<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): June 15, 1998
-------------
McDONALD & COMPANY INVESTMENTS, INC.
- - --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 1-08526 34-1391950
- - --------------------------------------------------------------------------------
(State of Other Jurisdiction) (Commission (I.R.S. Employer
of Incorporation) File Number) Identification Number)
McDonald Investment Center, 800 Superior Avenue Cleveland, Ohio 44114-2603
- - --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (216) 443-2300
-----------------------------
Not Applicable
- - --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
McDonald & Company Investments, Inc. (the "Company") hereby amends the
following items, exhibits or other portions of its Current Report on Form 8-K
dated June 15, 1998, as set forth in the pages attached hereto.
"Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits" is hereby amended and restated to include the following documents
entered into in connection with the acquisition of the Company by KeyCorp as
described in Exhibit 99.1; (i) Agreement and Plan of Merger dated as of June 15,
1998, between the Company and KeyCorp, and (ii) the Stock Option Agreement dated
as of June 15, 1998, between the Company and KeyCorp.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
2.1 Agreement and Plan of Merger dated as of June 15,
1998, between the McDonald & Company Investments,
Inc. and KeyCorp.
10.1 Stock Option Agreement dated as of June 15, 1998,
between McDonald & Company Investments, Inc. and
KeyCorp.
99.1 News Release dated June 15, 1998.*
* Previously filed
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
McDONALD & COMPANY INVESTMENTS, INC.
By: /s/ Thomas F. McKee
-------------------------------
Thomas F. McKee
Secretary
Date: June 17, 1998
3
<PAGE> 4
EXHIBIT INDEX
- - -------------
Exhibit Number Description
- - -------------- -----------
2.1 Agreement and Plan of Merger dated as of June 15, 1998,
between the McDonald & Company Investments, Inc. and KeyCorp.
10.1 Stock Option Agreement dated as of June 15, 1998, between
McDonald & Company Investments, Inc. and KeyCorp.
99.1 News Release dated June 15, 1998, from the Company.*
*Previously filed
4
<PAGE> 1
================================================================================
- - --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of June 15, 1998
between
MCDONALD & COMPANY INVESTMENTS, INC.
and
KEYCORP
- - --------------------------------------------------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
RECITALS......................................................................1
ARTICLE I
Certain Definitions; Interpretation
1.01 Certain Definitions..................................................2
1.02 Interpretation.......................................................8
ARTICLE II
The Merger
2.01 The Merger...........................................................8
2.02 Effective Time.......................................................8
2.03 Integration of Legal Entities........................................9
2.04 Reservation of Right to Revise Structure.............................9
ARTICLE III
Consideration; Exchange
3.01 Merger Consideration.................................................9
3.02 Rights as Stockholders; Stock Transfers.............................10
3.03 Fractional Shares...................................................10
3.04 Exchange Procedures.................................................10
3.05 Adjustment of Exchange Ratio........................................11
3.06 Options.............................................................11
ARTICLE IV
Actions Pending the Effective Time
4.01 Forebearances of the Company........................................12
4.02 Forebearances of the Acquiror.......................................14
-i-
<PAGE> 3
PAGE
----
ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules................................................14
5.02 Standard............................................................15
5.03 Representations and Warranties of the Company.......................15
5.04 Representations and Warranties of the Acquiror......................28
ARTICLE VI
Covenants
6.01 Reasonable Best Efforts.............................................31
6.02 Stockholder Approvals...............................................31
6.03 Registration Statement..............................................32
6.04 Access; Information.................................................32
6.05 Acquisition Proposals...............................................33
6.06 Affiliate Agreements................................................33
6.07 Takeover Laws.......................................................34
6.08 No Rights Triggered.................................................34
6.09 NYSE Listing........................................................34
6.10 Regulatory Applications.............................................34
6.11 Retention Program...................................................34
6.12 Certain Employee Benefits...........................................35
6.13 Indemnification.....................................................35
6.14 Section 15 of the Investment Company Act............................36
6.15 Accountants' Letters................................................36
6.16 Notification of Certain Matters.....................................36
6.17 Press Releases......................................................37
6.18 Certain Policies of the Company.....................................37
ARTICLE VII
Conditions to Consummation of the Merger
7.01 Conditions to Each Party's Obligation to Effect the Merger..........37
7.02 Conditions to Obligation of the Company.............................38
7.03 Conditions to Obligation of the Acquiror............................39
-ii-
<PAGE> 4
PAGE
----
ARTICLE VIII
Termination
8.01 Termination.........................................................40
8.02 Effect of Termination and Abandonment...............................41
8.03 Termination Fee.....................................................41
ARTICLE IX
Miscellaneous
9.01 Survival............................................................41
9.02 Waiver; Amendment...................................................41
9.03 Counterparts........................................................41
9.04 Governing Law.......................................................41
9.05 Expenses............................................................42
9.06 Notices.............................................................42
9.07 Entire Understanding; No Third Party Beneficiaries..................43
ANNEX A Form of Stock Option Agreement
ANNEX B [INTENTIONALLY OMITTED]
ANNEX C List of Persons to Execute Employment Agreements
ANNEX D Forms of Employment Agreements
ANNEX E Terms and Conditions of Retention Program
ANNEX F Form of Amendment to Company Rights Agreement
ANNEX G Form of Company Affiliate Agreement
-iii-
<PAGE> 5
AGREEMENT AND PLAN OF MERGER, dated as of June 15, 1998 (this
"Agreement"), between McDonald & Company Investments, Inc. (the "Company") and
KeyCorp (the "Acquiror").
RECITALS
A. The Company. The Company is a Delaware corporation, having its
principal place of business in Ohio.
B . The Acquiror. The Acquiror is an Ohio corporation, having its
principal place of business in Ohio.
C. Certain Intentions of the Parties. Subject to the terms and
conditions contained in this Agreement, the parties to this Agreement intend to
effect the merger of the Company with and into the Acquiror, with the Acquiror
being the corporation surviving such merger. It is the intention of the parties
to this Agreement that the business combination contemplated hereby be treated
as a "reorganization" under Section 368(a) of the Internal Revenue Code of 1986,
as amended.
D. Stock Option Agreement. As a condition and inducement to the
Acquiror's willingness to enter into this Agreement, concurrently with the
execution and delivery of this Agreement, the Company has executed and delivered
a Stock Option Agreement with the Acquiror, in substantially the form of Annex
A, pursuant to which the Company is granting to the Acquiror an option to
purchase, under certain circumstances, shares of Company Common Stock.
E. Employment Agreements. Certain employees of the Company identified
on Annex C have executed and delivered employment agreements, as the case may
be, with the Company in substantially the forms contained in Annex D.
F. Retention Program. The Acquiror and the Company have agreed to
establish a retention program on the terms described herein and in Annex E, the
purpose of which is to retain the services of certain employees of the Company
following the Merger.
G. Board Action. The respective Boards of Directors of each of the
Acquiror and the Company have determined that it is in the best interests of
their respective companies and their stockholders to consummate the transactions
provided for in this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:
<PAGE> 6
ARTICLE I
CERTAIN DEFINITIONS; INTERPRETATION
1.01 Certain Definitions. The following terms are used in this
Agreement with the meanings set forth below:
"Acquiror" has the meaning set forth in the preamble to this
Agreement.
"Acquiror Common Stock" means the common stock, par value $1.00 per
share, of the Acquiror.
"Acquiror Preferred Stock" means the preferred stock, par value
$1.00 per share, of the Acquiror.
"Acquiror Reports" has the meaning assigned in Section 5.04(i)(5).
"Acquiror Rights" means the rights to purchase Acquiror Stock
outstanding from time to time pursuant to the Acquiror Rights Agreement.
"Acquiror Rights Agreement" means the Restated Rights Agreement,
dated as of May 15, 1997 and as amended thereafter, between the Acquiror
and KeyBank National Association, as Rights Agent.
"Acquiror Stock" means, collectively, the Acquiror Common Stock and
the Acquiror Preferred Stock.
"Acquisition Proposal" has the meaning assigned in Section 6.05.
"Advisory Agreements" has the meaning assigned in Section
5.03(m)(1).
"Affiliate" means, with respect to any specified person, any other
person directly or indirectly controlling, controlled by or under common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power
to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by
Contract or otherwise; and the terms "controlling" and "controlled" have
correlative meanings to the foregoing.
"Agreement" means this Agreement, as amended or modified from time
to time in accordance with Section 9.02.
"AMEX" means the American Stock Exchange, Inc.
"Average Closing Price" means as of any date, the average of the
daily last sale prices of Acquiror Common Stock as reported on the NYSE
Composite Transactions Reporting System (as published in The Wall Street
Journal or, if not published therein, in another authoritative source) for
the ten consecutive NYSE full trading days (in which such shares are
traded on the NYSE) ending at the close of trading on the NYSE full
trading day immediately preceding such date.
-2-
<PAGE> 7
"CFTC" means the United States Commodities Futures Trading
Commission.
"Client" means any person, including the Registered Funds, to which
the Company or any of its Subsidiaries provides products or services under
any Contract.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning assigned in the preamble to this
Agreement.
"Company Affiliate" has the meaning assigned in Section 6.06.
"Company Board" means the Board of Directors of the Company.
"Company By-Laws" means the By-laws of the Company, as amended.
"Company Certificate" means the Certificate of Incorporation of the
Company, as amended.
"Company Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Company Meeting" has the meaning assigned in Section 6.02.
"Company Preferred Stock" means the preferred stock, without par
value, of the Company.
"Company Reports" has the meaning assigned in Section 5.03(l)(10).
"Company Rights" means the rights to purchase Company Stock
outstanding from time to time pursuant to the Company Rights Agreement.
"Company Rights Agreement" means the Agreement, dated as of November
1, 1995, and as amended thereafter, between the Company and National City
Bank, as Rights Agent.
"Company Stock" means, collectively, the Company Common Stock and
the Company Preferred Stock.
"Company Stock Option" means each option to purchase shares of
Company Common Stock under the Company Stock Plans.
"Company Stock Plans" means the stock-based compensation plans of
the Company Previously Disclosed as of the date hereof.
"Compensation Plans" has, with respect to any person, the meaning
assigned in Section 5.03(r)(1).
-3-
<PAGE> 8
"Contract" means, with respect to any person, any agreement,
indenture, undertaking, debt instrument, contract, lease or other
commitment to which such person or any of its Subsidiaries is a party or
by which any of them is bound or to which any of their properties is
subject.
"Covered Employees" has the meaning assigned in Section 6.12.
"Derivatives Contracts" has the meaning assigned in Section 5.03(u).
"DGCL" means the General Corporation Law of the State of Delaware.
"Disclosure Schedule" has the meaning assigned in Section 5.01.
"DOL" means the United States Department of Labor.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the date and time at which the Merger becomes
effective.
"Employment Agreements" means, collectively, the employment
agreements executed and delivered among the Acquiror, the Company or one
of its Subsidiaries and certain of the employees of the Company or one of
its Subsidiaries identified on Annex C, in substantially the forms
contained in Annex D.
"Environmental Laws" means any federal, state or local law,
regulation, order, decree, permit, authorization, common law or agency
requirement with force of law relating to: (1) the protection or
restoration of the environment, health or safety (in each case as relating
to the environment) or natural resources, or (2) the handling, use,
presence, disposal, release or threatened release of any Hazardous
Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" has, with respect to any person, the meaning
assigned in Section 5.03(r)(3).
"ERISA Plans" has the meaning assigned in Section 5.03(r)(2).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exchange Agent" has the meaning assigned in Section 3.04(a).
"Exchange Fund" has the meaning assigned in Section 3.04(a).
"Exchange Ratio" has the meaning assigned in Section 3.01(a)
"Federal Reserve System" means the Board of Governors of the Federal
Reserve System and the Federal Reserve Banks.
"Financial Statements" has the meaning assigned in Section
5.03(g)(2).
-4-
<PAGE> 9
"Fund Board" has the meaning assigned in Section 5.03(m)(1).
"Governmental Authority" means any court, administrative agency or
commission or other foreign, federal, state or local governmental
authority or instrumentality.
"Hazardous Substance" means any hazardous or toxic substance,
material or waste, including those substances, materials and wastes listed
in the United States Department of Transportation Hazardous Materials
Table (49 C.F.R. section 172.101), or by the United States Environmental
Protection Agency as hazardous substances (40 C.F.R. Part 302) and
amendments thereto, petroleum products or other such substances, materials
and wastes that are or become regulated under any applicable local, state
or federal law, including petroleum compounds, lead, asbestos and
polychlorinated biphenyls.
"Indemnified Party" has the meaning assigned in Section 6.13(a).
"Insurance Amount" has the meaning assigned in Section 6.13(b).
"Insurance Policies" has the meaning assigned in Section 5.03(w).
"Investment Advisers Act" means the Investment Advisers Act of 1940,
as amended, and the rules and regulations thereunder.
"Investment Company" has the meaning assigned for purposes of the
Investment Company Act that is sponsored, organized, advised or managed by
the Company or one of its Subsidiaries (including the Registered Funds).
"Investment Company Act" means the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
"IRS" means the Internal Revenue Service.
"Liens" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Litigation" has the meaning assigned in Section 5.03(p).
"Material" means, with respect to any fact, circumstance, event or
thing, that such fact, circumstance, event or thing is material to (1) the
financial position, results of operations, assets, properties or business
of the Acquiror and its Subsidiaries, taken as a whole, the Company and
its Subsidiaries, taken as a whole, or the Surviving Corporation and its
Subsidiaries, taken as a whole, as the case may be, or (2) the ability of
either the Acquiror or the Company timely to perform its obligations under
this Agreement or otherwise to consummate the transactions contemplated by
this Agreement, in each case, other than any fact, circumstance, event or
thing (i) generally affecting the securities industry, or resulting from
general economic or market conditions (including changes in interest
rates), changes in accounting principles or changes in laws, regulations
or regulatory policies of general applicability (or interpretations
thereof), or (ii) resulting from actions or omissions of a party hereto
taken with the prior written consent of the other party in contemplation
of the transactions contemplated hereby; and provided that as of the
Closing Date the failure of any Employment Agreement to be in full force
and effect or the failure of the related employee to be employed by the
-5-
<PAGE> 10
Company or any Subsidiary of the Company as of the Closing Date will not
in and of itself be deemed Material to the Company and its Subsidiaries,
taken as a whole, unless such failure (taken together with any other such
failures) would cause the closing condition set forth in Section 7.03(e)
to not be satisfied.
"Merger" has the meaning assigned in Section 2.01(a).
"Merger Consideration" has the meaning assigned in Section 2.04.
"MSRB" means the Municipal Securities Rulemaking Board.
"Multiemployer Plans" has the meaning assigned in Section
5.03(r)(2).
"New Certificates" has the meaning assigned in Section 3.04(a).
"NYSE" means the New York Stock Exchange, Inc.
"OGCL" means the General Corporation Law of the State of Ohio.
"Old Certificates" has the meaning assigned in Section 3.04(a).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" has, with respect to any person, the meaning assigned
in Section 5.03(r)(2).
"person" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust or unincorporated
organization.
"Previously Disclosed" has the meaning assigned in Section 5.01.
"Pricing Date" means the fourth full NYSE trading day immediately
preceding the Scheduled Closing Date.
"Proxy Statement" has the meaning assigned in Section 6.03(a).
"Registered Funds" has the meaning assigned in Section 5.03(m)(1).
"Registration Statement" has the meaning assigned in Section
6.03(a).
"Representatives" means, with respect to any person, such person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any person, securities or
obligations convertible into or exercisable or exchangeable for, or giving
any person any right to subscribe for or acquire, or any options, calls or
commitments relating to, or any stock appreciation right or other
instrument the value of which is determined in whole or in part by
reference to the market price or value of, shares of capital stock of such
person.
-6-
<PAGE> 11
"Scheduled Closing Date" has the meaning assigned in Section 2.02.
"SEC" means the Securities and Exchange Commission.
"SEC Documents", with respect to the Company or the Acquiror, has
the meaning assigned in Section 5.03(g) or 5.04(g), as the case may be.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"Securities Laws" means, collectively, the Securities Act, the
Exchange Act, the Investment Advisers Act, the Investment Company Act and
any state securities and "blue sky" laws.
"Self-Regulatory Organization" means the National Association of
Securities Dealers, Inc., the NYSE, the AMEX, the MSRB, the Midwest Stock
Exchange and the Philadelphia Stock Exchange, or other commission, board,
agency or body that is not a Governmental Authority but is charged with
the supervision or regulation of brokers, dealers, securities underwriting
or trading, stock exchanges, commodities exchanges, insurance companies or
agents, investment companies or investment advisers, or to the
jurisdiction of which the Company or one of its Subsidiaries is otherwise
subject.
"Stock Option Agreement" means the Stock Option Agreement, dated the
date hereof, between the Company and the Acquiror (which is in
substantially the form of Annex A, as the same may be amended,
supplemented of replaced from time to time).
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed
to them in Rule 1-02 of SEC Regulation S-X; provided that "Subsidiary"
shall not include, with respect to the Company, (1) any Registered Fund or
any person in which a Registered Fund holds an ownership interest, or (2)
any investment account advised or managed by a person on behalf of third
parties.
"Subsidiary Combination" has the meaning assigned in Section 2.03.
"Surviving Corporation" has the meaning assigned in Section 2.01(a).
"Takeover Laws" has the meaning assigned in Section 5.03(c)(2).
"Taxes" means all federal, state, local and foreign taxes, levies or
other assessments, however denominated, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem, goods
and services, capital, transfer, franchise, profits, license, withholding,
payroll, employment, employer health, excise, estimated, severance, stamp,
occupation, property or other taxes, and custom duties, together with any
interest and any penalties, additions to tax or additional amounts imposed
by any taxing authority.
"Tax Returns" means, collectively, all returns, declarations,
reports, estimates, information returns and statements required to be
filed under federal, state, local or any foreign tax laws.
"Termination Fee" has the meaning assigned in Section 8.03.
