UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For this fiscal year ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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INTERSTATE/JOHNSON LANE, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 56-1470946
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 North Tryon Street, Charlotte, North Carolina 28202
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(704) 379-9000
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
- - ------------------- -----------------------------------------
Common stock, par value $.20 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. Yes
---
As of December 10, 1998, 6,516,079 shares of Common Stock, par value $.20
per share, were outstanding, and the aggregate market value of the shares of
Common Stock of the Registrant held by non-affiliates (based upon the closing
price of the Registrant's shares on the New York Stock Exchange on December 10,
1998, which was $31.06) was $147,425,079. For purposes of this information, the
outstanding shares of Common Stock which were owned by Interstate/Johnson Lane
Corporation's Employee Stock Ownership Plan, and by all directors and executive
officers of the Registrant, were deemed to be the shares of Common Stock held by
affiliates.
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
PART I
ITEM I. BUSINESS
GENERAL
Interstate/Johnson Lane, Inc. (the "Company") is a Charlotte, North
Carolina-based holding company which, through its principal subsidiary,
Interstate/Johnson Lane Corporation ("IJL"), and other subsidiaries, engages in
securities and futures brokerage for individual and institutional investors,
market-making and underwriting of municipal and corporate securities, investment
management, investment banking and other financial advisory services, and the
sale of mutual funds, annuities and other financial products. Many of these
activities are sensitive to marketplace trading volumes and to interest rate
conditions. While the Company has clients throughout the United States and
abroad, its major geographic focus is the Southeast.
IJL is registered as a broker-dealer with the Securities and Exchange
Commission ("SEC") and as a futures commission merchant with the Commodity
Futures Trading Commission ("CFTC"). In addition to owning three New York Stock
Exchange ("NYSE") memberships and one American Stock Exchange membership, IJL is
a member of the Boston Stock Exchange, New York Futures Exchange, Midwest Stock
Exchange, Philadelphia Stock Exchange, the National Association of Securities
Dealers, Inc. ("NASD"), and the Securities Investor Protection Corporation
("SIPC").
For the fiscal year ended September 30, 1998, approximately 61% of the
Company's total revenues were derived from its private client brokerage
activities, 28% from institutional brokerage activities and 11% from dealer
transactions, investment banking and other activities. The Company's principal
sources of revenue for each of the last three fiscal years, along with other
information regarding the Company's results of operations, are presented in Item
8.
Page 1
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
INDIVIDUAL CLIENT BROKERAGE
IJL presently serves individual investors through its Private Client Group
which has 63 offices located in North Carolina (33), South Carolina (10),
Georgia (17), and Virginia (3). Revenues from private client brokerage
activities represent a substantial portion of the Company's revenues, and are
generated primarily through commissions and sales credits earned on client
purchases and sales of listed and unlisted stocks, bonds, options, futures,
mutual funds and other financial products. When IJL executes over-the-counter
("OTC") transactions for clients on a principal basis, it may charge mark-ups or
mark-downs in lieu of commissions. In recent years, IJL has experienced rapid
growth in asset-based "wrap" fees paid by individual clients in lieu of
commissions or sales credits on each transaction. The profitability of the
Company is sensitive to many factors. Among the most important factors is the
level of securities trading volume and the volatility and general level of
market prices. The energized securities markets of recent years have contributed
substantially to the Company's success. A slow down in individual investor
activity may have adverse effects upon profitability. The probability and timing
of such a slow down is impossible to predict. In addition, the continuing trend
of increased regulation of the securities industry could create significant
incremental compliance costs and indirectly stifle certain revenue streams.
CapTrust Financial Advisors, LLC ("CapTrust"), a NASD registered
broker-dealer, specializes in providing financial consulting and asset
management services to both individual and institutional clients. Organized as a
limited liability company, CapTrust has both voting and non-voting member equity
units. The strategy of CapTrust is to attract top producing financial advisers
who serve as members of the firm rather than employees. Members purchase
non-voting ownership interests in CapTrust upon joining and thereinafter are
entitled to a portion of the earnings of the firm. At September 30, 1998, all of
CapTrust's voting units and 97.2% of its non-voting units were owned by two
wholly-owned subsidiaries of the Company. CapTrust earns a majority of its
revenues through asset-based wrap fees in addition to normal transaction-based
commissions from clients throughout the United States. IJL clears trades for
CapTrust on a fully-disclosed basis and receives certain execution and clearance
fees from CapTrust in that role. The Company contributed $1.5 million of capital
to this venture during the current fiscal year and expects to contribute an
additional $2 to $3 million within the next year. At September 30, 1998,
CapTrust had 10 members and 8 offices.
CLIENT FINANCING
Client transactions in securities are effected on either a cash or margin
basis. Margin transactions result in collateralized interest-bearing loans to
clients for a portion of the underlying cost of securities purchased. Interest
charges are tied primarily to published prime or broker loan rates of various
national banks. Client margin loans are financed by other clients' credit
balances retained in their accounts pending reinvestment. When IJL pays interest
on such credit balances, it pays a lower rate than it charges on margin loans;
the income earned on this rate spread has represented a significant portion of
the Company's profits.
INVESTMENT RESEARCH
Management believes IJL's research services are important in generating
individual and institutional commissions and sales credits in listed and OTC
stocks. IJL maintains a core staff of 13 professionals to provide investment
recommendations and market information on selected regional and national
companies. These analysts follow approximately 130 companies, a major portion of
which are headquartered in the Southeast. IJL provides clients with specific
recommendations to buy and sell equity securities of companies followed by IJL
and by its correspondents. Management believes that the performance of these
recommended securities has assisted IJL in attracting and retaining its clients.
Page 2
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
INSTITUTIONAL CLIENT BROKERAGE
IJL's institutional clients include mutual funds, commercial banks, thrift
institutions, insurance companies, pension funds and private money managers.
Most of these clients are located in the United States and Canada; however, some
are located overseas, principally in the United Kingdom and continental Europe.
IJL executes transactions in equity and in taxable and non-taxable fixed income
securities for institutional clients on both an agency and principal basis.
A significant portion of the commission revenues from transactions in
corporate equity securities is derived from institutional clients for whom IJL
provides independent research products and services, as well as brokerage
services. These products and services are procured from third parties to which
IJL may be contractually obligated, irrespective of whether it receives
commissions from the beneficiary clients. Commissions paid by clients and money
managers to IJL for furnishing these products and services are commonly referred
to as "soft dollars".
MARKET-MAKING AND DEALER ACTIVITIES
IJL commits capital to acquire and carry inventories of both equity and
fixed-income securities for sale to other dealers and to clients. The size of
these inventories fluctuates greatly depending on economic and market
conditions, management allocations of capital, underwriting commitments, client
demands and trading volume.
IJL's OTC traders make markets in the equity securities of approximately
200 regional and national companies. In addition, IJL acts as a dealer in bonds
issued by the United States Government and its agencies, and by states and their
political agencies and instrumentalities thereof. The Company believes that
these activities provide an important source of product for sale to individual
and institutional clients.
INTEREST
In the aggregate, interest earned on reserve deposits segregated from IJL
assets under the customer protection rule of the SEC, interest charged on margin
loans in connection with its private client brokerage business, interest on
loans made under securities resale agreements, and interest on fixed income
inventories account for a significant portion of the Company's total revenues.
To facilitate institutional client financing needs, IJL lends money under
securities resale agreements and takes delivery of securities as collateral in
its custodial account at an approved clearing corporation; it may also
concurrently borrow money under repurchase agreements, making delivery of the
same or similar securities as collateral. When the duration of the loans and
borrowings, and the underlying collateral are identical, these transactions are
generally characterized as matched repurchase agreements. Matched repurchase
agreements usually constitute a significant portion of the Company's total
assets, liabilities, interest revenues and interest expenses. IJL may earn small
profits from such transactions by charging greater amounts of interest than it
is required to pay. While IJL takes steps to ensure that the loans are
adequately collateralized, these transactions could subject the Company to
losses if parties entering into securities resale agreements with IJL fail to
meet their obligations to repurchase the underlying securities and IJL incurs
losses in liquidating such securities in the open market.
Page 3
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
INVESTMENT BANKING
IJL's corporate finance group of 23 professionals provides clients with
financial advisory and consulting services on mergers and acquisitions and on
valuations of equity securities. IJL also derives revenues from serving as a
manager, co-manager, or participant in underwriting syndicates, and as a member
of selling groups formed to distribute new issues of corporate securities. In
connection with its corporate finance activities, IJL holds minority interests
in six venture capital funds. Augmenting IJL's capital formation capabilities in
the public markets is a private finance group specializing in raising debt and
equity in the institutional private placement markets for corporate issuers.
Revenues are derived primarily from serving as the issuer's agent in structuring
and sourcing each capital transaction. This group acts as agents on debt and
equity issues primarily in the $10-50 million dollar range for middle-market
southeastern companies and expects to continue its focus on transactions of this
size.
MUNICIPAL FINANCE
IJL acts as a manager or co-manager of negotiated public offerings and
private placements of tax-exempt securities issued by state and municipal
governments, power agencies, industrial development and pollution control
financing authorities, sewer and water authorities, and state and local housing
authorities and other units of state and local government. As an underwriter,
IJL also participates in syndicates formed to bid competitively or negotiate
privately for the purchase and distribution of tax-exempt securities.
INVESTMENT MANAGEMENT
IJL Capital Management, Inc. ("IJL Capital") was formed to serve as the
general partner of Keen Vision Fund I Limited Partnership ("KVF I") and Keen
Vision Fund II Limited Partnership ("KVF II"), each of which is a private
investment partnership. Aggregate net assets approximated $23.4 million in KVF I
and $4.3 million in KVF II at September 30, 1998. In its capacity as investment
adviser and general partner to the funds, IJL Capital receives quarterly
management and annual performance-based fees.
REAL ESTATE
During the 1970s and 1980s, certain subsidiaries of the Company were
engaged in originating private placements and public offerings of limited
partnership interests in real estate programs for sale to clients as well as
holding proprietary interests in historical restoration projects of real estate
properties, principally office facilities. These subsidiaries are currently
involved in the oversight and disposition of these interests. The Company does
not expect to provide further financial or management support to these ventures
beyond what is necessary to preserve current values or facilitate disposition of
the properties or the Company's interests in the related ventures.
Page 4
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
ADMINISTRATION AND OPERATIONS
Administrative and operations personnel are responsible for the processing
of transactions; receipt, identification and delivery of funds and securities;
custody of clients' securities; extension of credit to clients and dealers;
internal audits; telecommunications and other technology services; general
accounting and office services functions; administration of employee benefits
and human resource activities; establishment and monitoring of internal
financial and management controls; and compliance with legal and regulatory
requirements regarding financial, operations and sales practices.
Client transactions and transactions for the Company's own account in listed and
unlisted stocks are generally executed by stock exchange or NASD-based automated
systems, or by exchange-based IJL employees. In some instances, orders are
initially routed to intermediaries for ultimate execution, and compensation may
be received from these intermediaries in that connection. Most options and
futures transactions on exchanges are executed by member firms with which IJL
has a correspondent relationship. All securities transactions are cleared by IJL
through its own facilities in Charlotte and those of the National Securities
Clearing Corporation in New York City; futures transactions are cleared by
correspondent firms.
External computer service organizations specializing in securities and
futures industry applications are used to transmit real-time market data to
brokers and traders; to record and process all securities, futures and related
money transactions; to generate client and dealer confirmations and statements;
to exchange transactional information with clearing houses and depositories; and
to produce required accounting and administrative reports. Sales and
administrative personnel have on-line access to client account information and
to various external databases. The firm's technology focus has shifted to
increased use of Internet technology and process reengineering. Major projects
completed during the 1998 fiscal year include the implementation of a new
financial reporting system.
The Company believes that its internal control structure and safeguards
are adequate, although fraud and misconduct by clients and employees, and the
possibility of theft of securities, are risks inherent in the securities
industry. As required by the NYSE and other regulatory bodies, IJL carries
fidelity bonds covering loss or theft of securities, as well as employee
dishonesty, forgery and alteration of checks or similar items, and forgery of
securities. The Company believes the amounts of coverage provided by such bonds
are adequate.
EMPLOYEES
As of September 30, 1998, the Company had 1,444 employees, including
approximately 517 brokers engaged in sales to individual and institutional
investors, and approximately 250 other professionals engaged in trading,
investment banking, and product and administrative support services. IJL has a
four-month training program for potential retail financial consultants that is
intended to prepare them for various registration examinations and to give them
an in-depth knowledge of the securities industry. Management considers employee
relations to be excellent.
Page 5
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
COMPETITION
The Company competes with other securities firms, both regional and
national, some of which offer a broader range of brokerage services and possess
substantially greater capital resources. Competition also exists among
securities firms for successful sales representatives and product support
professionals. In addition, competition from banks, insurance companies and
discount brokerages has increased significantly; these firms generally charge
lower commission rates to their clients without offering extensive support
services such as market information, research, reports on individual companies,
and specific recommendations to buy and sell investment products. The Company
believes that its position as a major Southeastern regional firm will permit it
to compete effectively in the current environment.
REGULATION
The securities and futures industries in the United States are subject to
extensive regulation under both federal and state law. The SEC, CFTC and the
Municipal Securities Rulemaking Board each administer federal laws regulating
various aspects of IJL's business. Additional regulation of broker-dealers has
been delegated to self-regulatory organizations ("SROs"), principally the NASD,
NYSE and other securities and futures exchanges. Firms such as IJL are also
subject to regulation by state securities commissions in the states in which
they do business. All these authorities may conduct administrative proceedings
which can result in censure, fine, suspension or expulsion of a broker-dealer,
its officers or employees.
The principal purpose of regulation and discipline of broker-dealers is
the protection of clients and the securities markets, rather than protection of
their creditors and shareholders. Broker-dealer regulations cover all aspects of
the securities and futures business, including sales methods, trade practices,
uses and safekeeping of clients' funds, capital structure, risk management,
recordkeeping, investment advisory services, and conduct of directors, officers
and employees. Additional legislation, changes in rules promulgated by the SEC,
CFTC and SROs, or changes in the interpretation or enforcement of existing laws
and rules, may directly affect the operation and profitability of
broker-dealers.
NET CAPITAL REQUIREMENTS
Every registered broker-dealer doing business with the public is subject to the
Uniform Net Capital Rule (Rule 15c3-1), promulgated by the SEC and incorporated
into the rules of the NYSE, which is designed to ensure financial soundness and
liquidity through minimum capital requirements. IJL has elected to use the
Rule's alternative method of computation, which requires that its "net capital"
be not less than 2% of its aggregate debit balances (primarily receivables from
clients and other broker-dealers). In computing net capital, various deductions
are made from net worth and qualifying subordinated debt which include assets
not readily convertible into cash, such as intangible assets and exchange
memberships. In addition, the values of certain other assets (such as securities
owned by IJL) are reduced by various amounts to reflect the possibility of a
market decline pending their disposition. IJL is also subject to the CFTC
minimum net capital requirement which requires net capital to be at least 4% of
the amount, as adjusted, required to be segregated in separate accounts for
customers under the Commodity Exchange Act. As a member of the NYSE, IJL may be
required to reduce its business and restrict redemption of subordinated debt if
its net capital becomes less than 4% of its aggregate debit balances, and it may
be prohibited from expanding its business and declaring cash dividends if its
net capital becomes less than 5% of its aggregate debit balances.
Page 6
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
NET CAPITAL REQUIREMENTS, CONTINUED
Compliance with applicable net capital rules could limit IJL's commitment
to certain securities activities such as underwriting and market-making, which
use significant amounts of regulatory capital, as well as to new activities
requiring an infusion of capital. Further, a significant operating loss or an
extraordinary charge against net capital could adversely affect IJL's ability to
expand or even maintain its present levels of business. While these amounts may
vary from day to day, IJL's net capital of $56.6 million at September 30, 1998,
was 15.5% of its aggregate debit balances and approximately $49.3 million in
excess of its minimum regulatory requirements, as such excess capital and
balances are computed under the Rule.
As a registered broker dealer and member of the NASD, CapTrust is also
subject to the SEC's Rule 15c3-1. Under Rule 15c3-1, CapTrust is prohibited from
engaging in any transactions when its "net capital" is less than $250,000 or
1/15th of its "aggregate indebtedness", whichever is greater, as these terms are
defined in the rule. As of September 30, 1998, CapTrust's net capital was
$546,000 and approximately $296,000 in excess of its minimum regulatory
requirement. As noted above, it is anticipated that the Company will provide
additional funding as needed during 1999.
PENDING MERGER TRANSACTION WITH WACHOVIA CORPORATION
On October 27, 1998, the Company and Wachovia Corporation ("Wachovia")
entered into an Agreement and Plan of Merger (the "Merger Agreement") under
which the Company will be merged into Wachovia. In the merger, each outstanding
share of the Company's common stock will be converted into a fraction of a share
of Wachovia common stock equal to $32.00 divided by the average of the last sale
prices of Wachovia common stock, as reported on the NYSE Composite Transactions
Reporting System, for the five trading days immediately preceding the effective
date of the merger.
In connection with the Merger Agreement, the Company granted Wachovia an
option to purchase shares of the Company's common stock under certain
circumstances. The purchase price is $30.5625 per share and the maximum number
of shares that can be purchased may not exceed 19.9% of the outstanding shares
of common stock.
Directors and executive officers of IJL who hold approximately 27% of the
Company's outstanding common stock have entered into shareholder agreements with
Wachovia. The agreements provide, among other things, that these shareholders
will vote their shares of the Company's common stock in favor of approval of the
Merger Agreement.
The completion of the merger is subject to various conditions, including
approval of the Merger Agreement by the Company's shareholders, the receipt of
all governmental and other consents and approvals and the satisfaction of
certain other usual conditions.
The Company has called a special meeting of shareholders to consider and
approve the Merger Agreement. The special meeting will be held on January 26,
1999. The record date for determining shareholders of the Company entitled to
notice of and to vote at the meeting is December 10, 1998. Approval of the
Merger Agreement at the meeting requires the affirmative vote of the holders of
a majority of the Company's outstanding common stock.
Page 7
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
ITEM 2. PROPERTIES
The Company's headquarters are located in Charlotte, and it serves
individual and institutional clients through sales offices located in North
Carolina, South Carolina, Virginia, Georgia, Texas, California, Massachusetts,
New York, Arkansas, Florida, Michigan, and Pennsylvania.
The Company leases substantially all of its office facilities. See Note 7,
"Commitments and Contingencies," of the Notes to Consolidated Financial
Statements for the fiscal year ended September 30, 1998 in Item 8. Capital
assets include the office building which is currently occupied by the back
office and other support functions of IJL. The balance of the Company's capital
assets consist primarily of office furniture and equipment, computer hardware
and software and leasehold improvements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain litigation arising in the ordinary
course of business. While some actions seek substantial damages, management
believes, based upon discussion with counsel, that the outcome of this
litigation will not have a material effect on the Company's financial position.
The materiality of these legal matters to the Company's future operating results
depends on the level of future results of operations as well as the timing and
ultimate resolution of such legal matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Page 8
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
In October 1997, the Company's Board of Directors declared a $.05 per
share quarterly dividend and declared quarterly dividends of the same amount
through July 1998. In October 1998, the Company's Board of Directors increased
the quarterly dividend to $.06 per share. Continued payment of dividends in the
future will depend upon the Board's evaluation of earnings, financial condition
and working capital needs of the Company.
As of November 30, 1998, the Company had approximately 917 shareholders
of record.
THE COMPANY'S COMMON STOCK IS TRADED ON THE NYSE.
<TABLE>
<CAPTION>
Common Common
Stock Price Stock Price
Fiscal 1998 Fiscal 1997
----------- -----------
High Low High Low
<S> <C> <C> <C> <C>
4th Q $41 $26 3/4 $32 1/4 $19 7/8
3rd Q 32 1/2 28 24 1/2 17
2nd Q 30 1/2 26 1/16 18 7/8 13 3/8
1st Q 31 1/4 25 3/4 13 3/4 12
</TABLE>
Page 9
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Five Year Financial Summary (ALL DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED SEPTEMBER 30
1998 1997 1996 1995 1994
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Total Revenues $ 279.1 $ 232.0 $ 208.4 $ 184.0 $ 166.6
Net Revenues After
Interest Expense 257.6 212.2 187.2 151.3 147.9
Income Before Taxes
and Cumulative Effect of
Change in Accounting
Principle 23.2 17.0 15.6 9.9 13.3
Operating Income 14.7 10.9 9.4 5.9 7.9
Cumulative Effect of a
Change in Accounting
Principle (2) -- -- -- -- 3.0
Net Income 14.7 10.9 9.4 5.9 10.9
BASIC EARNINGS PER SHARE (1):
Operating $ 2.47$ 1.87$ 1.61$ 0.98$ 1.27
Net $ 2.47$ 1.87$ 1.61$ 0.98$ 1.76
DILUTED EARNINGS PER SHARE (1):
Operating $ 2.16$ 1.74$ 1.42$ 0.92$ 1.13
Net $ 2.16$ 1.74$ 1.42$ 0.92$ 1.52
DIVIDENDS PER SHARE $ 0.20$ 0.16$ 0.12$ 0.12$ 0.09
FINANCIAL CONDITION:
Total Assets $ 652.3 $ 626.7 $ 568.3 $ 616.5 $ 767.8
Total Assets, Net of
Matched Securities
Resale Agreements $ 648.1 $ 614.3 $ 562.5 $ 486.9 $ 428.6
Long-Term Debt 31.0 16.0 21.0 21.0 21.0
Shareholders' Equity 103.6 88.8 76.6 69.4 68.0
</TABLE>
(1)Effective October 1, 1997, the Company adopted SFAS 128, "Earnings Per
Share," which establishes standards for computing and presenting earnings per
share. All periods have been restated to conform with SFAS 128.
(2)Effective October 1, 1993, the Company adopted SFAS 109, "Accounting for
Income Taxes." As permitted under SFAS 109, prior years' financial statements
have not been restated. The cumulative effect of adopting SFAS 109 was to
increase net income for the change in accounting principle in the year of
adoption.
Page 10
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL BUSINESS ENVIRONMENT
The Company's principal activities -- securities brokerage for individual
(retail) and institutional investors, market-making in equity and fixed-income
securities, investment banking and underwriting, and investment management and
advisory services -- are highly competitive. Acquisitions of investment firms by
commercial banks, insurance companies, and other financial services entities
have intensified this competition. Many of the Company's revenue sources are
sensitive to marketplace trading volumes and to interest rate conditions, both
of which can be cyclical and volatile. As a result, revenues and earnings may
vary significantly from quarter to quarter and year to year.
LIQUIDITY AND CAPITAL RESOURCES
During the 1998 fiscal year, operating activities consumed $33.5 million of
cash, inclusive of $15.0 million of net income adjusted for depreciation and
other non-cash charges. However, financing activities net of capital
expenditures provided $43.1 million of cash. As a result, the Company's cash
position increased $9.6 million to $34.3 million at September 30, 1998.
The Company's asset base consists primarily of cash, cash equivalents, and
other assets which can be converted to cash within one year. At September 30,
1998, these assets comprised approximately 90% of the Company's total assets.
