common Stock shall thereupon be deemed to have been converted, at the
Effective Time, into the right to receive the Merger Consideration set forth in
Section 2.6(a) of this Agreement, without any interest thereon.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal pursuant to Section 85 of the MBCL received by the Company,
withdrawals of such demands, and any other instruments served pursuant to the
MBCL and received by the Company and (ii) the
<PAGE> 10
6
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the MBCL. The Company shall not, except with the prior
written consent of Parent, make any payment with respect to any such demands for
appraisal or offer to settle or settle any such demands.
SECTION 2.9 Surrender of Shares; Stock Transfer Books. (a) Prior to
the Effective Time, Purchaser shall designate a bank or trust company to act as
agent for the holders of Shares in connection with the Merger (the "Paying
Agent") to receive the Merger Consideration to which holders of Shares shall
become entitled pursuant to Section 2.6(a). When and as needed, Parent or
Purchaser will make available to the Paying Agent sufficient funds to make all
payments pursuant to Section 2.9(b). Such funds shall be invested by the Paying
Agent as directed by Purchaser or, after the Effective Time, the Surviving
Corporation, provided that such investments shall be in obligations of or
guaranteed by the United States of America, in commercial paper obligations
rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, or in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital exceeding
$500 million. Any net profit resulting from, or interest or income produced by,
such investments will be payable to the Surviving Corporation or Parent, as
Parent directs.
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented Shares (the "Certificates"), 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 Paying Agent) and instructions for use in effecting the surrender of the
Certificates for payment of the Merger Consideration therefor. Upon surrender to
the Paying Agent of a Certificate, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for each Share formerly represented by such Certificate,
and such Certificate shall then be canceled. No interest shall be paid or
accrued for the benefit of holders of the Certificates on the Merger
Consideration payable upon the surrender of the Certificates. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable.
(c) At any time following one year after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds (including any interest received with respect thereto) which had
been made available to the Paying Agent and which have not been disbursed to
holders of Certificates, and thereafter such holders shall be entitled to look
to the Surviving Corporation (subject to abandoned property, escheat or other
similar laws) only as general creditors thereof with respect to the Merger
Consideration payable upon due surrender of their Certificates. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Paying
<PAGE> 11
7
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(d) At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Shares except as otherwise provided for
herein or by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser
that, except as set forth in the disclosure schedule delivered by the Company to
Purchaser prior to the date of execution of this Agreement (the "Company
Disclosure Schedule"):
SECTION 3.1 Organization and Qualification; Subsidiaries. Except as
set forth in Section 3.1 of the Company Disclosure Schedule, each of the Company
and each of its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite corporate power and authority and any necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority and governmental
approvals is not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect (as defined below). Each of the Company and each of its
subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing as are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect. When used
in connection with the Company or any of its subsidiaries, the term "Material
Adverse Effect" means any change or effect that would (i) be materially adverse
to the business, financial condition or results of operations of the Company and
its subsidiaries taken as a whole or (ii) prevent or materially delay the
consummation of the Offer or the Merger; provided, however, that a decline in
the price of the Company's Common Stock as traded on the Nasdaq National Market
as a result of changes in the accounting practices or business practices set
forth in Section 5.1 of the Company Disclosure Schedule shall not be deemed to
have a Material Adverse Effect unless it is otherwise a result of an event or
occurrence that is materially adverse to the business, financial condition or
results of operations of the Company and its subsidiaries taken as a whole.
SECTION 3.2 Articles of Organization and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of the Articles of
Organization and the By-Laws of the Company as currently in effect. Such
Articles of Organization and By-Laws are in full force and
<PAGE> 12
8
effect and no other organizational documents are applicable to or binding upon
the Company. The Company is not in violation of any of the provisions of its
Articles of Organization or By-Laws.
SECTION 3.3 Capitalization. The authorized capital stock of the
Company consists of 12,000,000 shares of Company Common Stock and 1,000,000
shares of Preferred Stock, par value $0.01 per share ("Company Preferred
Stock"). As of September 22, 1999, (i) 6,984,601 shares of Company Common Stock
were issued and outstanding, all of which were duly authorized, validly issued,
fully paid and nonassessable and were issued free of preemptive (or similar)
rights, (ii) no shares of Company Common Stock were held in the treasury of the
Company and (iii) an aggregate of 913,720 shares of Company Common Stock were
reserved for issuance and issuable upon or otherwise deliverable in connection
with the exercise of outstanding Options issued pursuant to the Company Plans
(as defined in Section 3.10). Since September 22, 1999, no options to purchase
shares of Company Common Stock have been granted and no shares of Company Common
Stock have been issued except for shares issued pursuant to the exercise of
Options outstanding as of September 22, 1999. As of the date hereof, no shares
of Company Preferred Stock are issued and outstanding. Except (i) as set forth
above or (ii) as a result of the exercise of Options outstanding as of September
22, 1999, there are outstanding (a) no shares of capital stock or other voting
securities of the Company, (b) no securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
(c) no options or other rights to acquire from the Company, and no obligation of
the Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company and (d) no equity equivalents, interests in the ownership or earnings of
the Company or other similar rights (collectively, "Company Securities"). Except
as set forth in Section 3.3 of the Company Disclosure Schedule, there are no
outstanding obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Company Securities. Except as set forth in
Section 3.3 of the Company Disclosure Schedule, there are no other options,
calls, warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or any
of its subsidiaries to which the Company or any of its subsidiaries is a party.
All shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable and free of preemptive (or similar) rights. Except as set
forth in Section 3.3 of the Company Disclosure Schedule, there are no
outstanding contractual obligations of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
the capital stock of any subsidiary or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such subsidiary or any other entity. Except as set forth in Section 3.3 of the
Company Disclosure Schedule, each of the outstanding shares of capital stock of
each of the Company's subsidiaries is duly authorized, validly issued, fully
paid and nonassessable and all such shares are owned by the Company or another
wholly owned subsidiary of the Company and are owned free and clear of all
security interests, liens, claims, pledges, agreements, limitations in voting
rights, charges or other encumbrances of any nature whatsoever, except where the
failure to own such shares free and clear is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect. The Company has
delivered to Parent prior to the date hereof a list of the subsidiaries and
associated entities of the Company which evidences, among other things, the
percentage of capital stock or other equity interests owned by the Company,
directly or indirectly,
<PAGE> 13
9
in such subsidiaries or associated entities. No entity in which the Company
owns, directly or indirectly, less than a 50% equity interest is, individually
or when taken together with all such other entities, material to the business of
the Company and its subsidiaries taken as a whole.
SECTION 3.4 Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. 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 authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than, with respect to the Merger, the approval of this
Agreement by the holders of two-thirds of the outstanding shares of Company
Common Stock if and to the extent required by applicable law, and the filing of
appropriate merger documents as required by the MBCL). This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Parent and Purchaser,
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. The Board of Directors of the
Company has approved this Agreement and the transactions contemplated hereby
(including but not limited to the Offer and the Merger) so as to render
inapplicable hereto and thereto the limitation on business combinations
contained in Chapter 110D and Chapter 110F, Section 1, of the Massachusetts
Corporation-Related Laws. As a result of the foregoing actions, subject to
Section 82 of the MBCL, the only vote required to authorize the Merger is the
affirmative vote of two-thirds of the outstanding Shares.
SECTION 3.5 No Conflict; Required Filings and Consents. (a) Except as
set forth in Section 3.5(a) of the Company Disclosure Schedule, the execution,
delivery and performance of this Agreement by the Company do not and will not:
(i) conflict with or violate the Articles of Organization or By-Laws of the
Company or the equivalent organizational documents of any of its subsidiaries;
(ii) assuming that all consents, approvals and authorizations contemplated by
clauses (i), (ii) and (iii) of subsection (b) below have been obtained and all
filings described in such clauses have been made, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company or
any of its subsidiaries or by which its or any of their respective properties
are bound or affected; or (iii) result in any breach or violation of or
constitute a default (or an event which with notice or lapse of time or both
could become a default) or result in the loss of a material benefit under, or
give rise to any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or encumbrance on any of the properties
or assets of the Company or any of its subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties are bound or affected, except, in the case of
clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults
or other occurrences which are not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect.
(b) Except as set forth in Section 3.5(b) of the Company Disclosure
Schedule, the execution, delivery and performance of this Agreement by the
Company and the consummation of
<PAGE> 14
10
the Merger by the Company do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to, any
governmental or regulatory authority, domestic or foreign, or any other person,
except for (i) applicable requirements, if any, of the Exchange Act and the
rules and regulations promulgated thereunder, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), or other foreign filings
or approvals, state securities, takeover and "blue sky" laws, (ii) the filing
and recordation of appropriate merger or other documents as required by the MBCL
and (iii) such consents, approvals, authorizations, permits, actions, filings or
notifications the failure of which to make or obtain are not, individually or in
the aggregate, reasonably likely to (x) prevent or materially delay the Company
from performing its obligations under this Agreement or (y) have a Material
Adverse Effect.
(c) if the adoption of this Agreement and the approval of the Merger
by the stockholders of the Company is required by the MBCL, such adoption and
approval may be accomplished in accordance with the Company's Articles of
Organization and the MBCL solely by the affirmative vote of two-thirds of the
outstanding Shares.
SECTION 3.6 Compliance. Neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties are bound
or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or its or any of their respective properties are bound or
affected, except, in the case of each of clauses (i) and (ii), for any such
conflicts, defaults or violations which are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect.
SECTION 3.7 SEC Filings; Financial Statements. (a) The Company and, to
the extent applicable, each of its then or current subsidiaries, has filed all
forms, reports, statements and documents required to be filed with the SEC since
January 1, 1996 (collectively, the "SEC Reports"), each of which has complied in
all material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, or the Exchange Act, and the rules and regulations
promulgated thereunder, each as in effect on the date so filed. None of the SEC
Reports (including but not limited to any financial statements or schedules
included or incorporated by reference therein) contained when filed, or (except
to the extent revised or superseded by a subsequent filing with the SEC)
contains, any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the audited and unaudited consolidated financial
statements of the Company (including any related notes thereto) included in its
Annual Reports on Form 10-K for each of the two fiscal years ended December 31,
1997 and 1998 filed with the Commission has been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly presents
<PAGE> 15
11
the consolidated financial position of the Company and its subsidiaries at the
respective date thereof and the consolidated results of its operations and
changes in cash flows for the periods indicated.
(c) Except as and to the extent set forth on the consolidated balance
sheet of the Company and its subsidiaries at December 31, 1998, including the
notes thereto, neither the Company nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) which would be required to be reflected on a balance sheet or in
the notes thereto prepared in accordance with generally accepted accounting
principles, except for liabilities or obligations incurred since December 31,
1998 (i) in the ordinary course of business consistent with past practice and
(ii) which are not, individually or in the aggregate, reasonably likely to have
a Material Adverse Effect.