-7-
<PAGE> 12
"Treasury Shares" means shares of Company Common Stock owned by the
Company or a Subsidiary of the Company.
1.02 Interpretation. When a reference is made in this Agreement to
Recitals, Sections, Annexes or Schedules, such reference shall be to a Recital,
Section, Annex or Schedule to this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No rule of construction against the
draftsperson shall be applied in connection with the interpretation or
enforcement of this Agreement. Whenever this Agreement shall require a party to
take an action, such requirement shall be deemed to constitute an undertaking by
such party to cause its Subsidiaries, and to use its reasonable best efforts to
cause its other Affiliates, to take appropriate action in connection therewith.
References herein to "transactions contemplated by this Agreement" shall be
deemed to include a reference to the Subsidiary Combination.
ARTICLE II
THE MERGER
2.01 The Merger. At the Effective Time, the business combination
contemplated by this Agreement shall occur and in furtherance thereof:
(a) STRUCTURE AND EFFECTS OF THE MERGER. The Company shall
merge with and into the Acquiror, and the separate corporate existence
of the Company shall thereupon cease (the "Merger"). The Acquiror shall
be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Ohio, and the separate corporate
existence of the Acquiror with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger. The
Merger shall have the effects specified in the DGCL and OGCL.
(b) CERTIFICATE OF INCORPORATION. The certificate of
incorporation of the Surviving Corporation shall be the certificate of
incorporation of the Acquiror as in effect immediately prior to the
Effective Time, until duly amended in accordance with the terms thereof
and the OGCL.
(c) BY-LAWS. The by-laws of the Surviving Corporation shall be
the by-laws of the Acquiror as in effect immediately prior to the
Effective Time, until duly amended in accordance with the terms thereof
and the certificate of incorporation referred to in Section 2.01(b).
(d) DIRECTORS. The directors of the Surviving Corporation
shall be the directors of the Acquiror immediately prior to the
Effective Time, and such directors shall hold such office until such
time as their successors shall be duly elected and qualified.
(e) OFFICERS. The officers of the Surviving Corporation shall
be the officers of the Acquiror immediately prior to the Effective
Time.
2.02 Effective Time. The Merger shall become effective upon the
filing, in the office of the Secretary of State of the State of Delaware, of a
certificate of merger in accordance with Section 251 of the DGCL and, in the
office of the Secretary of State of the State of Ohio, of a certificate of
merger in accordance
-8-
<PAGE> 13
with Section 1701.81 of the OGCL, or at such later date and time as may be set
forth in such certificates. Subject to the terms of this Agreement, the parties
shall cause the Merger to become effective (1) on the date that is the fifth
full NYSE trading day (the "Scheduled Closing Date") to occur after the last of
the conditions set forth in Article VII (other than conditions relating solely
to the delivery of documents dated the Effective Date) shall have been satisfied
or waived in accordance with the terms of this Agreement (or, at the election of
the Acquiror, on the last business day of the month in which such day occurs),
or (2) on such other date as the parties may agree in writing.
2.03 Integration of Legal Entities. Following the Effective Time the
parties hereto currently intend to effectuate, or cause to be effectuated, the
combination (the "Subsidiary Combination") of the business of Key Capital
Markets, Inc. with that of McDonald & Company Securities, Inc. The Company
agrees to cooperate with the Acquiror and to take all reasonable actions prior
to or following the Effective Time, including executing all requisite
documentation, as may be requested by the Acquiror to effect the Subsidiary
Combination; provided, however, that any such actions shall not materially
impede or delay receipt of any approval or consent referred to in Section
7.01(b) or consummation of the Merger. The Company also agrees to cooperate with
the Acquiror and to take all reasonable additional action prior to or following
the Effective Time, including executing all requisite documentation and taking
reasonable restructuring steps for regulatory purposes, as may be requested by
the Acquiror to merge or otherwise consolidate legal entities to the extent
desirable for regulatory or other reasons; provided, however, that any such
actions shall not materially impede or delay receipt of any approval or consent
referred to in Section 7.01(b) or consummation of the Merger.
2.04 Reservation of Right to Revise Structure. At the Acquiror's
election, the Merger may alternatively be structured so that (1) the Company is
merged with and into any direct or indirect wholly owned subsidiary of the
Acquiror, or (2) any direct or indirect wholly owned subsidiary of the Acquiror
is merged with and into the Company; provided, however, that no such change
shall (A) alter or change the amount or kind of the consideration to be issued
to the Company's stockholders in the Merger or under such alternative structure
(the "Merger Consideration") or the treatment of the holders of Company Stock
Options, (B) adversely affect the tax treatment to the Company's stockholders as
a result of receiving the Merger Consideration or prevent the parties from
obtaining the opinion of Counsel referred to in Sections 7.01(h), or (C)
materially impede or delay consummation of the Merger. In the event of such an
election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election.
ARTICLE III
CONSIDERATION; EXCHANGE
3.01 Merger Consideration. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any stockholder:
(a) OUTSTANDING COMPANY COMMON STOCK. Each share of Company Common
Stock, excluding Treasury Shares, issued and outstanding immediately prior
to the Effective Time shall become and be converted into the right to
receive a number of shares of Acquiror Common Stock, together with the
appropriate number of attached Acquiror Rights, equal to $35.00 divided by
the Average Closing Price as of the Pricing Date (subject to adjustment
pursuant to Sections 3.05 and 8.01(f) and to the proviso to this Section
3.01(a), the "Exchange Ratio"); provided, that if the Average Closing
Price is (1) less than $33.00, then the Average Closing Price for purposes
of this Section
-9-
<PAGE> 14
3.01(a) will be deemed $33.00, (2) greater than $44.50 but not greater
than $50.00, then the Average Closing Price for purposes of this Section
3.01(a) will be deemed $44.50, or (3) greater than $50.00, then the
Exchange Ratio shall equal (for all purposes of this Agreement) a fraction
the numerator of which is the sum of (A) $39.325 and (B) one half of the
difference between the Average Closing Price and $50.00 and the
denominator of which is such Average Closing Price (in each case, subject
to adjustment pursuant to Section 3.05). Notwithstanding any other
provision herein, the Exchange Ratio will be rounded to the nearest
hundredth.
(b) OUTSTANDING ACQUIROR COMMON STOCK. Each share of Acquiror Common
Stock issued and outstanding immediately prior to the Effective Time shall
be unchanged and shall remain issued and outstanding as one share of
common stock of the Surviving Corporation.
(c) TREASURY SHARES. Each Treasury Share shall be canceled and
retired at the Effective Time and no consideration shall be issued in
exchange therefor.
3.02 Rights as Stockholders; Stock Transfers. At the Effective Time,
holders of Company Common Stock shall cease to be, and shall have no rights as,
stockholders of the Company, other than to receive (a) any dividend or other
distribution with respect to such Company Common Stock with a record date
occurring prior to the Effective Time and (b) the consideration provided under
this Article III. Following the Effective Time, there shall be no transfers of
Company Stock on the stock transfer books of the Company or the Surviving
Corporation.
3.03 Fractional Shares. Notwithstanding any other provision in this
Agreement, no fractional shares of Acquiror Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued in the
Merger; instead, the Acquiror shall pay to each holder of Company Common Stock
who otherwise would be entitled to a fractional share of Acquiror Common Stock
(after taking into account all Old Certificates delivered by such holder) an
amount in cash (without interest) determined by multiplying such fraction by the
Average Closing Price as of the Effective Date.
3.04 Exchange Procedures. (a) At or prior to the Effective Time, the
Acquiror shall deposit, or shall cause to be deposited, with KeyBank National
Association (in such capacity, and including any successor that may from time to
time be appointed by the Acquiror, the "Exchange Agent"), for the benefit of the
holders of certificates formerly representing shares of Company Common Stock
("Old Certificates"), for exchange in accordance with this Article III,
certificates representing the shares of Acquiror Common Stock ("New
Certificates") to be issued, and an estimated amount of cash to be paid, as
Merger Consideration (such cash and New Certificates, together with any
dividends or distributions with a record date occurring after the Effective Time
with respect thereto (without any interest on any such case, dividends or
distributions), being hereinafter referred to as the "Exchange Fund").
(b) Promptly after the Effective Date, the Surviving Corporation shall
send or cause to be sent to each former holder of record of shares of Company
Common Stock (other than Treasury Shares) immediately prior to the Effective
Time transmittal materials for use in exchanging such stockholder's Old
Certificates for the Merger Consideration. The Surviving Corporation will cause
New Certificates and any check in respect of any fractional share interests or
dividends or distributions that a former holder of Company Common Stock is
entitled to receive to be delivered to such stockholder upon delivery to the
Exchange Agent of Old Certificates representing the shares of Company Common
Stock formerly owned by such stockholder as of the Effective Time (or indemnity
satisfactory to the Surviving Corporation and the Exchange Agent, if any of such
-10-
<PAGE> 15
certificates are lost, stolen or destroyed), together with properly completed
transmittal materials; provided that such New Certificates and any such check
shall not be issued to any Company Affiliate unless and until such Company
Affiliate has delivered an agreement pursuant to Section 6.06. No interest will
be paid on any Merger Consideration, including cash to be paid in lieu of
fractional share interests, or in respect of dividends or distributions which
any such person may be entitled to receive pursuant to this Article III upon
such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to any former holder of Company Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) No dividends or other distributions on Acquiror Common Stock with a
record date occurring after the Effective Time shall be paid to the holder of
any unsurrendered Old Certificate until the holder thereof shall be entitled to
receive New Certificates in exchange therefor in accordance with this Article
III, and no such stockholder shall be eligible to vote such Acquiror Common
Stock until the holder of such Old Certificates is entitled to receive New
Certificates in accordance with this Article III. After becoming so entitled in
accordance with this Article III, the record holder thereof also shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Acquiror Common Stock such holder had the right to receive upon surrender of the
Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by former
stockholders of the Company for six months after the Effective Time shall be
returned to the Acquiror. Any such stockholders who have not theretofore
complied with this Article III shall thereafter look only to the Acquiror for
payment of any Merger Consideration, and any unpaid dividends and distributions
on the Acquiror Common Stock to which such stockholder is entitled under this
Section 3.04, in each case, without any interest thereon.
3.05 Adjustment of Exchange Ratio. If, after the date of this
Agreement but prior to the Effective Time, the shares of Acquiror Common Stock
issued and outstanding shall, through a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar change (regardless of the method of effectuation of any of the
foregoing, including by way of a merger or otherwise) in the capitalization of
the Acquiror, increase or decrease in number or be changed into or exchanged for
a different kind or number of securities, then an appropriate and proportionate
adjustment shall be made to the Exchange Ratio and to each of the prices
referred to in Section 8.01(f) and the proviso to Section 3.01(a).
3.06 Options. At the Effective Time, all Company Stock Options which
are then outstanding and unexercised, shall cease to represent a right to
acquire shares of Company Common Stock and shall be converted into options to
purchase shares of Acquiror Common Stock on the same terms and conditions under
the applicable Company Stock Plan and the stock option agreement by which such
Company Stock Option is evidenced. From and after the Effective Time:
(a) the number of shares of Acquiror Common Stock purchasable upon
exercise of such Company Stock Option shall equal the product (rounded
down to the nearest share) of (1) the number of shares of Company Common
Stock that were subject to such Company Stock Option immediately prior to
the Effective Time and (2) the Exchange Ratio, and
-11-
<PAGE> 16
(b) the per share exercise price under each such Company Stock
Option shall be equal to the result (rounded up to the nearest cent) of
dividing the per share exercise price of each such Company Stock Option by
the Exchange Ratio.
Notwithstanding the foregoing, each Company Stock Option that is intended to be
an "incentive stock option" (as defined in Section 422 of the Code) shall be
adjusted in accordance with the requirements of Section 424 of the Code.
ARTICLE IV
ACTIONS PENDING THE EFFECTIVE TIME
4.01 Forebearances of the Company. From the date hereof until the
Effective Time, except as expressly contemplated by this Agreement, without the
prior written consent of the Acquiror (which consent shall not be unreasonably
withheld), the Company will not, and will cause each of its Subsidiaries not to:
(a) ORDINARY COURSE. Conduct the business of the Company or any of
its Subsidiaries other than in the ordinary and usual course, or, to the
extent consistent therewith, fail to use reasonable best efforts to
preserve intact any of their business organizations and assets and
maintain their rights, franchises and existing relations with clients,
customers, suppliers, employees and business associates; or engage in any
new lines of business.
(b) CAPITAL STOCK. Other than pursuant to Previously Disclosed
Rights outstanding on the date hereof, (1) issue, sell or otherwise permit
to become outstanding, or authorize the creation of, any additional shares
of Company Stock or any Rights, (2) enter into any Contract with respect
to the foregoing, or (3) permit any additional shares of Company Stock to
become subject to new grants of employee or director stock options, other
Rights or similar stock-based employee rights. Without limiting the
foregoing, the Company will not issue or agree to issue any shares of
Company Stock or Rights under the Company Stock Plans other than pursuant
to Previously Disclosed Rights outstanding on the date hereof.
(c) DIVIDENDS, ETC. (1) Make, declare, pay or set aside for payment
any dividend on or in respect of, or declare or make any distribution on,
any shares of its capital stock, other than (A) regular quarterly cash
dividends on Company Common Stock in an amount not to exceed $0.0625 per
share paid with record and payment dates consistent with past practice and
(B) dividends from wholly owned Subsidiaries to the Company or another
wholly owned Subsidiary of the Company, as applicable (in each case having
record and payment dates consistent with past practice), or (2) directly
or indirectly adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its capital stock.
(d) COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Enter into, amend,
modify or renew any Contract regarding employment, consulting, severance
or similar arrangements with any directors, officers, employees of, or
independent contractors with respect to, the Company or its Subsidiaries,
or grant any salary, wage or other increase in compensation or increase in
any employee benefit (including incentive or bonus payments), except (1)
for normal individual increases in compensation to employees in the
ordinary and usual course of business consistent with past practice, (2)
for other changes that are required by applicable law, (3) to satisfy
Previously Disclosed Contracts existing on
-12-
<PAGE> 17
the date hereof, or (4) for employment arrangements for, or grants of
awards to, newly hired employees in the ordinary course of business
consistent with past practice.
(e) BENEFIT PLANS. Enter into, establish, adopt, amend or modify any
pension, retirement, stock option, stock purchase, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare Contract, plan, program or
arrangement, or any trust agreement (or similar arrangement) related
thereto, in respect of any directors, officers, employees of, or
independent contractors with respect to, the Company or its Subsidiaries,
including taking any action that accelerates the vesting or exercisability
of stock options, restricted stock or other compensation or benefits
payable thereunder, except, in each such case, (1) as may be required by
applicable law, or (2) to satisfy Previously Disclosed Contracts existing
on the date hereof.
(f) DISPOSITIONS. Except (1) pursuant to Previously Disclosed
Contracts existing on the date hereof, or (2) sales of securities or other
investments or assets in the ordinary course of business consistent with
past practice, sell, transfer, mortgage, lease, encumber or otherwise
dispose of or discontinue any material portion of its assets, business or
properties.
(g) ACQUISITIONS. Except (1) pursuant to Previously Disclosed
Contracts existing on the date hereof, or (2) the purchase of securities
or other investments or assets in the ordinary course of business
consistent with past practice, merge or consolidate with, or acquire a
material portion of the assets of, any other person.
(h) GOVERNING DOCUMENTS. Amend the Company Certificate, the Company
By-laws or the certificate of incorporation or by-laws (or similar
governing documents) of any of the Company's Subsidiaries.
(i) ACCOUNTING METHODS. Implement or adopt any change in accounting
principles, practices or methods, other than as may be required by
generally accepted accounting principles.
(j) CONTRACTS. Except in the ordinary course of business consistent
with past practice, enter into, renew or terminate any material Contract
or amend or modify in any material respect any of its existing material
Contracts.
(k) CLAIMS. Settle any claim, action or proceeding, except for any
claim, action or proceeding involving solely money damages in an amount,
individually and in the aggregate for all such settlements, not more than
$250,000 and which is not reasonably likely to establish an adverse
precedent or basis for subsequent settlements.
(l) FUND ACTION. Except as and to the extent required, based upon
the advice of outside counsel, in the exercise of the fiduciary
obligations of the Company or one of its Subsidiaries to any Investment
Company, request that any action be taken by any Fund Board, other than
(1) routine actions that would not, individually or in the aggregate, be
reasonably likely to have a Material adverse effect on the Company or any
Investment Company, (2) actions Previously Disclosed, or (3) actions
necessary to allow consummation of the Merger or the Subsidiary
Combination.
(m) ADVERSE ACTIONS. (1) Take any action reasonably likely to
prevent or impede the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (2) knowingly take any
action that is intended or is reasonably likely to result in (A) any of
its
-13-
<PAGE> 18
representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time at or prior to the
Effective Time, (B) any of the conditions to the Merger set forth in
Article VII not being satisfied, or (C) a material breach of any provision
of this Agreement; except, in each case, as may be required by applicable
law.
(n) CAPITAL EXPENDITURES. Authorize or make any capital
expenditures, other than (1) annual budgeted amounts Previously Disclosed,
or (2) in the ordinary and usual course of business consistent with past
practice in amounts not exceeding $250,000 in the aggregate.
(o) RISK MANAGEMENT. Except as required by applicable law or
regulation, (1) implement or adopt any change in the risk management
policies, procedures or practices of the Company, which, individually or
in the aggregate with all such other changes, would be Material, or (2)
fail to use commercially reasonable means to avoid any material increase
in the aggregate exposure of the Company to risk from the general United
States securities markets.
(p) TAX MATTERS. Make or change any material tax election, change
any annual tax accounting period, adopt or change any method of tax
accounting, file any amended Tax Return, enter into any material closing
agreement, settle any material Tax claim or assessment, surrender or
compromise any right to claim a material Tax refund, consent to any
extension or waiver of the limitations period applicable to any material
Tax claim or assessment, in each case, other than any of the foregoing
actions that are not Material and which are taken in the ordinary and
usual course of business consistent with past practice.