Day-to-day financing requirements generally are influenced by the level of
securities inventories, net receivables from clients and broker-dealers, and net
receivables under resale agreements. Significant incremental cash requirements
also may occur from time to time in connection with payments under deferred
compensation plans, repurchase of the Company's common stock, funding of new
business unit activities, payment of dividends, and litigation settlements
arising out of normal business operations.
At September 30, 1998, the Company had $125 million of call loan financing
available. In addition, the Company maintains credit lines of several hundred
million dollars for collateralized repurchase agreements with other financial
institutions, and has financed its client receivables with client payables for
many years. Management believes that these resources, funds provided by
operations, and permanent capital of shareholders' equity and long-term debt,
will satisfy normal financing needs for the foreseeable future.
IJL is subject to liquidity and capital requirements of the SEC, CFTC, and
the NYSE and consistently has operated well in excess of the minimum
requirements. At September 30, 1998, IJL had "net capital" of $56.6 million,
excess net capital of $49.3 million, and a net capital ratio of 15.5%.
CapTrust is also subject to the liquidity and capital requirements of the
SEC and the NASD. At September 30, 1998, CapTrust had net capital of $546,000
and excess net capital of $296,000.
Page 11
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
1998 COMPARED WITH 1997
Net revenues increased $45.3 million, or 21%, from the previous year, while
expenses, other than interest, increased $39.2 million, or 20%. Net income of
$14.7 million was up $3.8 million from the previous year. Overall, agency
commissions increased $17.2 million, or 17%. Increased sales of mutual funds,
annuity products, and listed equities accounted for the majority of the increase
in the private client sector while increased sales volume of listed equities
accounted for the increase in the institutional area.
In principal business, sales credits increased $14.2 million, or 25%, due
to strong growth in institutional fixed income transactions, primarily corporate
bonds and mortgage-backed securities. Net trading gains decreased $2.0 million,
or 26%, primarily from a decrease in OTC market making activities offset by an
increase in corporate fixed income trading.
Investment banking fees and underwriting profits increased $3.2 million, or
46%, due to an increased level of managed underwritings in an improved equity
capital-raising environment. Asset management and advisory fees were up $7.6
million, or 54%, due to the continued growth of asset-based fees charged retail
clients in lieu of transaction-based commissions. Other income was up $2.8
million, or 34%, largely attributable to an increase in money fund distribution
fees and profits realized on certain property investments.
Interest revenues were up about $4.2 million for the year while interest
expenses increased $1.8 million. The resultant increase of $2.4 million in net
interest income for the year is due primarily to an increase in net earnings on
higher levels of client margin loans.
Compensation and benefits costs increased $35.9 million, or 26%, due
primarily to an increase in both revenue-based commissions and profit-driven
incentives, and to significant personnel investments in several revenue
producing areas. Execution, clearing and depository increased $579,000 or 14%
due to increases in trading volume. Professional services costs increased
$848,000, or 20%, due to an increase in consulting services for technology
projects and various reengineering efforts. Printing, postage, and supplies
costs increased $767,000, or 18%, due primarily to increases in transaction
volume. Other operating expenses decreased $669,000, or 11%, as a result of
favorable resolution of legal matters.
1997 COMPARED WITH 1996
Net revenues increased $26.1 million, or 14%, from the previous year, while
expenses, other than interest, increased $24.6 million, also 14%. Net income of
$10.9 million was up $1.5 million from the results of a year ago. Overall,
agency commissions increased $11.4 million, or 13%. Increased sales of mutual
funds, annuity products, and listed equities in the retail sector accounted for
the majority of the increase, negating a modest decline in institutional listed
equities business.
Page 12
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
1997 COMPARED WITH 1996, CONTINUED
In principal business, sales credits increased $3.9 million, or 7%, due to
strong growth in institutional fixed income transactions, primarily in
government securities, corporate bonds, and mortgage-backed securities; net
trading gains increased $800,000, or 11%, primarily from more profitable
corporate debt trading offset partly by a decline in profits from
mortgage-backed securities trading.
Investment banking fees and underwriting profits increased $1.6 million, or
30%, due to an increased level of managed underwritings in an improved equity
capital-raising environment. Asset management and advisory fees were up $4.4
million, or 46%, due to the continued growth of asset-based fees charged retail
clients in lieu of transaction-based commissions and to management and
performance fees associated with a newly organized private investment
partnership.
Interest revenues were up about $1.0 million for the year while interest
expenses decreased $1.3 million. The resultant increase of $2.3 million in net
interest income for the year is due primarily to an increase in net earnings on
higher levels of client margin loans.
Compensation and benefits costs increased $18.4 million, or 15%, due
primarily to an increase in both revenue-based commissions and profit-driven
incentives, and to significant personnel investments in several revenue
producing areas. Promotion and development costs increased $1.7 million, or 26%,
in connection with the continuing effort to build revenue. Professional services
costs increased $1.0 million, or 28%, due to an increase in consulting services
for technology projects and various reengineering efforts. Printing, postage,
and supplies costs increased $700,000, or 19%, due primarily to increases in
transaction volume and expenses for promotional literature.
YEAR 2000
A major technological challenge facing IJL and the financial services
industry is assuring that all electronic systems and programs continue to work
correctly as the year 2000 approaches (denoted hereafter as "Year 2000").
Software that recognizes the last two digits of the year must be adjusted to
recognize all four digits. The challenge encompasses not only IJL's internal
computer programs but also the dependence of all financial service firms upon
each other's systems and upon the third-party vendors that provide services to
the industry.
IJL began its Year 2000 planning in 1995. As both information technology
("IT") systems (e.g. computer hardware and software) and non-IT systems (e.g.
telephone systems and security systems which use embedded technology) are
affected by the Year 2000, many systems were required to be evaluated. For IJL's
IT systems, an initial decision was made to replace the IJL main-frame and its
software, including IJL's internal processing systems. The strategic plan called
for the replacement of all existing systems with client-server hardware and
software. IJL's internal processing systems were replaced with state-of-the-art
relational database oriented languages and report-writers. This process was
completed in March 1998. All present systems are employing Year 2000 compliant
hardware and software. Unit testing has begun to prove the integrity of Year
2000 events. To date, no problems have been found with the internal systems. All
workstations which are not replaced by March 1999 will be tested to ascertain
that they are compliant. To date, most IJL workstations are already Year 2000
compliant.
Page 13
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
YEAR 2000, CONTINUED
For its non-IT systems, IJL has compiled a list of 255 systems, many of
which incorporate embedded chip technology. Some representative systems in this
category are: telephone systems and switches, security systems, elevators, UPS
systems, copiers, faxes, etc. Remediation will be required for some of these
processes, and all such changes are scheduled for availability by the end of
calendar year 1998. IJL is continuously alert to any non-IT systems which may
have yet to been discovered. Moreover, any new non-IT contracts into which IJL
enters now contain provisions requiring Year 2000 compliance.
Substantially all systems and processes provided by third parties have been
identified. IJL is dependent upon a third party service provider for a majority
of its business transactions. While there is no guarantee that the systems of
this service provider will be timely converted and will not have an adverse
effect on IJL's systems, it is important to note that this external provider
processes a large volume of transactions for the entire brokerage industry. The
provider referred to above participated in successful industry-wide testing in
July 1998 and will participate in further industry testing in March 1999. IJL
has participated in testing with the third party provider and is scheduled to
continue testing with them during October 1998 and January 1999.
IJL does not believe the costs associated with the Year 2000 issue will
have a material effect on its financial position or results of operations.
Contingency plans have been developed for 58 of the remaining 97 mission
critical and critical systems. The remaining 40% of these systems are being
researched to determine whether other alternatives are viable or whether the
firm must revert to manual processes until the system is compliant. It is IJL's
goal to complete its contingency planning cycle by the end of calendar year
1998.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which is effective for the Company's 1999 fiscal year end. This
statement establishes standards for the way that public entities report
information about operating segments in annual and interim financial statements.
Adoption of this statement is not expected to have a material impact on the
financial condition of the Company.
In February 1998, FASB issued Statement No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which is effective for the
Company's 1999 fiscal year. This statement amends FASB statements No. 87, 88,
and 106 and standardizes the disclosure requirements for pensions and other
postretirment benefits. Adoption of this statement is not expected to have a
material impact on the financial condition of the Company.
In June 1998, FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for the Company's 2000
fiscal year. This statement requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings, or comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of the
Company anticipates that, due to its limited use of derivative instruments, the
adoption of this statement will not have a material effect on the Company's
results of operations or its financial position.
Page 14
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
EFFECTS OF INFLATION
Because the Company's assets are largely liquid, and because securities
trading inventories are carried at current market values, the impact of
inflation is reflected in its consolidated financial statements. However, the
rate of inflation also affects expenses such as employee compensation, rent, and
communications, and such effects may not be readily recoverable through
commission rates, trading profits, or fees. To the extent that inflation has
other adverse effects on prices and activities in the securities markets and, in
particular, on interest rate conditions in the credit markets, it may adversely
affect the Company's financial position and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
SUPPLEMENTARY FINANCIAL DATA (ALL DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
TOTAL NET INCOME NET EARNINGS PER SHARE*
REVENUES REVENUES BEFORE TAXES INCOME BASIC DILUTED
-------- -------- ------------ ------ ----- -------
FISCAL 1998
<S> <C> <C> <C> <C> <C> <C>
Fourth Quarter $ 69.8 $ 64.7 $ 6.3 $ 4.1 $ 0.68 $ 0.57
Third Quarter 72.5 67.1 6.0 3.8 0.63 0.54
Second Quarter 71.5 65.7 6.2 3.9 0.66 0.59
First Quarter 65.4 60.0 4.7 2.9 0.50 0.45
FISCAL 1997
Fourth Quarter $ 66.3 $ 61.2 $ 4.7 $ 3.3 $ 0.56 $ 0.51
Third Quarter 56.1 51.0 4.1 2.5 0.43 0.40
Second Quarter 57.6 52.7 4.1 2.5 0.44 0.38
First Quarter 52.0 47.2 4.1 2.5 0.44 0.38
</TABLE>
*Restated per Financial Accounting Standard No. 128, "Earnings Per Share"
Page 15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, continued
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of September 30
(All dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 34,307 $ 24,685
Cash and securities segregated for
regulatory purposes 4,507 90,001
Loans under matched securities resale agreements 4,194 12,385
Receivables:
Financing resale agreements 38,178 64,644
Clients 350,478 271,102
Brokers, dealers and clearing agencies 23,289 19,798
Other 6,259 7,889
Trading securities owned 108,720 79,120
Related party secured demand note collateralized
by marketable securities 15,000 -
Land, buildings, and improvements, net 3,593 4,185
Office facilities and equipment, net 9,060 7,391
Goodwill and intangible assets 12,229 12,910
Other assets 42,477 32,598
---------- -----------
$ 652,291 $ 626,708
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings:
Checks payable $ 18,855 $ 23,330
Financing repurchase agreements 50,975 20,568
Borrowings under matched securities repurchase agreements 4,085 12,535
Payables:
Clients 312,937 321,457
Brokers and dealers 10,916 6,793
Other 6,488 11,058
Accrued compensation and benefits 38,029 29,970
Securities sold but not yet purchased 41,787 67,330
Notes payable 3,295 5,270
Other liabilities and accrued expenses 30,352 23,376
---------- -----------
517,719 521,687
---------- -----------
Minority interests 12 208
---------- -----------
Long-term debt:
Senior secured note 16,000 16,000
Related party secured demand note 15,000 -
---------- -----------
31,000 16,000
---------- -----------
548,731 537,895
---------- -----------
Commitments and contingencies
---------- -----------
Shareholders' equity:
Common stock, $.20 par value, 30,000,000
shares authorized in 1998 and 1997,
7,165,847 shares issued 1,433 1,433
Additional paid-in-capital 37,550 36,549
Retained earnings 77,377 63,595
---------- -----------
116,360 101,577
Less: Treasury stock, at cost, 992,140 shares
in 1998 and 1,066,134 shares in 1997 (12,800) (12,764)
---------- -----------
Total shareholders' equity 103,560 88,813
---------- -----------
$ 652,291 $ 626,708
========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 16
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, continued
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 30
(All dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Agency commissions $ 119,949 $ 102,740 $ 91,291
Principal Transactions:
Sales credits 72,343 58,104 54,155
Trading gains, net 5,870 7,880 7,078
Investment banking and underwriting 10,026 6,864 5,281
Asset management and advisory 21,435 13,881 9,511
Interest 38,507 34,320 33,332
Other 11,010 8,213 7,734
--------- --------- ---------
Total revenues 279,140 232,002 208,382
Interest expense 21,584 19,793 21,106
--------- --------- ---------
NET REVENUES 257,556 212,209 187,276
--------- --------- ---------
EXPENSES:
Compensation and benefits 176,127 140,224 121,830
Technology and telephone 18,667 18,335 17,474
Occupancy 10,092 9,371 8,809
Execution, clearance and depository 4,846 4,267 4,098
Promotion and development 9,028 8,327 6,624
Professional services 5,182 4,334 3,376
Printing, postage and supplies 5,078 4,311 3,627
Other operating expenses 5,339 6,008 5,845
--------- --------- ---------
Total expenses 234,359 195,177 171,683
--------- --------- ---------
Income before income taxes 23,197 17,032 15,593
Income tax expense 8,458 6,132 6,238
--------- --------- ---------
NET INCOME $ 14,739 $ 10,900 $ 9,355
========= ========= =========
Basic Earnings Per Share $ 2.47 $ 1.87 $ 1.61
========= ========= =========
Diluted Earnings Per Share $ 2.16 $ 1.74 $ 1.42
========= ========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Weighted average shares:
Primary 5,969,847 5,834,860 5,799,596
========= ========= =========
Fully diluted 6,819,891 6,269,541 7,256,605
========= ========= =========
</TABLE>
Page 17
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, continued
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30
(All dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- - -----------------------------------------------------
Net income $ 14,739 $ 10,900 $ 9,355
-------------- -------------- -------------
Adjustments to reconcile net income to cash provided (used)
by operating activities:
Depreciation and amortization 5,032 6,503 5,006
Deferred income tax benefit (4,611) (4,785) (3,635)
Provision for real estate charges -- -- 850
Other (71) 1,388 1,008
-------------- -------------- -------------
350 3,106 3,229
-------------- -------------- -------------
Changes in operating assets and liabilities:
Cash and securities segregated for
regulatory purposes 85,494 (9,500) 37,115
Loans under matched securities resale and repurchase agreements, net (259) 42 (721)
Net payables to clients (87,896) (7,317) (34,715)
Net receivables from brokers, dealers and clearing agencies 632 11,026 (12,602)
Other receivables 1,630 (3,655) 488
Trading securities owned, net (55,143) (17,778) 56,432
Other assets (5,278) (5,818) (4,040)
Accrued compensation and benefits 8,059 9,030 6,959
Other liabilities and accrued expenses 4,219 9,981 1,250
-------------- -------------- -------------
(48,542) (13,989) 50,166
-------------- -------------- -------------
Cash provided (used) by operating activities (33,453) 17 62,750
-------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- - -----------------------------------------------------
Proceeds from (repayment of ):
Short-term bank borrowings (4,475) 6,769 4,689
Borrowings under financing repurchase and resale agreements, net 56,874 (11,353) (47,437)
Senior secured note -- 16,000 --
Retirement of subordinated debentures -- (15,980) --
Notes payable (1,975) (938) (1,564)
Stock options exercised 369 403 126
Sale of minority interest in consolidated subsidiary 28 8 --
Purchase of stock for treasury (1,625) (4,729) (3,565)
Dividends paid (1,231) (975) (728)
-------------- -------------- -------------
Cash provided (used) by financing activities 47,965 (10,795) (48,479)
-------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- - -----------------------------------------------------
Capital expenditures (4,890) (1,822) (3,523)
-------------- -------------- -------------
Cash used by investing activities (4,890) (1,822) (3,523)
-------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents 9,622 (12,600) 10,748
Cash and cash equivalents at beginning of year 24,685 37,285 26,537
-------------- -------------- -------------
Cash and cash equivalents at end of year $ 34,307 $ 24,685 $ 37,285
============== ============== =============
Cash paid during the year for:
Interest $ 21,377 $ 19,907 $ 21,595
Income taxes $ 18,204 $ 8,931 $ 9,119
Non-cash financing activity:
Borrowings under secured demand note $ 15,000 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 18
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, continued
INTERSTATE /JOHNSON LANE, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
(All dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Total
Common Stock Additional Retained Treasury Stock Shareholders'
------------------ --------------------
Shares Amount Paid-in-Capital Earnings Shares Amount Equity
------------- --------- --------------- -------- ---------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1995 6,883,105 1,377 $ 31,510 $ 45,043 936,783 $ (8,559) $ 69,371
Forfeiture of restricted shares, net 40 4,750 (40)
Purchase of treasury shares 319,600 (3,565) (3,565)
Issuance of restricted shares (434) (224,522) 2,051 1,617
Amortization of restricted shares 377 377
Stock options exercised (336) (50,081) 462 126
Capital contribution 74 74
Net income 9,355 9,355
Dividends paid ($0.12 per share) (728) (728)
------------- --------- ----------- ---------- ----------- --------- -----------
September 30, 1996 6,883,105 1,377 31,231 53,670 986,530 (9,651) 76,627
Forfeiture of restricted shares, net 189 13,691 (123) 66
Purchase of treasury shares 240,934 (4,729) (4,729)
Issuance of restricted shares (284) (127,421) 1,225 941
Amortization of restricted shares 562 562
Stock options exercised (111) (47,600) 514 403
Conversion of debentures 282,742 56 4,962 5,018
Net income 10,900 10,900
Dividends paid ($0.16 per share) (975) (975)
------------- --------- ----------- ---------- ----------- --------- -----------
September 30, 1997 7,165,847 1,433 36,549 63,595 1,066,134 (12,764) 88,813
Forfeiture of restricted shares, net 160 9,143 (90) 70
Purchase of treasury shares 62,234 (1,733) (1,733)
Issuance of restricted shares 412 (107,371) 1,301 1,713
Amortization of restricted shares 611 611
Stock options exercised (108) (38,000) 486 378
Dispositon of subsidiary (74) 274 200
Net income 14,739 14,739
Dividends paid ($0.20 per share) (1,231) (1,231)
------------- --------- ----------- ---------- ----------- --------- -----------
September 30, 1998 7,165,847 $ 1,433 $ 37,550 $ 77,377 992,140 $(12,800) $ 103,560
============= ========= =========== ========== =========== ========= ===========
</TABLE>
Page 19
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, continued
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Interstate/Johnson Lane, Inc. (the "Company") is a Charlotte, North
Carolina-based holding company which, through its principal subsidiary,
Interstate/Johnson Lane Corporation ("IJL"), and other subsidiaries, engages
in securities and futures brokerage for individual and institutional
investors, market-making and underwriting of municipal and corporate
securities, investment management, investment banking and other financial
advisory services, and the sale of mutual funds, annuities and other
financial products. All intercompany balances and transactions have been
eliminated.
Commissions income and sales credits on customers' securities transactions
are recorded by IJL and CapTrust Financial Advisors, LLC ("CapTrust") on a
trade date basis as securities transactions occur. IJL records proprietary
transactions on a settlement date basis, which does not differ materially
from a trade date basis. Asset management and advisory fees, collected
quarterly, are deferred and recognized over the three month period on a
straight-line basis. Securities and futures positions in trading accounts are
valued at market quotations. Securities not readily marketable are carried at
fair realizable value as determined by management. The resulting unrealized
gains and losses are reflected in income.
IJL continues to report assets it has pledged as collateral in secured
borrowings and other arrangements when the secured party cannot sell or
repledge the assets or IJL can substitute collateral or otherwise redeem it
on short notice. IJL generally does not report assets received as collateral
in secured lending and other arrangements because the debtor typically has
the right to redeem the collateral on short notice.
Cash and cash equivalents include cash invested in short-term instruments
with original maturities of three months or less and are not held for sale in
the ordinary course of business.
Goodwill is recorded at cost less accumulated amortization of $5.6 million
at September 30, 1998, and $5.0 million at September 30, 1997. This amount
represents the excess of cost over fair value of net assets acquired, which
is being amortized over 30 years on the straight-line method.
Buildings and improvements, and office facilities and equipment are stated
at cost, less accumulated depreciation and amortization of $100,000 and $24.0
million, respectively, at September 30, 1998, and $4.5 million and $21.0
million, respectively, at September 30, 1997. Depreciation and amortization
are provided by using the straight-line method over an asset's estimated
useful economic life. Buildings are depreciated over 39 years and office
facilities and equipment are depreciated between 2-10 years.
During fiscal year 1998, the Company adopted the provisions of SFAS No.
128, "Earnings Per Share." This statement establishes standards for computing
and presenting earnings per share ("EPS"). The EPS information reported in
this Annual Report on Form 10-K reflects the implementation of SFAS No. 128.
Prior periods have been restated to include the provisions of the statement.
Basic EPS is computed as net income applicable to common shares divided by
weighted common shares outstanding. Diluted EPS represents net income plus
income effect of dilutive securities divided by weighted common shares
outstanding plus potential dilutive common shares from securities such as
options and convertible securities.
Treasury shares are purchased from time to time by the Company to fund
various stock-based compensation plans.
Page 20
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which is effective for the Company's 1999 fiscal year end. This
statement establishes standards for the way that public entities report
information about operating segments in annual and interim financial
statements. Adoption of this statement is not expected to have a material
impact on the financial condition of the Company.
In February 1998, FASB issued Statement No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which is effective for the
Company's 1999 fiscal year. This statement amends FASB statements No. 87, 88,
and 106 and standardizes the disclosure requirements for pensions and other
postretirement benefits. Adoption of this statement is not expected to have a
material impact on the financial condition of the Company.
In June 1998, FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for the Company's
2000 fiscal year. This statement requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings, or comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of the
Company anticipates that, due to its limited use of derivative instruments,
the adoption of this statement will not have a material effect on the
Company's results of operations or its financial position.
Certain 1997 and 1996 amounts have been reclassified for comparative
purposes in 1998.
2. CASH AND SECURITIES SEGREGATED FOR REGULATORY PURPOSES
Segregated for the exclusive benefit of clients at September 30, 1998,
under the provisions of Rule 15c3-3 of the SEC were cash and U.S. government
securities collateralizing approximately $4.5 million of securities resale
agreements. Also segregated under the Commodities Exchange Act was cash of
$7,000.
3. TRADING SECURITIES OWNED/SECURITIES SOLD BUT NOT YET PURCHASED
Securities owned and securities sold but not yet purchased consist of long
and short positions, respectively, in trading accounts.
Trading
(ALL DOLLARS IN THOUSANDS) Trading Securities Sold But
Securities Owned Not Yet Purchased
---------------- -----------------
1998 1997 1998 1997
---- ---- ----- ----
U.S. government/agency
securities $ 6,552 $ 3,785 $38,320 $ 65,353
Mortgage-backed securities 49,550 20,240 -- --
Corporate debt 19,513 18,645 797 293
Corporate stocks 4,256 3,222 1,738 1638
State and municipal debt 28,849 33,228 932 46
--------- -------- ------- --------
$ 108,720 $79,120 $41,787 $ 67,330
========= ======== ======= ========
Page 21
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
4. SHORT-TERM BORROWINGS
Bank loans are obtained from time to time to finance trading securities
owned by IJL (of which a substantial portion is pledged as collateral) and
are payable on demand. At September 30, 1998, IJL had $125 million of unused
call loan facilities. Interest rates on all such loans generally fluctuate
with the lending institutions' market rates; the weighted average interest
rate for 1998 was 6.07% and for 1997 was 5.96%.