(d) The Company has heretofore furnished or made available to Parent a
complete and correct copy of any amendments or modifications which have not yet
been filed with the SEC to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to the Securities
Act and the rules and regulations promulgated thereunder or the Exchange Act and
the rules and regulations promulgated thereunder.
SECTION 3.8 Absence of Certain Changes or Events. Since December 31,
1998, except as contemplated by this Agreement or disclosed in the SEC Reports
filed and publicly available prior to the date of this Agreement, the Company
and its subsidiaries have conducted their businesses only in the ordinary course
and in a manner consistent with past practice and, since such date, there has
not been: (i) any changes in the business, financial condition or results of
operations of the Company or any of its subsidiaries having or reasonably likely
to have a Material Adverse Effect; (ii) any damage, destruction or loss (whether
or not covered by insurance) with respect to any assets of the Company or any of
its subsidiaries which is reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect; (iii) any material change by the Company in
its accounting methods, principles or practices; (iv) any revaluation by the
Company of any of its material assets, including but not limited to writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business; (v) any entry by the Company or any of its
subsidiaries into any commitment or transactions material to the Company and its
subsidiaries taken as a whole (other than commitments or transactions entered
into in the ordinary course of business); (vi) any declaration, setting aside or
payment of any dividends or distributions in respect of the Shares; (vii) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including
without limitation the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan or agreement or arrangement, or any other increase in the
compensation payable or to become payable to any present or former directors,
officers or key employees of the Company or any of its subsidiaries, except for
increases in base compensation in the ordinary course of business consistent
with past practice, or pursuant to any employment, consulting or severance
agreement or arrangement previously entered into with any such present or former
directors, officers or key employees; or (viii) any other action which, if it
had been taken after the date hereof, would have required the consent of Parent
under Section 5.1 (except for the actions described in Sections 5.1(e)(iii),
5.1(e)(iv), 5.1(h), 5.1(l) and 5.1(p) hereof).
<PAGE> 16
12
SECTION 3.9 Absence of Litigation. Except as disclosed in the SEC
Reports filed and publicly available prior to the date of this Agreement, there
are no suits, claims, actions, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries, or any properties or rights of the Company or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect. As of the
date hereof, neither the Company nor any of its subsidiaries nor any of their
respective properties is or are subject to any order, writ, judgment,
injunction, decree, determination or award having, or which, insofar as can be
reasonably foreseen, is reasonably likely to have a Material Adverse Effect.
SECTION 3.10 Employee Benefit Plans. Except (i) as set forth in the
SEC Reports filed and publicly available prior to the date of this Agreement,
(ii) as set forth in Section 3.10 of the Company Disclosure Schedule, or (iii)
with respect to subsections (b) through (g) of this Section 3.10, as is not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect:
(a) Section 3.10 of the Company Disclosure Schedule contains a true
and complete list of each "employee benefit plan" (within the meaning of
section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), including, without limitation, multiemployer plans
within the meaning of ERISA section 3(37)), stock purchase, stock option,
severance, employment, change-in-control, fringe benefit, collective
bargaining, bonus, incentive, deferred compensation and all other employee
benefit plans, agreements, programs, policies or other arrangements,
whether or not subject to ERISA (including any funding mechanism therefor
now in effect), whether formal or informal, oral or written, legally
binding or not, under which any employee or former employee of the Company
or any of its subsidiaries, has any present or future right to benefits or
under which the Company or any of its subsidiaries has any present or
future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "Company Plans".
(b) With respect to each Company Plan, the Company has delivered or
made available to Parent a current, accurate and complete copy (or, to the
extent no such copy exists, an accurate description) thereof and, to the
extent applicable: (i) any related trust agreement or other funding
instrument; (ii) the most recent determination letter, if applicable; (iii)
any summary plan description and other written communications by the
Company or any of its subsidiaries to their employees concerning the extent
of the benefits provided under a Company Plan; and (iv) for the three most
recent years (A) the Form 5500 and attached schedules, (B) audited
financial statements and (C) actuarial valuation reports.
(c) (i) Each Company Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions
of ERISA, the Internal Revenue Code of 1986, as amended (the "Code"), and
other applicable laws, rules and regulations; (ii) each Company Plan which
is intended to be qualified within the meaning of Code section 401(a) has
received a favorable determination letter as to its qualification, and
nothing has occurred, whether by action or failure to act, that would cause
the revocation of such
<PAGE> 17
13
determination letter; (iii) no event has occurred and no condition exists
that would subject the Company or any of its subsidiaries, either directly
or by reason of their affiliation with any member of their "Controlled
Group" (defined as any organization which is a member of a controlled group
of organizations within the meaning of Code sections 414(b), (c), (m) or
(o)), to any tax, fine, lien or penalty imposed by ERISA, the Code or other
applicable laws, rules and regulations; (iv) for each Company Plan with
respect to which a Form 5500 has been filed, no material change has
occurred with respect to the matters covered by the most recent Form since
the date thereof; and (v) no "reportable event" (as such term is defined in
ERISA section 4043), "prohibited transaction" (as such term is defined in
ERISA section 406 and Code section 4975) or "accumulated funding
deficiency" (as such term is defined in ERISA section 302 and Code section
412 (whether or not waived)) has occurred with respect to any Company Plan.
(d) With respect to each of the Company Plans that is not a
multiemployer plan within the meaning of section 4001(a)(3) of ERISA but is
subject to Title IV of ERISA, as of the Effective Time, the assets of each
such Company Plan are at least equal in value to the present value of the
accrued benefits (vested and unvested) of the participants in such Company
Plan on a termination basis, based on the actuarial methods and assumptions
indicated in the most recent actuarial valuation reports.
(e) With respect to any multiemployer plan (within the meaning of
ERISA section 4001(a)(3)): (i) none of the Company, any of its subsidiaries
or any member of their Controlled Group has incurred any withdrawal
liability under Title IV of ERISA or would be subject to such liability if,
as of the Effective Time, the Company, any of its subsidiaries or any
member of their Controlled Group were to engage in a complete withdrawal
(as defined in ERISA section 4203) or partial withdrawal (as defined in
ERISA section 4205) from any such multiemployer plan; and (ii) no
multiemployer plan to which the Company, any of its subsidiaries or any
member of their Controlled Group has any liabilities or contributes, is in
reorganization or insolvent (as those terms are defined in ERISA sections
4241 and 4245, respectively).
(f) With respect to any Company Plan, (i) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending
or, to the knowledge of the Company, threatened, and (ii) no facts or
circumstances exist, to the knowledge of the Company, that are likely to
give rise to any such actions, suits or claims.
(g) No Company Plan exists that could result in the payment to any
present or former employee of the Company or any of its subsidiaries of any
money or other property or accelerate or provide any other rights or
benefits to any present or former employee of the Company or any of its
subsidiaries as a result of the transaction contemplated by this Agreement,
whether or not such payment would constitute a parachute payment within the
meaning of Code section 280G.
SECTION 3.11 Tax Matters. The Company and each of its subsidiaries,
and any consolidated, combined, unitary or aggregate group for tax purposes of
which the Company or any
<PAGE> 18
14
of its subsidiaries is or has been a member has timely filed all Tax Returns
required to be filed by it in the manner provided by law, has paid all Taxes
(including interest and penalties) owed (whether or not shown on any Tax
Returns) other than Taxes that (i) are being contested in good faith, (ii) have
not been finally determined and (iii) for which an adequate reserve has been
provided in its financial statements according to generally accepted accounting
principles. All such Tax Returns were true, correct and complete in all material
respects. No claim has been made in writing by any Taxing authority in a
jurisdiction where any of the Company or its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. Except as
has been disclosed to Parent in Section 3.11 of the Company Disclosure Schedule:
(i) no material claim for unpaid Taxes has become a lien or encumbrance of any
kind against the property of the Company or any of its subsidiaries or is being
asserted against the Company or any of its subsidiaries; (ii) as of the date
hereof there are no audits or disputes for Taxes upon the Company or any of its
subsidiaries; and (iii) none of the payments required by this Agreement would be
non-deductible under Code Section 162(m). Proper and accurate amounts have been
withheld by the Company and its subsidiaries from their employees in compliance
with the tax withholding provisions of applicable federal, state and local laws
and have been paid over to the appropriate taxing authorities. None of the
Company and its subsidiaries has filed a consent under Code Section 341(f)
concerning collapsible corporations. None of the Company and its subsidiaries
has been required to include in income any adjustment pursuant to Code Section
481 (or any similar provision of state, local or foreign tax law) by reason of a
voluntary change in accounting method initiated by the Company or any of its
subsidiaries, and, to the Company's best knowledge, the IRS has not initiated or
proposed any such adjustment or change in accounting method. Except as set forth
in Section 3.11 of the Company Disclosure Schedule, neither the Company nor any
of its subsidiaries (i) has been a member of an affiliated group filing
consolidated federal income tax return (other than a group the common parent of
which was the Company), (ii) is a party to a Tax allocation or Tax sharing
agreement (other than an agreement solely among members of a group the common
parent of which is the Company), or (iii) has any liability for the Taxes of any
person (other than any of the Company or its subsidiaries) under Treasury
Regulation section 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract or otherwise. As used herein,
"Taxes" shall mean any taxes of any kind, including but not limited to those on
or measured by or referred to as income, gross receipts, capital, sales, use, ad
valorem, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, value added, property or windfall profits
taxes, customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any governmental authority, domestic or foreign.
As used herein, "Tax Return" shall mean any return, report or statement required
to be filed with any governmental authority with respect to Taxes, including any
schedule or attachment thereto or amendment thereof.
SECTION 3.12 Offer Documents; Proxy Statement. Neither the Schedule
14D-9, nor any of the information supplied by the Company for inclusion in the
Offer Documents, shall, at the respective times such Schedule 14D-9, the Offer
Documents or any amendments or supplements thereto are filed with the SEC or are
first published, sent or given to stockholders, as the case may be, 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
the light of the circumstances under which they were made, not misleading.
Neither the proxy statement to be sent to the
<PAGE> 19
15
stockholders of the Company in connection with the Stockholders Meeting (as
defined in Section 6.1) or the information statement to be sent to such
stockholders, as appropriate (such proxy statement or information statement, as
amended or supplemented, is herein referred to as the "Proxy Statement"), shall,
at the date the Proxy Statement (or any amendment thereof or supplement thereto)
is first mailed to stockholders and at the time of the Stockholders Meeting and
at the Effective Time, be false or misleading with respect to any material fact,
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Stockholders Meeting which has become false or misleading. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information supplied by Parent or Purchaser or any of their respective
representatives which is contained in the Schedule 14D-9 or the Proxy Statement.