(q) NEW ACTIVITIES. Initiate any new business activity that would be
impermissible for a "bank holding company" under the Bank Holding Company
Act of 1956, as amended.
(r) COMMITMENTS. Agree or commit to do anything that would be
precluded by clauses (a) through (q) without first obtaining the
Acquiror's consent.
4.02 Forebearances of the Acquiror. From the date hereof until the
Effective Time, except as expressly contemplated by this Agreement, without the
prior written consent of the Company, the Acquiror will not, and will cause each
of its Subsidiaries not to (1) take any action reasonably likely to prevent or
impede the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code, (2) knowingly take any action that is intended or is
reasonably likely to result in (A) any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material respect at any
time at or prior to the Effective Time, (B) any of the conditions to the Merger
set forth in Article VII not being satisfied, or (C) a material breach of any
provision of this Agreement; except, in each case, as may be required by
applicable law, or (3) make, declare, pay or set aside for payment any
extraordinary dividend.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Disclosure Schedules. On or prior to the date hereof, the
Company has delivered to the Acquiror, and the Acquiror has delivered to the
Company, a schedule (respectively, its "Disclosure Schedule") setting forth,
among other things, items the disclosure of which is necessary or appropriate
either (1) in response to an express informational requirement contained in or
requested by a provision hereof, or (2)
-14-
<PAGE> 19
as an exception to one or more representations or warranties contained in
Section 5.03 or 5.04, respectively, or to one or more of its covenants contained
in Article IV or VI; provided, that the mere inclusion of an item in a
Disclosure Schedule as an exception to a representation or warranty or covenant
shall not be deemed an admission by a party that such item (or any undisclosed
item or information of comparable or greater significance) represents a Material
exception or fact, event or circumstance with respect to the Company or the
Acquiror, respectively. Information set forth in a Disclosure Schedule, whether
in response to an express informational requirement or as an exception to one or
more representations or warranties or covenants, in each case, that is contained
in a correspondingly enumerated portion of such Disclosure Schedule, is referred
to herein as "Previously Disclosed."
5.02 Standard. No representation or warranty of the Company or the
Acquiror contained in Section 5.03 or 5.04 shall be deemed untrue or incorrect,
and no party hereto shall be deemed to have breached a representation or
warranty, as a consequence of the existence of any fact, event, or circumstance
that should have been disclosed as an exception to one or more representations
or warranties, unless such fact, event or circumstance (individually or taken
together with all other facts, events or circumstances that should have been so
disclosed with respect to any representation or warranty contained in Section
5.03 or 5.04) is not Previously Disclosed and would be Material with respect to
the Company or the Acquiror, respectively.
5.03 Representations and Warranties of the Company. Except as
Previously Disclosed, the Company hereby represents and warrants to the Acquiror
as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY. The Company is a
corporation, duly organized, validly existing and in good standing under
the laws of the State of Delaware, and is duly qualified to do business
and is in good standing in all jurisdictions where its ownership or
leasing of property or assets or the conduct of its business requires it
to be so qualified.
(b) CORPORATE POWER. The Company and each of its Subsidiaries has
the corporate power and authority to carry on its business as it is now
being conducted and to own or lease all its properties and assets.
(c) CORPORATE AUTHORITY AND ACTION. (1) The Company has the
requisite corporate power and authority, and has taken all corporate
action necessary, in order (A) to authorize the execution and delivery of,
and performance of its obligations under, this Agreement and the Stock
Option Agreement and (B) subject only to receipt of the requisite approval
of the plan of merger contained in this Agreement by the holders of a
majority of the outstanding shares of Company Common Stock, to consummate
the transactions contemplated by this Agreement and the Stock Option
Agreement. This Agreement and the Stock Option Agreement each is a valid
and legally binding obligation of the Company, enforceable in accordance
with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles).
(2) The Company has taken all action required to be taken by it
in order to exempt this Agreement, the Stock Option Agreement and the
transactions contemplated hereby from, and this Agreement, the Stock
Option Agreement and the transactions contemplated hereby each is exempt
from, the requirements of (1) any applicable "moratorium," "control
share," "fair price" or other antitakeover laws and regulations of any
state (collectively, "Takeover Laws"), including Section 203 of the DGCL
and (2) Article X of the Company Certificate.
-15-
<PAGE> 20
(d) REGULATORY FILINGS; NO DEFAULTS. (1) No consents or approvals
of, or filings or registrations with, any Governmental Authority,
Self-Regulatory Organization or with any third party are required to be
made or obtained by the Company in connection with the execution, delivery
or performance by the Company of this Agreement, or to consummate the
Merger, except for (A) filings of applications or notices with Previously
Disclosed securities licensing or supervisory authorities, (B) the filing
with the SEC of the Proxy Statement in definitive form, (C) approval of
the NYSE and consents of national securities exchanges to the transfer of
ownership of seats or memberships and (D) the filing of (x) a certificate
of merger with the Secretary of State of the State of Delaware pursuant to
the DGCL and (y) a certificate of merger with the Secretary of State of
the State of Ohio pursuant to the OGCL. As of the date hereof, the Company
is not aware of any reason why the approvals of all Governmental
Authorities or Self-Regulatory Organizations necessary to permit
consummation of the transactions contemplated by this Agreement will not
be received without the imposition of a condition or requirement described
in Section 7.01(b).
(2) Subject only to the approval by the holders of a majority of
the outstanding shares of Company Common Stock, the receipt of the
regulatory approvals referred to in Section 5.03(d)(1), the expiration of
applicable waiting periods and the making of required filings under
federal and state securities laws, the execution, delivery and performance
of this Agreement and the Stock Option Agreement and the consummation of
the transactions contemplated hereby do not and will not (A) constitute a
breach or violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination (with or without the
giving of notice, passage of time or both) under, any law, rule or
regulation or any judgment, decree, order, governmental or
non-governmental permit or license, or Contract of the Company or of any
of its Subsidiaries or to which the Company or any of its Subsidiaries or
its or their properties is subject or bound, (B) constitute a breach or
violation of, or a default under, the Company Certificate or the Company
By-laws or similar governing documents of any of its Subsidiaries, or (C)
require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental or non-governmental permit or
license or Contract.
(e) COMPANY STOCK. As of the date hereof, the authorized capital
stock of the Company consists solely of 50,000,000 shares of Company
Common Stock, of which not more than 18,437,632 shares are outstanding as
of the date hereof, and 200,000 shares of Company Preferred Stock, of
which no shares are outstanding. As of the date hereof, 5,393,895 shares
of Company Common Stock are held as Treasury Shares. The outstanding
shares of Company Common Stock have been duly authorized and are validly
issued and outstanding, fully paid and nonassessable, and subject to no
preemptive rights (and were not issued in violation of any subscriptive or
preemptive rights). As of the date hereof, other than the Company Rights
and except as Previously Disclosed, there are no shares of Company Stock
authorized and reserved for issuance, the Company does not have any Rights
issued or outstanding with respect to Company Stock, and the Company does
not have any commitment to authorize, issue or sell any Company Stock or
Rights, except pursuant to this Agreement and the Stock Option Agreement.
The number of shares of Company Stock which are issuable and reserved for
issuance upon exercise of Company Stock Options as of the date hereof are
Previously Disclosed in the Company's Disclosure Schedule.
(f) Subsidiaries. (1) The Company has Previously Disclosed a list of
all its Subsidiaries, including the states in which such Subsidiaries are
organized, a brief description of such Subsidiaries' principal activities,
and if any of such Subsidiaries is not wholly owned by the Company or one
of its Subsidiaries, the percentage owned by the Company or any such
Subsidiary and the names, addresses
-16-
<PAGE> 21
and percentage ownership by any other person. No equity securities of any
of the Company's Subsidiaries are or may become required to be issued
(other than to the Company or a wholly owned Subsidiary of the Company) by
reason of any Rights with respect thereto. There are no Contracts by which
any of the Company's Subsidiaries is or may be bound to sell or otherwise
issue any shares of its capital stock, and there are no Contracts relating
to the rights of the Company to vote or to dispose of such shares. All of
the shares of capital stock of each of the Company's Subsidiaries are
fully paid and nonassessable and subject to no subscriptive or preemptive
rights or Rights and, except as Previously Disclosed, are owned by the
Company or a Company Subsidiary free and clear of any Liens. Each of the
Company's Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and
is duly qualified to do business and in good standing in each jurisdiction
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified.
(g) SEC DOCUMENTS; FINANCIAL STATEMENTS. (1) The Company has
provided or made available to the Acquiror copies of each registration
statement, offering circular, report, definitive proxy statement or
information statement filed by the Company with the SEC or circulated by
the Company with respect to periods since January 1, 1995 through the date
of this Agreement and will promptly provide each such registration
statement, offering circular, report, definitive proxy statement or
informa tion statement filed or circulated after the date hereof
(collectively, the "Company's SEC Documents"), each in the form (including
exhibits and any amendments thereto) filed with the SEC (or, if not so
filed, in the form used or circulated). As of their respective dates (and
without giving effect to any amendments or modifications filed after the
date of this Agreement), each of the SEC Documents, including the
financial statements, exhibits and schedules thereto, filed or circulated
prior to the date hereof complied (and each of the SEC Documents filed
after the date of this Agreement, will comply) as to form with applicable
Securities Laws and did not (or in the case of reports, statements, or
circulars filed after the date of this Agreement, will not) contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(2) Each of the Company's statements of financial condition
included in or incorporated by reference into the SEC Documents, including
the related notes and schedules, fairly presented (or, in the case of SEC
Documents filed after the date of this Agreement, will fairly present) the
consolidated financial condition of the Company and its Subsidiaries as of
the date of such statement of financial condition and each of the
statements of income, cash flows and changes in stockholders' equity
included in or incorporated by reference into the SEC Documents, including
any related notes and schedules (collectively, the foregoing financial
statements and related notes and schedules are referred to as the
"Financial Statements"), fairly presented (or, in the case of SEC
Documents filed after the date of this Agreement, will fairly present) the
consolidated results of operations, cash flows and stockholders' equity,
as the case may be, of the Company and its Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to normal
year-end audit adjustments), in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved (except as may be noted therein and except that such unaudited
statements include no notes).
(3) There are no liabilities of the Company or any of its
Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there
-17-
<PAGE> 22
is no existing condition, situation or set of circumstances known to the
Company which could reasonably be expected to result in such a liability,
other than:
(A) liabilities provided for in the statement of financial
condition included in the SEC Documents most recently filed prior to
the date hereof, or disclosed in the notes thereto; or
(B) other undisclosed liabilities which, individually or in
the aggregate, are not Material.
(h) Absence of Certain Changes. Since January 1, 1998, the business
of the Company, and its respective Subsidiaries has been conducted in the
ordinary and usual course, consistent with past practice, and there has
not been:
(1) any event, occurrence, development or state of
circumstances or facts which has had or could reasonably be expected
to constitute or result in a Material adverse change in the
financial condition, results of operations, business, assets,
properties or stockholders' equity of the Company and its
Subsidiaries, taken as a whole;
(2) any amendment of any term of any outstanding security of
the Company or any of its Subsidiaries or to the Company or any of
its Subsidiaries' certificate of incorporation or by-laws (or
similar governing documents);
(3) any (A) incurrence, assumption or guarantee by the Company
or any of its Subsidiaries of any indebtedness for borrowed money,
or (B) assumption, guarantee, endorsement or otherwise by the
Company of any obligations of any other person, in each case, other
than in the ordinary and usual course of business, consistent with
past practice, and in amounts and on terms consistent with past
practices;
(4) any creation or assumption by the Company or any of its
Subsidiaries of any Lien on any material asset other than in the
ordinary and usual course of business consistent with past
practices;
(5) any making of any loan in excess of $250,000, or aggregate
loans in excess of $1,000,000, advance or capital contributions to
or investment in any person, in each case, other than in the
ordinary and usual course of business consistent with past practice;
(6) any change in any accounting policies or practices by the
Company or any of its Subsidiaries; or
(7) any (A) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any
director, officer, consultant, partner or employee of the Company or
any of its Subsidiaries (or any amendment to any such existing
agreement), (B) grant of any severance or termination pay to any
director, officer, consultant, partner or employee of the Company or
any of its Subsidiaries, or (C) change in compensation or other
benefits payable to any director, officer, consultant, partner or
employee of the Company or any of its Subsidiaries, except, in each
case, in the ordinary course of business or as required
-18-
<PAGE> 23
by Contract or applicable law with respect to employees of the
Company or any of its Subsidiaries;
(i) Contracts. (1) The Company has Previously Disclosed each
of the following Contracts to which either the Company or any of its
Subsidiaries is a party, or by which any of them is bound or to
which any of their properties is subject:
(A) any lease of real property;
(B) any agreement for the purchase of materials,
supplies, goods, services, equipment or other assets that
provides for either (x) annual payments of $250,000 or more or
(y) aggregate payments of $1,000,000 or more;
(C) any partnership, joint venture or other similar
agreement or arrangement, or any options or rights to acquire
from any person any capital stock, voting securities or
securities convertible into or exchangeable for capital stock
or voting securities or such person, in each case, entered
into other than in the ordinary course of business;
(D) any executory agreement relating to the acquisition
or disposition of any business (whether by merger, sale of
stock, sale of assets or otherwise);
(E) any outstanding indenture, mortgage, promissory
note, loan agreement, guarantee or other agreement or
commitment for the borrowing of money by the Company or one of
its Subsidiaries or the deferred purchase price of property in
excess of $1,000,000 (in either case, whether incurred,
assumed, guaranteed or secured by any asset);
(F) any agreement that creates future payment
obligations in excess of $250,000 in the aggregate and which
by its terms does not terminate or is not terminable without
penalty upon notice of 180 days or less;
(G) any license, franchise or similar agreement material
to the Company or any of its Subsidiaries or any agreement
relating to any trade name or intellectual property right that
is material to the Company or any of its Subsidiaries;
(H) any exclusive dealing agreement or any agreement
that materially limits the freedom of the Company or any of
its Subsidiaries to compete in any line of business or with
any person or in any area or that would so limit their freedom
after the Effective Date;
(I) any compensation, employment, severance,
supplemental retirement or other similar agreement or
arrangement with any employee or former employee of the
Company or any of its Subsidiaries;
(J) any Advisory Agreement; and
(K) any other Contract , if any, that is a "material
contract" as defined in Item 601(b)(10) of SEC Regulation S-K
and that has not been filed as an exhibit to the Company's SEC
Documents.
-19-
<PAGE> 24
(2) Each Contract that has been, or is required to be
Previously Disclosed pursuant to this Section, is a valid and binding
agreement of the Company or one or more of its Subsidiaries, as the
case may be, and is in full force and effect, and the Company or its
Subsidiaries parties thereto are not in default or breach in any
material respect under the terms of any such Contract.
(j) CONTRACTS WITH CLIENTS. (1) Each of the Company and its
Subsidiaries is in compliance with the terms of each Contract with any
Client, and each such Contract is in full force and effect with respect
to the applicable Client. There are no disputes pending or threatened
with any Client under the terms of any such Contract or with any former
Client. The Company has made available to the Acquiror true and
complete copies of all advisory, sub-advisory and similar agreements
with any Clients.
(2) Each extension of credit by the Company or any of its
Subsidiaries to any Client (A) is in full compliance with Regulation T
of the Federal Reserve System or any substantially similar regulation
of any governmental or regulatory agency or authority, (B) is fully
secured and (C) the Company or one or more of its Subsidiaries, as the
case may be, has a first priority perfected security interest in the
collateral securing such extension of credit.
(k) REGISTRATIONS. Except as Previously Disclosed, neither the
Company nor any of its Subsidiaries or Affiliates is subject to
regulation under the Investment Advisers Act or the Investment Company
Act. The Company and its Subsidiaries and each of their employees which
are or who are required to be registered as a broker/dealer, an
investment advisor, a registered representative, an insurance agent or
a sales person (or in similar capacity) with the SEC, the securities
commission of any state or foreign jurisdiction or any Self-Regulatory
Organization are duly registered as such. All federal, state and
foreign registration requirements have been complied with in all
material respects and such registrations as currently filed, and all
periodic reports required to be filed with respect thereto, are
accurate and complete in all material respects.