5. NOTES PAYABLE
Notes payable to various entities at September 30, 1998 and 1997,
consisted of the following:
<TABLE>
<CAPTION>
(All dollars in thousands) 1998 1997
-------------------------- ---- ----
<S> <C> <C>
Note, bearing interest at 8.75%, with $3,295 $ --
monthly payments of $38,778
and a final payment due on
October 1, 2009
Note, bearing interest at prime plus 2%,
with minimum monthly payments of
$75,000 and a balloon payment due on
January 31, 1998 -- 4,735
Note, bearing interest at 30-Day adjusted
LIBOR with monthly payments of
$33,000 and a balloon payment
due on February 1, 1998 -- 535
----------------------------------
$3,295 $5,270
==================================
</TABLE>
The net book value of the building and improvements collateralizing $3.3
million of the note was $3.6 million at September 30, 1998. The fixed-rate
note provides for monthly payments of principal beginning November 1997, as
follows:
<TABLE>
<CAPTION>
Year ending September 30 (All dollars in thousands)
------------------------ --------------------------
<S> <C>
1999.....................................................................................$ 184
2000.....................................................................................$ 201
2001.....................................................................................$ 219
2002.....................................................................................$ 239
2003.....................................................................................$ 261
Thereafter ..............................................................................$ 2,191
</TABLE>
Page 22
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
6. LONG-TERM DEBT
The Company's long-term borrowings are as follows:
(ALL DOLLARS IN THOUSANDS) 1998 1997
----------------------------
8.95% Senior Secured Note, Due April 15, 2007 $16,000 $16,000
3.5% Secured Demand Note, Due April 2, 2001 15,000 -
----------------------------
$31,000 $16,000
============================
The senior secured note is collateralized by the capital stock of certain
subsidiaries of the Company and by a subordinated loan between the Company
and IJL. The terms of the senior secured note contain various covenants, the
most significant of which require the maintenance of minimum levels of
shareholders' equity and net capital and maximum levels of indebtedness as
defined in the note purchase agreement. At September 30, 1998, the Company
was in compliance with all such restrictive debt covenants. The fixed-rate
note provides for semi-annual interest payments beginning October 15, 1997;
principal is repayable over seven years in equal annual installments
beginning on April 15, 2001.
During March 1998, IJL entered into a $15.0 million secured demand note
with a related party. The 3.5% fixed rate note provides for quarterly
interest payments and matures April 2, 2001. The corresponding secured demand
note receivable from the related party is collateralized by marketable equity
securities, which as of September 30, 1998 had a market value of $24.4
million, and $2 million in cash. The subordinated borrowings are available in
computing net capital under the SEC's Uniform Net Capital Rule. To the extent
that such borrowings are required for IJL's continued compliance with minimum
net capital requirements, they may not be repaid.
Approximate maturities of notes in each of the next five years are as
follows:
<TABLE>
<CAPTION>
Year ending September 30 (All dollars in thousands)
-------------------------------------------------------------------------------------------
<S> <C>
1999..............................................................................$ --
2000..............................................................................$ --
2001..............................................................................$ 17,286
2002..............................................................................$ 2,286
2003..............................................................................$ 2,286
Thereafter........................................................................$ 9,142
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Leases for office space and equipment are accounted for as operating
leases. Approximate minimum rental commitments under noncancelable leases,
some of which contain escalation clauses and renewal options, are as follows:
<TABLE>
<CAPTION>
Year Ending September 30 (All dollars in millions)
-------------------------------------------------------------------------------------------------
<S> <C>
1999 ............................................................................. $ 12.5
2000 ............................................................................. 7.1
2001 ............................................................................... 5.1
2002 ............................................................................... 4.8
2003 ............................................................................... 4.1
Thereafter............................................................................ 24.3
-------
$ 57.9
=======
</TABLE>
Lease expense was $8.2 million in 1998, $7.7 million in 1997, and $7.8
million in 1996.
In lieu of margin deposits with certain clearing agencies, IJL had $3.1
million outstanding at September 30, 1998 on a $20 million irrevocable letter
of credit issued by a commercial bank.
Page 23
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
7. COMMITMENTS AND CONTINGENCIES, CONTINUED
In the normal course of business, IJL enters into underwriting
commitments. Transactions relating to such underwriting commitments that were
open at September 30, 1998 and were subsequently settled had no material
effect on the financial statements as of that date.
The Company and subsidiaries are involved in certain litigation arising in
the ordinary course of business. While some actions seek substantial damages,
management believes, based upon discussion with counsel, that the outcome of
this litigation will not have a material effect on the Company's consolidated
financial position. The materiality of these legal matters to the Company's
future consolidated operating results depends upon the level of future
consolidated results of operations as well as the timing and ultimate
resolution of such legal matters.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
IJL's business activities involve the execution, settlement and financing
of securities transactions generating accounts receivable, and thus may
expose IJL to credit risk in the event a client or other counterparty is
unable to fulfill its contractual obligations. It is IJL's policy to review,
as necessary, the credit standing of each counterparty. IJL controls the risk
associated with collateralized loans by revaluing collateral at current
prices, monitoring compliance with applicable credit limits and industry
regulations, and requiring the posting of additional collateral when
appropriate.
Obligations arising from financial instruments sold short in connection
with its normal trading activities expose IJL to risk in the event market
prices increase, since it may be obligated to repurchase those positions at a
greater price. IJL's short selling primarily involves debt securities, which
are typically less volatile, than equities or options, in periods of stable
interest rates.
Forward and futures contracts provide for the seller agreeing to make
delivery of securities or other instruments at a specified future date and
price. Risk arises from the potential inability of counterparties to honor
contract terms, and from changes in values of the underlying instruments. At
September 30, 1998, IJL's commitments included forward purchase and sale
contracts, involving mortgage-backed securities with long market values of
approximately $94.1 million and short market values of approximately $85.0
million, and futures sales contracts with long values of $2.6 million and
short values of $21.8 million used primarily to hedge municipal bond trading
inventories. While IJL may from time to time participate in the trading of
some derivative securities for its clients, this activity is not a
significant portion of IJL's business.
IJL enters into resale agreements, whereby it lends money by purchasing
U.S. government/agency or mortgage-backed securities from clients or dealers
with an agreement to resell them to the same clients or dealers at a later
date. Such loans are collateralized by the underlying securities, which are
held in custody by IJL and may be converted into cash at IJL's option. In
addition, IJL monitors the market value of the collateral, and issues margin
calls as necessary according to the credit-worthiness of the borrower.
Approximately 89% of all loans under securities resale agreements at
September 30, 1998, were made to four counterparties.
IJL incurs risk in underwriting public securities offerings to the extent
that prospective buyers fail to purchase the securities. IJL attempts to
mitigate this risk through due diligence carried out prior to undertaking the
contractual obligation.
Page 24
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
9. STOCK BASED COMPENSATION
The Company has two stock option plans under which 370,000 shares with
tandem stock appreciation rights were reserved at September 30, 1998 and
1997. The Company has a stock award under which 2,800,000 shares were
reserved at September 30, 1998 and 1997 for issuance of restricted stock,
contingent stock awards and stock options. In addition, the Company has a
Long-Term Incentive Plan ("LTIP") under which 650,000 shares were reserved at
September 30, 1998 and 350,000 shares at September 30, 1997. The Company's
stock based compensation plans are described as follows:
Stock Options
Under the Company's stock option plans, options may be granted to certain
employees and directors at or above the market value of the shares at the
date of grant. Prior to 1997, options granted generally became exercisable at
the rate of one-third each year as of one year after the date of grant,
expiring 10 years thereafter. In 1997, the majority of the options granted
were 100% exercisable upon issuance and expire 10 years thereafter; the
remaining options were 100% exercisable upon meeting certain contingencies,
and expire 7 years thereafter. All contingencies were met as of September 30,
1997. In 1998, 40,000 of the options granted were 100% exercisable upon
issuance and expire 10 years thereafter; the remaining options were 100%
exercisable upon meeting certain contingencies, and expire 10 years
thereafter. None of the contingencies had been met at September 30, 1998.
Information with respect to the stock option plans follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Wgt. Avg. Wgt. Avg. Wgt Avg.
Number Exercise Number Exercise Number Exercise
of shares Price of shares Price of shares Price
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period 359,500 $ 12.47 94,100 $ 6.97 186,433 $ 6.92
Granted 50,000 23.43 310,000 13.50 -- --
Exercised (38,000) 9.95 (47,600) 8.12 (59,833) 3.68
(Forfeited)/Reinstated-net -- -- 3,000 9.15 5,000 6.00
Expired -- -- -- --
------------------------------------------------------------------------------------------
(37,500) 12.75
------------------------------------------------------------------------------------------
End of period 371,500 $ 14.20 359,500 $ 12.47 94,100 $ 6.97
==========================================================================================
Exercisable at
end of period 361,500 $ 13.99 359,500 $ 12.47 94,100 $ 6.97
==========================================================================================
</TABLE>
The following table sets forth information about options outstanding at
September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Wgt. Avg. Wgt. Avg. Wgt. Avg.
Number of Remaining Exercise Number of Exercise
Range of Exercise Prices Shares Cont. Life Price Shares Price
- - ------------------------ ------ ---------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
$ 6.00 - $13.50 336,500 6.73 $ 12.80 336,500 $ 12.80
$21.75 - $30.06 35,000 9.06 27.69 25,000 30.06
------- ---- ------------- ------- ---------
$ 6.00 - $30.06 371,500 6.95 $ 14.20 361,500 $ 13.99
======= ==== ============= ======= =========
</TABLE>
Page 25
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
9. STOCK BASED COMPENSATION, CONTINUED
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), the Company has chosen
to apply Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting
for Stock Issued to Employees", and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for options
granted under the plans. Had compensation cost for the Company's plans been
determined consistent with the fair market value provisions of FAS 123, the
Company's net income would have been reduced to the pro forma amounts below:
<TABLE>
<CAPTION>
1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (dollars in 000's) As reported $ 14,739 $ 10,900 $ 9,355
Pro forma 14,441 10,039 9,355
Basic Earnings Per Share As reported $ 2.47 $ 1.87 $ 1.61
Pro forma $ 2.42 $ 1.72 $ 1.61
Diluted Earnings Per Share As reported $ 2.16 $ 1.74 $ 1.42
Pro forma $ 2.12 $ 1.60 $ 1.42
</TABLE>
The aggregate weighted average fair value of all options granted during
1998 and 1997 were $460,249 and $1,345,723, respectively, determined as of
the grant date. The fair values of options granted were calculated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998: risk-free interest rate of 5.88%;
expected volatility of 36%; dividend yield of 1.3%, and expected lives of 6
years. The following weighted-average assumptions were used for grants in
1997: risk-free interest rate of 6.61%; expected volatility of 27%; dividend
yield of 1.9% (10 year options) and 1.7% (7 year options); and expected lives
of 6.1 years (10 year options) and 4.6 years (7 year options).
Stock Award Program
From time to time the Company may award shares of restricted stock to
certain key employees and to non-employee directors of the Company in lieu of
an annual retainer. The value of these awards is measured as the market value
of the Company's stock on the date of the grant and is amortized over the
restriction period as specified in the award. Approximately 2,500 shares were
issued under this program in 1998 with an approximate grant date market value
of $75,000. Approximately 25,000 shares were issued with an approximate
market value of $341,000 and approximately 21,000 shares were issued with an
approximate market value of $202,000 in 1997 and 1996, respectively.
Performance-Based Stock Award Plan
In 1996, the Company's Board of Directors approved an equity-based
Long-Term Incentive Plan ("LTIP") for senior management. The purpose of the
plan was to recognize their contribution to the Company's growth and
financial performance over the three year period ended September 30, 1998 and
to further align the interests of the Company's senior management and its
stockholders by allowing them to earn increased stock ownership. The LTIP
provided for awards of up to 650,000 shares of the Company stock in October
1998, the amount of which depended on the level of aggregate earnings per
share (as defined in the plan) attained during the three-year measurement
period. As of September 30, 1998, the Company had achieved the earnings per
share goals necessary to trigger the award of all shares reserved for
issuance under the plan. As of September 30, 1998, these shares had a
value of $18.8 million based on a stock price of $29 per share.
Page 26
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
9. STOCK BASED COMPENSATION, CONTINUED
Under the terms of LTIP, a portion of each award was granted in
unrestricted shares and the remainder in restricted shares which vest on
September 30, 2001 subject to the recipients' continued employment to that
date, or his death, disability, or retirement.
Compensation expense is recognized according to the total anticipated
value of the award as of September 30, 1998, and the respective service
periods during which the unrestricted and restricted share portions of the
award are considered to be earned. Compensation expense under the LTIP
totaled $5.4 million in 1998, $2.7 million in 1997, and $1.2 million in 1996.
As discussed in footnote 14, "Subsequent Events", the merger with Wachovia
Corporation is anticipated to occur during the fiscal year 1999 pending
shareholder and regulatory approval. In accordance with LTIP, approval of the
merger by the Company's shareholders will result in immediate vesting of any
restricted shares and will accelerate the recognition of all remaining
unrecognized expense.
Employee Discount Stock Purchase Program
IJL maintains an annual employee stock purchase program pursuant to which
selected employees may, under a deferred compensation plan, purchase shares
of the Company's stock through payroll deductions at a price equal to 80% to
85% of the fair market value of the stock as calculated under the plan. In
1998, approximately 57,000 shares were issued under this plan pursuant to the
1997 program. In 1997, approximately 98,000 shares were issued under this
plan pursuant to the 1996 program. Approximately 46,000 shares will be issued
in 1999 pursuant to the 1998 program. Compensation expense recognized for
1998, 1997, and 1996 was $555,000, $318,000, and $116,000, respectively.
Shares purchased under annual programs are restricted for periods from two to
four years from the date of issue.
Key Employee Stock Purchase Program
In 1996, the Company's Board of Directors adopted a program enabling
certain key producers to enter into agreements with the Company whereby they
would subscribe for and agree to purchase a specified number of shares of
common stock over a five-year period commencing January 1, 1997 and ending
December 31, 2001. Shares were offered at a price specified in the Plan which
may or may not be less than their fair market value on the various award
dates during the period of the program. Payment for the shares by the
employee is effected through a combination of a lump-sum balloon payment at
the end of the period and periodic payroll deductions, which may be used to
purchase unrestricted shares on an after-tax basis or restricted shares on a
pre-tax basis.
A total of 422,500 and 476,000 shares have been reserved for future
issuance at 1998 and 1997, respectively, and compensation expense of $220,000
and $171,000 was recognized in 1998 and 1997, respectively, in connection
with this program. Compensation expense is based on the difference between
the purchase price of the shares and the fair market values on the award
dates and is amortized over the purchase period.
Page 27
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
9. STOCK BASED COMPENSATION, CONTINUED
Deferred Compensation Plan
IJL maintains a non-qualified deferred compensation plan for certain of
its Financial Consultants in the Private Client Group. Eligible participants
direct the investment of their deferred compensation amounts into various
investment vehicles including the common stock of the Company. Participants
vest in the deferred compensation accounts after four years and forfeit their
account balance if they terminate their employment during the vesting period.
The value of the deferred compensation is recognized over the five-year
period of employee service. Compensation expense related to these plans
totaled $3.4 million in 1998, $2.7 million in 1997, and $2.0 million in 1996.
10. QUALIFIED EMPLOYEE BENEFIT PLANS
IJL sponsors a Profit-Sharing and Capital Accumulation Plan (the "CAP")
and an Employee Stock Ownership Plan (the "ESOP"), both of which are
qualified under the Employee Retirement Income Security Act. Under the CAP,
eligible employees may defer a portion of their first $100,000 of annual
compensation, pursuant to Sections 401(a) and 401(k) of the Internal Revenue
Code. IJL may match employee deferrals up to the first 3% of eligible
compensation. Provisions of the ESOP call for the Board of Directors to
establish the amounts to be contributed each year. All employees with one
calendar quarter of service are eligible to participate in both plans.
Contributions to the plans are made so as not to exceed the maximum amounts
allowable as deductions under the Internal Revenue Code and totaled
approximately $1.9 million in 1998, $1.7 million in 1997 and $1.7 million in
1996.
11. INCOME TAXES
Income tax expense (benefit) recorded for financial reporting purposes is
comprised of the following items:
<TABLE>
<CAPTION>
(All dollars in thousands) 1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
Current:
Federal $10,739 $8,939 $8,260
State 2,330 1,978 1,613
--------------------------------------------
13,069 10,917 9,873
Deferred:
Federal (3,903) (3,999) (3,270)
State (708) (786) (365)
--------------------------------------------
(4,611) (4,785) (3,635)
--------------------------------------------
Total Tax Expense $8,458 $6,132 $6,238
============================================
</TABLE>
Page 28
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
11. INCOME TAXES, CONTINUED
Deferred tax expense (benefit) results from different timing in the
recognition of certain revenue and expense items for income tax and financial
statement purposes. The sources of these differences and the tax effect of
each are as follows:
<TABLE>
<CAPTION>
(All dollars in thousands) 1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Compensation and benefits $(3,956) $(2,516) $(1,201)
Real estate, bad debt and
other expenses (620) (760) (12)
Partnership tax losses 8 9 (745)
Other (43) (1,518) (1,677)
------------------------------------
Deferred Tax Benefit $(4,611) $(4,785) $(3,635)
====================================
</TABLE>
The principal differences between the federal statutory rate and the
effective income tax rate are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State taxes, less federal benefit 4.6 4.5 5.2
Tax-exempt interest, net (2.0) (3.9) (3.4)
Goodwill amortization 0.9 1.2 1.3
Other (2.0) (0.8) 1.9
-----------------------------------
Effective Tax Rate 36.5% 36.0% 40.0%
===================================
<CAPTION>
Cumulative deferred taxes not yet realized are included in the
consolidated statement of financial condition on a net basis as deferred tax
assets. At September 30, 1998 and 1997, these were comprised of the
following:
(All dollars in thousands) 1998 1997
-------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Compensation and benefits $10,662 $6,761
Real estate, bad debts and
other expenses 3,920 3,204
------------------------------------
14,582 9,965
Deferred Tax Liabilities:
Partnership tax losses 185 179
------------------------------------
185 179
------------------------------------
Net Deferred Tax Assets $ 14,397 $9,786
====================================
</TABLE>
Page 29
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
12. NET CAPITAL REQUIREMENTS
As a registered broker-dealer and member of the NYSE, IJL is subject to
the SEC's Uniform Net Capital rule. IJL has elected to operate under the
alternative method of the rule, which prohibits a broker-dealer from engaging
in any transactions when its "net capital" is less than 2% of its "aggregate
debit balances" arising from client transactions, as these terms are defined
in the rule. The NYSE may also impose business restrictions on a member firm
if its net capital falls below 5% of its aggregate debit balances. IJL is
also subject to the CFTC minimum net capital requirement. At September 30,
1998, IJL's net capital was $56.6 million, or 15.5% of its aggregate debit
balances, and approximately $49.3 million in excess of its minimum regulatory
requirements.
As a registered broker-dealer and member of the NASD, CapTrust is also
subject to the SEC's Uniform Net Capital Rule. Under the rule, CapTrust is
prohibited from engaging in any transactions when its "net capital" is less
than $250,000 or 1/15th of its "aggregate indebtedness", whichever is
greater, as these terms are defined in the rule. As of September 30, 1998,
CapTrust's net capital was $546,000 and approximately $296,000 in excess of
its minimum regulatory requirements.
Page 30
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NUMERATOR:
Net income - numerator for
basic earnings per share -
income available to common
stockholders $14,739,011 $10,900,323 $ 9,354,624
Effect of dilutive securities:
Convertible debentures -- -- 966,283
----------- ----------- -----------
Numerator for diluted earnings
per share - income available to
common stockholders after
assumed conversions 14,739,011 10,900,323 10,320,907
DENOMINATOR:
Denominator for basic earnings
per share - weighted-average
shares 5,969,847 5,834,860 5,799,596
Effect of dilutive securities:
Employee stock options 302,285 175,699 28,614
Restricted common stock 172,759 233,982 245,353
Performance stock award 375,000 25,000 --
Convertible debentures -- -- 1,183,042
----------- -----------
Dilutive potential common shares 850,044 434,681 1,457,009
Denominator for diluted earnings
per share - adjusted weighted-
average shares and assumed
conversions 6,819,891 6,269,541 7,256,605
=========== =========== ===========
Basic earnings per share $ 2.47 $ 1.87 $ 1.61
=========== =========== ===========
Diluted earnings per share $ 2.16 $ 1.74 $ 1.42
=========== =========== ===========
</TABLE>
For additional disclosures regarding the employee stock options, the
restricted common stock, and the performance stock award, see Note 9.
Options to purchase 37,500 shares of common stock at $12.75 per share were
outstanding during 1996 but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the common shares and, therefore, the effect would be
antidilutive.
Page 31
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
13. EARNINGS PER SHARE, CONTINUED
During the first fiscal quarter of 1999, 650,000 shares of common stock
were awarded in accordance with the provisions of the LTIP (see note 9). The
effect of this transaction will increase the denominator for basic earnings
per share.
14. SUBSEQUENT EVENT
On October 27, 1998, the Company entered into an agreement and plan of
merger with Wachovia Corporation ("Wachovia") pursuant to which the Company
will be merged with Wachovia. The agreement was approved by the boards of the
Company and Wachovia. The transaction, which is subject to approval by the
Board of Governors of the Federal Reserve System, the shareholders of the
Company, as well as various other regulatory authorities, is expected to
close in fiscal 1999.
Page 32
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors oversees the management of the Company. It also
reviews the Company's long-term strategic plans and exercises direct
decision-making authority in key areas, such as declaring dividends.
Personal information and the classification of each of the Directors is
given below. The Directors are divided into three classes, with each class of
directors serving a three-year term. The term of office for the Class I
directors expires in 2001; Class II directors in 1999; and Class III directors
in 2000.
CLASS II DIRECTORS
Dudley G. Pearson
Mr. Pearson, age 55, was elected a director of the Company in January,
1991. Mr. Pearson is Senior Vice President and Regional Manager, having joined
IJL in January, 1987. Mr. Pearson served as Branch Manager of the Atlanta
Monarch office from October, 1988, through April, 1995.
Edward C. Ruff
Mr. Ruff, age 59, was elected a director of the Company in 1988 and served
as its Chief Financial Officer from 1985 to 1997. He is currently serving as
Executive Vice President and Chief Operating Officer of the Company. He has been
a director, Senior Vice President and Chief Financial Officer of IJL Corporation
since he joined the firm in 1976. In April, 1996 he was elected Senior Managing
Director/Chief Financial Officer. He continued in that capacity until October,
1997, when he was elected as Executive Managing Director/Chief Operating
Officer. Mr. Ruff is also a director of ISC Realty Corporation, which is the
managing general partner of Marketplace Income Properties, Atlantic Income
Properties Limited Partnership, Interstate Land Investors I Limited Partnership
and Interstate Land Investors II Limited Partnership, all publicly held real
estate investment partnerships.