The Schedule 14D-9 and the Proxy Statement will comply in all material respects
as to form with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
SECTION 3.13 Environmental Matters. (a) Except as disclosed in SEC
Reports filed and publicly available prior to the date of this Agreement and to
the extent that the inaccuracy of any of the following (or the circumstances
giving rise to such inaccuracy), individually or in the aggregate, is not
reasonably likely to have a Material Adverse Effect:
(i) (A) the Company and its subsidiaries are, and within the period of
all applicable statutes of limitation have been, in compliance with all
applicable Environmental Laws; and (B) the Company and each of its
subsidiaries believes that each of them will, and will not incur material
expense in excess of the amounts reflected in the Company's financial
statements and capital budgets to, timely attain or maintain compliance
with any Environmental Laws applicable to any of their current operations
or properties or to any of their planned operations over the next three
years;
(ii) (A) the Company and its subsidiaries hold all Environmental
Permits (each of which is in full force and effect) required for any of
their current operations and for any property owned, leased, or otherwise
operated by any of them, and are, and within the period of all applicable
statutes of limitation have been, in compliance with all such Environmental
Permits; and (B) neither the Company nor any of its subsidiaries has
knowledge that over the next three years: any of their Environmental
Permits will not be, or will entail material expense to be, timely renewed
or complied with; any additional Environmental Permits required of any of
them for current operations or for any property owned, leased, or otherwise
operated by any of them, or for any of their planned operations, will not
be timely granted or complied with; or any transfer or renewal of, or
reapplication for, any Environmental Permit required as a result of the
Merger will not be, timely effected;
(iii) no review by, or approval of, any Governmental Authority or
other person is required under any Environmental Law in connection with the
execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby;
<PAGE> 20
16
(iv) neither the Company nor any of its subsidiaries has received any
Environmental Claim (as hereinafter defined) against any of them, and
neither the Company nor any of its subsidiaries has knowledge of any such
Environmental Claim being threatened;
(v) Hazardous Materials are not present on any property owned, leased,
or operated by the Company or any of its subsidiaries, that is reasonably
likely to form the basis of any Environmental Claim against any of them;
and neither the Company nor any of its subsidiaries has reason to believe
that Hazardous Materials are present on any other property that is
reasonably likely to form the basis of any Environmental Claim against any
of them;
(vi) neither the Company nor any of its subsidiaries has knowledge of
any material Environment Claim pending or threatened, or of the presence or
suspected presence of any Hazardous Materials that is reasonably likely to
form the basis of any Environmental Claim, in any case against any person
or entity (including without limitation any predecessor of the Company or
any of its subsidiaries) whose liability the Company or any of its
subsidiaries has or may have retained or assumed either contractually or by
operation of law or against any real or personal property which the Company
or any of its subsidiaries formerly owned, leased, or operated, in whole or
in part; and
(vii) the Company has informed the Parent and the Purchaser of: all
material facts which the Company or any of its subsidiaries reasonably
believes could form the basis of a material Environmental Claim against the
Company or any of its subsidiaries arising out of the non-compliance or
alleged non-compliance with any Environmental Law, or the presence or
suspected presence of Hazardous Materials at any location; all material
costs the Company reasonably expects it and any of its subsidiaries to
incur to comply with Environmental Laws during the next three years; and
all material costs the Company and any of its subsidiaries expect to incur
for ongoing, and reasonably anticipated, investigation and remediation of
Hazardous Materials (including, without limitation, any payments to resolve
any threatened or asserted Environmental Claim for investigation and
remediation costs).
(b) For purposes of this Agreement, the terms below shall have the
following meanings:
"Environmental Claim" means any claim, demand, action, suit,
complaint, proceeding, directive, investigation, lien, demand letter, or
notice (written or oral) of noncompliance, violation, or liability, by any
person or entity asserting liability or potential liability (including
without limitation liability or potential liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damage, personal injury, fines or penalties)
arising out of, based on or resulting from (i) the presence, discharge,
emission, release or threatened release of any Hazardous Materials at any
location, (ii) circumstances forming the basis of any violation or alleged
violation of any Environmental Laws or Environmental Permits, or (iii)
otherwise relating to obligations or liabilities under any Environmental
Law.
<PAGE> 21
17
"Environmental Laws" means any and all laws, rules, orders,
regulations, statutes, ordinances, guidelines, codes, decrees, or other
legally enforceable requirement (including, without limitation, common law)
of any foreign government, the United States, or any state, local,
municipal or other governmental authority, regulating, relating to or
imposing liability or standards of conduct concerning protection of human
health as affected by the environment or Hazardous Materials (including
without limitation employee health and safety) or the environment
(including without limitation indoor air, ambient air, surface water,
groundwater, land surface, subsurface strata, or plant or animal species).
"Environmental Permits" means all permits, licenses, registrations,
approvals, exemptions and other filings with or authorizations by any
Governmental Authority under any Environmental Law.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity (including, without
limitation, a court) exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Hazardous Materials" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction
thereof), petroleum products, asbestos, asbestos-containing materials,
pollutants, contaminants, radioactivity, electromagnetic fields and all
other materials, whether or not defined as such, that are regulated
pursuant to any Environmental Laws or that could result in liability under
any applicable Environmental Laws.
SECTION 3.14 Real Estate Matters. (a) Except as set forth in Section
3.14 of the Company Disclosure Schedule, the Company or its subsidiaries has
good, valid, and, in the case of Owned Properties (as defined below), marketable
fee title to: (i) all of the material real property and interests in real
property owned by the Company or its subsidiaries and used by the Company or its
subsidiaries in the conduct of their business, except for properties hereafter
sold or otherwise disposed of in the ordinary course of business (the "Owned
Properties"), and (ii) all of the material leasehold estates in all real
properties leased by the Company or its subsidiaries, except leasehold interests
hereafter terminated in the ordinary course of business (the "Leased
Properties"; the Owned Properties and Leased Properties being sometimes referred
to herein as the "Real Properties"), in each case free and clear of all
mortgages, liens, security interests, easements, covenants, rights-of-way,
subleases and other similar restrictions and encumbrances ("Encumbrances"),
except for Encumbrances which, (i) individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect or (ii) are disclosed in
Section 3.14(a) of the Company Disclosure Schedule.
(b) Except as disclosed in Section 3.14 of the Company Disclosure
Schedule, and except to the extent that the inaccuracy of any of the following
(or the circumstances giving rise to such inaccuracy), individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect: (i) each
of the agreements by which the Company has obtained a leasehold interest in each
Leased Property (individually, a "Lease" and collectively, the "Leases") is in
full force and effect in accordance with its respective terms and the Company or
its subsidiary is the holder of the
<PAGE> 22
18
lessee's or tenant's interest thereunder; to the knowledge of the Company, there
exists no default under any Lease and no circumstance exists which, with the
giving of notice, the passage of time or both, is reasonably likely to result in
such a default; the Company and its subsidiaries have complied with and timely
performed all conditions, covenants, undertakings and obligations on their parts
to be complied with or performed under each of the Leases; the Company and its
subsidiaries have paid all rents and other charges to the extent due and payable
under the Leases; (ii) there are no leases, subleases, licenses, concessions or
any other contracts or agreements granting to any person or entity other than
the Company or any of its subsidiaries any right to the possession, use,
occupancy or enjoyment of any Real Property or any portion thereof; (iii) the
current operation and use of the Real Properties does not violate any statute,
law, regulation, rule, ordinance, permit, requirement, order or decree now in
effect; (iv) the use being made of each Real Property at present is in
conformity with the certificate of occupancy issued for such Real Property; (v)
there are no existing, or to the knowledge of the Company, threatened,
condemnation or eminent domain proceedings (or proceedings in lieu thereof)
affecting the Real Properties or any portion thereof and (vi) no default or
breach exists under any of the covenants, conditions, restrictions,
rights-of-way, or easements, if any, affecting all or any portion of a Real
Property, which are to be performed or complied with by the Company or any of
its subsidiaries.
(c) Neither the Company nor any of its subsidiaries is obligated under
or bound by any option, right of first refusal, purchase contract, or other
contractual right to sell or dispose of any Owned Property or any portions
thereof or interests therein which property, portions and interests,
individually or in the aggregate, are material to the Company and its
subsidiaries.
SECTION 3.15 Loans; Investments. (a) The following terms shall have
the meaning ascribed to them below:
(i) "Investor" means any person or entity who has acquired a Loan from
the Company or any of its subsidiaries, other than the Parent or any of its
subsidiaries.
(ii) "Investor Requirements" means any outstanding contractual, legal
and regulatory obligation of the Company or any of its subsidiaries to any
Investor, including but not limited to, the representations, warranties and
covenants made by the Company or any of its subsidiaries to any Investor.
(iii) "Loan" means any loan or lease at any time held, serviced or
sold by the Company or any of its subsidiaries to the extent that the
Company or any of its subsidiaries could have any liability, obligation or
duties with respect thereto.
(iv) "Loan Documents" means the note, mortgage, deed of trust,
security agreement, or other instrument securing the note and the related
documents for each Loan.
(v) "Mortgage Loan" shall mean a Loan secured by a mortgage.
(vi) "Serviced Loans" means all Loans serviced by the Company or its
subsidiaries for its own account or for others.
<PAGE> 23
19
(vii) "Servicing Requirements" means prudent practice and industry
standards together with any contractual, legal or regulatory obligation of
the Company or any of its subsidiaries relating to the Serviced Loans.
(b) Except as would not have a material adverse effect on the
Company's portfolio of Loans, the Loan Documents evidencing each Loan (other
than Serviced Loans serviced for the account of others that have never been
owned by the Company or its subsidiaries) that is currently outstanding
constitute the legal, valid and binding obligations of the parties thereto and
are enforceable against such parties in accordance with their terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting the rights of lending institutions or creditors
generally and by general equitable principles. Expect as would not have a
material adverse effect on the Company's portfolio of Loans, no Loan is subject
to any legally enforceable right of rescission, set-off, counterclaim or
defense, including the defense of usury or, to the knowledge of the Company,
lack of legal capacity of any borrower or guarantor, nor will the operation of
any of the terms of any Loan, or the exercise of any legally enforceable right
thereunder, render any Loan or any of the Loan Documents unenforceable, in whole
or in part, or subject to any right of rescission, setoff, counterclaim or
defense, including the defense of usury or, to the knowledge of the Company,
lack of legal capacity of any borrower or guarantor, and no such right of
rescission, set-off, counterclaim or defense has been asserted with respect to
any Loan for which there is any recourse against, or responsibility or exposure
of, the Company or any of its subsidiaries.
(c) Except as would not have a material adverse effect on the
Company's portfolio of Loans, the Loan Documents for each Loan (other than
Serviced Loans serviced for the account of others that have never been owned by
the Company or its subsidiaries) have been duly executed and recorded, or are in
the process of being recorded, and are in due and proper form. Except as would
not have a material adverse effect on the Company's portfolio of Loans, the
Company has at all times maintained the Loan Documents in all material respects
in accordance with Investor Requirements, Servicing Requirements and otherwise
in accordance with all legal and regulatory requirements and contractual
obligations applicable to the Company and its subsidiaries.