(l) COMPLIANCE WITH LAWS. Each of the Company and its
Subsidiaries, and, to the best of the Company's knowledge, each of
their respective officers and employees:
(1) is in compliance with all applicable federal,
state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable to
the conduct of its businesses or to the employees conducting
such businesses, and the rules of all Self-Regulatory
Organizations applicable thereto;
(2) has all permits, licenses, authorizations, orders
and approvals of, and has made all filings, applications and
registrations with, all Governmental Authorities and
Self-Regulatory Organizations that are required in order to
permit them to own or lease their properties and to conduct
their businesses as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are
in full force and effect and are current and, to the best of
the Company's knowledge, no suspension or cancellation of any
of them is threatened or is reasonably likely; are in good
standing with all relevant Governmental Authorities and are
members in good standing with all relevant Self-Regulatory
Organizations;
-20-
<PAGE> 25
(3) has received, since January 1, 1996, no
notification or written communication (or, to the best
knowledge of the Company, any other communication) from any
Governmental Authority or Self-Regulatory Organization (A)
asserting non-compliance with any of the statutes,
regulations, rules or ordinances that such Governmental
Authority or Self-Regulatory Organization enforces, (B)
threatening to revoke any license, franchise, seat on any
exchange, permit, or governmental authorization (nor, to the
Company's knowledge, do any grounds for any of the foregoing
exist), (C) requiring any of them (including any of the
Company's or its Subsidiary's directors or controlling
persons) to enter into a cease and desist order, agreement, or
memorandum of understanding (or requiring the board of
directors thereof to adopt any resolution or policy), or (D)
restricting or disqualifying their activities (except for
restrictions generally imposed by rule, regulation or
administrative policy on brokers or dealers generally);
(4) is not aware of any pending or threatened
investigation, review or disciplinary proceedings by any
Governmental Authority or Self-Regulatory Organization against
the Company, any of its Subsidiaries or any officer, director
or employee thereof;
(5) is not, nor is any Affiliate of any of them,
subject to a "statutory disqualification" as defined in
Section 3(a)(39) of the Exchange Act or is subject to a
disqualification that would be a basis for censure,
limitations on the activities, functions or operations of, or
suspension or revocation of the registration of any
broker-dealer Subsidiary as a broker-dealer, municipal
securities dealer, government securities broker or government
securities dealer under Section 15, Section 15B or Section 15C
of the Exchange Act and there is no reasonable basis for, or
proceeding or investigation, whether formal or informal, or
whether preliminary or otherwise, that is reasonably likely to
result in, any such censure, limitations, suspension or
revocation;
(6) is not required to be registered as an investment
company, commodity trading advisor, commodity pool operator,
futures commission merchant, introducing broker, insurance
agent, or transfer agent under any federal, state, local or
foreign statutes, laws, rules or regulations. No broker-dealer
Subsidiary acts as the "sponsor" of a "broker-dealer trading
program", as such terms are defined in Rule 17a-23 under the
Exchange Act;
(7) in the conduct of its business with respect to
employee benefit plans subject to Title I of ERISA, has not
(A) breached any applicable fiduciary duty under Part 4 of
Title I of ERISA which would subject it to liability under
Sections 405 or 409 of ERISA and (B) engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or
Section 4975(c) of the Code which would subject it to
liability or Taxes under Sections 409 or 502(i) of ERISA or
Section 4975(a) of the Code;
(8) is subject to regulation under the Investment
Advisers Act or the Investment Company Act. The Company and
its Subsidiaries and each of their employees which are or who
are required to be registered as a broker/dealer, an
investment advisor, a registered representative, an insurance
agent or a sales person (or in similar capacity) with the SEC,
the securities commission of any state or foreign jurisdiction
or any Self-Regulatory Organization are duly registered as
such and such registrations are in full force and effect. All
federal, state and foreign registration requirements have been
complied with in all material respects and such registrations
as currently filed, and all periodic reports required to be
filed with respect
-21-
<PAGE> 26
thereto, are accurate and complete in all material respects.
The Company has made available to the Acquiror true and
correct copies of (A) each Form G-37/G-38 filed with the MSRB
since January 1, 1996 and (B) all records required to be kept
by the Company under Rule G- 8(a)(xvi) of the MSRB. Since
January 1, 1996, there have been no contributions or payments,
and there is no other information, that would be required to
be disclosed by the Company or any of the Company's
Subsidiaries;
(9) is not subject to any cease-and-desist or other
order issued by, or a party to any written agreement, consent
agreement or memorandum of understanding with, or a party to
any commitment letter or similar undertaking to, or subject to
any order or directive by, a recipient of any supervisory
letter from or has adopted any board resolutions at the
request of any Governmental Authority or Self-Regulatory
Organization, or been advised since January 1, 1996, by any
Governmental Authority or Self-Regulatory Organization that it
is considering issuing or requesting any such agreement or
other action or have knowledge of any pending or threatened
regulatory investigation; and
(10) since January 1, 1996, has timely filed all
reports, registrations and statements, together with any
amendments required to be made with respect thereto, that were
required to be filed under any applicable law, regulation or
rule, with (A) any applicable Governmental Authority and (B)
any Self-Regulatory Organization (collectively, the "Company
Reports"). As of their respective dates, the Company Reports
complied with the applicable statutes, rules, regulations and
orders enforced or promulgated by the regulatory authority
with which they were filed.
(m) INVESTMENT ADVISORY ACTIVITIES. (1) Each of the Investment
Companies (or the trust of which it is a series) has been Previously
Disclosed and is duly organized and existing in good standing under the
laws of the jurisdiction under which it is organized. Each of the
Investment Companies that represents itself in its offering materials
as qualifying as a "regulated investment company" under the Code is so
qualified. Each of the Investment Companies (or the trust or
corporation of which it is a series) that is registered or required to
be registered under the Investment Company Act ("Registered Funds") is
governed by a board of trustees or directors (each a "Fund Board" and,
collectively, the "Fund Boards") consisting of at least 50% of trustees
or directors who are not "interested persons") (as defined in the
Investment Company Act) of the Registered Funds or the Company. The
Fund Boards operate in all material respects in conformity with the
requirements and restrictions of Sections 10 and 16 of the Investment
Company Act, to the extent applicable. The Company has provided or made
available to the Acquiror true and complete copies of all the
constituent documents and related advisory, sub-advisory and similar
agreements ("Advisory Agreements") of all of the Registered Funds.
(2) Each of the Investment Companies is in compliance
with all applicable foreign, federal and state laws, rules and
regulations of the SEC, the IRS, and any Self-Regulatory Organization
having jurisdiction over such Investment Company. The Company has made
available to the Acquiror true and complete copies of all the
constitutive documents and related advisory agreements of all of the
Investment Companies managed or advised by the Company or any of its
Subsidiaries.
(3) Each Investment Company has been operated in
compliance with its respective objectives, policies and restrictions,
including those set forth in the applicable prospectus
-22-
<PAGE> 27
and registration statement, if any, for that Investment Company or
governing instruments for a Client. The Company and its Subsidiaries
have operated their investment accounts in accordance with the
investment objectives and guidelines in effect for such investment
accounts.
(4) Each Registered Fund has duly adopted procedures
pursuant to Rules 17a-7, 17e-1 and 10f-3 under the Investment Company
Act, to the extent applicable.
(5) Neither the Company, nor any "affiliated person"
(as defined in the Investment Company Act) thereof, is ineligible
pursuant to Section 9 of the Investment Company Act to serve as an
investment advisor (or in any other capacity contemplated by the
Investment Company Act) to an Investment Company; neither the Company,
nor any "associated person" (as defined in the Investment Advisors Act)
thereof, is ineligible pursuant to Section 203 of the Investment
Advisors Act to serve as an investment advisor or as an associated
person to a registered investment advisor.
(n) PROPERTIES; SECURITIES. (1) Except as reserved against in
the Company's Financial Statements dated before the date hereof, the
Company and its Subsidiaries have good and marketable title, free and
clear of all Liens (other than Liens for current taxes not yet
delinquent) to all of the Material properties and assets, tangible or
intangible, reflected in such financial statements as being owned by
the Company and its Subsidiaries as of the dates thereof. To the best
of the Company's knowledge, all buildings and all the Material
fixtures, equipment, and other property and assets held under leases or
subleases by any of the Company and its Subsidiaries are held under
valid leases or subleases enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and to general equity
principles). The Company has Previously Disclosed, as of the date
hereof, a list of all real estate owned by it or a Company Subsidiary.
Each of the Company and its Subsidiaries has good and marketable title
to all securities held by it (except securities sold under repurchase
agreements or held in any fiduciary or agency capacity), free and clear
of any Lien, except to the extent such securities are pledged in the
ordinary course of business consistent with prudent business practices
to secure obligations of each of the Company or any of its
Subsidiaries. Such securities are valued on the books of the Company or
its Subsidiaries in accordance with generally accepted accounting
practices.
(2) The Company has Previously Disclosed, as of the
date hereof, a list of all equity securities it or a Company Subsidiary
holds for its own account involving, in the aggregate, ownership or
control of 5% or more of any class of the issuer's voting securities or
25% or more of the issuer's equity (treating subordinated debt as
equity) and, as of the Effective Time, no additional persons will need
to be included on such a list. The Company has Previously Disclosed a
list, as of the date hereof, of all partnerships, limited liability
companies, joint ventures or similar entities, in which it is a general
partner, manager, managing member or holds some other similar position
or owns or controls any interest, directly or indirectly, of 5% or more
and the nature and amount of each such interest and, as of the
Effective Time, no additional persons will need to be included on such
a list.
(o) TAXES. (1) All Tax Returns with respect to the Company or
its subsidiaries including consolidated United States federal income
tax returns of it and its subsidiaries, have been timely filed, or
requests for extensions have been timely filed and have not expired,
and such Tax Returns were true, complete and accurate in all material
respects;
-23-
<PAGE> 28
(2) all Taxes shown to be due on such Tax Returns
have been paid in full or adequate reserves have been established in
accordance with generally accepted accounting principles for the
payment of such Taxes;
(3) all Taxes due with respect to completed and
settled examinations have been paid in full or adequate reserves have
been established in accordance with generally accepted accounting
principles for the payment of such Taxes;
(4) no issues have been raised by the relevant taxing
authority in connection with the examination of any such Tax Returns;
and
(5) no currently effective waivers of statutes of
limitations (excluding such statues that relate to years currently
under examination by the IRS) have been given by or requested in
writing (or to the best knowledge of the Company, any other
communication) with respect to any Taxes of it or any of its
subsidiaries.
(p) LITIGATION. Except as disclosed in the Company's SEC
Documents filed before the date of this Agreement, no litigation,
proceeding, investigation or controversy ("Litigation") before any
court, arbitrator, mediator, Governmental Authority or Self-Regulatory
Organization is pending against the Company or any of its Subsidiaries,
and, to the best of the Company's knowledge, no such Litigation has
been threatened. Previously Disclosed is a true and complete list, as
of the date hereof, of all Litigation pending (or, to the best of the
Company's knowledge, threatened) arising out of any state of
facts relating to the sale of investment products by the Company, the
Company Subsidiaries or any employees thereof (including equity or debt
securities, mutual funds, insurance Contracts, annuities, partnership
and limited partnership interests, interests in real estate, investment
banking services, securities underwritings in which the Company or any
of its Subsidiaries was a manager, co-manager, syndicate member or
distributor, Derivatives Contracts or structured notes).
(q) EMPLOYEES; LABOR MATTERS. (1) Each of the Company and its
Subsidiaries is in compliance with all currently applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including the Immigration Reform and
Control Act, the Worker Adjustment and Retraining Notification Act, any
such laws respecting employment discrimination, disability rights or
benefits, equal opportunity, plant closure issues, affirmative action,
workers' compensation, employee benefits, severance payments, labor
relations, employee leave issues, wage and hour standards, occupational
safety and health requirements and unemployment insurance and related
matters. None of the Company nor any of its Subsidiaries are engaged in
any unfair labor practice and there is no unfair labor practice
complaint pending or threatened against the Company or any of its
Subsidiaries before the National Labor Relations Board.
(2) Neither the Company nor any of its Subsidiaries
is a party to, or is bound by, any collective bargaining agreement,
Contract or other agreement or understanding with any labor union or
organization, nor has it agreed to recognize any union or other
collective bargaining unit nor has any union or other collective
bargaining unit been certified as representing any of the employees of
any of the Companies or their Subsidiaries. Neither the Company nor any
of its Subsidiaries is the subject of a proceeding asserting that the
Company or any such Subsidiary has committed an unfair labor practice
(within the meaning of the National Labor Relations Act) or seeking to
compel it or such Subsidiary to bargain with any labor organization as
to wages and conditions of employment, nor is there any strike or other
labor dispute involving the Company or any of its Subsidiaries,
-24-
<PAGE> 29
pending or, to the best of its knowledge, threatened, nor is it aware
of any activity involving the Company's or any of its Subsidiaries'
employees seeking to certify a collective bargaining unit or engaging
in any other organization activity. There are no pending or threatened
charges or complaints alleging sexual or other harassment or other
discrimination by the Company, any of its Subsidiaries or any of their
employees, agents or representatives .
(r) EMPLOYEE BENEFIT PLANS. (1) The Company has Previously
Disclosed a complete list of all bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, restricted stock and stock option plans,
all employment or severance Contracts, all medical, dental, health and
life insurance plans, all other employee benefit plans, Contracts or
arrangements maintained or contributed to by it or any of the Company
Subsidiaries for the benefit of current or former employees or
directors or their beneficiaries (the "Compensation Plans"). True and
complete copies of all Compensation Plans, including, but not limited
to, any trust instruments and/or insurance Contracts, if any, forming a
part thereof, and all amendments thereto have been made available to
the Acquiror.
(2) All "employee benefit plans" within the meaning
of Section 3(3) of ERISA, other than "multiemployer plans" within the
meaning of Section 3(37) of ERISA ("Multiemployer Plans"), covering
employees or former employees of the Company and the Company
Subsidiaries (the "ERISA Plans"), to the extent subject to ERISA, are
in substantial compliance with ERISA. Each ERISA Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of
ERISA ("Pension Plan") and which is intended to be qualified, under
Section 401(a) of the Code, has received a favorable determination
letter from the IRS with respect to "TRA" (as defined in Section 1 of
IRS Revenue Procedure 93-39), and the Company is not aware of any
circumstances reasonably likely to result in the revocation or denial
of any such favorable determination letter. There is no pending or, to
the knowledge of the Company, threatened litigation relating to the
ERISA Plans. Neither the Company nor any of its Subsidiaries has
engaged in a transaction with respect to any ERISA Plan that would
subject the Company or any of its Subsidiaries to a tax or penalty
imposed by either Section 4975 of the Code or Section 502(i) of ERISA
in an amount which would be material.
(3) No liability under Subtitle C or D of Title IV of
ERISA has been or is reasonably expected to be incurred by the Company
or any of its Subsidiaries with respect to any ongoing, frozen or
terminated "single-employer plan", within the meaning of Section 4001
of ERISA, currently or formerly maintained by any of them, or the
single-employer plan of any entity which is considered one employer
with the Company under Section 4001 of ERISA or Section 414 of the Code
(an "ERISA Affiliate"). Neither the Company nor any of its Subsidiaries
has contributed or been obligated to contribute to a Multiemployer Plan
at any time on or after September 26, 1980. No notice of a "reportable
event", within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to
be filed for any Pension Plan or by any ERISA Affiliate within the past
12-month period.
(4) All contributions required to be made under the
terms of any ERISA Plan have been timely made. Neither any Pension Plan
nor any single-employer plan of an ERISA Affiliate has an "accumulated
funding deficiency" (whether or not waived) within the meaning of
Section 412 of the Code or Section 302 of ERISA. Neither the Company
nor any of its Subsidiaries has provided, or is required to provide,
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
-25-
<PAGE> 30
(5) Under each Pension Plan which is a
single-employer plan, as of the last day of the most recent plan year,
the actuarially determined present value of all "benefit liabilities",
within the meaning of Section 4001(a)(16) of ERISA (as determined on
the basis of the actuarial assumptions contained in the plan's most
recent actuarial valuation) did not exceed the then current value of
the assets of such plan, and there has been no adverse change in the
financial condition of such plan since the last day of the most recent
plan year.
(6) Neither the Company nor any of its Subsidiaries
has any obligations for retiree health and life benefits under any
plan, except for health continuation coverage as required by Section
4980B of the Code or Part 6 of Title I of ERISA. There are no
restrictions on the rights of the Company or any of its Subsidiaries to
amend or terminate any such plan without incurring any liability
thereunder.
(7) Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will (A) result in any payment (including severance, unemployment
compensation, golden parachute or otherwise) becoming due to any
director or any employee of the Company or any of its Subsidiaries
under any Compensation Plan or otherwise from the Company or any of its
Subsidiaries, (B) increase any benefits otherwise payable under any
Compensation Plan, or (C) result in any acceleration of the time of
payment or vesting of any such benefit.
(s) ENVIRONMENTAL MATTERS. The Company and its Subsidiaries
have complied at all times with applicable Environmental Laws; no
property (including buildings and any other structures) currently or
formerly owned or operated (or which the Company or any of its
Subsidiaries would be deemed to have owned or operated under any
Environmental Law) by the Company or any of its Subsidiaries or in
which the Company or any of its Subsidiaries (whether as fiduciary or
otherwise) has a Lien, has been contaminated with, or has had any
release of, any Hazardous Substance in such form or substance so as to
create any liability for the Company or its Subsidiaries; the Company
is not subject to liability for any Hazardous Substance disposal or
contamination on any other third-party property; within the last six
years, the Company and its Subsidiaries have not received any notice,
demand letter, claim or request for information alleging any violation
of, or liability of the Company under, any Environmental Law; the
Company and its Subsidiaries are not subject to any order, decree,
injunction or other agreement with any Governmental Authority or any
third party relating to any Environmental Law; the Company and its
Subsidiaries are not aware of any reasonably likely liability relating
to environmental circumstances or conditions (including the presence of
asbestos, underground storage tanks, lead products or polychlorinated
biphenyls) involving the Company or one of its Subsidiaries, any
currently or formerly owned or operated property (whether as fiduciary
or otherwise), or any reasonably likely liability related to any Lien
held by the Company or one of its Subsidiaries; and the Company has
made available to the Acquiror copies of all environmental reports,
studies, sampling data, correspondence, filings and other environmental
information in its possession or reasonably available to it relating to
the Company or one of its Subsidiaries or any currently or formerly
owned or operated property or any property in which the Company or one
of its Subsidiaries (whether as fiduciary or otherwise) has held a Lien
(t) INTERNAL CONTROLS. The Company and its Subsidiaries have
devised and maintained a system of internal accounting controls
sufficient to provide reasonable assurances that (1) transactions are
executed in accordance with management's general or specific
authorizations, (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
-26-
<PAGE> 31
accepted accounting principals and to maintain accountability for
assets, (3) access to assets is permitted only in accordance with
management's general or specific authorization, and (4) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(u) DERIVATIVES; ETC. All exchange-traded, over-the-counter or
other swaps, caps, floors, collars, option agreements, futures and
forward contracts and other similar arrangements or Contracts
(collectively,"Derivatives Contracts"), whether entered into for the
Company's own account, or for the account of one or more of the
Company's Subsidiaries or their customers, were entered into (1) in
accordance with prudent business practices and all applicable laws,
rules, regulations and regulatory policies and (2) with counterparties
reasonably believed to be financially responsible at the time; and each
of them constitutes the valid and legally binding obligation of the
Company or one of its Subsidiaries, enforceable in accordance with its
terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer
and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles), and are in full
force and effect. Neither the Company nor its Subsidiaries, nor, to the
best of the Company's knowledge, any other party thereto, is in breach
of any of its obligations under any such agreement or arrangement. The
Company's SEC Documents disclose the value of such agreements and
arrangements on a mark-to-market basis in accordance with generally
accepted accounting principles and, since March 31, 1998, there has not
been a material change in such value.