Grady G. Thomas, Jr.
Mr. Thomas, age 55, was elected a director of the Company in November,
1988. He joined IJL Corporation in 1977, and was elected Senior Vice President
in 1978. He served as a director from 1987 to 1991. Mr. Thomas directs the
activities of The Interstate Group, a division of IJL which provides
institutional trading and independent research products and services to money
managers and plan sponsors.
Page 33
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
CLASS I DIRECTORS
Peter R. Kellogg
Mr. Kellogg, age 56, was elected a director of the Company in October,
1989. Mr. Kellogg is Senior Managing Director and Chief Executive Officer of the
investment firm of Spear, Leeds & Kellogg ("SLK"), having joined them in 1967.
Mr. Kellogg is also the Chairman of IAT Reinsurance Syndicate Ltd. The Troster
Singer Division of SLK provides execution services to the Company on certain
transactions in over-the-counter securities. Mr. Kellogg is also a director of
The Ziegler Companies, Inc., an investment firm.
B. Franklin Skinner
Mr. Skinner, age 67, was elected a director of the Company in April, 1997.
Mr. Skinner was Chairman and CEO of BellSouth Telecommunications, Inc. before
retiring in 1992. He currently serves as a director of Shoney's Inc., and on the
board of trustees of Davidson College and the Columbia Presbyterian Theological
Seminary. He previously has served as a director of NationsBank Corporation and
the Barclays American Corporation.
Minor Mickel Shaw
Ms. Shaw, age 51, was elected a director of the Company in October, 1997.
For more than five years, she has served as President of Micco Corporation and
Mickel Investment Group, both privately-held companies. She also currently
serves on the board of trustees of Wofford College and The Daniel/Mickel
Foundation of South Carolina.
CLASS III DIRECTORS
John B. Ellis
Mr. Ellis, age 74, was elected a director of the Company in April, 1992.
He retired in 1986 as Senior Vice President-Finance and Treasurer from Genuine
Parts Company, a national distributor of automotive replacement parts, and is
presently director emeritus of that firm. Mr. Ellis is also a director of Hughes
Supply Inc., Integrity Music, Inc., Intermet Corp. and UAP, Inc.
J. Alex McMillan, III
Mr. McMillan, age 66, was elected a director of the Company in July, 1996.
Mr. McMillan retired from the U.S. House of Representatives in 1994 after a
decade of public service. He is currently President of the McMillan Group, a
merchant banking and public affairs consulting firm specializing in health care,
energy, telecommunications, environment and financial services. Mr. McMillan is
also a director of Alydaar Software Corporation.
James H. Morgan
Mr. Morgan, age 51, was elected President and Chief Operating Officer of
both the Company and IJL Corporation in September, 1990, and as a director of
both in October, 1990. He served as Chief Operating Officer from September,
1990, until October, 1994, when he was elected President and Chief Executive
Officer. In October, 1997, he was elected as Chairman and Chief Executive
Officer, effective January 21, 1998. From July, 1989, to September, 1990, Mr.
Morgan was President of Morgan Investments, Inc., a privately owned and operated
investment advisory business. Mr. Morgan served as Vice President of the Company
from 1987 to 1989, and was a director and Senior Vice President of IJL
in various research, equity marketing and investment policy roles from 1986
to 1989.
Page 34
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
In addition to the individuals referred to in the above paragraph, the
following individuals currently serve as executive officers of the Registrant.
Douglas R. Aldridge
Mr. Aldridge, age 44, is a Senior Managing Director of IJL and the head of
its Private Client Group. Mr. Aldridge joined IJL in 1988 and has served as a
retail financial consultant, branch manager of the Atlanta Resurgens branch
office, a regional manager and as Associate Director of the Private Client
Group. In 1996, he was named Managing Director of the Private Client Group and
was elected a Senior Managing Director in 1997.
Edwin A. Dalrymple, Jr.
Mr. Dalrymple, Jr., age 48, is a Senior Managing Director of IJL and is
the President of CapTrust. Mr. Dalrymple joined IJL in 1981, and previously
served as branch manager of the Pinehurst and Charlotte branch offices and as
Associate Director of the Private Client Group. He was elected a Senior Vice
President in 1989 and a Director of IJL in 1991. He was elected a Senior
Managing Director in 1996.
Harvey D. Harrelson
Mr. Harrelson, age 49, has been with IJL since 1981, when he joined the
firm as a bond trader, and currently serves as the head of the Fixed Income
Capital Markets Group, which includes a staff of 84 professionals. He was
elected a Senior Vice President and a Director of IJL in 1989. He was elected a
Senior Managing Director in 1996.
Lewis F. Semones, Jr.
Mr. Semones, Jr., age 40, joined IJL in 1985 as Controller. From May 1988
to November 1989 he was chief financial officer of another regional securities
firm, after which he rejoined IJL as head of internal audit. He was elected a
Senior Vice President of IJL in 1992 and a Director of IJL in 1994. In those
capacities, he had executive responsibility for information technology,
strategic planning, and several other administrative support functions. He was
elected a Senior Managing Director in 1996. In 1997, he served as Chief
Operating Officer of CapTrust. He was named Chief Financial Officer of the
Company in October 1997.
Executive officers of the Company serve at the pleasure of the Board of
Directors.
SECTION 16(A) COMPLIANCE
Section 16(A) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equities securities, If any, to
file with the SEC initial reports of ownership and reports of changes in
ownership of equity securities of the Company.
To the Company's knowledge, based solely on a review of information
provided to it by its directors and executive officers and written
representations that no other reports were required, all Section 16(A) filing
requirements applicable to its officers, directors and greater than ten percent
beneficial owners were within compliance.
Page 35
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of the
Company's Chief Executive Officer and its four other most highly compensated
executive officers during fiscal 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ---------------------
AWARDS PAYOUTS
--------- ---------
OTHER SECURITIE
ANNUAL UNDERLYIN LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) (1) N (#) (#) (2) ($) (3)
- - ------------------- ------ -------- --------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James H. Morgan 1998 230,000 1,100,000 3,053 10,000 160,000 3,135
CHAIRMAN,
PRESIDENT AND 1997 225,000 885,000 3,053 105,000 --- 3,135
CHIEF EXECUTIVE
OFFICER OF THE 1996 225,000 675,000 --- --- --- 3,020
COMPANY
Edward C. Ruff 1998 170,000 730,000 --- --- 75,000 ---
CHIEF OPERATING
OFFICER OF THE 1997 160,000 525,000 --- 37,500 --- ---
COMPANY 1996 160,000 400,000 --- --- --- ---
Lewis F. Semones,
Jr. 1998 150,000 700,000 3,851 --- 72,000 3,369
CHIEF FINANCIAL
OFFICER OF THE 1997 135,000 475,000 3,851 30,000 --- 3,369
COMPANY 1996 125,000 300,000 3,851 --- --- 3,020
Douglas R.
Aldridge (4) 1998 155,000 615,557 15,053 25,000 48,000 3,625
SENIOR MANAGING
DIRECTOR OF 1997 150,000 503,557 15,053 25,000 --- 3,625
IJL 1996 --- --- --- --- --- ---
Harvey D.
Harrelson 1998 145,000 605,000 2,184 --- 59,000 3,148
SENIOR MANAGING
DIRECTOR OF 1997 135,000 365,000 9,547 30,000 --- 3,015
IJL CORPORATION 1996 130,000 230,000 --- --- --- 3,020
</TABLE>
- - ----------------
(1) Amounts presented reflect the purchase price discount applied to shares of
Common Stock purchased during the year under a deferred stock purchase program
maintained by the Company.
(2) Amounts presented reflect the number of restricted and unrestricted shares
awarded pursuant to the Company's Long-Term Incentive Plan ("LTIP"). The value
of such awards as of September 30, 1998 were as follows: Mr. Morgan --
$4,640,000; Mr. Ruff -- $2,175,000; Mr. Semones -- $2,088,000; Mr. Aldridge --
$1,392,000; Mr. Harrelson -- $1,711,000. See "Long-Term Incentive Plan." Other
restricted stock holdings of the Named Executive Officers and their value as of
September 30, 1998 were as follows: Mr. Semones -- 298 shares / $8,642; Mr.
Aldridge -- 1,116 shares / $33,814; and Mr. Harrelson -- 739 shares /
$21,431. Holders of restricted shares that are issued and outstanding
receive dividends on such shares. Officers who have deferred the receipt of
restricted shares awarded under the LTIP are credited with imputed dividends on
such shares.
(3) Amounts presented reflect the allocation of contributions by the Company to
its defined contribution plans on behalf of the Named Executive Officer.
(4) Mr. Aldridge was not a Named Executive Officer during 1996.
Page 36
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
LONG-TERM INCENTIVE PLAN
In 1995, the Board of Directors established the Company's Long-Term
Incentive Plan (the "LTIP") which provided for future awards among a group of
senior executives of shares of the Company's Common Stock based upon the
aggregate earnings per share (as defined in the LTIP) for the three fiscal years
ending September 30, 1998. The purpose of the LTIP was to recognize the
contribution of the Company's executive officers to the Company's substantial
improvement in shareholders' equity and to better align the interests of these
executives with those of the Company's shareholders by allowing them to earn
increased amounts of share ownership. Under the LTIP, aggregate earnings per
share (as defined) of $3.51 were required to award the minimum number of shares
and aggregate earnings per share of $6.30 were required to award the maximum
number of shares. During the measurement period, the Company achieved aggregate
earnings per share (as defined) in excess of $6.30 per share. As a result, the
Compensation and Plans Committee awarded 650,000 shares under the LTIP to 11
executive officers, including each of the Named Executive Officers, and
determined that 60% of each award would consist of restricted shares and 40%
would consist of unrestricted shares. The LTIP provided that, absent a change in
control of the Company, the restricted shares would vest if the participant
remained employed by the Company through September 30, 2001. Pursuant to a stock
bonus deferral plan maintained by the Company (the "Deferral Plan"), the Named
Executive Officers elected to defer for three years the receipt of all of the
restricted shares, and from 50% to 100% of the unrestricted shares, awarded to
them under the LTIP. Accordingly, except upon the occurrence of certain defined
events in the Deferral Plan, including death, disability, termination of
employment or hardship, the Named Executive Officers will not receive the
deferred shares until September 30, 2001.
STOCK OPTIONS
The following table sets forth certain information regarding options to
purchase common stock granted to the Named Executive Officers during fiscal
1998:
OPTION GRANTS IN THE LAST FISCAL YEAR
Percent of
Total
Number Options
of Granted to
Securities Employees
Underlying in Fiscal Grant
Options Year Exercise/ Date
Granted Base Price Expiratio Present
Name (1)(#) (%) ($/Share) Date Value(2)
---- ------ --- --------- ---- --------
Douglas R. Aldridge 25,000 50 $30.06 10/21/07 $300,750
James H. Morgan 10,000 20 13.50 10/21/07 $54,000
(1)Options were granted pursuant to the Company's. Restated Stock Award
Plan. Options are fully vested at the time of issuance. The options
were granted at the fair market value of the shares subject to the
option on the date of the grant.
(2)Grant date fair values were calculated by multiplying the fair values
of the options at the grant date (calculated using the Black-Scholes
option pricing model) by the number of options granted. The following
weighted-average assumptions were used in the pricing model: risk-free
interest rate of 5.88%; expected volatility of 36%; dividend yield of
1.3%; and expected life of 6 years.
Page 37
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
The following table sets forth certain information regarding stock options
exercised by the Named Executive Officers during fiscal 1998 and the value of
unexercised options held by such officers on September 30, 1998.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised *Value of Unexercised
Options at In-The-Money Options
Fiscal Year-End at Year-End
Shares Value ---------------------------- ---------------------------
Acquired Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas R. Aldridge 0 0 50,000 0 $1,450,000 n/a
James H. Morgan 0 0 115,000 0 3,350,000 n/a
Edward C. Ruff 0 0 45,000 0 1,305,000 n/a
Lewis F. Semones, Jr. 0 0 30,000 0 870,000 n/a
</TABLE>
*Based on the difference between the exercise price of the options and the
closing price of the Common Stock on The New York Stock Exchange at September
30, 1998 ($29.00).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of DECEMBER 10, 1998, the number and
percentage of outstanding shares beneficially owned by each person known by the
Company to own more than 5% of the Common Stock, by each director and Named
Executive Officer of the Company, and by all directors and executive officers of
the Company as a group. Unless otherwise indicated, each stockholder named has
sole voting and dispositive power with respect to such stockholder's shares.
Page 38
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
Number of Shares Percent
Name Beneficially Owned(1 of Class
---- -------------------- --------
<S> <C> <C> <C>
Douglas R. Aldridge 76,869 (2) 1.2%
John B. Ellis 5,191 *
Harvey D. Harrelson 60,078 (3) 1.0
Peter R. Kellogg 1,052,499 (4) 16.2
J. Alex McMillan, III 1,240 *
James H. Morgan 243,817 (5) 3.7
Reliance Trust Company, Trustee of
Interstate/ Johnson Lane Corporation
Employee Stock Ownership and PAYSOP Plan
and Trust 375,479 (6) 5.8
Dudley G. Pearson 11,897 (7) *
Edward C. Ruff 146,211 (8) 2.3
Lewis F. Semones, Jr. 52,440 (9) *
Minor Mickel Shaw 999 *
B. Franklin Skinner 1,504 *
Grady G. Thomas, Jr. 176,995 (10) 2.7
All directors and executive officers
as a group (17 persons) 2,005,792 (11) 30.1
*Less than 1%
</TABLE>
(1) Does not include shares that might be deemed to be beneficially owned by a
director or executive officer serving on a committee which may direct the
investment of Common Stock in the Company's Profit Sharing and Capital
Accumulation Plan and Trust ("PSP/CAP") or Employee Stock Ownership and PAYSOP
Plan and Trust ("ESOP/ PAYSOP").
(2) Mr. Aldridge's shares include 1,600 shares owned by his wife, 1,988 shares
of restricted stock, 50,000 shares issuable under currently exercisable stock
options and 162 shares held in the ESOP/PAYSOP and PSP/CAP plans.
(3) Mr. Harrelson's shares include 1,881 shares of restricted stock, 33,000
shares issuable under currently exercisable stock options and 2,138 shares
held in the ESOP/PAYSOP and PSP/CAP plans.
(4) Mr. Kellogg's shares include 100,000 shares held by his wife, 100,000 shares
held by a trust, of which Mr. Kellogg is a trustee; and 499,500 shares held by
IAT Reinsurance Syndicate, Ltd., a Bermuda corporation, of which he is the sole
holder of the voting stock.
(5) Mr. Morgan's shares include 86 shares owned by his wife, 274 shares owned by
his children, 222 shares held in the ESOP/PAYSOP and PSP/CAP plans and 45,000
shares issuable under currently exercisable stock options.
(6) This stockholder has dispositive power with respect to these shares, and
voting power only as to shares not allocated to participants' accounts. The
address of this holder is: One Atlantic Plaza, Suite 2840, 950 East Paces Ferry
Road, Atlanta, GA 30326-1142.
(7) Mr. Pearson's shares include 162 shares held in the ESOP/PAYSOP and PSP/CAP
plans.
(8) Mr. Ruff's shares include 6,320 shares held in the ESOP/PAYSOP and PSP/CAP
plans.
Page 39
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
(9) Mr. Semones' shares include 607 shares of restricted stock and 217 shares
held in the ESOP/PAYSOP and PSP/CAP plans.
(10) Mr. Thomas' shares include 31,674 shares restricted stock; 4,075 shares
held in the ESOP/PAYSOP and PSP/CAP plans; and 10,000 shares issuable under
currently exercisable stock options.
(11) Shares of all directors, nominees for director and executive officers as a
group include 138,000 shares issuable under currently exercisable stock options;
8,253 shares of restricted stock; and 23,155 shares held in the ESOP/PAYSOP and
PSP/CAP plans.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATED TRANSACTIONS
From time to time, directors and executive officers of the Company may
borrow money from IJL through margin accounts. These loans are made
in the normal course of IJL's business as a broker-dealer, are made on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and do not involve more than the normal risks of credit or
present other unfavorable features.
In March, 1998, IJL entered into a $15 million secured demand note with
Mr. Kellogg. This arrangement provides $15 million regulatory capital
to IJL Corporation by allowing it to borrow up to the amount of the Note at any
time. Mr. Kellogg's obligation to loan these funds is collateralized by cash
and a portfolio of securities valued in excess of the obligation. Mr. Kellogg is
paid 3.5% annual interest on his $15 million loan obligation and a floating
rate (currently 5%) on his cash collateral. If IJL borrows funds from Mr.
Kellogg, a higher interest rate will be negotiated by the parties at that time.
COMPENSATION AND PLANS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Kellogg, a member of the Compensation and Plans Committee, is Senior
Partner and Chief Executive Officer of SLK which, through its Spear Leeds
Kellogg and Troster Singer Divisions, provides execution services to the Company
of certain transactions in listed and over-the-counter securities, respectively.
Page 40
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
----------------------------------
Consolidated Statements of Financial Condition as of
September 30, 1998 and 1997 (audited)
Consolidated Statements of Operations for the years ended
September 30, 1998, 1997 and 1996 (audited)
Consolidated Statements of Cash Flows for the years
ended September 30, 1998, 1997 and 1996 (audited)
Consolidated Statements of Changes in Shareholders'
Equity for the years ended September 30, 1998, 1997
and 1996 (audited)
Notes to Consolidated Financial Statements (audited)
Report of Independent Accountants
Financial Statement Schedule:
II - Valuation and Qualifying Accounts (audited)
All other schedules are omitted because they are not required, are not
applicable, or because the required information is given in the consolidated
financial statements or notes thereto.
Page 41
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
(2)(3) Exhibits:
- - ---------
(i) The following exhibits are filed as part of this report:
Exhibit
-------
2 Agreement and Plan of Merger, dated as of October 27, 1998, by
and between Wachovia Corporation and Interstate/Johnson Lane,
Inc.
3(a) Restated Certificate of Incorporation of Interstate
Securities, Inc. filed May 11, 1987
3(b) Certificate of Amendment to the Restated Certificate of
Incorporation of Interstate Securities, Inc. filed October
17, 1988
3(c) Certificate of Amendment to the Restated Certificate of
Incorporation of Interstate/Johnson Lane, Inc. filed February
14, 1997
3(d) By-laws of Interstate/Johnson Lane, Inc.
10(p) Note Purchase Agreement with The Northwestern Mutual Life
Insurance Company
10(q) Schedule No. 2 to ADP Master Services Agreement
10(r) IJL Financial Center Lease Agreement
10(s) Resurgens Plaza Lease Agreement
10(t) Stock Option Agreement, dated as of October 27, 1998, by and
between Wachovia Corporation and Interstate/Johnson Lane, Inc.
21 Subsidiaries
23 Consent of Independent Accountants
(ii) The following exhibits have been previously filed:
4(a) Specimen Certificate of Common Stock, incorporated herein by
reference to the Company's Form S-1 Registration Statement
(Reg. No. 2-98424), which became effective on July 31, 1985.
10(a) 1985 Incentive Stock Option Plan, incorporated herein by
reference to the Company's Form S-1 Registration Statement
(Reg. No. 2-98424), which became effective on July 31, 1985.*
10(b) Interstate Securities Corporation Profit-Sharing and Capital
Accumulation Plan and Trust, Amended and Restated as of
October 1, 1984, incorporated herein by reference to the
Company's Form S-1 Registration Statement (Reg. No. 2-98424),
which became effective on July 31, 1985.*
Page 42
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
(ii) Exhibits previously filed, continued:
10(c) Interstate Securities Corporation Employee Stock Ownership and
PAYSOP Plan and Trust, Amended and Restated as of October 1,
1984, incorporated herein by reference to the Company's Form
S-1 Registration Statement (Reg. No. 2-98424), which became
effective on July 31, 1985.*
10(d) Lease Agreement dated January 27, 1981, between Interstate and
JACMABRUTER, a North Carolina partnership, incorporated herein
by reference to the Company's Form S-1 Registration Statement
(Reg. No. 2-98424), which became effective on July 31, 1985.
10(e) Lease Agreement dated October 21, 1983, between Interstate and
NCNB National Bank of North Carolina, co-trustee (u/w of
Walter H. Hook, Sr. and u/a Walter W. Hook, Jr.), incorporated
herein by reference to the Company's Form S-1 Registration
Statement (Reg. No. 2-98424), which became effective on July
31, 1985.
10(f) Ominbus Account Agreement dated May 1, 1984, between
Interstate and Pershing Futures, a Division of Donaldson,
Lufkin & Jenrette Securities Corporation, incorporated herein
by reference to the Company's Form S-1 Registration Statement
(Reg. No. 2-98424), which became effective on July 31, 1985.
10(g) Financial Information Service Agreement dated March 5, 1981,
between Interstate and Quotron Systems, Inc., incorporated
herein by reference to the Company's Form S-1 Registration
Statement (Reg. No. 2-98424), which became effective on July
31, 1985.
10(h) Financial Data Base Services Agreement dated December 3, 1984,
between Interstate and Quotron Systems, Inc., incorporated
herein by reference to the Company's Form S-1 Registration
Statement (Reg. No. 2-98424), which became effective on July
31, 1985.
10(i) Form of Indemnity Agreement entered into between Interstate
Securities, Inc. and each of its Directors and Officers,
incorporated herein by reference to Form 10-K filed December
23, 1986.*
10(j) Interstate/Johnson Lane, Inc. 1985 Non-qualified Stock Option
Plan, incorporated herein by reference to Form 10-Q filed
February 12, 1986.*
Page 43
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
10(k) Lease agreement dated October 9, 1987, between Interstate
Securities, Inc., and Office On The Square Limited
Partnership, a North Carolina limited partnership,
incorporated herein by reference to Form 10-K filed December
2, 1988.
10(l) Lease agreement dated January 25, 1990, between
Interstate/Johnson Lane Corporation and RESURGENS PLAZA SOUTH
ASSOCIATES, a Georgia general partnership, incorporated herein
by reference to the Company's Form S-1 Registration Statement
(Reg. No. 2-98424), which became effective on July 31, 1985.
10(m) Lease agreement dated December 30, 1991, between
Interstate/Johnson Lane Corporation and ADP Financial
Information Services, Inc., incorporated herein by reference
to the Company's Form S-1 Registration Statement (Reg. No.
2-98424), which became effective on July 31, 1985.
10(n) Lease agreement dated June 8, 1993, between Interstate/Johnson
Lane Corporation and Vanguard / IJL Limited Partnership
incorporated herein by reference to Form 10-K filed December
23, 1993.
10(o) Amended Long-Term Incentive Plan of Interstate/Johnson Lane,
Inc. as of October 21, 1997 incorporated herein by reference
to Form 10-K filed herein by reference to Form 10-K filed
December 23, 1997.*
- - ----------
* Indicates a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
-------------------
There were no 8-K reports filed during the fourth quarter of fiscal year
1998.
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into registrant's Registration Statements on
Form S-8 as follows:
Interstate/Johnson Lane, Inc.
Amended and Restated
Stock Award Plan, 10/21/96 Filed 12/16/96
Interstate/Johnson Lane, Inc.
Amended and Restated
1987 Stock Award Plan Filed 10/26/94
Interstate/Johnson Lane, Inc.