(d) Except as would not have a material adverse effect on the
Company's portfolio of Loans, all outstanding Loans sold by the Company or any
of its subsidiaries complied in all material respects with Investor Requirements
on the date of sale.
(e) Except as would not have a material adverse effect on the
Company's portfolio of Loans, the Company and its subsidiaries have at all times
been and are in compliance in all material respects with the Servicing
Requirements relating to the Serviced Loans and Loans previously serviced by any
of them.
(f) Except as would not have a material adverse effect on the
Company's portfolio of Loans, each advance outstanding with respect to any Loan
has been made in accordance with all material requirements of the Loan
Documents.
<PAGE> 24
20
(g) Except as would not have a material adverse effect on the
Company's portfolio of Loans, neither the Company nor any of its subsidiaries is
in material default with respect to any of its obligations under any Loan.
(h) Neither the Company nor any of its subsidiaries is in violation in
any material respect of any federal, state, or local law, statute, ordinance,
rule, regulation, order or guideline applicable to the Company or its
subsidiaries pertaining to the Loans or otherwise relating to its purchase or
sale of Loans or its lending business.
(i) Except as would not have a material adverse effect on the
Company's portfolio of Loans, all Loans securitized in a pool, at the time of
inclusion in the pool, and at the time of any pool certification or any
recertification, met all applicable guidelines for such pool. The principal
balance outstanding and owing on the Serviced Loans in each pool equals or
exceeds the principal amount owing to the corresponding security holder of such
pool.
(j) Set forth in Section 3.15(j) of the Company Disclosure Schedule is
a list, as of the date hereof, of all interest rate swaps, caps, floors, and
option agreements and other interest rate risk management arrangements to which
the Company or any of its subsidiaries is a party or by which any of their
properties or assets may be bound. Except as would not have a material adverse
effect on the Company's portfolio of Loans, all interest rate swaps, caps,
floors and option agreements and other interest rate risk management
arrangements to which the Company or any of its subsidiaries is a party or by
which any of their properties or assets may be bound were entered into in the
ordinary course of business and, to the best knowledge of the Company, in
accordance with then-customary practice and all applicable rules and regulations
and with counterparties believed to be financially responsible at the time and
are legal, valid and binding obligations and are in full force and effect,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization, receivership, conservatorship or similar laws
relating to or affecting the enforcement of creditors' rights generally, and by
general principles of equity, whether applied by a court of law or equity. The
Company and its subsidiaries have duly performed in all material respects all of
their respective obligations thereunder to the extent that such obligations to
perform have accrued, and to the best knowledge of the Company, there are no
material breaches, violations or defaults or allegations or assertions of such
by any party thereunder. Except as set forth in Section 3.15(l), of the Company
Disclosure Schedule, none of the transactions contemplated by this Agreement
would permit: (i) a counterparty under any interest rate swap, cap, floor and
option agreement or any other interest rate risk management agreement or (ii)
any party to any financing arrangement, including, but not limited to
mortgage-backed financing, to accelerate, discontinue, terminate or otherwise
modify any such agreement or arrangement or would require the Company or any of
its subsidiaries to recognize any gain or loss with respect to such arrangement.
(k) Except as set forth in Section 3.15(k) of the Company Disclosure
Schedule, the Company has not received notice from any governmental,
quasi-governmental or private agency of pending or threatened actions or
investigations relating to the Company's activities in respect of the Loans.
<PAGE> 25
21
(l) Except as would not have a material adverse effect on the
Company's portfolio of Loans, the terms of each Loan have not been impaired,
waived, altered or modified in any material respect from the date of its
origination except by a written instrument, which written instrument has been
recorded if recordation is necessary to protect the interests of the owner
thereof. The substance of any such waiver, alteration or modification has been
communicated to and approved in writing by: (i) the relevant Investor, to the
extent required by the relevant Investor Requirements; and (ii) the title
insurer, to the extent required by the relevant policies, and its terms are
reflected in the Loan Documents. Where the Investor's authorization is required,
neither the Company nor any of its subsidiaries has, without the Investor's
knowledge: (i) subordinated the lien of any Mortgage Loan to any other mortgage
or lien or given any other mortgage or lien equal priority with the lien of a
mortgage loan; or (ii) executed any instrument of release, cancellation or
satisfaction with, in whole or in part, respect to any Mortgage Loan.
(m) Except as would not have a material adverse effect on the
Company's portfolio of Loans and except as set forth in Section 3.15(o) of the
Company Disclosure Schedule, as of the date hereof, neither the Company nor any
of its subsidiaries is subject to any repurchase obligation under any Loan.
(n) Except as would not have a material adverse effect on the
Company's portfolio of Loans, neither the Company nor any of its subsidiaries
has received notice of a servicing default for any Loan, and each Loan serviced
by the Company or its subsidiaries has been properly serviced and accounted for
in all material respects in accordance with the applicable Servicing
Requirements. All pools for which the Company or any of its subsidiaries is
responsible are in compliance in all material respects with all applicable
Investor Requirements, procedures, rules, regulations and guidelines.
(o) To the knowledge of the Company, no facts currently exist with
respect to existing securitizations heretofore undertaken by the Company that
would be reasonably likely to materially and adversely affect the ability of the
Company or any of its subsidiaries to continue to do securitizations in the
future in accordance with existing practices.
SECTION 3.16 Licenses. Section 3.16 of the Company Disclosure Schedule
sets forth all licenses, permits, franchises and other authorizations of any
governmental authority (collectively, "Licenses") that are material to the
operation of its business as currently conducted. Except as set forth in Section
3.16 of the Company Disclosure Schedule, the Company has been granted and
possesses all such Licenses, all such Licenses are in full force and effect and
no proceeding is pending or threatened seeking the revocation or limitation of
any such License. Except as set forth in Section 3.16 of the Company Disclosure
Schedule, none of such Licenses will be subject to revocation or other
limitation as a result of this Agreement or the transactions contemplated
hereby.
SECTION 3.17 Allowance for Possible Loan Losses. The reserve for
losses shown on the audited consolidated financial statements as of December 31,
1998 was adequate in all material respects to provide for possible or specific
losses, and contained an additional amount of unallocated reserves for
unanticipated future losses, at a level considered adequate under generally
<PAGE> 26
22
accepted accounting principles and standards applied to the specialty finance
business conducted by the Company and its subsidiaries. To the knowledge of the
Company, the aggregate principal amount of all receivables including, but not
limited to, Loans and leases contained in the Loan and lease portfolio of the
Company and its subsidiaries as of December 31, 1998, arose in the ordinary
course of business and are not the subject of any asserted claim or set off,
except to the extent reserves have been taken against such receivables.
SECTION 3.18 Brokers. No broker, finder or investment banker (other
than the Financial Adviser) is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company. The Company has
heretofore furnished to Parent a complete and correct copy of all agreements
between the Company and the Financial Adviser pursuant to which such firm would
be entitled to any payment relating to the transactions contemplated hereby.
SECTION 3.19 Sole Representations and Warranties. The representations
and warranties set forth in this Article III and elsewhere in this Agreement, as
modified by the Company Disclosure Schedule, are the only representations and
warranties of the Company in connection with this Agreement and the transactions
contemplated hereby, and supersede any and all previous written and oral
statements made to Parent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and
warrant to the Company that:
SECTION 4.1 Corporate Organization. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of its respective jurisdiction of organization and has the requisite corporate
power and authority and any necessary governmental approval to own, operate or
lease its properties and to carry on its business as it is now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power, authority and governmental approvals is not, individually or in
the aggregate, reasonably likely to prevent or materially delay the consummation
of the Offer or the Merger.
SECTION 4.2 Authority Relative to This Agreement. Each of Parent and
Purchaser has all necessary corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Purchaser and the consummation by each of
Parent and Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Purchaser
other than filing and recordation of appropriate merger documents as required by
the MBCL. This Agreement has been duly executed and delivered by Parent and
Purchaser and, assuming due authorization, execution and delivery by
<PAGE> 27
23
the Company, constitutes a legal, valid and binding obligation of each such
corporation enforceable against such corporation in accordance with its terms.
SECTION 4.3 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement by Parent and Purchaser do
not and will not: (i) conflict with or violate the respective certificates of
incorporation or by-laws of Parent or Purchaser; (ii) assuming that all
consents, approvals and authorizations contemplated by clauses (i), (ii) and
(iii) of subsection (b) below have been obtained and all filings described in
such clauses have been made, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Parent or Purchaser or by which either
of them or their respective properties are bound or affected; or (iii) result in
any breach or violation of or constitute a default (or an event which with
notice or lapse of time or both could become a default) or result in the loss of
a material benefit under, or give rise to any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the property or assets of Parent or Purchaser pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or Purchaser
is a party or by which Parent or Purchaser or any of their respective properties
are bound or affected, except, in the case of clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences which are
not, individually or in the aggregate, reasonably likely to prevent or
materially delay the consummation of the Offer or the Merger.
(b) Except for the Licenses identified in Section 3.16 of the Company
Disclosure Schedule and any other consents, approvals, authorizations, permits
or filings as may be required by any governmental authority in order for the
Surviving Corporation to operate after the Effective Time the business of the
Company as currently conducted, including, without limitation, the filing of
applications and notices with federal and state regulatory authorities governing
consumer finance, commercial finance, mortgage lending and insurance in the
states in which the Company and its subsidiaries operate their respective
businesses, the execution, delivery and performance of this Agreement by Parent
and Purchaser do not and will not require any consent, approval, authorization
or permit of, action by, filing with or notification to, any governmental or
regulatory authority, domestic or foreign, except (i) for applicable
requirements, if any, of the Exchange Act and the rules and regulations
promulgated thereunder, the HSR Act or other foreign filings or approvals, state
securities, takeover and "blue sky" laws, (ii) the filing and recordation of
appropriate merger or other documents as required by the MBCL, and (iii) such
consents, approvals, authorizations, permits, actions, filings or notifications
the failure of which to make or obtain are not, individually or in the
aggregate, reasonably likely to prevent or materially delay the consummation of
the Offer or the Merger.
SECTION 4.4 Offer Documents; Proxy Statement. The Offer Documents, as
filed pursuant to Section 1.1, will not, at the time such Offer Documents are
filed with the SEC or are first published, sent or given to stockholders, as the
case may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent
for inclusion in the Proxy Statement shall not, on the date the Proxy Statement
is first mailed to stockholders, at the time
<PAGE> 28
24
of the Stockholders Meeting (as defined in Section 6.1), if any, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Stockholders Meeting which
has become false or misleading. Notwithstanding the foregoing, Parent and
Purchaser make no representation or warranty with respect to any information
supplied by the Company or any of its representatives which is contained in or
incorporated by reference in any of the foregoing documents or the Offer
Documents. The Offer Documents, as amended and supplemented, will comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations promulgated thereunder.