(v) NAMES AND TRADEMARKS. The Company and its Subsidiaries
have the right to use the names, service-marks, trademarks and other
intellectual property currently used by them in the conduct of their
businesses; each of such names, service-marks, trademarks and other
intellectual property has been Previously Disclosed; and, in the case
of such names, service-marks and trademarks, in each state of the
United States, such right of use is free and clear of any Liens, and no
other person has the right to use such names, service-marks or
trademarks in any such state.
(w) INSURANCE. The Company has Previously Disclosed all of the
insurance policies, binders, or bonds maintained by the Company or its
Subsidiaries ("Insurance Policies"). The Company and its Subsidiaries
are insured with reputable insurers against such risks and in such
amounts as the management of the Company reasonably has determined to
be prudent in accordance with industry practices. All of the Insurance
Policies are in full force and effect; the Company and its Subsidiaries
are not in material default thereunder; and all claims thereunder have
been filed in due and timely fashion.
(x) NO BROKERS. No action has been taken by the Company that
would give rise to any valid claim against any party hereto for a
brokerage commission, finder's fee or other like payment with respect
to the transactions contemplated by this Agreement, excluding the fees
to be paid by the Company to Lazard Freres & Co. LLC and Morgan Stanley
& Co. Incorporated in amounts and on terms Previously Disclosed.
(y) COMPANY RIGHTS AGREEMENT. The Company has duly adopted an
amendment to the Company Rights Agreement in the form of Annex F, as a
result of which neither the Acquiror nor any affiliate or associate
will become an "Acquiring Person" and no "Distribution Date" (as such
terms are defined in the Company Rights Agreement) will occur, and the
rights issued under the Company Rights Agreement will not become
separable, distributable, unredeemable or exercisable as a result of
-27-
<PAGE> 32
the approval, execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby and the Company
rights will expire at the Effective Time.
5.04 Representations and Warranties of the Acquiror. Except as
Previously Disclosed in a paragraph of its Disclosure Schedule corresponding to
the relevant paragraph below, the Acquiror hereby represents and warrants to the
Company as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY. The Acquiror is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Ohio, and is duly qualified to do business and
is in good standing in all jurisdictions where its ownership or leasing
of property or assets or the conduct of its business requires it to be
so qualified.
(b) CORPORATE POWER. The Acquiror and each of its Significant
Subsidiaries has the corporate power and authority to carry on its
business as it is now being conducted and to own all its properties and
assets.
(c) CORPORATE AUTHORITY. The Acquiror has the requisite
corporate power and authority, and has taken all corporate action
necessary, in order to authorize the execution, delivery of and
performance of its obligations under, this Agreement and the Stock
Option Agreement and to consummate the transactions contemplated by
this Agreement and the Stock Option Agreement. This Agreement and the
Stock Option Agreement each is a valid and legally binding agreement of
the Acquiror, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors' rights or by
general equity principles).
(d) REGULATORY APPROVALS; NO DEFAULTS. (1) No consents or
approvals of, or filings or registrations with, any Governmental
Authority, Self-Regulatory Organization or with any third party are
required to be made or obtained by the Acquiror or any of its
Subsidiaries in connection with the execution, delivery or performance
by the Acquiror of this Agreement, or to consummate the Merger, except
for (A) the filing of applications and notices, as applicable, with the
Federal Reserve System and the Department of Justice; (B) approval of
the listing on the NYSE of the Acquiror Common Stock to be issued as
Merger Consideration (and related Acquiror Rights); (C) the filing and
declaration of effectiveness of the Registration Statement; (D) the
filing of (x) a certificate of merger with the Secretary of State of
the State of Delaware pursuant to the DGCL and (y) a certificate of
merger with the Secretary of State of the State of Ohio pursuant to the
OGCL; and (E) such filings as are required to be made or approvals as
are required to be obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of Acquiror Common Stock
in the Merger. As of the date hereof, the Acquiror is not aware of any
reason why the approvals of all Governmental Authorities or
Self-Regulatory Organizations necessary to permit consummation of the
transactions contemplated hereby will not be received without the
imposition of a condition or requirement described in Section 7.01(b).
(2) Subject only to receipt of the regulatory
approvals referred to in Section 5.04(d)(1), the expiration of
applicable waiting periods and the making of all required filings under
federal and state securities laws, the execution, delivery and
performance of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby do not and will
not (A) constitute a breach or violation of, or a default under, or
give rise to any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any
-28-
<PAGE> 33
judgment, decree, order, governmental permit or license, or Contract of
the Acquiror or of any of its Subsidiaries or to which the Acquiror or
any of its Subsidiaries or properties is subject or bound, (B)
constitute a breach or violation of, or a default under, the
certificate of incorporation or by-laws (or similar governing
documents) of the Acquiror or any of its Subsidiaries, or (C) require
any consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license or Contract.
(e) ACQUIROR STOCK. (1) As of the date hereof, the authorized
capital stock of the Acquiror consists solely of 1,400,000,000 shares
of Acquiror Common Stock, of which not more than 450,000,000 shares
were outstanding as of the date hereof, and 25,000,000 shares of
Acquiror Preferred Stock, of which no shares are outstanding. As of the
date hereof, other than the Acquiror Rights and except as Previously
Disclosed, there are no shares of Acquiror Stock authorized and
reserved for issuance, the Acquiror does not have any Rights issued or
outstanding with respect to Acquiror Stock, and the Acquiror does not
have any commitment to authorize, issue or sell any Acquiror Stock or
Rights, except pursuant to this Agreement.
(2) The shares of Acquiror Common Stock to be issued
as Merger Consideration, when issued in accordance with the terms of
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable and not in violation of any preemptive rights.
(f) SUBSIDIARIES. Each of the Acquiror's Significant
Subsidiaries has been duly organized, is validly existing and in good
standing under the laws of the jurisdiction of its organization, and is
duly qualified to do business and in good standing in the jurisdictions
where its ownership or leasing of property or the conduct of its
business requires it to be so qualified.
(g) SEC DOCUMENTS; FINANCIAL STATEMENTS. (1) The Acquiror has
provided or made available to the Company copies of the Acquiror's
Annual Reports on Form 10-K for the fiscal years ended December 31,
1994, 1995 and 1996 and all other reports, registration statements,
definitive proxy statements or information statements filed or to be
filed by the Acquiror or any of its Subsidiaries subsequent to December
31, 1996 under the Securities Act, or under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, in the form filed or to be filed
(collectively, the "Acquiror's SEC Documents") with the SEC. As of
their respective dates (and without giving effect to any amendments or
modification filed after the date of this Agreement) each of the SEC
Documents, including the financial statements, exhibits, and schedules
thereto, filed or circulated prior to the date hereof complied (and
each of the SEC Documents filed after the date of this Agreement will
comply) as to form with applicable Securities Laws and did not (or, in
the case of reports, statements, or circular filed after the date of
this Agreement, will not) contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(2) Each of the Acquiror's statements of financial
condition included in or incorporated by reference into the SEC
Documents, including the related notes and schedules, fairly presented
(or, in the case of SEC Documents filed after the date of this
Agreement, will fairly present) the consolidated financial condition of
the Acquiror and its Subsidiaries as of the date of such statement of
financial condition and each of the statements of income, cash flows
and changes in stockholders' equity included in or incorporated by
reference into the SEC Documents, including any related notes and
schedules, fairly presented (or, in the case of SEC Documents filed
after the date of this Agreement, will fairly present) the consolidated
results of operations, cash flows and
-29-
<PAGE> 34
stockholders' equity, as the case may be, of the Acquiror and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments), in each
case in accordance with generally accepted accounting principles
consistently applied during the periods involved (except as may be
noted therein and except that such unaudited statements include no
notes).
(h) LITIGATION. Except as disclosed in the Acquiror's SEC
Documents filed before the date of this Agreement, no Litigation before
any court, arbitrator, mediator, Governmental Authority or
Self-Regulatory Organization is pending against the Acquiror or any of
its Subsidiaries, and, to the best of the Acquiror's knowledge, no such
Litigation has been threatened.
(i) COMPLIANCE WITH LAWS. The Acquiror and each of its
Significant Subsidiaries:
(1) is in compliance with all applicable federal,
state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable to
the conduct of its businesses or to the employees conducting
such businesses, and the rules of all Self-Regulatory
Organizations applicable thereto;
(2) has all permits, licenses, authorizations, orders
and approvals of, and has made all filings, applications and
registrations with, all Governmental Authorities and
Self-Regulatory Organizations that are required in order to
permit them to own or lease their properties and to conduct
their businesses as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are
in full force and effect and are current and, to the best of
the Acquiror's knowledge, no suspension or cancellation of any
of them is threatened or is reasonably likely; are in good
standing with all relevant Governmental Authorities and are
members in good standing with all relevant Self-Regulatory
Organizations;
(3) has received, since January 1, 1996, no
notification or written communication (or to the best
knowledge of the Acquiror, any other communication) from any
Governmental Authority or Self-Regulatory Organization (A)
asserting non-compliance with any of the statutes,
regulations, rules or ordinances that such Governmental
Authority or Self-Regulatory Organization enforces, (B)
threatening to revoke any license, franchise, seat on any
exchange, permit, or governmental authorization (nor, to the
Acquiror's knowledge, do any grounds for any of the foregoing
exist), (C) requiring any of them (including any of Acquiror's
or its Subsidiary's directors or controlling persons) to enter
into a cease and desist order, agreement, or memorandum of
understanding (or requiring the board of directors thereof to
adopt any resolution or policy), or (D) restricting or
disqualifying their activities;
(4) is not subject to any cease-and-desist or other
order issued by, or a party to any written agreement, consent
agreement or memorandum of understanding with, or a party to
any commitment letter or similar undertaking to, or subject to
any order or directive by, a recipient of any supervisory
letter from or has adopted any board resolutions at the
request of any Governmental Authority or Self-Regulatory
Organization, or been advised since January 1, 1996, by any
Governmental Authority or Self-Regulatory Organization that it
is considering issuing or requesting any such agreement or
other action or have knowledge of any pending or threatened
regulatory investigation; and
-30-
<PAGE> 35
(5) since January 1, 1996, has timely filed all
reports, registrations and statements, together with any
amendments required to be made with respect thereto, that were
required to be filed under any applicable law, regulation or
rule, with (A) any applicable Governmental Authority and (B)
any Self-Regulatory Organization (collectively, the "Acquiror
Reports"). As of their respective dates, the Acquiror Reports
complied with the applicable statutes, rules, regulations and
orders enforced or promulgated by the regulatory authority
with which they were filed.
(j) NO BROKERS. No action has been taken by the Acquiror that
would give rise to any valid claim against any party hereto for a
brokerage commission, finder's fee or other like payment with respect
to the transactions contemplated by this Agreement, excluding a fee to
be paid by the Acquiror to Goldman, Sachs & Co.
(k) ABSENCE OF CERTAIN CHANGES. Since January 1, 1998, there
has not been any event, occurrence, development or state of
circumstances or facts which has had or could reasonably be expected to
constitute or result in a Material adverse change in the financial
condition, results of operations, business, assets, properties or
stockholders' equity of the Acquiror and its Subsidiaries, taken as a
whole.
ARTICLE VI
COVENANTS
6.01 Reasonable Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each of the Company and the Acquiror agrees to use
its reasonable best efforts in good faith to take, or cause to be taken
(including causing any of its Subsidiaries to take), all actions, and to do, or
cause to be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of the Merger as promptly as
reasonably practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end.
(b) Without limiting the generality of Section 6.01(a), the Company
agrees to use its reasonable best efforts to obtain (1) any consents of Clients
(including in the case of Registered Funds, stockholders of such Registered
Funds) necessary to effect the assignment of any Advisory Agreement to the
Surviving Corporation upon consummation of the Merger and (2) the consent or
approval of all persons party to a Contract with the Company, to the extent such
consent or approval is required in order to consummate the Merger or for the
Surviving Corporation to receive the benefits thereof.
6.02 Stockholder Approvals. The Company agrees to take, in
accordance with applicable law, applicable stock exchange rules, the Company
Certificate and the Company By-Laws, all action necessary to convene, and shall
hold, an appropriate meeting of stockholders of the Company to consider and vote
upon the approval and adoption of this Agreement and any other matters required
to be approved by the Company's stockholders for consummation of the Merger
(including any adjournment or postponement, the "Company Meeting") as promptly
as practicable after the Registration Statement is declared effective. Unless
the Company Board, after having consulted with and considered the written advice
of outside counsel, has determined in good faith that it is otherwise required
in order to discharge properly the directors' fiduciary duties in accordance
with the DGCL, the Company Board shall recommend such approval, and the Company
shall take all reasonable, lawful action to solicit such approval by its
stockholders.
-31-
<PAGE> 36
6.03 Registration Statement. (a) The Acquiror agrees to
prepare a registration statement on Form S-4 (the "Registration Statement"), to
be filed by the Acquiror with the SEC in connection with the issuance of
Acquiror Common Stock (and related Acquiror Rights) in the Merger (including the
proxy statement and prospectus and other proxy solicitation materials of the
Company constituting a part thereof (the "Proxy Statement") and all related
documents). The Company agrees to cooperate, and to cause its Subsidiaries to
cooperate, with the Acquiror, its counsel and its accountants, in preparation of
the Registration Statement and the Proxy Statement; and, provided, that the
Acquiror has prepared the Registration Statement as required above, the Company
agrees to file the Proxy Statement in preliminary form with the SEC as promptly
as reasonably practicable, and, provided, that the Company, and its Subsidiaries
have cooperated as required above, the Acquiror agrees to file the Registration
Statement with the SEC as soon as reasonably practicable after any SEC comments
with respect to the preliminary Proxy Statement are resolved. Each of the
Company and the Acquiror agrees to use all reasonable best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as reasonably practicable after filing thereof. The Acquiror also
agrees to use all reasonable best efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. The Company agrees to furnish to
the Acquiror all information concerning the Company, its Subsidiaries, officers,
directors and stockholders as may be reasonably requested in connection with the
foregoing.
(b) Each of the Company and the Acquiror agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (1) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (2) the
Proxy Statement and any amendment or supplement thereto will, at the date of
mailing to stockholders and at the time of the Company Meeting, contain any
untrue statement which, at the time and in the light of the circumstances under
which such statement is made, will be false or misleading with respect to any
material fact, or which will omit to state any material fact necessary in order
to make the statements therein not false or misleading or necessary to correct
any statement in any earlier statement in the Proxy Statement or any amendment
or supplement thereto. Each of the Company and the Acquiror further agrees that
if it shall become aware prior to the Effective Date of any information
furnished by it that would cause any of the statements in the Proxy Statement to
be false or misleading with respect to any material fact, or to omit to state
any material fact necessary to make the statements therein not false or
misleading, to promptly inform the other party thereof and to take the necessary
steps to correct the Proxy Statement.
(c) The Acquiror agrees to advise the Company, promptly after the
Acquiror receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the qualification of the
Acquiror Stock for offering or sale in any jurisdiction, of the initiation or
threat of any proceeding for any such purpose, or of any request by the SEC for
the amendment or supplement of the Registration Statement or for additional
information.
6.04 Access; Information. (a) Each of the Company and the
Acquiror agrees that upon reasonable notice and subject to applicable laws
relating to the exchange of information, it shall afford the other party and the
other party's officers, employees, counsel, accountants and other authorized
representatives, such access during normal business hours and at such other
times as are reasonably necessary throughout the period prior to the Effective
Time to the books, records (including tax returns and work papers of independent
auditors), properties, personnel and to such other information as any party may
reasonably request and, during such period, it shall furnish promptly to such
other party (1) a copy of each material report,
-32-
<PAGE> 37
schedule and other document filed by it pursuant to the requirements of federal
or state securities or banking laws and (2) all other information concerning the
business, properties and personnel of it as the other may reasonably request.
(b) Each of the Company and the Acquiror agrees that it will not, and
will cause its representatives not to, use any information obtained pursuant to
this Section 6.04 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement. Subject to the requirements of law,
each party will keep confidential, and will cause its representatives to keep
confidential, all information and documents obtained pursuant to this Section
6.04 unless such information (1) was already known to such party, (2) becomes
available to such party from other sources not known by such party to be bound
by a confidentiality obligation, (3) is disclosed with the prior written
approval of the party to which such information pertains, or (4) is or becomes
readily ascertainable from published information or trade sources. In the event
that this Agreement is terminated or the transactions contemplated by this
Agreement shall otherwise fail to be consummated, each party shall promptly
cause all copies of documents or extracts thereof containing information and
data as to another party hereto to be returned to the party which furnished the
same. No investigation by either party of the business and affairs of the other
shall affect or be deemed to modify or waive any representation, warranty,
covenant or agreement in this Agreement, or the conditions to either party's
obligation to consummate the transactions contemplated by this Agreement.
6.05 Acquisition Proposals. The Company agrees that it shall
not, and shall cause its Subsidiaries and its and its Subsidiaries' officers,
directors, agents, advisors and affiliates not to, solicit or encourage
inquiries or proposals with respect to, or engage in any negotiations
concerning, or provide any confidential information to, or have any discussions
with, any person relating to, any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving the Company or any
of its Subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets or
operations of, the Company or any of its Subsidiaries, other than the
transactions contemplated by this Agreement (any of the foregoing, an
"Acquisition Proposal"); provided, that, if the Company is not otherwise in
violation of this Section 6.05, the Company Board may provide information to,
and may engage in such negotiations or discussions with, a person, directly or
through representatives, if (1) the Company Board, after having consulted with
and considered the written advice of outside counsel to such Board, has
determined in good faith that the provision of such information or the engaging
in such negotiations or discussions is required in order to discharge properly
the directors' fiduciary duties in accordance with the DGCL and (2) the Company
has received from such person a confidentiality agreement on substantially the
same terms as entered into by the Acquiror. The Company also agrees immediately
to cease and cause to be terminated any activities, discussions or negotiations
conducted prior to the date of this Agreement with any parties other than the
Acquiror, with respect to any of the foregoing. The Company shall promptly
advise the Acquiror on a current basis following the receipt by it of any
Acquisition Proposal and the substance thereof (including the identity of the
person making such Acquisition Proposal), and advise the Acquiror of any
developments with respect to such Acquisition Proposal promptly upon the
occurrence thereof.