Amended and Restated
1987 Stock Award Plan Filed 09/13/91
Page 44
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
Interstate/Johnson Lane, Inc.
Amended and Restated
1985 Incentive Stock Option Plan Filed 11/06/89
Interstate/Johnson Lane, Inc.
1985 Non-Qualified Stock Option Plan Filed 11/06/89
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim arises for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person in connection with the securities being registered), the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Page 45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Interstate/Johnson Lane, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 41 present fairly, in all material
respects, the financial position of Interstate/Johnson Lane, Inc. and
Subsidiaries at September 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1998, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedules listed in the index
appearing under Item 14(a)(1) and (2) on page 41 present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedules are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Charlotte, North Carolina
October 30, 1998
Page 46
<PAGE>
SCHEDULE II -- Valuation and Qualifying Accounts
INTERSTATE/JOHNSON LANE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Additions
Balance charged
at to costs Balance
beginning and at end of
Description of period expenses Deductions period
----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998
Provision for real estate charges:
Asset valuation accounts $8,715,087 $(5,442,496)A $3,272,591
Reserves 101,886 -- -- 101,886
Reserves for uncollectible
client accounts: Asset
valuation accounts 316,946 53,725 (62,959)B 307,712
Reserve for lease obligations 8,934 81,618 (85,202)A 5,350
YEAR ENDED SEPTEMBER 30, 1997
Provision for real estate charges:
Asset valuation accounts $8,534,826 $180,261 -- $8,715,087
Reserves 101,886 -- 101,886
Reserves for uncollectible
client accounts: Asset
valuation accounts 343,294 76,488 (102,836)B 316,946
Reserve for lease obligations 18,016 84,127 (93,209)A 8,934
YEAR ENDED SEPTEMBER 30, 1996
Provision for real estate charges:
Asset valuation accounts $7,433,789 $1,101,037 -- $8,534,826
Reserves 250,000 -- (76,884)B 101,886
(71,250)A
Reserves for uncollectible
client accounts: Asset
valuation accounts 475,918 276,773 (409,397)B 343,294
Reserve for lease obligations 37,317 63,144 (82,445)A 18,016
</TABLE>
A - Payments charged to reserve
B - Specific account charge-offs
Page 47
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
AND CONSOLIDATED SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15d of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on December 23, 1998.
INTERSTATE/JOHNSON LANE, INC.
BY: /s/ James H. Morgan
________________________
James H. Morgan, President
Chief Executive Officer
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James H. Morgan
- - ------------------------ President, Chief Executive Officer,
James H. Morgan Chairman of the Board of
Directors, and Director December 23, 1998
/s/ Edward C. Ruff
- - ------------------------ Executive Vice President, Chief
Edward C. Ruff Operating Officer, and Director December 23, 1998
/s/ Lewis F. Semones, Jr.
- - ------------------------- Chief Financial Officer
Lewis F. Semones, Jr (Principal Financial Officer) December 23, 1998
/s/ C. Fred Wagstaff, III
- - ------------------------- Assistant Vice President
C. Fred Wagstaff, III (Principal Accounting Officer) December 23, 1998
/s/ J. Alex McMillan, III
- - ------------------------- Director December 23, 1998
J. Alex McMillan, III
/s/ Dudley G. Pearson
- - ------------------------ Director December 23, 1998
Dudley G. Pearson
/s/ Grady G. Thomas, Jr.
- - ------------------------ Director December 23, 1998
Grady G. Thomas, Jr.
Page 48
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- - ------ ----------------------
2 Agreement and Plan of Merger, dated as of October 27, 1998, by
and between Wachovia Corporation and Interstate/Johnson Lane,
Inc.
3(a) Restated Certificate of Incorporation of Interstate
Securities, Inc. filed May 11, 1987
3(b) Certificate of Amendment to the Restated Certificate of
Incorporation of Interstate Securities, Inc. filed October
17, 1988
3(c) Certificate of Amendment to the Restated Certificate of
Incorporation of Interstate/Johnson Lane, Inc. filed February
14, 1997
3(d) By-laws of Interstate/Johnson Lane, Inc.
10(p) Note Purchase Agreement with The Northwestern Mutual Life
Insurance Company
10(q) Schedule No. 2 to ADP Master Services Agreement
10(r) IJL Financial Center Lease Agreement
10(s) Resurgens Plaza Lease Agreement
10(t) Stock Option Agreement, dated as of
October 27, 1998, by and between Wachovia
Corporation and Interstate/Johnson Lane,
Inc.
21 Subsidiaries
23 Consent of Independent Accountants
Page 49
EXHIBIT 2
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- - --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 27, 1998
BY AND BETWEEN
WACHOVIA CORPORATION
AND
INTERSTATE/JOHNSON LANE, INC.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
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TABLE OF CONTENTS
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RECITALS ............................................................ 1
ARTICLE I
Certain Definitions ............................................. 1
1.01 Certain Definitions ....................................... 1
ARTICLE II
The Merger ...................................................... 5
2.01 THE MERGER ................................................ 5
2.02 EFFECTIVE DATE AND EFFECTIVE TIME ......................... 5
2.03 PLAN OF MERGER ............................................ 5
2.04 INTEGRATION OF LEGAL ENTITIES ............................. 5
ARTICLE III
Consideration; Exchange Procedures
3.01 MERGER CONSIDERATION ...................................... 5
3.02 RIGHTS AS STOCKHOLDERS; STOCK TRANSFERS ................... 6
3.03 FRACTIONAL SHARES ......................................... 6
3.04 EXCHANGE PROCEDURES ....................................... 6
3.05 ANTI-DILUTION PROVISIONS .................................. 7
ARTICLE IV
Actions Pending Merger
4.01 FOREBEARANCES OF IJL. ..................................... 7
4.02 FOREBEARANCES OF WACHOVIA ................................. 8
ARTICLE V
Representations and Warranties
5.01 DISCLOSURE SCHEDULES ...................................... 9
5.02 STANDARD .................................................. 9
5.03 REPRESENTATIONS AND WARRANTIES OF IJL ..................... 9
5.04 REPRESENTATIONS AND WARRANTIES OF WACHOVIA ................ 17
ARTICLE VI
Covenants
6.01 REASONABLE BEST EFFORTS ................................... 20
6.02 STOCKHOLDER APPROVALS ..................................... 20
6.03 REGISTRATION STATEMENT .................................... 20
6.04 PRESS RELEASES ............................................ 21
6.05 ACCESS; INFORMATION ....................................... 21
6.06 ACQUISITION PROPOSALS ..................................... 21
6.07 AFFILIATE AGREEMENTS ...................................... 21
6.08 TAKEOVER LAWS ............................................. 22
6.09 CERTAIN POLICIES .......................................... 22
6.10 NYSE LISTING .............................................. 22
6.11 REGULATORY APPLICATIONS ................................... 22
6.12 INDEMNIFICATION ........................................... 22
6.13 BENEFIT PLANS ............................................. 23
6.14 RETENTION PROGRAM ......................................... 24
6.15 SECTION 15 OF THE INVESTMENT COMPANY ACT .................. 24
6.16 NOTIFICATION OF CERTAIN MATTERS ........................... 24
6.17 DIVIDEND COORDINATION ..................................... 24
ARTICLE VII
Conditions to Consummation of the Merger
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER 24
7.02 CONDITIONS TO OBLIGATION OF IJL ........................... 25
7.03 CONDITIONS TO OBLIGATION OF WACHOVIA ...................... 25
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ARTICLE VIII
Termination
8.01 TERMINATION ............................................... 26
8.02 EFFECT OF TERMINATION AND ABANDONMENT ..................... 26
ARTICLE IX
Miscellaneous ................................................... 27
9.01 SURVIVAL .................................................. 27
9.02 WAIVER; AMENDMENT ......................................... 27
9.03 COUNTERPARTS .............................................. 27
9.04 GOVERNING LAW ............................................. 27
9.05 WAIVER OF JURY TRIAL ...................................... 27
9.06 EXPENSES .................................................. 27
9.07 NOTICES ................................................... 27
9.08 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES ........ 28
9.09 INTERPRETATION; EFFECT .................................... 28
EXHIBIT A Stock Option Agreement [See Appendix B of this Proxy
Statement]
EXHIBIT B Form of Shareholder Agreement [See Appendix C of this Proxy
Statement]
EXHIBIT C List of Persons to Execute Employment Agreements [omitted]
EXHIBIT D Terms and Conditions of Retention Program [omitted]
EXHIBIT E Form of Plan of Merger
EXHIBIT F Form of Affiliate Agreement [omitted]
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AGREEMENT AND PLAN OF MERGER, dated as of October 27, 1998 (this
"AGREEMENT") by and between Interstate/ Johnson Lane, Inc. ("IJL") and Wachovia
Corporation ("WACHOVIA").
RECITALS
A. INTERSTATE/JOHNSON LANE, INC. IJL is a Delaware corporation, having its
principal place of business in Charlotte, North Carolina.
B . WACHOVIA CORPORATION. Wachovia is a North Carolina corporation, having
its principal place of business in Winston-Salem, North Carolina.
C. STOCK OPTION AGREEMENT. As a condition and an inducement to Wachovia's
entering into this Agreement, IJL has granted to Wachovia an option pursuant to
a stock option agreement in substantially the form of EXHIBIT A hereto (the
"Stock Option Agreement").
D. SHAREHOLDER AGREEMENTS. As a further condition and inducement to the
willingness of Wachovia to enter into this Agreement, shareholders of IJL who
are also directors or executive officers of IJL (including certain of their
affiliates) holding the power to vote in excess of 25% of the outstanding
shares of IJL Common Stock have entered into agreements with Wachovia, in the
form of EXHIBIT B hereto, under which each shareholder has agreed to vote in
favor of this Agreement.
E. EMPLOYMENT AGREEMENTS. As a further condition and inducement to the
willingness of Wachovia to enter into this Agreement, certain employees of IJL
identified on EXHIBIT C have executed and delivered employment agreements with
Wachovia in substantially the forms provided to IJL.
F. RETENTION PROGRAM. Wachovia and IJL have agreed to establish a
retention program on the terms described herein and in EXHIBIT D, the purpose
of which is to retain the services of certain employees of IJL following the
Merger.
G. INTENTIONS OF THE PARTIES. It is the intention of the parties to this
Agreement that the business combination contemplated hereby be treated as a
"reorganization" under Section 368 of the Internal Revenue Code of 1986 (the
"CODE").
H. BOARD ACTION. The respective Boards of Directors of each of Wachovia
and IJL have determined that it is advisable and in the best interests of their
respective companies and their stockholders to consummate the strategic
business combination transaction provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 CERTAIN DEFINITIONS. The following terms are used in this Agreement
with the meanings set forth below:
"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.
"ACQUISITION PROPOSAL" has the meaning set forth in Section 6.06.
"ADVISORY AGREEMENT" has the meaning set forth in 5.03(k)(l).
"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.
"BSE" means the Boston Stock Exchange, Inc.
"CFTC" means the United States Commodities Futures Trading Commission.
"CLIENT" means any Person, including the Registered Funds, to which IJL or
any of its Subsidiaries provides products or services under any Contract.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"COMPANY REPORTS" has the meaning set forth in 5.03(k)(x).
"COMPENSATION AND BENEFIT PLANS" has the meaning set forth in Section
5.03(p).
"CONSULTANTS" has the meaning set forth in 5.03(p)(i).
"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.
"COSTS" has the meaning set forth in Section 6.12(a).
"DERIVATIVES CONTRACTS" has the meaning assigned in Section 5.03(v).
"DGCL" means the General Corporation Law of the State of Delaware.
"DIRECTOR" has the meaning set forth in Section 5.03(p)(i).
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 5.01.
"EFFECTIVE DATE" means the date on which the Effective Time occurs.
"EFFECTIVE TIME" means the effective time of the Merger, as provided for
in Section 2.02.
"EMPLOYEE" has the meaning set forth in Section 5.03(p)(i).
"EMPLOYMENT AGREEMENTS" means, collectively, the employment agreements
executed and delivered between Wachovia and each of the several officers and
employees of IJL and its Subsidiaries identified in EXHIBIT C, which agreements
are in substantially the form provided to IJL.
"ENVIRONMENTAL LAWS" means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Clean Water Act,
the Federal Clean Air Act, and the Occupational Safety and Health Act, each as
amended, regulations promulgated thereunder, and state counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" has the meaning set forth in Section 5.03(p)(iii).
"ERISA AFFILIATE PLAN" has the meaning set forth in Section 5.03(p)(iii).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"EXCHANGE AGENT" has the meaning set forth in Section 3.04(a).
"EXCHANGE FUND" has the meaning set forth in Section 3.04(a).
"EXCHANGE RATIO" has the meaning set forth in Section 3.01(a).
"FINANCIAL STATEMENTS" has the meaning set forth in Section 5.03(g)
"FUND BOARD" has the meaning assigned in Section 5.03(l).
"GOVERNMENTAL AUTHORITY" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"IJL" has the meaning set forth in the preamble to this Agreement.
"IJL AFFILIATE" has the meaning set forth in Section 6.07(a).
"IJL BOARD" means the Board of Directors of IJL.
"IJL BY-LAWS" means the Amended and Restated By-laws of IJL.
"IJL CERTIFICATE" means the Amended and Restated Certificate of
Incorporation of IJL.
"IJL COMMON STOCK" means the common stock, par value $0.20 per share, of
IJL.
"IJL MEETING" has the meaning set forth in Section 6.02.
"IJL STOCK OPTION" has the meaning set forth in Section 6.13(b).
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"IJL STOCK PLANS" has the meaning set forth in Section 6.13(b).
"INDEMNIFIED PARTY" has the meaning set forth in Section 6.12(a).
"INSURANCE AMOUNT" has the meaning set forth in Section 6.12(b).
"INSURANCE POLICY" has the meaning set forth in Section 5.03(y).
"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, disregarding Section 3(c) thereof, that is sponsored,
organized, advised or managed by IJL 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.
"LIEN" means any charge, mortgage, pledge, security interest, restriction,
claim, lien, or encumbrance.
"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, business or prospects of
Wachovia and its Subsidiaries, taken as a whole, or IJL and its Subsidiaries,
taken as a whole, respectively, or (2) the ability of either Wachovia or IJL
timely to perform its obligations under this Agreement or otherwise to
consummate the transactions contemplated by this Agreement.
"MATERIAL ADVERSE EFFECT" means, with respect to Wachovia or IJL, as the
case may be, any effect that (i) is material and adverse to the financial
position, results of operations, business or prospects of Wachovia and its
Subsidiaries taken as a whole or IJL and its Subsidiaries taken as a whole,
respectively, other than any effects of (a) changes in the United States
economy or securities markets in general or (b) changes in the financial
services industry in general and, in each of (a) and (b), not specifically
relating to Wachovia or IJL and their respective Subsidiaries, or (ii) would
materially impair the ability of either Wachovia or IJL to perform its
obligations under this Agreement or otherwise materially threaten or materially
impede or delay the consummation of the Merger and the other transactions
contemplated by this Agreement.
"MERGER" has the meaning set forth in Section 2.01.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.01.
"MSRB" means the Municipal Securities Rulemaking Board.
"NASD" means the National Association of Securities Dealers, Inc.
"NBCA" means the North Carolina Business Corporation Act.
"NEW CERTIFICATE" has the meaning set forth in Section 3.04(b).
"NYFE" means the New York Futures Exchange, Inc.
"NYSE" means the New York Stock Exchange, Inc.
"NORTH CAROLINA SECRETARY" has the meaning set forth in Section 2.01(b).
"OLD CERTIFICATE" has the meaning set forth in Section 3.04(b).
"PBGC" means the Pension Benefit Guaranty Corporation.
"PENSION PLAN" has the meaning set forth in Section 5.03(q).
"PERSON" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust or unincorporated
organization.
"PLANS" has the meaning set forth in Section 5.03(q).
"PREVIOUSLY DISCLOSED" by a party shall mean information set forth in its
Disclosure Schedule.
"PROXY STATEMENT" has the meaning set forth in Section 6.03.
"REGISTERED FUNDS" has the meaning assigned in Section 5.03(l).
"REGISTRATION STATEMENT" has the meaning set forth in Section 6.03.
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"REPLACEMENT OPTION" has the meaning set forth in Section 6.13(b).
"REPLACEMENT SHARES" has the meaning set forth in Section 6.13(c).
"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.
"RETAINED EMPLOYEES" has the meaning set forth in Section 6.13(a).
"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.
"SEC" means the Securities and Exchange Commission.
"SEC DOCUMENTS" has the meaning set forth in Section 5.03(g).
"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 NASD, the NYSE, the AMEX, the
BSE, the NYFE, 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 IJL or one of its Subsidiaries is
otherwise subject.
"STOCK OPTION AGREEMENT" has the meaning set forth in Recital C.
"SUBSIDIARY" and "SIGNIFICANT SUBSIDIARY" have the meanings ascribed to
them in Rule 1-02 of SEC Regulation S-X.
"SUBSIDIARY COMBINATION" has the meaning assigned in Section 2.04.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.01.
"TAKEOVER LAWS" has the meaning set forth in Section 5.03 (t).
"TAX" and "TAXES" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gross receipts, gains, sales,
use, ad valorem, goods and services, capital, production, transfer, franchise,
windfall profits, license, withholding, payroll, employment, disability,
employer health, excise, estimated, severance, stamp, occupation, property,
environmental, unemployment or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority whether
arising before, on or after the Effective Date.
"TAX RETURNS" means any return, amended return or other report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be filed with respect to any Tax.
"TREASURY STOCK" shall have the meaning set forth in Section 5.03(b).
"WACHOVIA" has the meaning set forth in the preamble to this Agreement.
"WACHOVIA BOARD" means the Board of Directors of Wachovia.
"WACHOVIA COMMON STOCK" means the common stock, par value $5.00 per share,
of Wachovia.
"WACHOVIA PREFERRED STOCK" means the preferred stock, par value $5.00 per
share, of Wachovia.
"WACHOVIA STOCK" means, collectively, Wachovia Common Stock and Wachovia
Preferred Stock.
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ARTICLE II
THE MERGER
2.01 THE MERGER. (a) At the Effective Time, IJL shall merge with and into
Wachovia (the "MERGER"), the separate corporate existence of IJL shall cease
and Wachovia shall survive and continue to exist as a North Carolina
corporation (Wachovia, as the surviving corporation in the Merger, sometimes
being referred to herein as the "SURVIVING CORPORATION"). Wachovia may at any
time prior to the Effective Time change the method of effecting the combination
with IJL (including, without limitation, the provisions of this Article II) if
and to the extent it deems such change to be necessary or appropriate;
PROVIDED, HOWEVER, that no such change shall (i) alter or change the amount or
kind of consideration to be issued to holders of IJL Common Stock as provided
for in this Agreement (the "MERGER CONSIDERATION"), (ii) adversely affect the
tax treatment of IJL's stockholders as a result of receiving the Merger
Consideration or (iii) materially impede or delay consummation of the
transactions contemplated by this Agreement. In the event of such an election,
the parties agree to execute an appropriate amendment to this Agreement in
order to reflect such election.
(b) Subject to the satisfaction or waiver of the conditions set forth in
Article VII, the Merger shall become effective upon the occurrence of the
filing in the office of the Secretary of State of Delaware of a certificate of
merger in accordance with Section 252 of the DGCL and the filing in the Office
of the Secretary of State of the State of North Carolina (the "NORTH CAROLINA
SECRETARY") of articles of merger in accordance with Section 55-11-05 of the
NBCA or such later date and time as may be set forth in such certificate and
articles. The Merger shall have the effects prescribed in the NBCA and the
DGCL.
(c) ARTICLES OF INCORPORATION AND BY-LAWS. The articles of incorporation
and by-laws of Wachovia immediately after the Merger shall be those of Wachovia
as in effect immediately prior to the Effective Time.
(d) DIRECTORS AND OFFICERS OF WACHOVIA. The directors and officers of
Wachovia immediately after the Merger shall be the directors and officers of
Wachovia immediately prior to the Effective Time, until such time as their
successors shall be duly elected and qualified.
2.02 EFFECTIVE DATE AND EFFECTIVE TIME. Subject to the satisfaction or
waiver of the conditions set forth in Article VII, the parties shall cause the
effective date of the Merger (the "EFFECTIVE DATE") to occur on (a) the fifth
business day to occur after the last of the conditions set forth in Article VII
shall have been satisfied or waived in accordance with the terms of this
Agreement (or, at the election of Wachovia, on the last business day of the
month in which such day occurs or, if such last business day occurs on one of
the last five business days of such month, on the last business day of the
succeeding month) or (b) such other date to which the parties may agree in
writing. The time on the Effective Date when the Merger shall become effective
is referred to as the "EFFECTIVE TIME."
2.03 PLAN OF MERGER. Wachovia and IJL hereby enter into a separate plan of
merger, in substantially the form of EXHIBIT E, for purposes of any filing
requirement.
2.04 INTEGRATION OF LEGAL ENTITIES. At or following the Effective Time the
parties hereto currently intend to effectuate, or cause to be effectuated, the
combination (the "SUBSIDIARY COMBINATION") of all of the businesses of IJL and
its Subsidiaries and that of Wachovia Capital Markets, Inc. Each party agrees
to cooperate with the other and to take all reasonable actions prior to or
following the Effective Time, including executing all requisite documentation,
as may be requested by Wachovia 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. Each party also agrees to cooperate with the other and to take all
reasonable additional action prior to or following the Effective Time,
including executing all requisite documentation, as may be requested by
Wachovia 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. The effectiveness
of any of the foregoing transactions shall be subject to the effectiveness of
the Merger.
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
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 Person:
(a) OUTSTANDING IJL 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 number of shares of
Wachovia
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Common Stock equal to the Exchange Ratio (as defined in the following
sentence). The "EXCHANGE RATIO" shall mean a number equal to $32.00 divided by
the Wachovia Average Stock Price (rounded to the nearest one-thousandth). The
"WACHOVIA AVERAGE STOCK PRICE" shall mean the average of the last sale prices
of Wachovia Common Stock, as reported by the NYSE Composite Transactions
Reporting System (as reported in THE WALL STREET JOURNAL or, if not reported
therein, in another authoritative source), for the five NYSE trading days
immediately preceding the Effective Date (as defined in the Merger Agreement).
(b) OUTSTANDING WACHOVIA STOCK. Each share of Wachovia Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding and unaffected by the Merger.
(c) TREASURY SHARES. Each share of IJL Stock held as Treasury Stock
immediately prior to the Effective Time 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 IJL Stock shall cease to be, and shall have no rights as,
stockholders of IJL, other than to receive any dividend or other distribution
with respect to such IJL Stock with a record date occurring prior to the
Effective Time and the consideration provided under this Article III. After the
Effective Time, there shall be no transfers on the stock transfer books of IJL
or the Surviving Corporation of shares of IJL Stock.
3.03 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of Wachovia Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, Wachovia shall pay to each holder of IJL Common Stock who would
otherwise be entitled to a fractional share of Wachovia 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 last
sale price of Wachovia Common Stock, as reported by the NYSE Composite
Transactions Reporting System (as reported in THE WALL STREET JOURNAL or, if
not reported therein, in another authoritative source), for the NYSE trading
day immediately preceding the Effective Date.