SECTION 4.5 Brokers. No broker, finder or investment banker (other
than Donaldson, Lufkin & Jenrette, Inc.) is entitled to any brokerage, finder's
or other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by and on behalf of Parent or
Purchaser.
SECTION 4.6 Funds. Parent or Purchaser, at the expiration date of the
Offer and at the Effective Time, will have the funds necessary to consummate the
Offer and the Merger, respectively.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business of the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date hereof to the
Effective Time, unless Parent shall otherwise agree in writing, the businesses
of the Company and its subsidiaries shall be conducted only in, and the Company
and its subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and the Company and its
subsidiaries shall each use its commercially reasonable efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, except as set
forth in Section 5.1 of the Company Disclosure Schedule, neither the Company nor
any of its subsidiaries shall, between the date of this Agreement and the
Effective Time, directly or indirectly do, or commit to do, any of the following
without the prior written consent of Parent:
(a) amend or otherwise change its Articles of Organization or by-laws
or equivalent organizational documents;
<PAGE> 29
25
(b) issue, deliver, sell, pledge, dispose of or encumber, or authorize
or commit to the issuance, sale, pledge, disposition or encumbrance of, (i)
any shares of capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock, or any other ownership interest (including but not limited
to stock appreciation rights or phantom stock), of the Company or any of
its subsidiaries (except for the issuance of up to 913,720 shares of
Company Common Stock required to be issued pursuant to the terms of Options
outstanding as of September 22, 1999 or (ii) any assets of the Company or
any of its subsidiaries, except in the ordinary course of business and in a
manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contributions to, or investments in,
any other person (other than in the ordinary course of business consistent
with past practice and other than existing committed facilities); (iii)
enter into any contract or agreement other than in the ordinary course of
business consistent with past practice; or (iv) authorize capital
expenditures (during any three month period) which are, in the aggregate,
in excess of $25,000 for the Company and its subsidiaries taken as a whole;
(f) except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of this
Agreement or as provided under Section 2.7, increase the compensation or
fringe benefits of any of its directors, officers or employees, except for
increases in salary or wages of employees of the Company or its
subsidiaries who are not officers of the Company in the ordinary course of
business in accordance with past practice, or grant any severance or
termination pay not currently required to be paid under existing severance
plans to or enter into any employment, consulting or severance agreement or
arrangement with any present or former director, officer or other employee
of the Company or any of its subsidiaries, or establish, adopt, enter into
or amend or terminate any collective bargaining agreement or Company Plan,
including, but not limited to, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any directors, officers or
employees;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
practices or principles used by it, other than discontinuance of the gain
on sale method;
<PAGE> 30
26
(h) make any material Tax election, change any annual Tax accounting
period, change any method of Tax accounting, file any amended Tax Return or
settle or compromise any material federal, state, local or foreign Tax
liability;
(i) settle or compromise any pending or threatened suit, action or
claim which is material or which relates to the transactions contemplated
hereby;
(j) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries not constituting
an inactive subsidiary (other than the Merger);
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), 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 financial statements of the Company or incurred in
the ordinary course of business and consistent with past practice and (ii)
of liabilities required to be paid, discharged or satisfied pursuant to the
terms of any contract in existence on the date hereof;
(l)(i) make or commit to make any financial services Loan;
(ii) make or commit to make any other Loan except as specifically
provided in clauses (iii) through (ix) of this paragraph (l);
(iii) purchase or commit to purchase consumer land Loans from a single
dealer exceeding an aggregate amount of (y) $1,000,000 in the case of a dealer
that is an approved dealer as of the date of this Agreement or (z) $2,500,000 in
the case of a dealer that becomes an approved dealer on or after the date of
this agreement;
(iv) purchase or commit to purchase consumer timeshare Loans from a
single seller exceeding an aggregate amount of (y) $500,000 in the case of a
seller that is an approved seller as of the date of this Agreement or (z)
$1,000,000 in the case of a seller that becomes an approved seller on or after
the date of this Agreement;
(v) make or commit to make Loans for the acquisition and/or
construction of timeshare units that exceed (y) $2,500,000 in the case of a new
Loan to an approved borrower (or group of affiliated borrowers) as of the date
of this Agreement; provided however, that any increase in an existing commitment
shall not exceed $1,000,000, and provided, further, that any additional Loans or
increases as described in this clause (y) shall not cause the aggregate
commitments to such borrower to exceed $2,500,000 or (z) $2,000,000 in the case
of a borrower (or group of affiliated borrowers) which becomes an approved
borrower on or after the date of this Agreement;
(vi) make or commit to make Loans for the acquisition and/or
development of landlots that exceed (y) $500,000 in the case of a new Loan to an
approved borrower (or group of
<PAGE> 31
27
affiliated borrowers) as of the date of this Agreement; provided however, that
any increase in an existing commitment shall not exceed $100,000, and provided,
further, that any additional Loans or increases as described in this clause (y)
shall not cause the aggregate commitments to such borrower to exceed $1,500,000
or (z) $1,000,000 in the case of a borrower (or group of affiliated borrowers)
which becomes an approved borrower on or after the date of this Agreement;
(vii) make or commit to make Loans for the finance or purchase of land
(not including consumer Loans as provided in clause (iii) of Section 5.1(l)
above) that exceed (y) $1,000,000 in the case of a new Loan to an approved
borrower (or group of affiliated borrowers) as of the date of this Agreement;
provided however, that any increase in an existing commitment shall not exceed
$250,000, and provided, further, that any additional Loans or increases as
described in this clause (y) shall not cause the aggregate commitments to such
borrower to exceed $2,500,000 or (z) $500,000 in the case of a borrower (or
group of affiliated borrowers) which becomes an approved borrower on or after
the date of this Agreement;
(viii) make or commit to make Loans for the finance or purchase of
timeshare units (not including consumer Loans as provided in clause (iv) of
Section 5.1(l) above) that exceed (y) $5,000,000 in the case of a new Loan to an
approved borrower (or group of affiliated borrowers) as of the date of this
Agreement; provided however, that any increase in an existing commitment shall
not exceed $2,500,000, and provided, further, that any additional Loans or
increases as described in this clause (y) shall not cause the aggregate
commitments to such borrower to exceed $5,000,000 or (z) $5,000,000 in the case
of a borrower (or group of affiliated borrowers) which becomes an approved
borrower on or after the date of this Agreement; or
(ix) purchase or commit to purchase any tax lien certificate greater
than $500,000;
provided, that nothing in this Section 5.1(l) shall prohibit the Company from
honoring any contractual obligation in existence on the date of this Agreement.
(m) refinance or restructure any existing Loan, except in the ordinary
course of business consistent with past practice and prudent lending
practices;
(n) make any material changes in its polices or practices concerning
Loan underwriting and credit scoring, or which persons may approve Loans or
credit scoring;
(o) except in the ordinary course of business consistent with past
practice and prudent business practices, enter into any securities
transaction for its own account or purchase or otherwise acquire any
investment security for its own account other than (A) securities backed by
the full faith and credit of the United States or an agency thereof and (B)
other readily marketable securities not in excess of $100,000.
(p) foreclose upon or otherwise take title to or possession or control
of any real property (other than residential property) without first
obtaining a phase one environmental report thereon;
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(q) enter into any new, or modify, amend or extend the terms of any
existing, contracts relating to the purchase or sale of financial or other
futures, or any put or call option relating to cash, securities or
commodities or any interest rate swap agreements or other agreements
relating to the hedging of interest rate risk, except in the ordinary
course of business consistent with past practices and prudent business
practices; or
(r) take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 5.1(a) through 5.1(q) or any
action which would make any of the representations or warranties of the Company
contained in this Agreement untrue and incorrect as of the date when made if
such action had then been taken, or would result in any of the conditions set
forth in Annex A not being satisfied.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders Meeting. (a) If adoption of this Agreement is
required by applicable law, the Company, acting through its Board of Directors,
shall in accordance with and subject to applicable law and the Company's
Articles of Organization and By-Laws, (i) duly call, give notice of, convene and
hold a meeting of its stockholders as soon as practicable following consummation
of the Offer for the purpose of adopting this Agreement and the transactions
contemplated hereby (the "Stockholders Meeting") and except if the Board of
Directors by majority vote determines in good faith, based on the advice of
outside legal counsel to the Company that to do so would constitute a breach of
fiduciary duty under applicable law, (A) include in the Proxy Statement the
unanimous recommendation of the Board of Directors that the stockholders of the
Company vote in favor of the adoption of this Agreement and the approval of the
transactions contemplated hereby and the written opinion of the Financial
Adviser that the consideration to be received by the stockholders of the Company
pursuant to the Offer and the Merger is fair to such stockholders and (B) use
its reasonable best efforts to obtain the necessary adoption of this Agreement
and the approval of the transactions contemplated hereby by its stockholders. At
the Stockholders Meeting, Parent and Purchaser shall cause all Shares then owned
by them and their subsidiaries to be voted in favor of adoption of this
Agreement and the approval of the transactions contemplated hereby.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90% of the outstanding Shares, the Company agrees, at the
request of Purchaser, subject to Article VII, to take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders, in accordance with Section 82 of the MBCL.
SECTION 6.2 Proxy Statement. If required by applicable law, as soon as
practicable following Parent's request, the Company shall file with the SEC
under the Exchange Act and the rules and regulations promulgated thereunder, and
shall use its reasonable best
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29
efforts to have cleared by the SEC, the Proxy Statement with respect to the
Stockholders Meeting. Parent, Purchaser and the Company will cooperate with each
other in the preparation of the Proxy Statement; without limiting the generality
of the foregoing, each of Parent and Purchaser will furnish to the Company the
information relating to it required by the Exchange Act and the rules and
regulations promulgated thereunder to be set forth in the Proxy Statement. The
Company agrees to use its reasonable best efforts, after consultation with the
other parties hereto, to respond promptly to any comments made by the SEC with
respect to the Proxy Statement and any preliminary version thereof filed by it
and cause such Proxy Statement to be mailed to the Company's stockholders at the
earliest practicable time.