6.06 Affiliate Agreements. Not later than the 15th day prior
to the mailing of the Proxy Statement, the Company shall deliver to the Acquiror
a schedule of each person that, to the Company's knowledge, is or is reasonably
likely to be, as of the date of the Company Meeting, deemed to be an "affiliate"
of it (each, a "Company Affiliate") as that term is used in Rule 145 under the
Securities Act or SEC Accounting Series Releases 130 and 135. The Company agrees
to use its reasonable best efforts to cause each person who may be deemed to be
a Company Affiliate to execute and deliver to the Company and the Acquiror on or
before the date of mailing of the Proxy Statement an agreement in the form of
Annex G.
-33-
<PAGE> 38
6.07 Takeover Laws. No party shall take any action that would
cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any Takeover Law and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Law, as now
or hereafter in effect.
6.08 No Rights Triggered. The Company shall take all
reasonable steps necessary to ensure that the entering into of this Agreement
and the consummation of the transactions contemplated hereby and any other
action or combination of actions contemplated hereby do not and will not result
in the grant of any Rights to any person (1) under the Company Certificate or
Company By-laws, or (2) under any Contract to which the Company or any of its
Subsidiaries is a party (except as expressly contemplated by the mandatory
provisions under its stock option plans or Contracts effective as of the date
hereof that have been Previously Disclosed, as applicable).
6.09 NYSE Listing. The Acquiror shall use its reasonable best
efforts to list, prior to the Effective Date, on the NYSE, subject to official
notice of issuance, the shares of Acquiror Common Stock (and related Acquiror
Rights) to be issued to the holders of Company Common Stock in the Merger.
6.10 Regulatory Applications. (a) The Acquiror and the Company
and their respective Subsidiaries shall cooperate and use their respective
reasonable best efforts to prepare all documentation, to effect all filings and
to obtain all permits, consents, approvals and authorizations of all third
parties and Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement as promptly as reasonably practicable. Each of
the Acquiror and the Company shall have the right to review in advance, and to
the extent practicable each will consult with the other, in each case subject to
applicable laws relating to the exchange of information, with respect to, all
material written information submitted to any third party or any Governmental
Authority in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the Acquiror and the Company agrees to
act reasonably and as promptly as practicable. Each of the Acquiror and the
Company agrees that it will consult with the other party hereto with respect to
the obtaining of all material permits, consents, approvals and authorizations of
all third parties and Governmental Authorities necessary or advisable to
consummate the transactions contemplated by this Agreement and each party will
keep the other party apprised of the status of material matters relating to
completion of the transactions contemplated hereby.
(b) Each of the Acquiror and the Company agrees, upon request, to
furnish the other party with all information concerning itself, its
Subsidiaries, directors, officers and stockholders and such other matters as may
be reasonably necessary or advisable in connection with any filing, notice or
application made by or on behalf of such other party or any of its Subsidiaries
to any third party or Governmental Authority.
6.11 Retention Program. (a) At the Effective Time, the Company
will have established a retention program on terms described in Annex E to be
used to retain certain employees of the Company.
(b) Notwithstanding anything to the contrary contained in this
Agreement, Acquiror shall take all actions necessary to effect the items set
forth in Annex E , and Annex E shall be deemed incorporated into this Section
6.11.
6.12 Certain Employee Benefits. At the Effective Time, the
Acquiror will provide employees of the Company who as of the Effective Time
become employed by the Acquiror or any of its Subsidiaries (the "Covered
Employees"), with employee benefit plans, programs and arrangements that in the
-34-
<PAGE> 39
aggregate are substantially comparable to those currently provided by the
Company (other than plans, programs and arrangements involving the potential
issuance of securities of the Company) or, at the option of the Acquiror, the
Acquiror will maintain such plans, programs and arrangements currently provided
by the Company. For purposes of all employee benefit plans, programs and
arrangements maintained or contributed to by the Acquiror and its Subsidiaries,
the Acquiror shall, or shall cause its Subsidiaries to, cause each such plan,
program or arrangement to treat the prior service with the Company of each
Covered Employee (to the same extent such service is recognized under any
analogous plans, programs or arrangements of the Company immediately prior to
the Effective Time to the extent such a plan, program or arrangement is in
effect immediately prior to the effective date) as service rendered to the
Acquiror or its Subsidiaries, as the case may be, solely for purposes of
eligibility to participate and for vesting thereunder. The Acquiror will cause
any and all pre-existing condition limitations (to the extent such limitations
did not apply to a pre-existing condition under the Compensation Plans) and
eligibility waiting periods under any health plans to be waived with respect to
(a) Covered Employees who, immediately prior to the Effective Time, participated
in a health plan, and (b) their eligible dependents. The Acquiror shall honor,
pursuant to the terms of the Previously Disclosed Compensation Plans, and to the
extent consistent with applicable law, all employee benefit obligations to
current and former employees of the Company under such plans. Nothing in this
Section 6.12 shall prevent Acquiror from amending or terminating any
Compensation Plans of the Company or the Acquiror (or its Subsidiaries) or any
other contracts, arrangements, commitments or understandings, in accordance with
their terms and applicable law.
6.13 Indemnification. (a) Following the Effective Time and for
a period of six years thereafter, the Acquiror shall indemnify, defend and hold
harmless the present and former directors and officers of the Company and its
Subsidiaries (each, an "Indemnified Party") against all costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of actions or omissions occurring at or prior to the
Effective Time (including the transactions contemplated by this Agreement) to
the fullest extent that the Company is permitted to indemnify (and advance
expenses to) its directors and officers under the laws of the State of Delaware,
the Company Certificate and the Company By-Laws as in effect on the date hereof;
provided that any determination required to be made with respect to whether an
officer's or director's conduct complies with the standards set forth under
Delaware law, the Company Certificate and the Company By-Laws shall be made by
independent counsel (which shall not be counsel that provides material services
to the Acquiror) selected by the Acquiror and reasonably acceptable to such
officer or director; and provided, further, that in the absence of applicable
Delaware judicial precedent to the contrary, such counsel, in making such
determination, shall presume such officer's or director's conduct complied with
such standards and the Acquiror shall have the burden to demonstrate that such
officer's or director's conduct failed to comply with such standard. At the
Effective Time, the Acquiror shall assume all of the Company's obligations under
any Previously Disclosed Contracts in effect as of the date hereof providing for
indemnification of present or former directors or officers of the Company or its
Subsidiaries.
(b) For a period of five years from the Effective Time, the Acquiror
shall use its reasonable best efforts to provide that portion of director's and
officer's liability insurance that serves to reimburse the present and former
officers and directors of the Company or any of its Subsidiaries (determined as
of the Effective Time) (as opposed to the Company) with respect to claims
against such directors and officers arising from fact or events which occurred
before the Effective Time, which insurance shall contain at least the same
coverage and amounts, and contain terms and conditions no less advantageous, as
that coverage currently provided by the Company; provided, however, that in no
event shall the Acquiror be required to expend more than 200 percent of the
current amount expended by the Company (the "Insurance Amount") to maintain or
procure
-35-
<PAGE> 40
such directors and officers insurance coverage for a comparable five-year
period; provided, further, that if the Acquiror is unable to maintain or obtain
the insurance called for by this Section 6.13(b), the Acquiror shall use its
reasonable best efforts to obtain as much comparable insurance as is available
for the Insurance Amount; provided, further, that officers and directors of the
Company or any subsidiary may be required to make application and provide
customary representations and warranties to the Acquiror's insurance carrier for
the purpose of obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under
Section 6.13(a), upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify the Acquiror thereof;
provided that the failure so to notify shall not affect the obligations of the
Acquiror under Section 6.13(a) unless and to the extent the Acquiror is actually
prejudiced as a result of such failure.
(d) The provisions of this Section 6.13 are intended to be for the
benefit of, and enforceable in accordance with their terms by, Indemnified
Parties.
6.14 Section 15 of the Investment Company Act. (a) The Company
will use its reasonable best efforts to obtain as promptly as practicable, (1)
the approval of the stockholders of each of the Registered Funds, pursuant to
the provisions of Section 15 of the Investment Company Act if applicable
thereto, of a new investment company advisory agreement for such Registered
Funds no less favorable to the Company or its Subsidiaries to that in effect
immediately prior to the Closing and in compliance with Section 15 of the
Investment Company Act, to the extent applicable, and (2) a consent to
assignment from each private account holder to whom it is providing investment
advisory services.
(b) The Company shall assure, prior to the Effective Time, that the
composition of the board of directors or trustees, as the case may be, of each
Registered Fund is in compliance at the time with Section 15(f)(1)(A) of the
Investment Company Act.
(c) The parties each agree for a period of three years following the
Effective Time to use their respective reasonable best efforts to assure
compliance with the conditions of Section 15(f) of the Investment Company Act as
it applies to the Registered Funds and the transactions contemplated by this
Agreement. Notwithstanding anything to the contrary contained herein, the
covenants contained in this Section 6.14 are intended only for the benefit of
parties to this Agreement and their respective stockholders and holders of stock
options immediately prior to the Effective Time and for no other person.
6.15 Accountants' Letters. Each of the Company and the
Acquiror shall use its reasonable best efforts to cause to be delivered to the
other party, and such other party's directors and officers who sign the
Registration Statement, a letter of Ernst & Young LLP independent auditors,
dated (1) the date on which the Registration Statement shall become effective
and (2) a date shortly prior to the Effective Date, and addressed to such other
party, and such directors and officers, in form and substance customary for
"comfort" letters delivered by independent accountants in accordance with
Statement of Accounting Standards No. 72.
6.16 Notification of Certain Matters. (a) Each of the Company
and the Acquiror shall give prompt notice to the other of any fact, event or
circumstance known to it that is reasonably likely, individually or taken
together with all other facts, events and circumstances known to it, to result
in a material breach of any of its representations, warranties, covenants or
agreements contained herein.
-36-
<PAGE> 41
(b) The Company and each of its Subsidiaries shall promptly notify the
Acquiror, and the Acquiror shall promptly notify the Company, of:
(1) any notice in writing (or to the best knowledge of the
Company, any other communication) from any person alleging that the
consent of such person is or may be required as a condition to the
Acquisition;
(2) any notice or other written communications from any client
(A) terminating or threatening to terminate any material Contract with
the Company or any of its Subsidiaries relating to the rendering of
services to such client, or (B) relating to any material dispute with
such client; or
(3) any notice or other communication from any Governmental
Authority or Self-Regulatory Organization in connection with the
transactions contemplated by this Agreement.
6.17 Press Releases. Each of the Company and the Acquiror
agrees that it will not, without the prior approval of the other party, issue
any press release or written statement for general circulation relating to the
transactions contemplated hereby, except as otherwise required by applicable law
or regulation or the rules of any applicable Self-Regulatory Organization.
6.18 Certain Policies of the Company. (a) Upon the request of
the Acquiror, the Company shall, consistent with generally accepted accounting
principles and regulatory accounting principles, use its reasonable best efforts
to record certain accounting adjustments intended to conform the litigation and
other accrual and reserve policies of the Company so as to reflect the policies
of the Acquiror; provided, however, that the Company shall not be obligated to
record any such accounting adjustments pursuant to this Section 6.18(a) unless
and until the Company shall be satisfied that the conditions to the obligation
of the parties to consummate the Merger will be satisfied or waived on or before
the Effective Time and (b) in no event until the day prior to the Effective
Date. The Company's representations, warranties and covenants contained in this
Agreement shall not be deemed to be untrue or breached in any respect for any
purpose as a consequence of any modifications or changes undertaken solely on
account of this Section 6.18.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each of the Acquiror and the Company to
consummate the Merger is subject to the fulfillment or written waiver by the
Acquiror and the Company prior to the Effective Time of each of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been duly
adopted by the requisite vote of the holders of outstanding shares of
Company Common Stock entitled to vote thereon in accordance with
Section 251 of the DGCL, other applicable law and the Company
Certificate and Company By-Laws.
(b) GOVERNMENTAL AND REGULATORY CONSENTS. All approvals and
authorizations of, filings and registrations with, and notifications
to, all Governmental Authorities and Self-Regulatory
-37-
<PAGE> 42
Organizations required for the consummation of the Merger shall have
been obtained or made and shall be in full force and effect and all
waiting periods required by law shall have expired; provided, however,
that none of the preceding shall be deemed obtained or made if it shall
be subject to any condition or restriction the effect of which would
have been such that the Acquiror would not reasonably have entered into
this Agreement had such condition or restriction been known as of the
date hereof.
(c) THIRD PARTY CONSENTS. All consents or approvals of all
persons, other than Governmental Authorities, required for or in
connection with the execution, delivery and performance of this
Agreement and the consummation of the Merger shall have been obtained
and shall be in full force and effect, unless the failure to obtain any
such consent or approval is not reasonably likely to have, individually
or in the aggregate, a Material adverse effect on the Surviving
Corporation.
(d) NO INJUNCTION. No Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in
effect and prohibits consummation of the transactions contemplated by
this Agreement.
(e) REGISTRATION STATEMENT. The Registration Statement shall
have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC.
(f) BLUE SKY APPROVALS. All permits and other authorizations
under state securities laws necessary to consummate the transactions
contemplated hereby and to issue the shares of Acquiror Common Stock
(and related Acquiror Rights) to be issued in the Merger shall have
been received and be in full force and effect.
(g) LISTING. The shares of Acquiror Common Stock (and related
Acquiror Rights) to be issued in the Merger shall have been approved
for listing on the NYSE, subject to official notice of issuance.
(h) TAX OPINIONS. The Acquiror shall have received an opinion
of Sullivan & Cromwell, counsel to the Acquiror, and the Company shall
have received an opinion of Wachtell, Lipton, Rosen & Katz, special
counsel to the Company, in each case dated the Effective Date,
substantially to the effect that, based on the facts and assumptions
stated therein, for United States federal income tax purposes, the
Merger qualifies as a "reorganization" within the meaning of Section
368(a) of the Code. In rendering their respective opinions, Sullivan &
Cromwell and Wachtell, Lipton, Rosen & Katz may rely as to factual
matters on the representations made in this Agreement and in separate
certificates addressed to such counsel by both the Company and the
Acquiror. In addition, such opinion may be subject to customary
qualifications.
7.02 Conditions to Obligation of the Company. The obligation
of the Company to consummate the Merger is also subject to the fulfillment or
written waiver by the Company prior to the Effective Time of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Acquiror set forth in this Agreement shall be true
and correct as of the date of this Agreement and as of the
-38-
<PAGE> 43
Effective Date as though made on and as of the Effective Date (except
that representations and warranties that by their terms speak as of the
date of this Agreement or some other date shall be true and correct
only as of such date), and the Company shall have received a
certificate, dated the Effective Date, signed on behalf of the Acquiror
by a senior executive officer of the Acquiror to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE ACQUIROR. The Acquiror
shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Effective
Time, and the Company shall have received a certificate, dated the
Effective Date, signed on behalf of the Acquiror by a senior executive
officer of the Acquiror to such effect.
(c) ACCOUNTANTS' LETTERS. The Company shall have received the
letters referred to in Section 6.15 from Ernst & Young LLP, the
Acquiror's independent auditors.
7.03 Conditions to Obligation of the Acquiror. The obligation
of the Acquiror to consummate the Merger is also subject to the fulfillment or
written waiver by the Acquiror prior to the Effective Time of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct as of the date of this Agreement and as of the Effective Date
as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak as of the date
of this Agreement or some other date shall be true and correct only as
of such date) and the Acquiror shall have received a certificate, dated
the Effective Date, signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to
such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company
shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Effective
Time, and the Acquiror shall have received, prior to the Effective
Time, a certificate, dated the Effective Date, signed on behalf of the
Company by the Chief Executive Officer and the Chief Financial Officer
of the Company to such effect.
(c) ACCOUNTANTS' LETTERS. The Acquiror and its directors and
officers who sign the Registration Statement shall have received the
letters referred to in Section 6.15 from Ernst & Young LLP, the
Company's independent auditors.
(d) COMPANY RIGHTS. No person shall have become an "Acquiring
Person" and no "Distribution Date" (as such terms are defined in the
Company Rights Agreement) shall have occurred, and the Company Rights
shall not have become separable, distributable, redeemable or
exercisable.
(e) EMPLOYMENT AGREEMENTS. The Employment Agreements of (1)
each individual comprising Group A as set forth in Annex C and (2)
seven of the individuals comprising Group B as set forth in Annex C
(including at least one of the two individuals listed in Acquiror's
Disclosure Schedule with respect to this Section) shall be in full
force and effect (other than as a consequence of death or disability)
and, in each case, such individual shall not have committed an act or
omission that would permit their termination for "cause" thereunder.
-39-
<PAGE> 44
ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated, and the
Merger may be abandoned:
(a) MUTUAL CONSENT. At any time prior to the Effective Time,
by the mutual consent of the Acquiror and the Company.
(b) BREACH. At any time prior to the Effective Time, by the
Acquiror or the Company in the event of either: (1) a breach by the
other party of any representation or warranty contained herein (subject
to the standard set forth in Section 5.02), which breach cannot be or
has not been cured within 30 days after the giving of written notice to
the breaching party of such breach, or (2) a breach by the other party
of any of the covenants or agreements contained herein, which breach
cannot be or has not been cured within 30 days after the giving of
written notice to the breaching party of such breach and which breach
would be reasonably likely, individually or in the aggregate, to have a
Material adverse effect on the breaching party or the Surviving
Corporation.