3.04 EXCHANGE PROCEDURES. (a) At or prior to the Effective Time, Wachovia
shall deposit, or shall cause to be deposited, with a bank or trust company
selected by Wachovia and reasonably acceptable to IJL (which may be Wachovia
Bank, N.A.) (the "Exchange Agent"), for the benefit of the holders of Old
Certificates, for exchange in accordance with this Article III, certificates
representing the shares of Wachovia Common Stock and cash in lieu of any
fractional shares (such cash and certificates for shares of Wachovia Common
Stock, together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") to be issued pursuant to
Section 3.01 and paid pursuant to Section 3.04(b) in exchange for outstanding
shares of IJL Common Stock.
(b) As promptly as practicable after the Effective Date, the Exchange
Agent shall send or cause to be sent to each former holder of record of shares
of IJL Common Stock immediately prior to the Effective Time transmittal
materials for use in exchanging such stockholder's certificates formerly
representing shares of IJL Common Stock ("OLD CERTIFICATES") for the
consideration set forth in this Article III. Wachovia shall cause the
certificates representing the shares of Wachovia Common Stock ("NEW
CERTIFICATES") into which shares of a stockholder's IJL Common Stock are
converted on the Effective Date and/or any check in respect of any fractional
share interests or dividends or distributions which such Person shall be
entitled to receive to be delivered to such stockholder upon delivery to the
Exchange Agent of Old Certificates representing such shares of IJL Common Stock
(or indemnity reasonably satisfactory to Wachovia and the Exchange Agent, if
any of such certificates are lost, stolen or destroyed) owned by such
stockholder. No interest will be paid on any such cash to be paid in lieu of
fractional share interests or in respect of dividends or distributions which
any such Person shall be entitled to receive pursuant to this Article III upon
such delivery. Old Certificates surrendered for exchange by any Affiliate of
IJL shall not be exchanged for New Certificates until Wachovia has received a
written agreement from such Person as specified in Section 6.07.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to any former holder of IJL Common Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) At the election of Wachovia, no dividends or other distributions with
respect to Wachovia Common Stock with a record date occurring after the
Effective Time shall be paid to the holder of any unsurrendered Old Certificate
representing shares of IJL Common Stock converted in the Merger into the right
to receive shares of such Wachovia Common Stock until the holder thereof shall
be entitled to receive New Certificates in exchange therefor in accordance with
the procedures set
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forth in this Section 3.04, and no such shares of IJL Common Stock shall be
eligible to vote until the holder of Old Certificates is entitled to receive
New Certificates in accordance with the procedures set forth in this Section
3.04. After becoming so entitled in accordance with this Section 3.04, 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 Wachovia Common Stock such holder had the
right to receive upon surrender of the Old Certificate.
(e) Any portion of the aggregate Merger Consideration that remains
unclaimed by the shareholders of IJL for six months after the Effective Time
and the proceeds of any investments thereof shall be repaid by the Exchange
Agent to the Surviving Corporation. Any shareholder of IJL who has not
theretofore complied with this Section 3.04 shall thereafter be entitled to
look only to the Surviving Corporation for payment of the Merger Consideration
deliverable in respect of each share of IJL stock held by such shareholder
without any interest thereon.
3.05 ANTI-DILUTION PROVISIONS. In the event Wachovia changes (or
establishes a record date for changing) the number of shares of Wachovia Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Wachovia Common Stock and the record date therefor shall be
prior to the Effective Date, the Exchange Ratio shall be proportionately
adjusted.
ARTICLE IV
ACTIONS PENDING MERGER
4.01 FOREBEARANCES OF IJL. From the date hereof until the Effective Time,
except as expressly contemplated by this Agreement, without the prior written
consent of Wachovia, IJL will not, and will cause each of its Subsidiaries not
to:
(a) ORDINARY COURSE. Conduct the business of IJL and its Subsidiaries
other than in the ordinary and usual course or fail to use reasonable efforts
to preserve intact their business organizations and assets and maintain their
rights, franchises and existing relations with customers, suppliers, employees
and business associates, or take any action reasonably likely to have an
adverse affect upon IJL's ability to perform any of its material obligations
under this Agreement.
(b) CAPITAL STOCK. Other than pursuant to Rights Previously Disclosed and
outstanding on the date hereof, (i) issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional shares of IJL Common
Stock or any Rights, (ii) enter into any agreement with respect to the
foregoing, or (iii) permit any additional shares of IJL Common Stock to become
subject to new grants of employee or director stock options, other Rights or
similar stock-based employee rights.
(c) DIVIDENDS, ETC. (i) Make, declare, pay or set aside for payment any
dividend (other than (A) quarterly cash dividends on IJL Common Stock in an
amount not to exceed $0.06 per share with record and payment dates consistent
with past practice and (B) dividends from wholly owned Subsidiaries to IJL or
another wholly owned Subsidiary of IJL) on or in respect of, or declare or make
any distribution on, any shares of IJL common Stock or (ii) 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 or amend or renew
any employment, consulting, severance or similar agreements or arrangements
with any director, officer, employee or consultant of IJL or its Subsidiaries,
or grant any salary or wage increase or increase any benefit (including
incentive or bonus payments), except (i) for normal individual increases in
compensation to employees in the ordinary course of business consistent with
past practice, (ii) for other changes that are required by applicable law (iii)
to satisfy Previously Disclosed contractual obligations existing as of the date
hereof or (iv) employee arrangements with newly hired employees (other than
executive officers) in the ordinary course of business consistent with past
practice.
(e) BENEFIT PLANS. Enter into, establish, adopt or amend (except as may be
required by applicable law or contemplated by this Agreement) 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 or arrangement, or any trust agreement (or
similar arrangement) related thereto, in respect of any director, partner,
officer, employee or consultant of IJL or its Subsidiaries, or take any action
to accelerate the vesting or exercisability of stock options, restricted stock
or other compensation or benefits payable thereunder.
(f) DISPOSITIONS. Except as Previously Disclosed, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its assets,
deposits, business or properties except in the ordinary course of business
consistent with past practice and in a transaction that is not Material to it
and its Subsidiaries taken as a whole.
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(g) ACQUISITIONS. Except as Previously Disclosed, purchase or acquire all
or any portion of, the assets, business, deposits or properties of any other
entity except in the ordinary course of business consistent with past practice
and in a transaction that is not Material to it and its Subsidiaries taken as a
whole.
(h) GOVERNING DOCUMENTS. Amend the IJL Certificate, IJL By-laws or the
certificate of incorporation or by-laws (or similar governing documents) of any
of IJL's Subsidiaries.
(i) EXTENSION OF CREDIT. Extend or commit to extend credit other than in
the ordinary course of business consistent with past practice.
(j) ACCOUNTING METHODS. Implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by generally
accepted accounting principles.
(k) CONTRACTS. Except in the ordinary course of business consistent with
past practice, enter into or terminate any Material Contract or amend or modify
in any material respect any of its existing Material Contracts.
(l) CLAIMS. Except in the ordinary course of business consistent with past
practice, settle any claim, action or proceeding, except for any claim, action
or proceeding involving solely money damages in an amount, individually or in
the aggregate for all such settlements, that is not Material to IJL and its
Subsidiaries taken as a whole, and that does not involve or create precedent
for claims, actions or proceedings that are reasonably likely to be Material to
IJL and its Subsidiaries taken as a whole.
(m) FUND ACTION. Except as and to the extent required, based upon the
written advice of outside counsel, in the exercise of the fiduciary obligations
of IJL or one of its Subsidiaries to any Investment Company, request that any
action be taken by any Fund Board, other than (i) routine actions that would
not, individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect on IJL or any Investment Company, (ii) actions Previously
Disclosed, or (iii) actions necessary to allow consummation of the Merger or
the Subsidiary Combination.
(n) ADVERSE ACTIONS. (i) Knowingly take any action which would materially
adversely affect its ability to consummate the Merger; (i) knowingly take any
action reasonably likely to prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368 of the Code; or (ii) 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 violation of any provision of this
Agreement except, in each case, as may be required by applicable law or
regulation.
(o) CAPITAL EXPENDITURES. Authorize or make any capital expenditures,
other than in the ordinary and usual course of business consistent with past
practice and in any event in amounts not exceeding $5,000,000 in the aggregate.
(p) RISK MANAGEMENT. Except as required by applicable law or regulation,
(i) implement or adopt any material change in its interest rate and other risk
management policies, procedures or practices; (ii) fail to follow its existing
policies or practices with respect to managing its exposure to interest rate
and other risk; or (iii) fail to use commercially reasonable means to avoid any
material increase in its aggregate exposure to interest rate and other risk.
(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) INDEBTEDNESS. Incur any indebtedness for borrowed money other than in
the ordinary course of business consistent with past practice.
(s) 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.
(t) COMMITMENTS. Agree or commit to do any of the foregoing.
4.02 FOREBEARANCES OF WACHOVIA. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of IJL, Wachovia will not, and will cause each of its
Subsidiaries not to:
(a) EXTRAORDINARY DIVIDENDS. Make, declare, pay or set aside for payment
any extraordinary dividend.
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(b) ADVERSE ACTIONS. (i) Knowingly take any action which would materially
adversely affect its ability to consummate the Merger; (ii) knowingly take any
action reasonably likely to prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368 of the Code; or (iii)
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 violation of any provision of this
Agreement except, in each case, as may be required by applicable law or
regulation.
(c) COMMITMENTS. Agree or commit to do any of the foregoing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 DISCLOSURE SCHEDULES. On or prior to the date hereof, Wachovia has
delivered to IJL a schedule and IJL has delivered to Wachovia a schedule
(respectively, its "DISCLOSURE SCHEDULE") setting forth, among other things,
items the disclosure of which is necessary or appropriate either in response to
an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in Section
5.03 or 5.04 or to one or more of its covenants contained in Article IV;
PROVIDED, that (a) no such item is required to be set forth in a Disclosure
Schedule as an exception to a representation or warranty if its absence would
not be reasonably likely to result in the related representation or warranty
being deemed untrue or incorrect under the standard established by Section
5.02, and (b) the mere inclusion of an item in a Disclosure Schedule as an
exception to a representation or warranty shall not be deemed an admission by a
party that such item represents a material exception or fact, event or
circumstance or that such item is reasonably likely to result in a Material
Adverse Effect.
5.02 STANDARD. No representation or warranty of IJL or Wachovia 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 unless such
fact, circumstance or event, individually or taken together with all other
facts, events or circumstances inconsistent with any representation or warranty
contained in Section 5.03 or 5.04 has had or is reasonably likely to have a
Material Adverse Effect.
5.03 REPRESENTATIONS AND WARRANTIES OF IJL. Subject to Sections 5.01 and
5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, IJL hereby represents
and warrants to Wachovia:
(a) ORGANIZATION, STANDING AND AUTHORITY. IJL is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. IJL is duly qualified to do business and is in good standing in the
states of the United States and any foreign jurisdictions where its ownership
or leasing of property or assets or the conduct of its business requires it to
be so qualified.
(b) IJL STOCK. As of the date hereof, the authorized capital stock of IJL
consists solely of 30,000,000 shares of IJL Common Stock, of which 6,479,306
shares were outstanding as of the date hereof. As of the date hereof, no shares
of IJL Common Stock were held in treasury by IJL or otherwise owned by IJL or
its Subsidiaries ("TREASURY STOCK"). The outstanding shares of IJL 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 preemptive rights). As of the date hereof, except as
Previously Disclosed, there are no shares of IJL Common Stock authorized and
reserved for issuance, IJL does not have any Rights issued or outstanding with
respect to IJL Stock, and IJL does not have any commitment to authorize, issue
or sell any IJL Common Stock or Rights, except pursuant to this Agreement and
the Stock Option Agreement. The number of shares of IJL Common Stock which are
issuable and reserved for issuance upon exercise of IJL Stock Options as of the
date hereof, and the exercise prices and other terms thereof, are Previously
Disclosed.
(c) SUBSIDIARIES. (i) (A) IJL has Previously Disclosed a list of all of
its Subsidiaries together with the jurisdiction of organization of each such
Subsidiary, (B) except as Previously Disclosed, it owns, directly or
indirectly, all the issued and outstanding equity securities of each of its
Subsidiaries, (C) no equity securities of any of its Subsidiaries are or may
become required to be issued (other than to it or its wholly-owned
Subsidiaries) by reason of any Right or otherwise, (D) there are no contracts,
commitments, understandings or arrangements by which any of such Subsidiaries
is or may be bound to sell or otherwise transfer any equity securities of any
such Subsidiaries (other than to it or its wholly-owned Subsidiaries), (E)
there are no contracts, commitments, understandings, or arrangements relating
to its rights to vote or to dispose of such
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securities and (F) all the equity securities of each Subsidiary held by IJL or
its Subsidiaries are fully paid and nonassessable and are owned by IJL or its
Subsidiaries free and clear of any Liens.
(ii) Except as Previously Disclosed, IJL does not own beneficially,
directly or indirectly, any equity securities or similar interests of any
Person, or any interest in a partnership, limited liability company or
joint venture or similar entity, other than its Subsidiaries and other than
in connection with its market making activities in the ordinary course of
its business consistent with past practice.
(iii) Each of IJL's Subsidiaries has been duly organized and is validly
existing 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 assets or
the conduct of its business requires it to be so qualified.
(d) CORPORATE POWER. IJL 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 all its properties and assets; and IJL has the corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the Stock Option Agreement and to consummate the transactions contemplated
hereby and thereby.
(e) CORPORATE AUTHORITY. Subject in the case of this Agreement to receipt
of the requisite approval of the agreement of merger set forth in this
Agreement by the holders of a majority of the outstanding shares of IJL Common
Stock entitled to vote thereon (which is the only shareholder vote required
thereon), this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby have been authorized by all necessary corporate
action of IJL and the IJL Board prior to the date hereof. The approval of the
IJL Board of this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby was by a unanimous vote of all members of the
IJL Board. This Agreement is a valid and legally binding obligation of IJL,
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). The IJL Board has
received the written opinion of Berkshire Capital Corporation to the effect
that as of the date hereof the Exchange Ratio is fair to the holders of IJL
Common Stock from a financial point of view.
(f) REGULATORY FILINGS; NO DEFAULTS. (i) 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 IJL
in connection with the execution, delivery or performance by IJL 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) articles of merger with the Secretary of State of
North Carolina pursuant to the NBCA.
(ii) Subject only to the approval by the holders of a majority of the
outstanding shares of IJL Common Stock, the receipt of the regulatory
approvals referred to in Section 5.03(f)(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 and thereby 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 (except as Previously Disclosed) 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 IJL or
of any of its Subsidiaries or to which IJL 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 IJL Certificate or the IJL 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.
(g) FINANCIAL STATEMENTS AND SEC DOCUMENTS; NO MATERIAL ADVERSE EFFECT.
(i) IJL's Annual Reports on Form 10-K for the fiscal years ended September 30,
1995, 1996 and 1997, and all other reports, registration statements, definitive
proxy statements or information statements filed or to be filed by it or any of
its Subsidiaries subsequent to September 30, 1995 under the Securities Act, or
under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form filed
or to be filed (collectively, IJL's "SEC DOCUMENTS") with the SEC, as of the
date filed, (A) complied or will comply in all material respects as to form
with the applicable requirements under the Securities Act or the Exchange Act,
as the case may be, and (B) did not and 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;
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and each of the balance sheets contained in or incorporated by reference into
any such SEC Document (including the related notes and schedules thereto)
fairly presents, or will fairly present, the financial position of IJL and its
Subsidiaries as of its date, and each of the statements of income and changes
in stockholders' equity and cash flows or equivalent statements in such SEC
Documents (including any related notes and schedules thereto) fairly presents,
or will fairly present, the results of operations, changes in stockholders'
equity and changes in cash flows, as the case may be, of IJL and its
Subsidiaries for the periods to which they relate, in each case in accordance
with generally accepted accounting principles consistently applied during the
periods involved, except in each case as may be noted therein, subject to
normal year-end audit adjustments in the case of unaudited statements (the
foregoing financial statements are referred to as, the "FINANCIAL STATEMENTS").
(ii) Except as Previously Disclosed, since September 30, 1997, IJL and
its Subsidiaries have not incurred any liability other than in the ordinary
course of business consistent with past practice.
(iii) Except as Previously Disclosed, since September 30, 1997, (A) IJL
and its Subsidiaries have conducted their respective businesses in the
ordinary and usual course consistent with past practice (excluding the
incurrence of expenses related to this Agreement and the transactions
contemplated hereby) and (B) no event has occurred or circumstance arisen
that, individually or taken together with all other facts, circumstances
and events (described in any paragraph of Section 5.03 or otherwise), is
reasonably likely to have a Material Adverse Effect with respect to IJL.
(h) CONTRACTS. (i) IJL has Previously Disclosed each of the following
Contracts to which either IJL 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 that is Material to the conduct of the
business of IJL and its Subsidiaries;
(B) any agreement for the purchase of materials, supplies, goods,
services, equipment or other assets that is a "material contract" within
the meaning of item 601(b)(10) of the SEC's Regulation S-K;
(C) 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 of such Person other than listed
options acquired in the ordinary course of business of IJL and its
Subsidiaries consistent with past practice;
(D) any agreement relating to the acquisition or disposition of any
business or operations (whether by merger, sale of stock, sale of assets,
out-sourcing or otherwise);
(E) any indenture, mortgage, promissory note, loan agreement,
guarantee or other agreement or commitment for the borrowing of money or
the deferred purchase price of property in excess of $5,000,000 (in
either case, whether incurred, assumed, guaranteed or secured by any
asset) other than repurchase agreements or reverse repurchase agreements
entered into in the ordinary course of business of IJL and its
Subsidiaries consistent with past practice;
(F) any license, franchise or similar agreement Material to IJL or any
of its Subsidiaries or any agreement relating to any trade name or
intellectual property right that is Material to the business and
operations of IJL or any of its Subsidiaries;
(G) any exclusive dealing agreement or any agreement that limits the
freedom of IJL 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;
(H) any Advisory Agreement; and
(I) any other Material Contract.
(ii) Each Contract that has been, or is required to be Previously
Disclosed pursuant to this Section, is a valid and binding agreement of IJL
or one or more of its Subsidiaries, as the case may be, and is in full
force and effect, and IJL and such Subsidiaries and, to IJL's knowledge,
the other parties thereto are not in default or breach in any material
respect under the terms of any such Contract.
(i) CONTRACTS WITH CLIENTS. (i) Each of IJL 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 other than disputes arising
in the ordinary course of business of IJL and its Subsidiaries. IJL has
made available to Wachovia true and complete copies of all advisory,
sub-advisory and similar agreements with any Clients.
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(ii) Except as Previously Disclosed, each extension of credit by IJL 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) IJL 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.
(j) REGISTRATIONS. Except as Previously Disclosed, neither IJL nor any of
its Subsidiaries or Affiliates (excluding for these purposes any shareholder)
is subject to regulation under the Investment Advisers Act or the Investment
Company Act. IJL 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, any Self-Regulatory Organization or any Governmental Authority of
any federal, state or foreign jurisdiction, 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.
(k) COMPLIANCE WITH LAWS. Each of IJL and its Subsidiaries, and, to the
best of the IJL's knowledge, each of their respective officers and employees:
(i) is in compliance with all applicable federal, state and local
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;
(ii) 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 substantially 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 IJL'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;
(iii) Except as Previously Disclosed, has received, since September 30,
1995, no notification or 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 or
condition the continuation of any license, franchise, seat on any exchange,
permit, or governmental authorization (nor, to the IJL's knowledge, do any
grounds for any of the foregoing exist), (C) requiring any of them
(including any of IJL's or its Subsidiaries' directors or controlling
Persons) to enter into a cease and desist order, agreement, memorandum of
understanding, censure or disciplinary agreement (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);
(iv) is not aware of any pending or threatened investigation, review or
disciplinary proceedings by any Governmental Authority or Self-Regulatory
Organization against IJL, any of its Subsidiaries or any officer, director
or employee thereof;
(v) is not, nor to IJL's knowledge 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;
(vi) 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;
(vii) 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
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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;
(viii) IJL has made available to Wachovia true and correct copies of (A)
each Form G-37/G-38 filed with the MSRB since September 30, 1995 and (B)
all records required to be kept by IJL under Rule G-8(a)(xvi) of the MSRB;
(ix) is not subject to any cease and desist, censure or other order
issued by, or a party to any written agreement, consent agreement,
memorandum of understanding or disciplinary agreement 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 September 30, 1995, 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
(x) Except as Previously Disclosed, since September 30, 1995, 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.
(l) INVESTMENT ADVISORY ACTIVITIES. (i) 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 IJL. The Fund Boards operate in all
material respects in conformity with the requirements and restrictions of the
Investment Company Act, to the extent applicable. IJL has provided to Wachovia
true and complete copies of all the constituent documents and related advisory,
sub-advisory and similar agreements ("ADVISORY AGREEMENTS") of all of the
Investment Companies.
(ii) 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.
(iii) Each Investment Company has been operated in compliance with its
respective objectives, policies and restrictions, including those set forth
in the applicable prospectus and registration statement, if any, for that
Investment Company or governing instruments for a Client. IJL and its
Subsidiaries have operated their investment accounts in accordance with the
investment objectives and guidelines in effect for such investment
accounts.
(iv) 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.
(v) Neither IJL, 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 IJL, 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.
(m) PROPERTIES; SECURITIES. (i) Except as reserved against in the IJL's
Financial Statements dated before the date hereof and except as Previously
Disclosed, IJL 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 IJL and its Subsidiaries as of the
dates thereof. To the best of the IJL's knowledge, all buildings and all the
Material fixtures, equipment, and other property and assets held under leases
or subleases by any of IJL 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). IJL has Previously Disclosed, as of the date
hereof, a list of all real estate owned by it or a IJL Subsidiary. Each of IJL
and its Subsidiaries has good and marketable title
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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 and past business practices to secure
obligations of each of IJL or any of its Subsidiaries. Such securities are
valued on the books of IJL or its Subsidiaries in accordance with generally
accepted accounting practices.
(ii) IJL has Previously Disclosed, as of the date hereof, a list of all
equity securities it or a IJL Subsidiary holds 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).
(n) LITIGATION. Except as Previously Disclosed, no litigation, proceeding,
investigation or controversy ("LITIGATION") before any court, arbitrator,
mediator, Governmental Authority or Self-Regulatory Organization is pending
against IJL or any of its Subsidiaries, and, to the best of the IJL'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 IJL's knowledge, threatened) arising out of any state of
facts relating to the sale of investment products or the providing of advice by
IJL, the IJL 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 IJL or any of its Subsidiaries was
a manager, co-manager, syndicate member or distributor, Derivatives Contracts
or structured notes).
(o) NO BROKERS. No action has been taken by IJL 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 Previously Disclosed fee to be paid to Berkshire Capital
Corporation.