SECTION 6.3 Company Board Representation; Section 14(f). (a) Promptly
upon the purchase by Purchaser of Shares pursuant to the Offer, and from time to
time thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board of Directors of the
Company as shall give Purchaser representation on the Board of Directors equal
to the product of the total number of directors on such Board (giving effect to
the directors elected pursuant to this sentence and including any vacancies or
unfilled newly-created directorships) multiplied by the percentage that the
aggregate number of Shares beneficially owned by Purchaser or any affiliate of
Purchaser bears to the total number of Shares then outstanding, and the Company
shall amend, or cause to be amended, its by-laws to provide for each of the
matters set forth in this Section 6.3 and shall, at such time, promptly take all
action necessary to cause Purchaser's designees to be so elected, including
either increasing the size of the Board of Directors or securing the
resignations of incumbent directors or both. At such times, the Company will use
its reasonable best efforts to cause persons designated by Purchaser to
constitute the same percentage as is on the board of (i) each committee of the
Board of Directors, (ii) each board of directors of each subsidiary of the
Company and (iii) each committee of each such board, in each case only to the
extent permitted by law. Until Purchaser acquires 662/3% of the outstanding
Shares on a fully diluted basis, the Company shall use its commercially
reasonable efforts to ensure that all the members of the Board of Directors and
such boards and committees as of the date hereof who are not employees of the
Company shall remain members of the Board of Directors and such boards and
committees.
(b) The Company's obligations to appoint designees to its Board of
Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. The Company shall promptly take all actions required
pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations
under this Section 6.3 and shall include in the Schedule 14D-9 or a separate
Rule 14f-1 information statement provided to stockholders such information with
respect to the Company and its officers and directors as is required under
Section 14(f) and Rule 14f-1 to fulfill its obligations under this Section 6.3.
Parent or Purchaser will supply to the Company and be solely responsible for any
information with respect to either of them and their nominees, officers,
directors and affiliates required by Section 14(f) and Rule 14f-1.
(c) Following the election or appointment of Purchaser's designees
pursuant to this Section 6.3 and prior to the Effective Time, any amendment, or
waiver of any term or condition of this Agreement or the Articles of
Organization or By-Laws of the Company, any termination of this Agreement by the
Company, any extension by the Company of the time for
<PAGE> 34
30
the performance of any of the obligations or other acts of Purchaser or waiver
or assertion of any of the Company's rights hereunder, and any other consent or
action by the Board of Directors with respect to this Agreement, will require
only the concurrence of a majority of the directors of the Company then in
office who are neither designated by Purchaser nor are employees of the Company
(the "Disinterested Directors") and such concurrence shall constitute the
authorization of the Board of Directors of the Company and no other action by
the Company, including any action by any other director of the Company, shall be
required for purposes of this Agreement. Notwithstanding the foregoing, the
number of Disinterested Directors shall be not less than two.
SECTION 6.4 Access to Information; Confidentiality. (a) From the date
hereof to the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, directors, employees, auditors and other agents to,
afford the officers, employees, auditors and other agents of Parent, and
financing sources who shall agree to be bound by the provisions of this Section
6.4 as though a party hereto, complete access, consistent with applicable law,
at all reasonable times to its officers, employees, agents, properties, offices,
plants and other facilities and to all books and records, and shall furnish
Parent and such financing sources with all financial, operating and other data
and information as Parent, through its officers, employees or agents, or such
financing sources may from time to time reasonably request. Parent, Purchaser
and their respective officers, employees, agents and financing sources shall
exercise such right of access in a manner which does not unduly interfere with
the conduct by the Company of its business.
(b) Each of Parent and Purchaser will hold and will cause its
officers, employees, auditors and other agents to hold in confidence all
documents and information concerning the Company and its subsidiaries furnished
to Parent or Purchaser in connection with the transactions contemplated in this
Agreement pursuant to the terms and provisions of that Confidentiality Agreement
dated July 20, 1999 between Parent and the Company (the "Confidentiality
Agreement").
(c) No investigation or information provided pursuant to this Section
6.4 shall affect any representations or warranties of the parties herein or the
conditions to the obligations of the parties hereto.
SECTION 6.5 No Solicitation of Transactions. The Company, its
affiliates and their respective officers, directors, employees, representatives
and agents shall immediately cease any existing discussions or negotiations, if
any, with any parties conducted heretofore with respect to any acquisition or
exchange of all or any material portion of the assets of, or any equity interest
in, the Company or any of its subsidiaries or any business combination with or
involving the Company or any of its subsidiaries. At any time prior to
consummation of the Offer, the Company may, directly or indirectly, furnish
information and access, in each case only in response to a request for such
information or access to any person made after the date hereof which was not
encouraged, solicited or initiated by the Company or any of its affiliates or
any of its or their respective officers, directors, employees, representatives
or agents after the date hereof, pursuant to appropriate confidentiality
agreements, and may participate in discussions and negotiate with such person
concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction (including an exchange of stock or assets) involving the
Company or any
<PAGE> 35
31
subsidiary or division of the Company, in each case (whether furnishing
information and access or participating in discussions and negotiations) only if
such person has submitted a written proposal to the Board of Directors of the
Company relating to any such transaction and the Board by majority vote
determines in good faith, based upon the advice of outside counsel to the
Company, that failing to take such action would constitute a breach of the
Board's fiduciary duty under applicable law. The Board shall provide a copy of
any such written proposal to Parent immediately after receipt thereof, shall
notify Parent immediately if any proposal (oral or written) is made and shall in
such notice, indicate in reasonable detail the identity of the offeror and the
terms and conditions of any proposal and shall keep Parent promptly advised of
all developments which could reasonably be expected to culminate in the Board of
Directors withdrawing, modifying or amending its recommendation of the Offer,
the Merger and the other transactions contemplated by this Agreement. Except as
set forth in this Section 6.5, neither the Company or any of its affiliates, nor
any of its or their respective officers, directors, employees, representatives
or agents, shall, directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent and
Purchaser, any affiliate or associate of Parent and Purchaser or any designees
of Parent or Purchaser) concerning any merger, sale of any material portion or
assets, sale of any of the shares of capital stock or similar transactions
(including an exchange of stock or assets) involving the Company or any
subsidiary or division of the Company; provided, however, that nothing herein
shall prevent the Board from taking, and disclosing to the Company's
stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with regard to any tender offer; provided, further, that the
Board shall not recommend that the stockholders of the Company tender their
Shares in connection with any such tender offer unless the Board by majority
vote shall have determined in good faith, based upon the advice of outside
counsel to the Company, that failing to take such action would constitute a
breach of the Board's fiduciary duty under applicable law. The Company agrees
not to release any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which the Company is a party, unless
the Board by majority vote shall have determined in good faith, based upon the
advice of outside counsel to the Company, that failing to release such third
party or waive such provisions would constitute a breach of the fiduciary duties
of the Board of Directors under applicable law.
SECTION 6.6 Employee Benefits Matters. (a) Subject to paragraphs (b)
and (d) below, on and after the Effective Time, Parent shall cause the Surviving
Corporation and its subsidiaries to promptly pay or provide when due all
compensation and benefits earned through or prior to the Effective Time as
provided pursuant to the terms of any compensation arrangements, employment
agreements and employee or director benefit plans, programs and policies in
existence as of the date hereof for all employees (and former employees) and
directors (and former directors) of the Company and its subsidiaries (unless
superseded by an employment agreement between such employee and the Parent or
Purchaser). Parent and the Company agree that the Surviving Corporation and its
subsidiaries shall pay promptly or provide when due all compensation and
benefits required to be paid pursuant to the terms of any individual agreement
with any employee, former employee, director or former director in effect as of
the date hereof and disclosed in Section 3.10(a) of the Company Disclosure
Schedule.
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(b) Parent shall cause the Surviving Corporation, for the period
commencing at the Effective Time and ending on the first anniversary thereof, to
provide employee benefits under plans, programs and arrangements which, in the
aggregate, will provide benefits to the employees of the Surviving Corporation
and its subsidiaries (other than employees covered by a collective bargaining
agreement) which are no less favorable in the aggregate than those provided to
Parent's similarly situated employees pursuant to the plans, programs and
arrangements (other than those related to the equity securities of the Company)
of the Parent and its subsidiaries in effect on the date hereof and employees
covered by collective bargaining agreements shall be provided with such benefits
as shall be required under the terms of any applicable collective bargaining
agreement; provided, however, that nothing herein shall prevent the amendment or
termination of any specific plan, program or arrangement, require that the
Surviving Corporation provide or permit investment in the securities of Parent,
the Company or the Surviving Corporation or interfere with the Surviving
Corporation's right or obligation to make such changes as are necessary to
conform with applicable law. Employees of the Surviving Corporation shall be
given credit for all service with the Company and its subsidiaries, to the same
extent as such service was credited for such purpose by the Company, under each
employee benefit plan, program, or arrangement of the Parent in which such
employees are eligible to participate for purposes of eligibility and vesting;
provided, however, that in no event shall the employees be entitled to any
credit to the extent that it would result in a duplication of benefits with
respect to the same period of service.
(c) If employees of the Surviving Corporation and its subsidiaries
become eligible to participate in a medical, dental or health plan of Parent or
its subsidiaries, Parent shall cause such plan to (i) waive any preexisting
condition limitations for conditions covered under the applicable medical,
health or dental plans of the Company and its subsidiaries and (ii) honor any
deductible and out of pocket expenses incurred by the employees and their
beneficiaries under such plans during the portion of the calendar year prior to
such participation.
(d) Nothing in this Section 6.6 shall require the continued employment
of any person or, with respect to clauses (a), (b) and (c) hereof, prevent the
Company and/or the Surviving Corporation and their subsidiaries from taking any
action or refraining from taking any action which the Company and its
subsidiaries prior to the Effective Time, could have taken or refrained from
taking.
SECTION 6.7 Directors' and Officers' Indemnification and Insurance.
(a) The Articles of Organization and By-Laws of the Surviving Corporation shall
contain provisions no less favorable with respect to indemnification than are
set forth in the Articles of Organization and By-laws of the Company, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers or employees of the Company.
(b) Parent shall use its reasonable best efforts to cause to be
maintained in effect for six years from the Effective Time the current policies
of the directors' and officers' liability insurance maintained by the Company
(provided that Parent may substitute therefor policies of at
<PAGE> 37
33
least the same coverage containing terms and conditions which are not materially
less advantageous) with respect to matters occurring prior to the Effective Time
to the extent available; provided, however, that in no event shall Parent or the
Company be required to expend more than an amount per year equal to 150% of
current annual premiums paid by the Company (which the Company represents and
warrants to be not more than $46,000) to maintain or procure insurance coverage
pursuant hereto.