(c) DELAY. At any time prior to the Effective Time, by the
Acquiror or the Company in the event that the Merger is not consummated
by June 15, 1999, except to the extent that the failure of the Merger
then to be consummated arises out of or results from the knowing action
or inaction of the party seeking to terminate pursuant to this Section
8.01(c).
(d) NO APPROVAL. By the Company or the Acquiror in the event
(1) the approval of any Governmental Authority required for
consummation of the Merger and the other transactions contemplated by
this Agreement shall have been denied by final nonappealable action of
such Governmental Authority , or such Governmental Authority shall have
requested the permanent withdrawal of any application therefor, or any
such approval shall be made subject to any condition or restriction
described in the proviso to Section 7.01(b), or (2) any stockholder
approval required by Section 7.01(a) herein is not obtained at the
Company Meeting.
(e) FAILURE TO RECOMMEND, ETC. By the Acquiror, if at any time
prior to the Company Meeting the Company Board shall have failed to
make its recommendation referred to in Section 6.02, withdrawn such
recommendation or modified or changed such recommendation in a manner
adverse to the interests of the Acquiror (whether in accordance with
Section 6.02 or otherwise).
(f) FAILURE TO ADJUST BY THE ACQUIROR. By the Company, at any
time during the two-day period commencing with the date immediately
following the Pricing Date, if the Average Closing Price as of the
Pricing Date is less than $29.00; provided, that:
(1) If the Company elects to exercise its termination
right pursuant to this Section 8.01(f), it will give
irrevocable written notice to the Acquiror during the two-day
period referred to therein;
(2) During the two-day period commencing with the
date of its receipt of such notice, the Acquiror will have the
option of adjusting the Exchange Ratio to a fraction (rounded
to
-40-
<PAGE> 45
the nearest hundredth) the numerator of which is the product
of $35.00 and $29.00 and the denominator is the product of
$33.00 and the Average Closing Price as of the Pricing Date;
and
(3) If the Acquiror determines so to adjust the
Exchange Ratio, it will give written notice (within such
two-day period) to the Company of its determination and the
adjusted Exchange Ratio, whereupon no termination shall occur
pursuant to this Section 8.01(f) and this Agreement shall
remain in effect in accordance with its terms (except as the
Exchange Ratio shall have been so adjusted), and any
references in this Agreement to the "Exchange Ratio" shall
thereafter be deemed to refer to the Exchange Ratio as
adjusted pursuant to this Section 8.01(f).
8.02 Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, no party to this Agreement shall have any liability or further
obligation to any other party hereunder except (1) as set forth in Sections
8.03, 9.01 and 9.05 and (2) that termination will not relieve a breaching party
from liability for any willful breach of this Agreement.
8.03 Termination Fee. If the Acquiror terminates this
Agreement pursuant to Section 8.01(e) following receipt by the Company of an
Acquisition Proposal, then, within five business days of such termination, the
Company shall pay the Acquiror by wire transfer in immediately available funds a
fee of $5,000,000 (the "Termination Fee").
ARTICLE IX
MISCELLANEOUS
9.01 Survival. No representations, warranties, agreements and
covenants contained in this Agreement shall survive the Effective Time or
termination of this Agreement if this Agreement is terminated prior to the
Effective Time; provided, however, that (a) the agreements of the parties
contained in Sections 6.13 and in this Article IX shall survive the Effective
Time and (b) if this Agreement is terminated prior to the Effective Time, the
agreements of the parties contained in Sections 6.04(b), 8.02 and 8.03 and in
this Article IX shall survive such termination.
9.02 Waiver; Amendment. Prior to the Effective Time, any
provision of this Agreement may be (1) waived by the party benefitted by the
provision, or (2) amended or modified at any time, by an agreement in writing
between the parties hereto approved or authorized by their respective Boards of
Directors and executed in the same manner as this Agreement, except that, after
approval of the Merger by the stockholders of the Company, no amendment may be
made which under applicable law requires further approval of such stockholders
without obtaining such required further approval.
9.03 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to constitute an original.
9.04 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Ohio applicable to
contracts made and to be performed entirely within such State.
-41-
<PAGE> 46
9.05 Expenses. Subject to Section 8.03, each party hereto will
bear all expenses incurred by it in connection with this Agreement and the
transactions contemplated hereby, except that printing expenses and SEC
registration fees shall be shared equally between the Company and the Acquiror.
9.06 Notices. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed given (1) on the
date of delivery, if personally delivered or telecopied (with confirmation), (2)
on the first business day following the date of dispatch, if delivered by a
recognized next-day courier service, or (3) on the third business day following
the date of mailing, if mailed by registered or certified mail (return receipt
requested), in each case to such party at its address or telecopy number set
forth below or such other address or numbers as such party may specify by notice
to the parties hereto.
If to the Acquiror, to:
KeyCorp
127 Public Square
Cleveland, Ohio 44114
Attention: Thomas C. Stevens, Esq.
Facsimile: (216) 689-7827
With a copy to:
Mitchell S. Eitel, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Facsimile: (212) 558-3588.
If to the Company, to:
McDonald & Company Investments, Inc.
800 Superior Avenue
Cleveland, Ohio 44114
Attention: William B. Summers, Jr.
Facsimile: (216) 443-8452
With a copy to:
Edward D. Herlihy, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Facsimile: (212) 403-2000.
-42-
<PAGE> 47
and to:
Thomas McKee, Esq.
Calfee, Halter & Griswold
1400 McDonald Investment Center
Cleveland, Ohio 44114
Facsimile: (216)241-0816
9.07 Entire Understanding; No Third Party Beneficiaries. This
Agreement (together with the Disclosure Schedules) and the Stock Option
Agreement represent the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and this Agreement supersedes
any and all other oral or written agreements heretofore made. Except for Section
6.13, insofar as such Section expressly provides certain rights to the persons
named therein, nothing in this Agreement, expressed or implied, is intended to
confer upon any person, other than the parties hereto or their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
* * *
-43-
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in counterparts by their duly authorized officers, all
as of the day and year first above written.
MCDONALD & COMPANY INVESTMENTS, INC.
By: /s/ William B. Summers, Jr.
-----------------------------------
Name: William B. Summers, Jr.
Title: President and Chief Executive Officer
KEYCORP
By: /s/ Thomas C. Stevens
-----------------------------------
Name: Thomas C. Stevens
Title: Senior Executive Vice President
<PAGE> 1
STOCK OPTION AGREEMENT, dated as of June 15, 1998, between
McDonald & Company Investments, Inc., a Delaware corporation ("Issuer"), and
KeyCorp, an Ohio corporation ("Grantee").
RECITALS
A. Grantee and Issuer have entered into an Agreement and Plan
of Merger, dated as of June 15, 1998 (as amended, supplemented or replaced from
time to time, the "Merger Agreement") contemplating a business combination
between Issuer and Grantee (the "Merger");
B. As a condition and inducement to the willingness of Grantee
to execute (and pursue the transactions contemplated by) the Merger Agreement,
and in consideration therefor, Issuer has agreed to grant Grantee the Option (as
defined below); and
C. The Board of Directors of Issuer has approved the Merger
Agreement and the transactions contemplated thereby (including the Merger and
the grant of the Option (as defined below)) prior to the date hereof;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Merger Agreement,
the parties hereto agree as follows:
1. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to an aggregate of 3,669,088 fully paid and nonassessable shares of the common
stock, par value $1.00 per share, of Issuer ("Common Stock") at a price per
share equal to $30.8125 (such price, as adjusted if applicable, the "Option
Price"); provided that in no event shall the number of shares for which this
Option is exercisable exceed 19.9% of the issued and outstanding shares of
Common Stock. The number of shares of Common Stock that may be received upon the
exercise of the Option and the Option Price are subject to adjustment as set
forth below.
2. (a) The Holder (as defined below) may exercise the Option,
in whole or part, if, but only if, both an Initial Triggering Event (as defined
below) and a Subsequent Triggering Event (as defined below) occur before the
occurrence of an Exercise Termination Event (as defined below), provided that
the Holder shall have sent the written notice of such exercise (as provided in
Section 2(e)) within 90 days following the first Subsequent Triggering Event to
occur (or such later period as provided in Section 10). Each of the following
shall be an "Exercise Termination Event": (1) the Effective Time of the Merger;
(2) the termination of the Merger Agreement in accordance with the provisions
thereof, if such termination occurs prior to the occurrence of an Initial
Triggering Event and is not a termination by Grantee pursuant to Section 8.01(b)
or (e); or (3) the passage of eighteen months (or such longer period as provided
in Section 10) after termination of the Merger Agreement, if such termination is
concurrent with or follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 8.01(b) or (e). The term "Holder"
shall mean the holder or holders of the Option. Notwithstanding anything to the
contrary contained herein, (1) the Option may not be exercised at any time when
Grantee shall be in material breach of any of its
<PAGE> 2
representations, warranties, covenants or agreements contained in the Merger
Agreement such that Issuer shall be entitled to terminate the Merger Agreement
pursuant to Section 8.01(b) thereof and (2) this Agreement shall automatically
terminate upon the termination of the Merger Agreement by Issuer pursuant to
Section 8.01(b) thereof as a result of the material breach by Grantee of its
representations, warranties, covenants or agreements contained in the Merger
Agreement.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring on or after the date hereof:
(1) Issuer or any Issuer Subsidiary (as defined below),
without having received Grantee's prior written consent, shall
have entered into an agreement to engage in an Acquisition
Transaction (as defined below) with any person (the term
"person" for purposes of this Agreement having the meaning
assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (collectively, the "1934 Act")) other
than Grantee or any Grantee Subsidiary (as defined below) or
the Board of Directors of Issuer (the "Issuer Board") shall
have recommended that the shareholders of Issuer approve or
accept any Acquisition Transaction other than the Merger. For
purposes of this Agreement:
(A) "Acquisition Transaction" shall mean (x)
a merger or consolidation, or any similar
transaction, involving Issuer or an Issuer Subsidiary
(other than mergers, consolidations or similar
transactions (1) involving solely Issuer and/or one
or more wholly owned Subsidiaries of the Issuer or
(2) in which the voting securities of Issuer
outstanding immediately prior thereto continue to
represent (by either remaining outstanding or being
converted into the voting securities of the surviving
entity of any such transaction) at least 50% of the
combined voting power of the voting securities of the
Issuer or the surviving entity outstanding
immediately after the consummation of such merger,
consolidation, or similar transaction, provided that
any such transaction is not entered into in violation
of the terms of the Merger Agreement), (y) a
purchase, lease or other acquisition of 25% or more
of the assets of Issuer or an Issuer Subsidiary, or
(z) a purchase or other acquisition (including by way
of merger, consolidation, share exchange or
otherwise) of securities representing 15% or more of
the voting power of Issuer or an Issuer Subsidiary;
(B) "Subsidiary" shall have the meaning set
forth in Rule 12b-2 under the 1934 Act;
(C) "Significant Subsidiary" shall have the
meaning set forth in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission
(the "SEC");
-2-
<PAGE> 3
(D) "Issuer Subsidiary" shall mean any
Significant Subsidiary of Issuer; and
(E) "Grantee Subsidiary" shall mean any
Subsidiary of Grantee.
(2) Any person other than the Grantee or any Grantee
Subsidiary shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 15% or more of the
outstanding shares of Common Stock (the term "beneficial
ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the 1934 Act);
(3) The shareholders of Issuer shall have voted and
failed to approve the Merger Agreement or the Merger at a
meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting shall not
have been held in violation of the Merger Agreement or shall
have been cancelled prior to termination of the Merger
Agreement if, prior to such meeting (or if such meeting shall
not have been held or shall have been cancelled, prior to such
termination), it shall have been publicly announced that any
person (other than Grantee or any Grantee Subsidiary) shall
have made, or disclosed an intention to make, a proposal to
engage in an Acquisition Transaction;
(4) The Issuer Board shall have withdrawn or modified
(or publicly announced its intention to withdraw or modify) in
any manner adverse to Grantee its recommendation that the
shareholders of Issuer approve the transactions contemplated
by the Merger Agreement, or Issuer or an Issuer Subsidiary
shall have authorized, recommended or proposed (or publicly
announced its intention to authorize, recommend or propose) an
agreement to engage in an Acquisition Transaction with any
person other than Grantee or a Grantee Subsidiary;
(5) Any person other than Grantee or any Grantee
Subsidiary shall have made a proposal to Issuer or its
shareholders to engage in an Acquisition Transaction and such
proposal shall have been publicly announced;
(6) Any person other than Grantee or any Grantee
Subsidiary shall have filed with the SEC a registration
statement or tender offer materials with respect to a
potential exchange or tender offer that would constitute an
Acquisition Transaction (or filed a preliminary proxy
statement with the SEC with respect to a potential vote by its
shareholders to approve the issuance of shares to be offered
in such an exchange or tender offer); or
(7) Issuer shall have willfully breached any covenant
or obligation contained in the Merger Agreement after any
person other than Grantee or a Grantee Subsidiary shall have
made a proposal to Issuer or its shareholders to engage in an
Acquisition Transaction, and following such breach Grantee
would be entitled to
-3-
<PAGE> 4
terminate the Merger Agreement (whether immediately or after
the giving of notice or both).
(c) The term "Subsequent Triggering Event" shall mean any of
the following events or transactions occurring after the date hereof:
(1) The acquisition by any person (other than Grantee
or any Grantee Subsidiary) of beneficial ownership of 25% or
more of the then outstanding Common Stock; or
(2) The occurrence of the Initial Triggering Event
described in Section 2(b)(1), except that the percentage
referred to in clause (z) of Section 2(b)(1)(A) shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "Triggering Event") promptly after becoming aware of the occurrence
thereof, it being understood that the giving of such notice by Issuer shall not
be a condition to the right of the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to
exercise the Option (or any portion thereof), it shall send to Issuer a written
notice (the date of which being herein referred to as the "Notice Date")
specifying (1) the total number of shares it will purchase pursuant to such
exercise and (2) a place and date not earlier than three business days nor later
than 60 business days from the Notice Date for the closing of such purchase (the
"Closing Date"); provided that, if prior notification to or approval of the
Federal Reserve Board or any other regulatory or antitrust agency is required in
connection with such purchase, the Holder shall promptly file the required
notice or application for approval, shall promptly notify Issuer of such filing,
and shall expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods shall have
passed. Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
(f) At the closing referred to in Section 2(e), the Holder
shall (1) pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer and (2) present
and surrender this Agreement to Issuer at its principal executive offices;
provided that the failure or refusal of the Issuer to designate such a bank
account or accept surrender of this Agreement shall not preclude the Holder from
exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in Section 2(f), Issuer shall deliver to
the Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option shall have been
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
-4-
<PAGE> 5
(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement, dated as of June 15, 1998,
between the registered holder hereof and Issuer and to resale
restrictions arising under the Securities Act of 1933, as amended. A
copy of such agreement is on file at the principal office of Issuer and
will be provided to the holder hereof without charge upon receipt by
Issuer of a written request therefor."
It is understood and agreed that: (1) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act") in the above legend
shall be removed by delivery of substitute certificate(s) without such
reference, if the Holder shall have delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act, (2) the reference to the provisions of this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference, if the shares have been sold or transferred in
compliance with the provisions of this Agreement and under circumstances that do
not require the retention of such reference in the reasonable opinion of counsel
to the Holder and (3) the legend shall be removed in its entirety if the
conditions in the preceding clauses (1) and (2) are both satisfied. In addition,
such certificates shall bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under Section 2(e) and the tender
of the applicable purchase price in immediately available funds, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the initial
preparation, issue and delivery of stock certificates under this Section 2 in
the name of the Holder or its assignee, transferee or designee.
(j) In the event Issuer does not have sufficient authorized
but unissued shares of Common Stock to permit exercise of the Option, upon the
occurrence of a Subsequent Triggering Event, for the full number of shares of
Common Stock for which the Holder elects to exercise the Option, the Issuer
shall make a cash payment to the Holder, at the Closing Date specified in, and
in accordance with the other provisions of, this Section 2, in an amount equal
to the product of (1) the difference between the Fair Market Value (as defined
below) and the Option Price and (2) the number of shares of Common Stock subject
to the Option for which the Holder provides notice to Issuer, pursuant to
Section 2(e) of this Agreement, of its election to exercise that the Issuer is
unable to deliver due to insufficient authorized shares. For purposes of this
Section 2(j), Fair Market Value shall mean the average of the last reported sale
prices per share of Common Stock on the NYSE Composite Transactions reporting
system (as published in The Wall Street Journal or, if not published therein,
another authoritative source) for the ten trading days immediately preceding the
Closing Date. Upon the payment of the cash amount calculated pursuant to this
Section 2(j), the number of Option
-5-
<PAGE> 6
Shares subject to the Option shall be reduced by the number of shares of Common
Stock for which each cash payment is made.
3. Issuer agrees: (1) that it will not, by charter amendment
or through reorganization, consolidation, merger, dissolution or sale of assets,
or by any other voluntary act, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by Issuer, (2) promptly to take all action as may from
time to time be required (including (x) complying with all applicable premerger
notification, reporting and waiting period requirements specified in 15 U.S.C.
Section 18a and regulations promulgated thereunder and (y) in the event that,
under the Bank Holding Company Act of 1956, as amended (the "BHCA"), or any
state or other federal banking law, prior approval of or notice to the Federal
Reserve Board or to any state or other federal regulatory authority is necessary
before the Option may be exercised, cooperating fully with the Holder in
preparing such applications or notices and providing such information to the
Federal Reserve Board or such state or other federal regulatory authority as
they may require) in order to permit the Holder to exercise the Option and
Issuer duly and effectively to issue shares of Common Stock pursuant hereto and
(3) promptly to take all action provided in Sections 5 and 8 as and when
required pursuant to such Sections.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the Holder
thereof to purchase, on the same terms and subject to the same conditions as are
set forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein include
any Agreements and related Options for which this Agreement (and the Option
granted hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date in substitution for the lost, stolen, destroyed or mutilated
Agreement.