(p) EMPLOYEE BENEFIT PLANS. (i) Section 5.03(p)(i) of IJL's Disclosure
Schedule contains a complete and accurate list of all existing bonus,
incentive, deferred compensation, pension, retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, stock purchase, restricted
stock, stock option, severance, welfare and fringe benefit plans, employment or
severance agreements and all similar practices, policies and arrangements under
which IJL or any of its subsidiaries has any liability or obligation to provide
benefits or compensation to or on behalf of any employee or former employee
(the "EMPLOYEES"), consultant or former consultant (the "CONSULTANTS") or
director or former director (the "DIRECTORS") of IJL or any of its Subsidiaries
(the "COMPENSATION AND BENEFIT PLANS"). Neither IJL nor any of its Subsidiaries
has any commitment to create any additional Compensation and Benefit Plan or to
modify or change any existing Compensation and Benefit Plan, except as may be
required by applicable law or contemplated by this Agreement.
(ii) Each Compensation and Benefit Plan has been operated and
administered in all material respects in accordance with its terms and with
applicable law, including, but not limited to, ERISA, the Code, the
Securities Act, the Exchange Act, the Age Discrimination in Employment Act,
and any regulations or rules promulgated thereunder, and all filings,
disclosures and notices required by ERISA, the Code, the Securities Act,
the Exchange Act, the Age Discrimination in Employment Act or any other
applicable law have been timely made. Each Compensation and Benefit Plan
which is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA (a "PENSION PLAN") and which is intended to be qualified
under Section 401(a) of the Code has received a favorable determination
letter (including a determination that the related trust under such
Compensation and Benefit Plan is exempt from tax under Section 501(a) of
the Code) from the Internal Revenue Service ("IRS") for "TRA" (as defined
in Rev. Proc. 93-39), or will file for such determination letter prior to
the expiration of the remedial amendment period for such Compensation and
Benefit Plan, and IJL is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. There is no Material
pending or, to the knowledge of IJL, threatened legal action, suit or claim
relating to the Compensation and Benefit Plans, other than routine claims
for benefits. Neither IJL nor any of its Subsidiaries has engaged in a
transaction, or omitted to take any action, with respect to any
Compensation and Benefit Plan that would reasonably be expected to subject
IJL or any of its Subsidiaries to a tax or penalty imposed by either
Section 4975 of the Code or Section 502 of ERISA, assuming for purposes of
Section 4975 of the Code that the taxable period of any such transaction
expired as of the date hereof.
(iii) No liability (other than for payment of premiums to the PBGC which
have been made or will be made on a timely basis) under Title IV of ERISA
has been or is expected to be incurred by IJL or any of its Subsidiaries
with respect to any ongoing, frozen or terminated "single-employer plan",
within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or any single-employer plan of any entity (an
"ERISA AFFILIATE") which is considered one employer with IJL under Section
4001(a)(14) of ERISA or Section 414(b) or (c) of the Code (an "ERISA
AFFILIATE PLAN"). None of IJL, any of its Subsidiaries or any ERISA
Affiliate has contributed, or has
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been obligated to contribute, to a multiemployer plan under Subtitle E of
Title IV of ERISA at any time since 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 Compensation and Benefit Plan or by any ERISA Affiliate
Plan within the 12-month period ending on the date hereof, and to the
knowledge of IJL no such notice will be required to be filed as a result of
the transactions contemplated by this Agreement. The PBGC has not
instituted proceedings to terminate any Pension Plan or ERISA Affiliate
Plan and, to IJL's knowledge, no condition exists that presents a material
risk that such proceedings will be instituted. To the knowledge of IJL,
there is no pending investigation or enforcement action by the PBGC, the
Department of Labor (the "DOL") or IRS or any other governmental agency
with respect to any Compensation and Benefit Plan. Under each Pension Plan
and ERISA Affiliate Plan, as of the date of the most recent actuarial
valuation performed prior to the date of this Agreement, 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 such actuarial valuation of such Pension
Plan or ERISA Affiliate Plan), did not exceed the then current value of the
assets of such Pension Plan or ERISA Affiliate Plan and since such date
there has been neither an adverse change in the financial condition of such
Pension Plan or ERISA Affiliate Plan nor any amendment or other change to
such Pension Plan or ERISA Affiliate Plan that would increase the amount of
benefits thereunder which reasonably could be expected to change such
result.
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan or ERISA Affiliate Plan or any employee
benefit arrangements under any collective bargaining agreement to which IJL
or any of its Subsidiaries is a party have been timely made or have been
reflected on IJL's financial statements. Neither any Pension Plan nor any
ERISA Affiliate Plan has an "accumulated funding deficiency" (whether or
not waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA and all required payments to the PBGC with respect to each Pension
Plan or ERISA Affiliate Plan have been made on or before their due dates.
None of IJL, any of its Subsidiaries or any ERISA Affiliate (x) has
provided, or would reasonably be expected to be required to provide,
security to any Pension Plan or to any ERISA Affiliate Plan pursuant to
Section 401(a)(29) of the Code, and (y) has taken any action, or omitted to
take any action, that has resulted, or would reasonably be expected to
result, in the imposition of a lien under Section 412(n) of the Code or
pursuant to ERISA.
(v) Neither IJL nor any of its Subsidiaries has any obligations to
provide retiree health and life insurance or other retiree death benefits
under any Compensation and Benefit Plan, other than benefits mandated by
Section 4980B of the Code, and each such Compensation and Benefit Plan may
be amended or terminated in accordance with its terms without incurring
liability thereunder. There has been no communication to Employees by IJL
or any of its Subsidiaries that would reasonably be expected to promise or
guarantee such Employees retiree health or life insurance or other retiree
death benefits on a permanent basis.
(vi) With respect to each Compensation and Benefit Plan, if applicable,
IJL has provided, or made available to Wachovia, true and complete copies
of existing: (A) Compensation and Benefit Plan documents and amendments
thereto; (B) trust instruments and insurance contracts; (C) two most recent
Forms 5500 filed with the IRS; (D) most recent actuarial report and
financial statement; (E) the most recent summary plan description; (F)
forms filed with the PBGC (other than for premium payments); (G) most
recent determination letter issued by the IRS; (H) any Form 5310 or Form
5330 filed with the IRS; and (I) most recent nondiscrimination tests
performed under ERISA and the Code (including 401(k) and 401(m) tests).
(vii) Except as Previously Disclosed, the consummation of the
transactions contemplated by this Agreement would not, directly or
indirectly (including, without limitation, as a result of any termination
of employment prior to or following the Effective Time) reasonably be
expected to (A) entitle any Employee, Consultant or Director to any payment
(including severance pay or similar compensation) or any increase in
compensation, (B) result in the vesting or acceleration of any benefits
under any Compensation and Benefit Plan or (C) result in any material
increase in benefits payable under any Compensation and Benefit Plan.
(viii) Except as Previously Disclosed, neither IJL nor any of its
Subsidiaries maintains any compensation plans, programs or arrangements the
payments under which would not reasonably be expected to be deductible as a
result of the limitations under Section 162(m) of the Code and the
regulations issued thereunder.
(ix) As a result, directly or indirectly, of the transactions
contemplated by this Agreement (including, without limitation, as a result
of any termination of employment prior to or following the Effective Time),
none of Wachovia, IJL or the Surviving Corporation, or any of their
respective Subsidiaries will be obligated to make a payment to an
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Employee of IJL or any of its Subsidiaries that would be characterized as
an "excess parachute payment" to an individual who is a "disqualified
individual" (as such terms are defined in Section 280G of the Code),
without regard to whether such payment is reasonable compensation for
personal services performed or to be performed in the future.
(q) LABOR MATTERS. Neither IJL nor any of its Subsidiaries is a party to
or is bound by any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization, nor is IJL or any of
its Subsidiaries the subject of a proceeding asserting that it or any such
Subsidiary has committed an unfair labor practice (within the meaning of the
National Labor Relations Act) or seeking to compel IJL or any such Subsidiary
to bargain with any labor organization as to wages or conditions of employment,
nor is there any strike or other labor dispute involving it or any of its
Subsidiaries pending or, to IJL's knowledge, threatened, nor is IJL aware of
any activity involving its or any of its Subsidiaries' employees seeking to
certify a collective bargaining unit or engaging in other organizational
activity.
(r) TAKEOVER LAWS; DISSENTERS RIGHTS. IJL has taken all action required to
be taken by it in order to exempt this Agreement, the Stock Option Agreement,
the shareholder agreements contemplated by Recital D and the transactions
contemplated hereby and thereby from, and this Agreement, the Stock Option
Agreement and the transactions contemplated hereby and thereby are exempt from
the restrictions of any "moratorium", "control share", "fair price" "affiliate
transaction", "business combination" or other antitakeover laws and regulations
of any state (collectively, "TAKEOVER LAWS") without limitation, the State of
Delaware, and including, without limitation, Section 203 of the DGCL. Holders
of IJL Common Stock do not have dissenters rights in connection with the
Merger.
(s) ENVIRONMENTAL MATTERS. Neither the conduct nor operation of IJL or its
Subsidiaries nor, to IJL's knowledge, any condition of any property presently
or previously owned, leased or operated by any of them (including, without
limitation, in a fiduciary or agency capacity), or on which any of them holds a
Lien, violates or violated Environmental Laws and no condition has existed or
event has occurred with respect to any of them or any such property that, with
notice or the passage of time, or both, is reasonably likely to result in
liability under Environmental Laws. Neither IJL nor any of its Subsidiaries has
received any notice from any Person or entity that IJL or its Subsidiaries or
the operation or condition of any property ever owned, leased, operated, or
held as collateral or in a fiduciary capacity by any of them are or were in
violation of or otherwise are alleged to have liability under any Environmental
Law, including, but not limited to, responsibility (or potential
responsibility) for the cleanup or other remediation of any pollutants,
contaminants, or hazardous or toxic wastes, substances or materials at, on,
beneath, or originating from any such property.
(t) TAX MATTERS. (i) All Tax Returns that are required to be filed by or
with respect to IJL and its Subsidiaries have been duly and timely filed, (ii)
all Taxes due with respect to the Tax Returns referred to in clause (i)
(assuming such Tax Returns have been properly completed) have been paid in
full, (iii) the Tax Returns referred to in clause (i) have been examined by the
IRS or the appropriate state, local or foreign taxing authority or the period
for assessment of the Taxes in respect of which such Tax Returns were required
to be filed has expired, (iv) all deficiencies asserted or assessments made as
a result of such examinations have been paid in full, (v) no issues that have
been raised by the relevant taxing authority in connection with the examination
of any of the Tax Returns referred to in clause (i) are currently pending, (vi)
all Taxes required by law to be withheld have been withheld and paid over to
the proper governmental authority in a timely manner, and (vii) no waivers of
statutes of limitation have been given by or requested with respect to any
Taxes of IJL or its Subsidiaries. IJL has made available to Wachovia true and
correct copies of the United States federal income Tax Returns filed by IJL and
its Subsidiaries for each of the three most recent fiscal years ended on or
before September 30, 1997. IJL and each of its Subsidiaries have complied with
all information reporting requirements and have retained all necessary
documentation in its files to permit continued compliance with information
reporting requirements. Neither IJL nor any of its Subsidiaries is a party to
any tax sharing agreement or arrangement other than with each other. Neither
IJL nor any of its Subsidiaries has been a member of any consolidated group for
income tax purposes other than the consolidated group of which IJL is the
common parent. Neither IJL nor any of its Subsidiaries has any liability with
respect to income, franchise or similar Taxes that accrued on or before the end
of the most recent period covered by IJL's SEC Documents filed on or prior to
the date hereof in excess of the amounts accrued with respect thereto that are
reflected in the financial statements included in IJL's SEC Documents filed
prior to the date hereof. Neither IJL nor any of its Subsidiaries has any
reason to believe that any conditions exist that might prevent or impede the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.
(u) INTERNAL CONTROLS. Except as Previously Disclosed, none of the
records, systems, controls, data or information of IJL and its Subsidiaries are
recorded, stored, maintained, operated or otherwise wholly or partly dependent
on or held by any means (including any electronic, mechanical or photographic
process, whether computerized or not) which (including
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all means of access thereto and therefrom) are not under the exclusive
ownership and direct control of IJL or its Subsidiaries or accountants retained
by IJL or its Subsidiaries. IJL and its Subsidiaries have devised and
maintained a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principals and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(v) 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 IJL's own account, or for the account of
one or more of IJL's Subsidiaries or their customers, were entered into (i) in
accordance with prudent business practices and all applicable laws, rules,
regulations and regulatory policies and (ii) with counterparties reasonably
believed to be financially responsible at the time; and each of them
constitutes the valid and legally binding obligation of IJL 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 IJL nor its
Subsidiaries, nor, to the best of IJL's knowledge, any other party thereto, is
in breach of any of its obligations under any such agreement or arrangement.
IJL's SEC Documents disclose the value of such agreements and arrangements on a
mark-to-market basis in accordance with generally accepted accounting
principles.
(w) NAMES AND TRADEMARKS. IJL 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 which are Material to
the conduct of their business 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, to IJL's
knowledge, no other Person has the right to use such names, service-marks or
trademarks in any such state.
(x) BOOKS AND RECORDS. The books and records of IJL and its Subsidiaries
have been fully, properly and accurately maintained in all material respects,
and there are no material inaccuracies or discrepancies of any kind contained
or reflected therein, and they fairly present the financial position of IJL and
its Subsidiaries.
(y) INSURANCE. IJL's Disclosure Schedule sets forth all of the insurance
policies, binders, or bonds maintained by IJL or its Subsidiaries or under
which IJL pays the premiums ("INSURANCE POLICIES"). IJL and its Subsidiaries
are insured with reputable insurers against such risks and in such amounts as
the management of IJL reasonably has determined to be prudent in accordance
with industry practices. All the Insurance Policies are in full force and
effect; IJL and its Subsidiaries are not in material default thereunder; and
all claims thereunder have been filed in due and timely fashion.
(z) YEAR 2000 COMPLIANCE. The software and hardware operated by IJL and
its Subsidiaries are capable of providing or are being adapted or replaced to
provide uninterrupted millennium functionality to record, store, process and
present calendar dates falling on or after January 1, 2000 and date-dependent
data in substantially the same manner and with the same functionality as such
software records, stores, processes and presents such calendar dates and
date-dependent data as of the date hereof.
5.04 REPRESENTATIONS AND WARRANTIES OF WACHOVIA. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, Wachovia hereby
represents and warrants to IJL as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY. Wachovia is duly organized,
validly existing and in good standing under the laws of the State of North
Carolina. Wachovia is duly qualified to do business and is in good standing in
the states of the United States and foreign jurisdictions where its ownership
or leasing of property or assets or the conduct of its business requires it to
be so qualified. Wachovia has in effect all federal, state, local, and foreign
governmental authorizations necessary for it to own or lease its properties and
assets and to carry on its business as it is now conducted.
(b) WACHOVIA STOCK. (i) As of the date hereof, the authorized capital
stock of Wachovia consists solely of 1,000,000,000 shares of Wachovia Common
Stock, of which 202,757,529 shares were outstanding as of the date hereof and
50,000,000 shares of Wachovia Preferred Stock, of which no shares were
outstanding as of the date hereof. As of the date hereof, except as set forth
in its Disclosure Schedule, Wachovia does not have any Rights issued or
outstanding with respect to Wachovia
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Stock, and Wachovia does not have any commitment to authorize, issue or sell
any Wachovia Stock or Rights, except pursuant to this Agreement.
(ii) The shares of Wachovia Common Stock to be issued in exchange for
shares of IJL Common Stock in the Merger, when issued in accordance with
the terms of this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable.
(c) SUBSIDIARIES. Each of Wachovia's Significant Subsidiaries has been
duly organized and is validly existing 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 and it owns,
directly or indirectly, all the issued and outstanding equity securities of
each of its Significant Subsidiaries.
(d) CORPORATE POWER. Wachovia 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; and Wachovia has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby.
(e) CORPORATE AUTHORITY. This Agreement and the transactions contemplated
hereby have been authorized by all necessary corporate action of Wachovia and
its Board of Directors and does not require any vote of stockholders. This
Agreement is a valid and legally binding agreement of Wachovia 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).
(f) REGULATORY APPROVALS; NO DEFAULTS. (i) No consents or approvals of, or
filings or registrations with, any court, administrative agency or commission
or other governmental authority or instrumentality or with any third party are
required to be made or obtained by Wachovia or any of its Subsidiaries in
connection with the execution, delivery or performance by Wachovia of this
Agreement or to consummate the Merger except for (A) approval of the listing on
the NYSE of Wachovia Common Stock to be issued in the Merger; (B) the filing
and declaration of effectiveness of the Registration Statement; (C) the filing
of articles of merger with the North Carolina Secretary of State pursuant to
the NBCA and a certificate of merger with the Delaware Secretary of State
pursuant to the DGCL; (D) 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 Wachovia Stock in the Merger;
(E) the filing of an application with and approval of the Board of Governors of
the Federal Reserve System under Section 4(c)(8) of the Bank Holding Company
Act of 1956, as amended; and (F) the filings and receipts of approval set forth
in Section 7.01(b).
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph and expiration of the related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this 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 judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of Wachovia or of any of its
Subsidiaries or to which Wachovia 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 Wachovia 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, agreement, indenture or instrument.
(g) FINANCIAL STATEMENTS AND SEC DOCUMENTS; MATERIAL ADVERSE EFFECT. (i)
Wachovia's SEC Documents, as of the date of Wachovia's most recent filing on
Form 10K under the Exchange Act, (A) complied or will comply in all material
respects as to form with the applicable requirements under the Securities Act
or the Exchange Act, as the case may be, and (B) did not and 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; and
each of the balance sheets contained in or incorporated by reference into any
such SEC Document (including the related notes and schedules thereto) fairly
presents, or will fairly present, the financial position of Wachovia and its
Subsidiaries as of its date, and each of the statements of income and changes
in stockholders' equity and cash flows or equivalent statements in such SEC
Documents (including any related notes and schedules thereto) fairly presents,
or will fairly present, the results of operations, changes in stockholders'
equity and changes in cash flows, as the case may be, of Wachovia and its
Subsidiaries for the periods to which they relate, in each case in accordance
with generally accepted accounting principles consistently applied during the
periods involved, except in each case as may be noted therein, subject to
normal year-end audit adjustments in the case of unaudited statements.
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(ii) Since September 30, 1997, no event has occurred or circumstance
arisen that, individually or taken together with all other facts,
circumstances and events (described in any paragraph of Section 5.04 or
otherwise), is reasonably likely to have a Material Adverse Effect with
respect to Wachovia.
(h) LITIGATION; REGULATORY ACTION. (i) Other than as set forth in its SEC
Documents filed on or before the date hereof, no litigation, claim or other
proceeding before any Governmental Authority is pending against Wachovia or any
of its Subsidiaries and, to the best of Wachovia's knowledge, no such
litigation, claim or other proceeding has been threatened.
(ii) Neither Wachovia nor any of its Subsidiaries or properties is a
party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, or extraordinary supervisory letter from a
Governmental Authority, nor has Wachovia or any of its Subsidiaries been
advised by a Governmental Authority that such agency is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter, supervisory letter or similar submission.
(i) COMPLIANCE WITH LAWS. Wachovia and each of its Subsidiaries:
(i) in the conduct of its business, is in compliance with all applicable
federal, state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders or decrees applicable thereto or to the employees
conducting such businesses, including, without limitation, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the
Home Mortgage Disclosure Act, ERISA and all other applicable fair lending
laws and other laws relating to discriminatory business practices; and
(ii) has all permits, licenses, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to
conduct their businesses substantially as presently conducted; all such
permits, licenses, certificates of authority, orders and approvals are in
full force and effect and, to the best of its knowledge, no suspension or
cancellation of any of them is threatened.
(j) TAX MATTERS. (i) All Tax Returns that are required to be filed (taking
into account any extensions of time within which to file) by or with respect to
Wachovia and its Subsidiaries have been duly filed, (ii) all Taxes shown to be
due on the Tax Returns referred to in clause (i) have been paid in full, (iii)
the federal income Tax Returns referred to in clause (i) have been examined by
the Internal Revenue Service or the period for assessment of the Taxes in
respect of which such Tax Returns were required to be filed has expired, (iv)
all deficiencies asserted or assessments made as a result of such examinations
have been paid in full, (v) no issues that have been raised by the relevant
taxing authority in connection with the examination of any of the Tax Returns
referred to in clause (i) are currently pending, and (vi) no waivers of
statutes of limitations have been given by or requested with respect to any
Taxes of Wachovia or its Subsidiaries. Neither Wachovia nor any of its
Subsidiaries has any liability with respect to income, franchise or similar
Taxes that accrued on or before the end of the most recent period covered by
Wachovia's SEC Documents filed prior to the date hereof in excess of the
amounts accrued with respect thereto that are reflected in the financial
statements included in Wachovia's SEC Documents filed on or prior to the date
hereof. As of the date hereof, neither Wachovia nor any of its Subsidiaries has
any reason to believe that any conditions exist that might prevent or impede
the Merger from qualifying as a reorganization within the meaning of Section
368 of the Code.
(k) INTEREST RATE RISK MANAGEMENT. All interest rate swaps, caps, floors
and option agreements and other interest rate risk management arrangements,
whether entered into the account of Wachovia or one of its Subsidiaries or for
the account of a customer of Wachovia or one of its subsidiaries, were entered
into in the ordinary course of business and in accordance with prudent banking
practice and applicable rules, regulations and policies of Regulatory
Authorities and with counterparties believed by Wachovia to be financially
responsible at the time and are legal, valid and binding obligations of
Wachovia or one of its subsidiaries enforceable in accordance with their terms
(except as may be limited by bankruptcy, insolvency, moratorium, reorganization
or similar laws affecting the rights of creditors generally and the
availability of equitable remedies), and are in full force and effect. Wachovia
and each of its subsidiaries have duly performed in all material respects all
of their obligations thereunder to the extent that such obligations to perform
have accrued; and there are no material breaches, violations or defaults or
allegations or assertions of such by any party thereunder.
(l) NO BROKERS. No action has been taken by Wachovia 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 paid to Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
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ARTICLE VI
COVENANTS
6.01 REASONABLE BEST EFFORTS. (a) Subject to the terms and conditions of
this Agreement, each of IJL and Wachovia agrees to use its reasonable best
efforts in good faith to take, or cause to be taken, 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
practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end (it being understood that any amendments or supplements to the
Registration Statement or Proxy Statement or a resolicitation of proxies as a
consequence of an acquisition agreement by Wachovia or any of its subsidiaries
shall not violate this covenant).
(b) Without limiting the generality of Section 6.01(a), IJL agrees to use
its reasonable best efforts to obtain (i) 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 (ii) the consent or approval of all persons
party to a Contract with IJL, 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. IJL agrees to take, in accordance with
applicable law, NYSE rules and the IJL Certificate and by-laws, all action
necessary to convene an appropriate meeting of stockholders of IJL to consider
and vote upon the approval and adoption of this Agreement and any other matters
required to be approved by IJL's stockholders for consummation of the Merger
(including any adjournment or postponement, the "IJL MEETING") as promptly as
practicable after the Registration Statement is declared effective. The IJL
Board has recommended such approval, and IJL shall take all reasonable, lawful
action to solicit such approval by its stockholders. Except to the extent
legally required for the discharge by the IJL Board of its fiduciary duties
(after consultation with outside counsel), the IJL Board shall continue to
recommend such approval. At the request of Wachovia, IJL will utilize a
professional proxy solicitation firm to assist it in procuring the necessary
stockholder vote.