(c) For six years after the Effective Time, Parent agrees that it will
or will cause the Surviving Corporation to indemnify and hold harmless each
present and former director and officer of the Company, determined as of the
Effective Time and their heirs and representatives (the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or liabilities (collectively, "Costs") (but only
to the extent such Costs are not otherwise covered by insurance and paid)
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative
(collectively, "Claims"), arising out of or pertaining to matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent permitted under
applicable law (and Parent shall ,or shall cause the Surviving Corporation to,
also advance expenses as incurred to the fullest extent permitted under
applicable law provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
(d) Any Indemnified Party wishing to claim indemnification under
paragraph (c) of this Section 6.7, upon learning of any such Claim, shall
promptly notify Parent thereof, but the failure to so notify shall not relieve
Parent of any liability it may have to such Indemnified Party if such failure
does not materially prejudice Parent. In the event of any such Claim (whether
arising before or after the Effective Time), (i) Parent or the Surviving
Corporation shall have the right to assume the defense thereof and Parent shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified Parties
in connection with the defense thereof, except that if Parent or the Surviving
Corporation elects not to assume such defense, or counsel for the Indemnified
Parties advises that there are issues that raise conflicts of interest between
Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and Parent or the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; provided,
however, that Parent shall be obligated pursuant to this paragraph (d) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction
unless the use of one counsel for such Indemnified Parties would present such
counsel with a conflict of interest, (ii) the Indemnified Parties will cooperate
in the defense of any such matter and (iii) Parent shall not be liable for any
settlement effected without its prior written consent, which consent shall not
be unreasonably withheld; and provided, further, that Parent shall not have any
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law.
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SECTION 6.8 Intentionally Omitted.
SECTION 6.9 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would, if such representation or warranty were required
to be made at such time, be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
and (ii) any failure of the Company, Parent or Purchaser, as the case may be, to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 6.8 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 6.10 Further Action; Commercially Reasonable Efforts. (a) Upon
the terms and subject to the conditions hereof, each of the parties hereto shall
use commercially reasonable efforts to take, or cause to be taken, all
appropriate action, and to do or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement as soon as
practicable, including but not limited to (i) cooperation in the preparation and
filing of the Offer Documents, the Schedule 14D-9, the Proxy Statement, any
required filings under the HSR Act and any amendments to any thereof and (ii)
using commercially reasonable efforts to promptly make all required regulatory
filings and applications including, without limitation, responding promptly to
requests for further information and to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and parties to contracts with the Company and its subsidiaries and Parent and
its subsidiaries as are necessary for the consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the Offer and
the Merger, including, without limitation, those listed in Section 3.16 of the
Company Disclosure Schedule. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall use commercially reasonable efforts to take all such necessary action.
(b) The Company and Parent each shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
their subsidiaries, from any Governmental Authority with respect to the Offer or
the Merger or any of the other transactions contemplated by this Agreement. The
parties hereto will consult and cooperate with one another, and consider in good
faith the views of one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other antitrust law.
(c) Each party shall timely and promptly make all filings which are
required under the HSR Act. Each party will furnish to the other such necessary
information and
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35
reasonable assistance as it may request in connection with its preparation of
such filings. Each party will supply the other with copies of all
correspondence, filings or communications between such party or its
representatives and the Federal Trade Commission, the Antitrust Division of the
United States Department of Justice or any other governmental agency or
authority or members of their respective staffs with respect to this Agreement
or the transactions contemplated hereby.
SECTION 6.11 Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Offer or the Merger and shall not issue
any such press release or make any such public statement prior to such
consultation and without the consent of the other party, except as may be
required by law or any listing agreement with its securities exchange.
SECTION 6.12 Disposition of Litigation. (a) The Company agrees that it
will not settle any litigation currently pending, or commenced after the date
hereof, against the Company or any of its directors by any stockholder of the
Company relating to the Offer or this Agreement, without the prior written
consent of Parent (which shall not be unreasonably withheld).
(b) The Company will not voluntarily cooperate with any third party
which has sought or may hereafter seek to restrain or prohibit or otherwise
oppose the Offer or the Merger and will cooperate with Parent and Purchaser to
resist any such effort to restrain or prohibit or otherwise oppose the Offer or
the Merger.
ARTICLE VII
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) If required by the MBCL, this Agreement shall have been adopted by
the affirmative vote of the stockholders of the Company by the requisite
vote in accordance with the Company's Articles of Organization and the
MBCL.
(b) No statute, rule, regulation, executive order, decree, ruling,
injunction or other order (whether temporary, preliminary or permanent)
shall have been enacted, entered, promulgated or enforced by any United
States, foreign, federal or state court or governmental authority which
prohibits, restrains, enjoins or restricts the consummation of the Merger;
provided, however, that prior to invoking this condition the invoking party
shall have complied with Section 6.10.
(c) Purchaser shall have purchased Shares pursuant to the Offer.
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(d) Any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of the Company:
(a) By mutual written consent of Parent, Purchaser and the Company;
(b) By Parent or the Company if any court of competent jurisdiction or
other governmental body located or having jurisdiction within the United
States shall have issued a final order, injunction, decree, judgment or
ruling or taken any other final action restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order, injunction, decree,
judgment, ruling or other action is or shall have become final and
nonappealable; provided, however, that prior to invoking this right of
termination the invoking party shall have complied with Section 6.10;
(c) By Parent if due to an occurrence or circumstance which resulted
in a failure to satisfy any of the Offer Conditions, Purchaser shall have
(i) terminated the Offer or (ii) failed to pay for Shares pursuant to the
Offer on or prior to the Outside Date (as defined below);
(d) By the Company (only following the Outside Date, in the case of
clause (ii)(B) below) if (i) there shall have been a material breach of any
covenant or agreement on the part of Parent or the Purchaser contained in
this Agreement which materially adversely affects Parent's or Purchaser's
ability to consummate (or materially delays commencement or consummation
of) the Offer, and which shall not have been cured prior to the earlier of
(A) 10 business days following notice of such breach and (B) two business
days prior to the date on which the Offer expires, (ii) Purchaser shall
have (A) terminated the Offer or (B) failed to pay for Shares pursuant to
the Offer on or prior to the Outside Date (unless such termination or
failure is caused by or results from the failure of any representation or
warranty of the Company to be true and correct in any material respect or
the failure of the Company to perform in any material respect any of its
covenants or agreements contained in this Agreement) or (iii) prior to the
purchase of Shares pursuant to the Offer, any person shall have made a bona
fide offer to acquire the Company (A) that the Board of Directors of the
Company by majority vote determines in its good faith judgment is more
favorable to the Company and the Company's stockholders than the Offer and
the Merger and (B) as a result of which the Board of Directors by majority
vote determines in good faith, based upon the advice of outside counsel to
the Company, that it is obligated by its fiduciary obligations under
applicable
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law to terminate this Agreement, provided that such termination under this
clause (iii) shall not be effective until the Company has made payment of
the full fee and expense reimbursement required by Section 8.3; or
(e) By Parent prior to the purchase of Shares pursuant to the Offer,
if (i) there shall have been a breach of any representation, warranty,
covenant or agreement on the part of the Company contained in this
Agreement which is reasonably likely to have a Material Adverse Effect on
the Company or which materially adversely affects (or materially delays)
the consummation of the Offer, which shall not have been cured prior to the
earlier of (A) 10 business days following notice of such breach and (B) two
business days prior to the date on which the Offer expires, (ii) the Board
shall have withdrawn or modified (including by amendment of the Schedule
14D-9) in a manner adverse to Purchaser its approval or recommendation of
the Offer, this Agreement or the Merger or shall have recommended another
offer or transaction, or shall have resolved to effect any of the
foregoing, or (iii) the Minimum Condition shall not have been satisfied by
the expiration date of the Offer as it may have been extended pursuant
hereto and on or prior to such date (A) any person (including the Company
but not including Parent or Purchaser) shall have made a public
announcement, disclosure or communication to the Company with respect to a
Third Party Acquisition or (B) any person (including the Company or any of
its affiliates or subsidiaries), other than Parent or any of its affiliates
shall have become (and remain at the time of termination) the beneficial
owner of 20% or more of the Shares (unless such person shall have tendered
and not withdrawn such person's Shares pursuant to the Offer). As used
herein, the "Outside Date" shall mean the latest to occur (but in no event
later than 90 days following the date hereof) of (i) the date that is 60
days following the date hereof and (ii) provided that the Minimum Condition
has been satisfied within 60 days following the date hereof, the date on
which either (x) the applicable waiting period under the HSR Act shall have
expired or been terminated or (y) the final terms of a consent decree
between Parent and the appropriate governmental authority with respect to
the Offer and the Merger shall have been agreed to.
SECTION 8.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto except as
set forth in Section 8.3 and Section 9.1; provided, however, that nothing herein
shall relieve any party from liability for any wilful breach hereof.
SECTION 8.3 Fees and Expenses.
(a) If:
(i) (x) Parent terminates this Agreement pursuant to Section
8.1(e)(i) hereof and (y) prior to such termination a proposal or offer with
respect to a Third Party Acquisition shall have been made to the Company
and (z) within 12 months after such termination, the Company enters into an
agreement with respect to a Third Party Acquisition, or a Third Party
Acquisition occurs; or
<PAGE> 42
38
(ii) (x) the Company terminates this Agreement pursuant to
8.1(d)(iii) or (y) the Company terminates this Agreement pursuant to
Section 8.1(d)(ii)(B) hereof and at such time Parent would have been
permitted to terminate this Agreement under Section 8.1(e)(ii) or (iii)
hereof or (z) Parent terminates this Agreement pursuant to Section
8.1(e)(ii) or (iii) hereof;
then the Company shall pay to Parent and Purchaser, within three business days
following the execution and delivery of such agreement or such occurrence, as
the case may be, or simultaneously with any termination contemplated by Section
8.3(a)(ii) above, a fee, in cash, of $5.5 million (less any amounts previously
paid pursuant to Section 8.3(b)), provided, however, that the Company in no
event shall be obligated to pay more than one such fee with respect to all such
agreements and occurrences and such termination.
"Third Party Acquisition" means the occurrence of any of the following
events: (i) the acquisition of the Company by merger or similar business
combination by any person other than Parent, Purchaser or any affiliate thereof
(a "Third Party"); (ii) the acquisition by a Third Party of 20% or more of the
book or fair market value of the consolidated assets of the Company and its
subsidiaries, taken as a whole; or (iii) the acquisition by a Third Party of 20%
or more of the outstanding Shares.
(b) Upon the termination of this Agreement (i) under circumstances in
which Parent shall have been entitled to terminate this Agreement pursuant to
Section 8.1(e)(i) hereof (whether or not expressly terminated on such basis) or
(ii) if any of the representations and warranties of the Company contained in
this Agreement were untrue or incorrect in any material respect when made and at
the time of termination remained untrue or incorrect in any material respect and
such misrepresentation materially adversely affected the consummation (or
materially delayed commencement or consummation) of the Offer, then the Company
shall reimburse Parent, Purchaser and their affiliates (not later than three
business days after submission of statements therefor) for all actual documented
out-of-pocket fees and expenses actually incurred by any of them or on their
behalf in connection with the Offer and the Merger and the consummation of all
transactions contemplated by this Agreement (including, without limitation, fees
and disbursements payable to financing sources, investment bankers, counsel to
Purchaser or Parent or any of the foregoing, and accountants) up to a maximum
amount of $1,000,000. Unless required to be paid earlier pursuant to Section
8.1(d), the Company shall in any event pay the amount requested within three
business days of such request, subject to the Company's right to demand a return
of any portion as to which invoices are not received in due course after request
by the Company.