5. In addition to the adjustment provided for in Section 1,
the number of shares of Common Stock purchasable upon the exercise of the Option
and the Option Price shall be subject to adjustment from time to time as
follows:
(a) In the event of any change in, or distributions in respect
of, the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges
of shares or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof shall be appropriately adjusted and
proper provision shall be made so that, in the event that any
additional shares of Common Stock are to be issued or otherwise become
outstanding as a result of any such change (other than pursuant to an
exercise of the Option), the number of shares of Common Stock that
remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued
pursuant to the exercise of the Option (as adjusted on account of any
of the foregoing changes in the Common Stock), it equals 19.9% of the
number of shares of Common Stock then issued and outstanding; and
-6-
<PAGE> 7
(b) Whenever the number of shares of Common Stock purchasable
upon exercise hereof is adjusted as provided in Section 5(a), the
Option Price shall be adjusted by multiplying the Option Price
immediately prior to the adjustment by a fraction, the numerator of
which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the
denominator of which shall be equal to the number of shares of Common
Stock purchasable after the adjustment.
6. Upon the occurrence of the first Subsequent Triggering
Event that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee delivered within twelve months (or such later period as
provided in Section 10) of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent Holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a registration statement under the 1933 Act covering any
shares issued and issuable pursuant to this Option and shall use its reasonable
best efforts to cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of any shares of Common
Stock issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement promptly to
become effective and then to remain effective for such period not in excess of
180 days from the day such registration statement first becomes effective or
such shorter time as may be reasonably necessary to effect such sales or other
dispositions. Grantee shall have the right to demand no more than two such
registrations. The Issuer shall bear the costs of such registrations (including,
but not limited to, Issuer's attorneys' fees, printing costs and filing fees),
except for underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering by Issuer of shares of Common Stock, and if in the
good faith judgment of the managing underwriter or managing underwriters, or, if
none, the sole underwriter or underwriters, of such offering the offer and sale
of the Option Shares would interfere with the successful marketing of the shares
of Common Stock offered by Issuer, the number of Option Shares otherwise to be
covered in the registration statement contemplated hereby may be reduced;
provided that, after any such required reduction, the number of Option Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided, further, that, if such reduction occurs, then
Issuer shall file a registration statement for the balance as promptly as
practicable thereafter as to which no reduction pursuant to this Section 6 shall
be permitted or occur and the Holder shall thereafter be entitled to one
additional registration and the twelve month period referred to in the first
sentence of this section shall be increased to twenty-four months. Each such
Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements for Issuer. Upon receiving any request under this
Section 6 from any Holder, Issuer agrees to send a copy thereof to any other
person known to Issuer to be entitled to registration rights under this Section
6, in each case by promptly mailing the same, postage prepaid, to the address of
record of the persons entitled to receive such copies. Notwithstanding anything
to the contrary contained herein, in no event shall the number of
-7-
<PAGE> 8
registrations that Issuer is obligated to effect be increased by reason of the
fact that there shall be more than one Holder as a result of any assignment or
division of this Agreement.
7. (a) At any time after the occurrence of a Repurchase Event
(as defined below) (1) at the request of the Holder, delivered prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase the Option from the Holder at
a price (the "Option Repurchase Price") equal to (A) the amount by which the
market/offer price (as defined below) exceeds the Option Price (B) multiplied by
the number of shares for which this Option may then be exercised and (2) at the
request of the owner of Option Shares from time to time (the "Owner"), delivered
prior to an Exercise Termination Event (or such later period as provided in
Section 10), Issuer (or any successor thereto) shall repurchase such number of
the Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the market/offer price multiplied by
the number of Option Shares so designated. The term "market/offer price" shall
mean the highest of (1) the highest price per share of Common Stock paid by any
person that acquires beneficial ownership of 50% or more of the then outstanding
Common Stock, (2) the price per share of Common Stock to be paid by any third
party pursuant to an agreement with Issuer entered into after the date hereof
and prior to the date the Holder gives notice of the required repurchase of this
Option or the Owner gives notice of the required repurchase of Option Shares, as
the case may be, (3) the highest last sale price for shares of Common Stock
within the six-month period immediately preceding the date the Holder gives
notice of the required repurchase of this Option or the Owner gives notice of
the required repurchase of Option Shares, as the case may be, or (4) in the
event of a sale of all or any substantial part of Issuer's or Issuer's
Subsidiary's assets or deposits, the sum of the net price paid in such sale for
such assets or deposits and the current market value of the remaining net assets
of Issuer or Issuer Subsidiary as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may be,
and reasonably acceptable to Issuer, divided by the number of shares of Common
Stock of Issuer outstanding at the time of such sale on a fully-diluted basis.
In determining the market/offer price, the value of consideration other than
cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be, and reasonably acceptable
to Issuer. Notwithstanding anything to the contrary herein, neither the Option
Repurchase Price nor the Option Share Repurchase Price in the aggregate shall be
less than the Surrender Price (as defined in Section 11).
(b) The Holder and the Owner, as the case may be, may exercise
its right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within five business
days after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the portion
thereof that Issuer is not then prohibited under applicable law, regulation and
administrative policy from so delivering.
-8-
<PAGE> 9
(c) To the extent that Issuer is prohibited under applicable
law or regulation, or as a consequence of administrative policy, from
repurchasing the Option and/or the Option Shares in full, Issuer shall
immediately so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided that, if Issuer at any time after delivery of a notice of
repurchase pursuant to Section 7(b) is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its reasonable best efforts to obtain all required regulatory
and legal approvals and to file any required notices as promptly as practicable
in order to accomplish such repurchase), the Holder or Owner may revoke its
notice of repurchase of the Option and/or the Option Shares whether in whole or
to the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (1) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price and/or the Option Share Repurchase Price
that Issuer is not prohibited from delivering and (2) deliver, as appropriate,
either (A) to the Holder, a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Agreement was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the Option
Repurchase Price, and/or (B) to the Owner, a certificate for the Option Shares
it is then so prohibited from repurchasing. If an Exercise Termination Event
shall have occurred prior to the date of the notice by Issuer described in the
first sentence of this Section 7(c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Holder shall nonetheless have the right to exercise the Option until the
expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall
be deemed to have occurred upon the occurrence of any of the following events or
transactions after the date hereof:
(1) The acquisition by any person (other than Grantee
or any Grantee Subsidiary) of beneficial ownership of 50% or
more of the then outstanding Common Stock; or
(2) The consummation of any Acquisition Transaction
described in Section 2(b) (1) hereof, except that the
percentage referred to in clause (z) of the definition of
Acquisition Transaction shall be 50%.
8. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement (1) to consolidate with or merge
into any person, other than Grantee or a Grantee Subsidiary, or engage in a plan
of exchange with any person, other than Grantee or a Grantee Subsidiary and
Issuer shall not be the continuing or surviving corporation of such
consolidation or merger or the acquirer in such plan of exchange, (2) to permit
any person, other than Grantee or a Grantee Subsidiary, to merge into Issuer or
be acquired by Issuer in a plan of exchange and Issuer shall be the continuing
or surviving or acquiring corporation, but, in connection with such merger or
plan of exchange, the then outstanding shares of Common Stock shall be changed
into or exchanged
-9-
<PAGE> 10
for stock or other securities of any other person or cash or any other property
or the then outstanding shares of Common Stock shall after such merger or plan
of exchange represent less than 50% of the outstanding shares and share
equivalents of the merged or acquiring company, or (3) to sell or otherwise
transfer all or substantially all of its or any Issuer Subsidiary's assets to
any person, other than Grantee or a Grantee Subsidiary, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that the Option shall, upon the consummation of any such transaction and upon
the terms and conditions set forth herein, be converted into, or exchanged for,
an option (the "Substitute Option"), at the election of the Holder, of either
(A) the Acquiring Corporation (as defined below) or (B) any person that controls
the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (A) the
continuing or surviving person of a consolidation or merger
with Issuer (if other than Issuer), (B) the acquiring person
in a plan of exchange in which Issuer is acquired, (C) the
Issuer in a merger or plan of exchange in which Issuer is the
continuing or surviving or acquiring person and (D) the
transferee of all or substantially all of Issuer's assets (or
the assets of an Issuer Subsidiary).
(2) "Substitute Common Stock" shall mean the common
stock issued by the issuer of the Substitute Option upon
exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer price,
as defined in Section 7(a).
(4) "Average Price" shall mean the average closing or
last sale price (as the case may be) of a share of the
Substitute Common Stock for one year immediately preceding the
consolidation, merger or sale in question, but in no event
higher than the closing price of the shares of Substitute
Common Stock on the day preceding such consolidation, merger
or sale; provided that, if Issuer is the issuer of the
Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by the person
merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option; provided that, if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement (after giving
effect for such purpose to the provisions of Section 9), which agreement shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option was
exercisable immediately prior to the event described in the first sentence of
Section 8(a), divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a
-10-
<PAGE> 11
fraction, the numerator of which shall be the number of shares of Common Stock
for which the Option was exercisable immediately prior to the event described in
the first sentence of Section 8(a) and the denominator of which shall be the
number of shares of Substitute Common Stock for which the Substitute Option is
exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this Section 8(e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (1) the
value of the Substitute Option without giving effect to the limitation in this
Section 8(e) over (2) the value of the Substitute Option after giving effect to
the limitation in this Section 8(e). This difference in value shall be
determined by a nationally recognized investment banking firm selected by the
Holder and reasonably acceptable to Issuer.
(f) Issuer shall not enter into any transaction described in
Section 8(a) unless the Acquiring Corporation and any person that controls the
Acquiring Corporation assume in writing all the obligations of Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option
(the "Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to (x) the amount by which the
Highest Closing Price (as defined below) exceeds the exercise price of the
Substitute Option (y) multiplied by the number of shares of Substitute Common
Stock for which the Substitute Option may then be exercised, and at the request
of the owner (the "Substitute Share Owner") of shares of Substitute Common Stock
(the "Substitute Shares"), the Substitute Option Issuer shall repurchase the
Substitute Shares at a price (the "Substitute Share Repurchase Price") equal to
the Highest Closing Price multiplied by the number of Substitute Shares so
designated. The term "Highest Closing Price" shall mean the highest closing or
last sale price (as the case may be) for shares of Substitute Common Stock
within the six-month period immediately preceding the date the Substitute Option
Holder gives notice of the required repurchase of the Substitute Option or the
Substitute Share Owner gives notice of the required repurchase of the Substitute
Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective rights to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and/or certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the Substitute
Share Owner, as the case may be, elects to require the Substitute Option Issuer
to repurchase the Substitute Option and/or the Substitute Shares in accordance
with the provisions of this Section 9. As promptly as practicable and in any
event within five business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
notice or notices relating thereto, the Substitute Option Issuer shall deliver
or cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or the portion thereof which the Substitute
-11-
<PAGE> 12
Option Issuer is not then prohibited under applicable law, regulation and
administrative policy from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Option Repurchase Price and/or the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided that, if the Substitute
Option Issuer is at any time after delivery of a notice of repurchase pursuant
to Section 9(b) prohibited under applicable law or regulation, or as a
consequence of administrative policy, from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its reasonable best efforts to
receive all required regulatory and legal approvals as promptly as practicable
in order to accomplish such repurchase), the Substitute Option Holder and/or
Substitute Share Owner may revoke its notice of repurchase of the Substitute
Option or the Substitute Shares either in whole or to the extent of prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (1)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering and (2) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, and/or (B) to the Substitute
Share Owner, a certificate for the Substitute Option Shares it is then so
prohibited from repurchasing. If an Exercise Termination Event shall have
occurred prior to the date of the notice by the Substitute Option Issuer
described in the first sentence of this Section 9(c), or shall be scheduled to
occur at any time before the expiration of a period ending on the thirtieth day
after such date, the Substitute Option Holder shall nevertheless have the right
to exercise the Substitute Option until the expiration of such 30-day period.
10. The 30-day, 6-month, 12-month or 24-month periods for
exercise of certain rights under Sections 2, 6, 7 and 9 shall be extended: (a)
to the extent necessary to obtain all regulatory approvals for the exercise of
such rights (for so long as the Holder, Owner, Substitute Option Holder or
Substitute Share Owner, as the case may be, is using commercially reasonable
efforts to obtain such regulatory approvals), and for the expiration of all
statutory waiting periods, (b) during the pendency of any temporary restraining
order, injunction or other legal bar to exercise of such rights and (c) to the
extent necessary to avoid liability under Section 16(b) of the 1934 Act by
reason of such exercise.
-12-
<PAGE> 13
11. (a) Grantee in its sole discretion may, at any time during
which Issuer would be required to repurchase the Option or any Option Shares
pursuant to Section 7, surrender the Option (together with any Option Shares
issued to and then owned by the Grantee or any affiliate thereof) to Issuer in
exchange for a cash payment equal to the Surrender Price (as defined herein);
provided, however, that Grantee may not exercise its rights pursuant to this
Section 11 if Issuer has previously repurchased the Option (or any portion
thereof) or any Option Shares pursuant to Section 7. The "Surrender Price" shall
be equal to the sum of (i) 25,000,000 and (ii) if applicable, the aggregate
purchase price previously paid pursuant hereto by Grantee with respect to any
Option Shares, minus the sum of (iii) if applicable, the amount of the net cash
profit, if any, received by Grantee pursuant to the arm's-length sale of Option
Shares (or any other securities into which such Option Shares were converted or
exchanged) to any party not affiliated with Grantee, and (iv) the amount of any
Termination Fee paid pursuant to the Merger Agreement.
(b) Grantee may exercise its right to surrender the Option and
any Option Shares pursuant to this Section 11 by surrendering for such purchase
to Issuer, at its principal office, a copy of this Agreement, together with
certificates for Option Shares, if any, accompanied by a written notice stating
(i) that Grantee elects to surrender the Option and Option Shares, if any, in
accordance with the provisions of this Section 11 and (ii) the Surrender Price.
Within two business days after the surrender of the Option and the Option
Shares, if applicable, Issuer shall deliver or cause to be delivered to Grantee
the Surrender Price.
(c) To the extent that the Issuer is prohibited under
applicable law or regulation from paying the Surrender Price to Grantee in full,
Issuer shall immediately so notify Grantee and thereafter deliver, or cause to
be delivered, from time to time, to Grantee, that portion of the Surrender Price
that Issuer is not or no longer prohibited from paying, within two business days
after the date on which Issuer is no longer so prohibited; provided, however,
that if Issuer at any time after delivery of a notice of Surrender pursuant to
Section 11(b) is prohibited under applicable law or regulation from paying to
Grantee the Surrender Price in full, (i) Issuer shall (A) use its best efforts
to obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to make such payments, (B) within
two business days of the submission or receipt of any documents relating to any
such regulatory and legal approvals, provide Grantee with copies of the same,
and (C) keep Grantee advised of both the status of any such request for
regulatory and legal approvals and any discussions with any relevant regulatory
or other third party reasonably related to the same, and (ii) Grantee may revoke
such notice of surrender by delivery of a notice of revocation, the Exercise
Termination Event shall be extended to a date six months from the date on which
the Exercise Termination Event would have occurred if not for the provisions of
this Section 11(c) (during which period Grantee may exercise any of its rights
hereunder, including any and all rights pursuant to this Section 11).
(d) Grantee shall have rights substantially identical to those
set forth in paragraphs (a), (b) and (c) of this Section 11 with respect to the
Substitute Option and the Substitute Option Issuer during any period in which
the Substitute Option Issuer would be required to repurchase the Substitute
Option pursuant to Section 9.
12. Issuer hereby represents and warrants to Grantee as
follows:
-13-
<PAGE> 14
(a) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the Merger Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized
by the Issuer Board prior to the date hereof and no other corporate
proceedings on the part of Issuer are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and to permit it to issue, that number of shares of Common
Stock equal to the maximum number of shares of Common Stock issuable
hereunder, and all such shares, upon issuance pursuant thereto, will be
duly authorized, validly issued, fully paid, nonassessable, and will be
delivered free and clear of all claims, liens, encumbrances and
security interests and not subject to any preemptive rights.
13. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder following the date of
such Subsequent Triggering Event; provided that until the date 15 days following
the date on which the Federal Reserve Board has approved an application by
Grantee to acquire the shares of Common Stock subject to the Option, Grantee may
not assign its rights under the Option except in (a) a widely dispersed public
distribution, (b) a private placement in which no one party acquires the right
to purchase in excess of 2% of the voting shares of Issuer, (c) an assignment to
a single party (e.g., a broker or investment banker) for the sole purpose of
conducting a widely dispersed public distribution on Grantee's behalf, or (d)
any other manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its reasonable best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including, without limitation, applying to the
Federal Reserve Board under the BHCA for approval to acquire the shares issuable
hereunder, but Grantee shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
15. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and that
the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief. In connection therewith
both parties waive the posting of any bond or similar requirement.
16. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not
-14-
<PAGE> 15
permitted to acquire, or Issuer is not permitted to repurchase pursuant to
Section 7, the full number of shares of Common Stock provided in Section 1
hereof (as adjusted pursuant to Section 5 hereof), it is the express intention
of Issuer to allow the Holder to acquire or to require Issuer to repurchase such
lesser number of shares as may be permissible, without any amendment or
modification hereof.
17. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by facsimile transmission, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses or
numbers of the parties set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without regard to the conflict of
law principles thereof.
19. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
20. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
21. Except as otherwise expressly provided herein or in the
Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings in respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assignees. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto, and their respective
successors and assignees, any rights, remedies, obligations or liabilities under
or by reason of this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
* * *
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the first date written above.
MCDONALD & COMPANY INVESTMENTS, INC.
By: /s/ William B. Summers, Jr.
----------------------------------------
Name: William B. Summers, Jr.
Title: President and Chief Executive Officer
KEYCORP
By: /s/ Thomas C. Stevens
---------------------------------------
Name: Thomas C. Stevens
Title: Senior Executive Vice President
-16-