(c) Except as otherwise specifically provided herein, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
SECTION 8.4 Amendment. Subject to Section 6.3, this Agreement may be
amended by the parties hereto by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Effective Time;
provided, however, that, after approval of the Merger by the stockholders of the
Company, no amendment may be made which would reduce
<PAGE> 43
39
the amount or change the type of consideration into which each Share shall be
converted upon consummation of the Merger. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 8.5 Waiver. Subject to Section 6.3, at any time prior to the
Effective Time, any party hereto may (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid only if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that the agreements set
forth in Article II, Section 6.6, Section 6.7 and Article IX shall survive the
Effective Time and those set forth in Section 6.4, Section 8.3 and Article IX
shall survive termination of this Agreement.
SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
if to Parent or Purchaser:
Textron Financial Corporation
40 Westminster Street
P.O. Box 6687
Providence, RI 02940-6687
Attention: David Wisen
with an additional copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Mario A. Ponce, Esq.
<PAGE> 44
40
if to the Company:
Litchfield Financial Corporation
430 Main Street
Williamstown, MA 02167
Attention: Richard A. Stratton
with a copy to:
Hutchins, Wheeler & Dittmar,
A Professional Corporation
101 Federal Street
Boston, MA, 02110
Attention: James Westra, Esq.
SECTION 9.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
(b) "beneficial owner" with respect to any Shares means a person who
shall be deemed to be the beneficial owner of such Shares (i) which such
person or any of its affiliates or associates beneficially owns, directly
or indirectly, (ii) which such person or any of its affiliates or
associates (as such term is defined in Rule 12b-2 of the Exchange Act) has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote pursuant to any agreement, arrangement or
understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares; provided,
however, that no person nor any affiliate or associate of such person shall
be deemed to be the beneficial owner of any securities by reason of a
revocable proxy granted for a particular meeting of stockholders, pursuant
to a public solicitation of proxies for such meeting, and with respect to
which shares neither such person nor any such affiliate or associate is
otherwise deemed the beneficial owner;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise;
<PAGE> 45
41
(d) "generally accepted accounting principles" shall mean the
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession in the United States, in each case applied on a basis consistent
with the manner in which the audited financial statements for the fiscal
year of the Company ended December 31, 1998 were prepared;
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
(f) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holder
of which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal
entity.
SECTION 9.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 9.5 Entire Agreement; Assignment. This Agreement, together
with the Confidentiality Agreement, constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior
agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof. This Agreement shall not be
assigned by operation of law or otherwise, except that Parent and Purchaser may
assign all or any of their respective rights and obligations hereunder to any
direct or indirect wholly owned subsidiary or subsidiaries of Parent, provided
that no such assignment shall relieve the assigning party of its obligations
hereunder if such assignee does not perform such obligations.
SECTION 9.6 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, except for the provisions of Section 6.7, is
intended to or shall confer upon any other
<PAGE> 46
42
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
SECTION 9.8 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.9 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 agreement.
SECTION 9.10 Specific Performance. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the Commonwealth of Massachusetts or in any court of
the Commonwealth of Massachusetts, this being in addition to any other remedy to
which such party is entitled at law or in equity. In addition, each of the
parties hereto (i) consents to submit itself to the personal jurisdiction of any
Federal court located in the Commonwealth of Massachusetts or any court of the
Commonwealth of Massachusetts in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (ii) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court, (iii) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal or state court
sitting in the Commonwealth of Massachusetts, and (iv) consents to service being
made through the notice procedures set forth in Section 9.2.
<PAGE> 47
43
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
TEXTRON FINANCIAL CORPORATION
By:
-----------------------------------------
Name:
Title:
LIGHTHOUSE ACQUISITION CORP.
By:
-----------------------------------------
Name:
Title: President
By:
-----------------------------------------
Name:
Title: Treasurer
LITCHFIELD FINANCIAL CORPORATION
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title: Treasurer
<PAGE> 48
ANNEX A
Offer Conditions
The capitalized terms used in this Annex A have the meanings set forth
in the attached Agreement.
Notwithstanding any other provision of the Offer, but subject to the
terms and conditions of the Merger Agreement, Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for any Shares tendered pursuant to the Offer, and
may postpone the acceptance for payment or, subject to the restriction referred
to above, payment for any Shares tendered pursuant to the Offer, and may amend
or terminate the Offer (whether or not any Shares have theretofore been
purchased or paid for) to the extent permitted by the Merger Agreement if, (i)
at the expiration of the Offer, a number of shares of Company Common Stock
which, together with any Shares owned by Parent or Purchaser, constitutes more
than 66-% of the voting power (determined on a fully-diluted basis), on the date
of purchase, of all the securities of the Company entitled to vote generally in
the election of directors or in a merger shall not have been validly tendered
and not properly withdrawn prior to the expiration of the Offer, the ("Minimum
Condition") or (ii) at any time on or after the date of this Agreement and prior
to the acceptance for payment of Shares, any of the following conditions occurs
or has occurred:
(a) there shall have been entered any order, preliminary or permanent
injunction, decree, judgment or ruling in any action or proceeding before
any court or governmental, administrative or regulatory authority or
agency, or any statute, rule or regulation enacted, entered, enforced,
promulgated, amended or issued that is applicable to Parent, Purchaser, the
Company or any subsidiary or affiliate of Purchaser or the Company or the
Offer or the Merger, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency that is
reasonably likely to have the effect of: (i) making illegal or otherwise
directly or indirectly restraining or prohibiting the making of the Offer
in accordance with the terms of the Merger Agreement, the acceptance for
payment of, or payment for, some of or all the Shares by Purchaser or any
of its affiliates or the consummation of the Merger; (ii) prohibits the
ownership or operation by the Company or any of its subsidiaries, or Parent
or any of its subsidiaries, of all or any material portion of the business
or assets of the Company or any of its subsidiaries, taken as a whole, or
Parent or its subsidiaries, taken as a whole, or (iii) materially limits
the ownership or operation by the Company or any of its subsidiaries, or
Parent or any of its subsidiaries, of all or any material portion of the
business or assets of the Company or any of its subsidiaries, taken as a
whole, or Parent or its subsidiaries, taken as a whole (other than, in
either case, assets or businesses of the Company or its subsidiaries that
are not material (measured in relation to the combined assets or revenues
of the Company and its subsidiaries, taken as a whole)) or compels Parent
or any of its subsidiaries to dispose of or hold separate all or any
portion of the businesses or assets of the Company or any of its
subsidiaries or Parent or any of its subsidiaries (other than, in either
case, assets or
A-1
<PAGE> 49
businesses of the Company or its subsidiaries that are not material
(measured in relation to the combined assets or revenues of the Company
and its subsidiaries, taken as a whole)), as a result of the transactions
contemplated by the Offer or the Merger Agreement; (iv) imposes
limitations on the ability of Parent, Purchaser or any of Parent's
affiliates effectively to acquire or hold or to exercise full rights of
ownership of the Shares, including without limitation the right to vote
any Shares acquired or owned by Parent or Purchaser or any of its
affiliates on all matters properly presented to the stockholders of the
Company, including without limitation the adoption and approval of the
Merger Agreement and the Merger or the right to vote any shares of capital
stock of any subsidiary directly or indirectly owned by the Company; or
(v) requires divestiture by Parent or Purchaser or any of their affiliates
of any Shares;
(b) since the date hereof, there shall have occurred any event, other
than events arising out of the announcement of the Offer and the
transactions contemplated hereby, that is reasonably likely to have a
Material Adverse Effect;
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices (other than suspensions or limitations
triggered on the New York Stock Exchange by price fluctuations on a trading
day) for, securities on any national securities exchange or in the
over-the-counter market in the United States, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, (iii) any material limitation (whether or not mandatory) by
any government or governmental, administrative or regulatory authority or
agency in the United States on the extension of credit by banks or other
lending institutions, (iv) a commencement of a war directly involving the
United States and materially adversely affecting (or materially delaying)
the consummation of the Offer or (v) in the case of any of the foregoing
existing at the time of commencement of the Offer, a material acceleration
or worsening thereof;
(d) (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of more than 20% of the outstanding Shares has been acquired by any
corporation (including the Company or any of its subsidiaries or
affiliates), partnership, person or other entity or group (as defined in
Section 13(d)(3) of the Exchange Act), other than Parent or any of its
affiliates or (ii) (A) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified in a manner adverse to
Parent or Purchaser the approval or recommendation of the Offer, the Merger
or the Merger Agreement, or approved or recommended any takeover proposal
or any other acquisition of Shares other than the Offer and the Merger, (B)
any such corporation, partnership, person or other entity or group shall
have entered into a definitive agreement or an agreement in principle with
the Company with respect to a tender offer or exchange offer for any Shares
or a merger, consolidation or other business combination with or involving
the Company or any of its subsidiaries, or (C) the Board of Directors of
the Company or any committee thereof shall have resolved to do any of the
foregoing;
A-2
<PAGE> 50
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified by reference to materiality or a
Material Adverse Effect shall not be true and correct, or any such
representations and warranties that are not so qualified shall not be true
and correct in all material respects, in each case as if such
representations and warranties were made at the time of such determination;
(f) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed or
complied with by it under the Merger Agreement;
(g) the Merger Agreement shall have been terminated in accordance with
its terms or the Offer shall have been terminated with the consent of the
Company; or
(h) any waiting periods under the HSR Act applicable to the purchase
of Shares pursuant to the Offer or the Merger, and any applicable waiting
periods under any foreign statutes or regulations, shall not have expired
or been terminated;
(i) the Company shall have terminated the employment agreement of
Richard A. Stratton without the prior written consent of the Purchaser; and
(k) the Company shall not have obtained the consent of each member of
the Board of Directors of the Company to the cancellation of all Options
held by such Directors as contemplated by Section 2.7 of the Merger
Agreement.
which, in the reasonable judgment of Purchaser with respect to each and every
matter referred to above and regardless of the circumstances (except for any
action or inaction by Purchaser or any of its affiliates constituting a breach
of the Merger Agreement) giving rise to any such condition, makes it inadvisable
to proceed with the Offer or with such acceptance for payment of or payment for
Shares or to proceed with the Merger.
The foregoing conditions are for the sole benefit of Purchaser and may
be asserted by Purchaser regardless of the circumstances giving rise to any such
condition (except for any action or inaction by Purchaser or any of its
affiliates constituting a breach of the Merger Agreement) or (other than the
Minimum Condition) may be waived by Purchaser in whole or in part at any time
and from time to time in its sole discretion (subject to the terms of the Merger
Agreement). The failure by Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
A-3