6.03 REGISTRATION STATEMENT. (a) Wachovia agrees to prepare a registration
statement on Form S-4 (the "REGISTRATION STATEMENT") to be filed by Wachovia
with the SEC in connection with the issuance of Wachovia Stock in the Merger
(including the proxy statement and other proxy solicitation materials of IJL
constituting a part thereof the "PROXY STATEMENT") and all related documents).
Each of the parties hereto agrees to cooperate, and to cause its Subsidiaries
to cooperate, with the other, its counsel and its accountants, in preparation
of the Registration Statement and the Proxy Statement; and PROVIDED that IJL
and its Subsidiaries have cooperated as required above, Wachovia agrees to file
the Proxy Statement in preliminary form with the SEC as promptly as reasonably
practicable, and 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 IJL and Wachovia agrees to use all
reasonable efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as reasonably practicable after filing
thereof. Wachovia also agrees to use all reasonable efforts to obtain all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement. IJL agrees to
furnish to Wachovia all information concerning IJL, its Subsidiaries, officers,
directors and stockholders as may be reasonably requested in connection with
the foregoing.
(b) Each of IJL and Wachovia 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 (i) 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 (ii) the Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to stockholders and at the time of the IJL Meeting, 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 or
any statement which, 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 IJL and Wachovia 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) Wachovia agrees to advise IJL, promptly after Wachovia 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
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suspension of the qualification of Wachovia 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 PRESS RELEASES. Each of IJL and Wachovia 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 NYSE rules.
6.05 ACCESS; INFORMATION. (a) IJL agrees that upon reasonable notice and
subject to applicable laws relating to the exchange of information, it shall
afford Wachovia and Wachovia's officers, employees, counsel, accountants and
other authorized representatives, such access during normal business hours
throughout the period prior to the Effective Time to the books, records
(including, without limitation, tax returns and work papers of independent
auditors), properties, personnel and to such other information as Wachovia may
reasonably request and, during such period, it shall furnish promptly to
Wachovia (i) a copy of each material report, schedule and other document filed
by it pursuant to the requirements of federal or state securities or banking
laws, and (ii) all other information concerning the business, properties and
personnel of it as the other party may reasonably request.
(b) Wachovia agrees that it will not, and will cause its representatives
not to, use any information obtained pursuant to this Section 6.05 (as well as
any other information obtained prior to the date hereof in connection with the
entering into of this Agreement) for any purpose unrelated to the consummation
of the transactions contemplated by this Agreement. Subject to the requirements
of law, Wachovia shall keep confidential, and shall cause its representatives
to keep confidential, all information and documents obtained pursuant to this
Section 6.05 (as well as any other information obtained prior to the date
hereof in connection with the entering into of this Agreement) unless such
information (i) was already known to Wachovia, (ii) becomes available to
Wachovia from other sources not known by such party to be bound by a
confidentiality obligation, (iii) is disclosed with the prior written approval
of the party to which such information pertains or (iv) 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, Wachovia shall promptly cause all
copies of documents or extracts thereof containing information and data as to
IJL to be returned to IJL. No investigation by Wachovia of the business and
affairs of IJL shall affect or be deemed to modify or waive any representation,
warranty, covenant or agreement in this Agreement, or the conditions to
Wachovia's obligation to consummate the transactions contemplated by this
Agreement.
6.06 ACQUISITION PROPOSALS. IJL agrees that neither it nor any of its
Subsidiaries nor any of the respective officers and directors of IJL or its
Subsidiaries shall, and IJL shall direct and use its reasonable best efforts to
cause its employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, initiate, solicit or encourage, directly or indirectly,
any enquiries or the making of any proposal or offer (including, without
limitation, any proposal or offer to stockholders of IJL) with respect to a
merger, consolidation or similar transaction involving, or any purchase of all
or any significant portion of the assets or any equity securities of, IJL or
its Significant Subsidiary (any such proposal or offer being hereinafter
referred to as an "ACQUISITION PROPOSAL") or, except to the extent legally
required for the discharge by the IJL Board of its fiduciary duties (after
consultation with outside counsel) as a result of an unsolicited written, bona
fide Acquisition Proposal, engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
Person relating to an Acquisition Proposal, or otherwise facilitate any effort
or attempt to make or implement an Acquisition Proposal. IJL shall immediately
cease and cause to be terminated any activities, discussions or negotiations
conducted prior to the date of this Agreement with any parties other than
Wachovia with respect to any of the foregoing and shall use its reasonable best
efforts to enforce any confidentiality or similar agreement relating to an
Acquisition Proposal. IJL shall promptly (within 24 hours) advise Wachovia
following the receipt by IJL of any Acquisition Proposal and the substance
thereof (including the identity of the Person making such Acquisition
Proposal), and advise Wachovia of any developments with respect to such
Acquisition Proposal immediately upon the occurrence thereof.
6.07 AFFILIATE AGREEMENTS. (a) Not later than the 15th day prior to the
mailing of the Proxy Statement, IJL shall deliver to Wachovia, a schedule of
each Person that, to its knowledge, is or is reasonably likely to be, as of the
date of the IJL Meeting, deemed to be an "affiliate" of it (each, a "IJL
AFFILIATE") as that term is used in Rule 145 under the Securities Act.
(b) IJL shall use its reasonable best efforts to cause each Person who may
be deemed to be a IJL Affiliate to execute and deliver to Wachovia on or before
the date of mailing of the Proxy Statement an "affiliates agreement"
substantially in the form attached hereto as EXHIBIT F.
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6.08 TAKEOVER LAWS. No party hereto shall take any action that would cause
the transactions contemplated by this Agreement or the Stock Option 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.
6.09 CERTAIN POLICIES. Prior to the Effective Date, IJL shall, consistent
with generally accepted accounting principles and on a basis mutually
satisfactory to it and Wachovia, modify and change its valuation and reserve
policies and practices so as to be applied on a basis that is consistent with
those of Wachovia; PROVIDED, HOWEVER, that IJL shall not be obligated to take
any such action pursuant to this Section 6.09 unless and until Wachovia
acknowledges that all conditions to its obligation to consummate the Merger
have been satisfied or irrevocably waived.
6.10 NYSE LISTING. Wachovia agrees to use its reasonable best efforts to
list, prior to the Effective Date, on the NYSE, subject to official notice of
issuance, the shares of Wachovia Common Stock to be issued to the holders of
IJL Common Stock in the Merger.
6.11 REGULATORY APPLICATIONS. (a) Wachovia and IJL 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, Governmental
Authorities and Self-Regulatory Organizations necessary to consummate the
transactions contemplated by this Agreement. Each of Wachovia and IJL 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, any Governmental Authority or any Self-Regulatory
Organization in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto agrees
to act reasonably and as promptly as practicable. Each party hereto 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, Governmental Authorities and Self-Regulatory Organizations necessary
or advisable to consummate the transactions contemplated by this Agreement and
each party will keep the other party appraised of the status of material
matters relating to completion of the transactions contemplated hereby.
(b) Each party 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.
(c) Notwithstanding the foregoing, Wachovia shall not be obligated to
provide any confidential portions of any of the foregoing.
6.12 INDEMNIFICATION. (a) Following the Effective Date and for a period of
six years thereafter, Wachovia shall indemnify, defend and hold harmless the
present directors and officers of IJL and its Subsidiaries (each, an
"INDEMNIFIED PARTY") against all costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "COSTS") 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, without limitation, the transactions contemplated by
this Agreement) to the fullest extent that IJL is permitted to indemnify (and
advance expenses to) its directors and officers under the DGCL, the IJL
Certificate and the IJL 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 DGCL law, the
IJL Certificate and the IJL By-Laws shall be made by independent counsel (which
shall not be counsel that provides material services to Wachovia) selected by
Wachovia and reasonably acceptable to such officer or director; and PROVIDED,
FURTHER, that in the absence of applicable judicial precedent to the contrary,
such counsel, in making such determination, shall presume such officer's or
director's conduct complied with such standard and Wachovia shall have the
burden to demonstrate that such officer's or director's conduct failed to
comply with such standard. Wachovia shall advance expenses as incurred to the
extent permitted under applicable law in connection with such indemnification.
(b) For a period of three years from the Effective Time, Wachovia shall
provide that portion of director's and officer's liability insurance that
serves to reimburse the present and former officers and directors of IJL or any
of its Subsidiaries (determined as of the Effective Time) (as opposed to IJL)
with respect to claims against such directors and officers arising from facts
or events which occurred at or 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 IJL;
PROVIDED, HOWEVER, that in no event shall Wachovia be required to expend more
than 200 percent of the current amount expended
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by IJL (the "INSURANCE AMOUNT") to maintain or procure such directors and
officers insurance coverage; and PROVIDED, FURTHER, that if Wachovia is unable
to maintain or obtain the insurance called for by this Section 6.12(b),
Wachovia 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 IJL or any Subsidiary may be required to make
application and provide customary representations and warranties to Wachovia's
insurance carrier for the purpose of obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under Section
6.12(a), upon learning of any claim, action, suit, proceeding or investigation
described above, shall promptly notify Wachovia thereof; PROVIDED that the
failure so to notify shall not affect the obligations of Wachovia under Section
6.12(a) unless and to the extent that Wachovia is actually prejudiced as a
result of such failure.
(d) If Wachovia or any of its successors or assigns shall consolidate with
or merge into any other entity and shall not be the continuing or surviving
entity of such consolidation or merger or shall transfer all or substantially
all of its assets to any entity, then and in each case, proper provision shall
be made so that the successors and assigns of Wachovia shall assume the
obligations set forth in this Section 6.12.
6.13 BENEFIT PLANS. (a) As soon as practicable following the Effective
Time (i) Wachovia will provide employees of IJL and its Subsidiaries who become
employees of Wachovia and any of its Subsidiaries (the "Retained Employees")
with employee benefit plans which are no less favorable in the aggregate than
those provided to similarly situated employees of Wachovia; any Retained
Employees will receive credit for service with IJL or any of its subsidiaries
or predecessors (to the extent such service was credited under the Compensation
and Benefit Plans as Previously Disclosed) prior to the Effective Time for the
purpose of determining eligibility to participate and vesting, but not for the
purpose of benefit accrual, under Wachovia's employee benefit plans and (ii)
Wachovia will cause any and all pre-existing condition limitations (to the
extent that such limitations did not apply to a pre-existing condition under
the Compensation and Benefit Plans) and waiting periods under group health
plans to be waived with respect to the Retained Employees and their eligible
dependents. All discretionary awards and benefits under any employee benefit
plans of Wachovia shall be subject to the discretion of the persons or
committee administering such plans. Following the Effective Time, Wachovia will
honor the Compensation and Benefit Plans as Previously Disclosed in accordance
with their terms. Nothing contained herein will be construed to limit the
ability of Wachovia, following the Effective Time, to terminate the employment
of any Retained Employee, or to amend or terminate any employee benefit plan or
the Compensation and Benefit Plans in accordance with their terms; PROVIDED,
HOWEVER, no amendment to or termination of any such plan shall be made which
will have a material adverse effect on the income tax consequences to any
individual participant or beneficiary under such plans.
(b) OPTIONS. At the Effective Time, each outstanding option to purchase
shares of IJL Common Stock (each, a "IJL STOCK OPTION") under the IJL Amended
and Restated 1985 Incentive Stock Option Plan, the IJL 1985 Nonqualified Stock
Option Plan, the IJL Deferred Stock Bonus Plan and the IJL Restated Stock Award
Plan (collectively, the "IJL STOCK PLANS"), whether vested or unvested, shall
be converted into an option (a "REPLACEMENT OPTION") to acquire, on the same
terms and conditions as were applicable under such IJL Stock Option, the number
of shares of Wachovia Common Stock equal to (i) the number of shares of IJL
Common Stock subject to the IJL Stock Option, multiplied by (ii) the Exchange
Ratio (such product rounded down to the nearest whole number), at an exercise
price per share (rounded up to the nearest whole cent) equal to (y) the
aggregate exercise price for the shares of IJL Common Stock which were
purchasable pursuant to such IJL Stock Option divided by (z) the number of full
shares of Wachovia Common Stock subject to such Replacement Option in
accordance with the foregoing. Notwithstanding the foregoing, each IJL Stock
Option which 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. At or prior to the Effective Time, IJL shall use it
best efforts to take all action necessary, including obtaining any necessary
consents from Optionees, to permit the replacement of the outstanding IJL Stock
Options by Wachovia pursuant to this Section.
(c) STOCK RIGHTS. At the Effective Time, each outstanding share of
restricted IJL Common Stock ("RESTRICTED IJL STOCK"), each right to purchase a
share of Restricted IJL Stock, each outstanding salary deferral previously made
to purchase a share of Restricted IJL Stock, and each deferred stock bonus
payable in Restricted IJL Stock or IJL Common Stock, in each case pursuant to
the IJL Stock Plans to the extent Previously Disclosed, shall be converted, on
the same terms and conditions as were applicable to such rights in and for
Restricted IJL Stock or IJL Common Stock, into the number of shares of
restricted Wachovia Common Stock or Wachovia Common Stock as the case may be
(the "REPLACEMENT SHARES") equal to the number of shares of Restricted IJL
Stock or IJL Common Stock outstanding or issuable pursuant to each outstanding
right to purchase, salary deferral or deferred stock bonus under the IJL Stock
Plans multiplied by the Exchange Ratio; PROVIDED, HOWEVER, that as of the
Effective Time, all rights to purchase Restricted IJL Stock pursuant to the 15
percent discount purchase plan under the IJL Stock Plans shall terminate, and
any outstanding contributions thereunder shall be promptly
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refunded to the participants of such plan. At or prior to the Effective Time,
IJL shall use its best efforts to take all actions necessary to permit the
conversions by Wachovia pursuant to this Section. Subject to the above,
Wachovia agrees to take all actions necessary to reserve for issuance a
sufficient number of shares of restricted Wachovia Common Stock and Wachovia
Common Stock to effect delivery of the Replacement Shares.
(d) FILINGS. Not later than the Effective Time, Wachovia shall prepare and
file with the SEC a Registration Statement on Form S-8 (or any successor or
other appropriate form) registering a number of shares of Wachovia Common Stock
determined in accordance with Sections 6.13(b) and (c) and shall use its best
efforts to maintain the effectiveness of such Registration Statement or
Registration Statements (and maintain the current status of the prospectus and
prospectuses contained therein) for so long as any Replacement Options or
Replacement Shares are issued and remain outstanding.
6.14 RETENTION PROGRAM. (a) At the Effective Time, IJL will have
established a retention program on terms described in EXHIBIT D to be used to
retain certain employees of IJL.
(b) Notwithstanding anything to the contrary contained in this Agreement,
Wachovia shall take all actions necessary to cause the Retention Program set
forth in EXHIBIT D to be implemented. EXHIBIT D shall be deemed incorporated
into this Section 6.14.
6.15 SECTION 15 OF THE INVESTMENT COMPANY ACT. (a) IJL will use its
reasonable best efforts to obtain as promptly as practicable, (i) the approval
of the stockholders of each of the 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 Funds no less favorable to IJL or its
Subsidiaries to that in effect immediately prior to the Closing and (ii) a
consent to assignment from each private account holder to whom it is providing
investment advisory services.
(b) IJL 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 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 6.15 are intended only for the benefit of
parties to this Agreement and for no other Person.
6.16 NOTIFICATION OF CERTAIN MATTERS. Each of IJL and Wachovia shall give
prompt notice to the other of any fact, event or circumstance known to it that
(a) is reasonably likely, individually or taken together with all other facts,
events and circumstances known to it, to result in any Material Adverse Effect
with respect to it or (b) would cause or constitute a material breach of any of
its representations, warranties, covenants or agreements contained herein.
6.17 DIVIDEND COORDINATION. The Board of Directors of IJL shall cause its
regular quarterly dividend record dates and payment dates for IJL Common Stock
to be the same as Wachovia's regular quarterly dividend record dates and
payment dates for Wachovia Common Stock, and IJL shall not thereafter change
its regular dividend payment dates and record dates.
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 Wachovia and IJL to consummate the Merger is
subject to the fulfillment or written waiver by Wachovia and IJL prior to the
Effective Time of each of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been duly adopted by
the affirmative vote of the holders of a majority of the outstanding shares of
IJL Common Stock entitled to vote thereon in accordance with the DGCL, other
applicable law and the IJL Certificate and the IJL 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 Organizations required for the consummation of
the transactions contemplated hereby and for the prevention of any termination
of any material right, privilege, license or agreement of either the Wachovia
or IJL or their respective Subsidiaries in connection with the transactions
contemplated hereby shall have been obtained or made and shall be in full force
and effect and all waiting periods shall have expired, and none of the
foregoing shall contain any conditions, restrictions or requirements which the
Wachovia Board reasonably determines would
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(i) following the Effective Time, have a Material Adverse Effect on IJL and its
Subsidiaries taken as a whole or the operations thereof or (ii) reduce the
benefits of the transactions contemplated hereby to such a degree that Wachovia
would not have entered into this Agreement had such conditions, restrictions or
requirements been known at the date hereof.
(c) THIRD PARTY CONSENTS. All consents or approvals of all persons, other
than from Governmental Authorities and Self-Regulatory Organizations, 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, and none of the foregoing shall contain any
conditions, restrictions or requirements which the Wachovia Board reasonably
determines would (i) following the Effective Time, have a Material Adverse
Effect on IJL and its Subsidiaries taken as a whole or the operations thereof
or (ii) reduce the benefits of the transactions contemplated hereby to such a
degree that Wachovia would not have entered into this Agreement had such
conditions, restrictions or requirements been known at the date hereof.
(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 Wachovia Common Stock to be issued in the Merger
shall have been received and be in full force and effect.
(g) LISTING. The shares of Wachovia Common Stock to be issued in the
Merger shall have been approved for listing on the NYSE, subject to official
notice of issuance.
7.02 CONDITIONS TO OBLIGATION OF IJL. The obligation of IJL to consummate
the Merger is also subject to the fulfillment or written waiver by IJL prior to
the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Subject to the standard set forth in
Section 5.02, the representations and warranties of Wachovia 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 as of such date), and
IJL shall have received a certificate, dated the Effective Date, signed on
behalf of Wachovia by the Chief Executive Officer and the Chief Financial
Officer of Wachovia to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF WACHOVIA. Wachovia shall have performed
in all material respects all obligations required to be performed by them under
this Agreement at or prior to the Effective Time, and IJL shall have received a
certificate, dated the Effective Date, signed on behalf of Wachovia by the
Chief Executive Officer and the Chief Financial Officer of Wachovia to such
effect.
(c) OPINION OF IJL'S COUNSEL. IJL shall have received an opinion of Moore
& Van Allen, PLLC, counsel to IJL, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, (i) the Merger
constitutes a "reorganization" within the meaning of Section 368 of the Code
and (ii) no gain or loss will be recognized by stockholders of IJL who receive
shares of Wachovia Common Stock in exchange for shares of IJL Common Stock,
except that gain or loss may be recognized as to cash received in lieu of
fractional share interests. In rendering its opinion, Moore & Van Allen, PLLC
may require and rely upon representations contained in letters from IJL,
Wachovia and others.
7.03 CONDITIONS TO OBLIGATION OF WACHOVIA. The obligation of Wachovia to
consummate the Merger is also subject to the fulfillment or written waiver by
Wachovia prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Subject to the standard set forth in
Section 5.02, the representations and warranties of IJL 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 as of such date) and
Wachovia shall have received a certificate, dated the Effective Date, signed on
behalf of IJL by the Chief Executive Officer and the Chief Financial Officer of
IJL to such effect.
A-25
<PAGE>
(b) PERFORMANCE OF OBLIGATIONS OF IJL. IJL 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 Wachovia shall have received a
certificate, dated the Effective Date, signed on behalf of IJL by the Chief
Executive Officer and the Chief Financial Officer of IJL to such effect.
(c) OPINION OF WACHOVIA'S COUNSEL. Wachovia shall have received an opinion
of Sullivan & Cromwell, special counsel to Wachovia, dated the Effective Date,
to the effect that, on the basis of facts, representations and assumptions set
forth in such opinion, the Merger constitutes a reorganization under Section
368 of the Code. In rendering its opinion, Sullivan & Cromwell may require and
rely upon representations contained in letters from Wachovia and others.
(d) EMPLOYMENT AGREEMENTS. All of the Employment Agreements entered into
with the persons listed on Exhibit C shall be in full force and effect (other
than as a consequence of death or disability).
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 Wachovia and IJL, if the Board of Directors of each so determines by
vote of a majority of the members of its entire Board.
(b) BREACH. At any time prior to the Effective Time, by Wachovia or IJL,
if its Board of Directors so determines by vote of a majority of the members of
its entire Board, in the event of either: (i) 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 (ii) 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,
provided that such breach (whether under (i) or (ii)) would be reasonably
likely, individually or in the aggregate with other breaches, to result in a
Material Adverse Effect.
(c) DELAY. At any time prior to the Effective Time, by Wachovia or IJL, if
its Board of Directors so determines by vote of a majority of the members of
its entire Board, in the event that the Merger is not consummated by June 30,
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 IJL or Wachovia, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in the
event (i) 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,
(ii) any Governmental Authority of competent jurisdiction shall have enacted,
issued, promulgated, or entered any statute, rule, regulation, judgment,
decree, permanent injunction or other order which is in effect and restrains,
enjoins or otherwise prohibits the Merger and such judgment, decree, permanent
injunction or other order is or shall have become final and nonappealable or
(iii) the stockholder approval required by Section 7.01(a) herein is not
obtained at the IJL Meeting.
(e) FAILURE TO RECOMMEND, ETC. At any time prior to the IJL Meeting, by
Wachovia if the IJL 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 in any respect to the interests of Wachovia.
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 (i) as set forth in Section 9.01 and (ii) that
termination will not relieve a breaching party from liability for any willful
breach of this Agreement giving rise to such termination.
A-26
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.01 SURVIVAL. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 6.12, 6.13 and this Article IX which shall survive the Effective Time)
or the termination of this Agreement if this Agreement is terminated prior to
the Effective Time (other than Sections 6.03(b), 6.05, 8.02 and this Article IX
which shall survive such termination).
9.02 WAIVER; AMENDMENT. Prior to the Effective Time, any provision of this
Agreement may be (i) waived by the party benefitted by the provision, or (ii)
amended or modified at any time, by an agreement in writing between the parties
hereto executed in the same manner as this Agreement, except that, after the
IJL Meeting, this Agreement may not be amended if it would violate the DGCL.
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 North Carolina applicable to
contracts made and to be performed entirely within such State (except to the
extent that mandatory provisions of Federal law or of the DGCL are applicable).
9.05 WAIVER OF JURY TRIAL. Each party hereto acknowledges and agrees that
any controversy which may arise under this agreement is likely to involve
complicated and difficult issues, and therefore each such party hereby
irrevocably and unconditionally waives any right such party may have to a trial
by jury in respect of any litigation directly or indirectly arising out of or
relating to this agreement, or the transactions contemplated by this agreement.
Each party certifies and acknowledges that (a) no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the
foregoing waiver, (b) each party understands and has considered the
implications of this waiver, (c) each party makes this waiver voluntarily, and
(d) each party has been induced to enter into this agreement by, among other
things, the mutual waivers and certifications in this section 9.05.
9.06 EXPENSES. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby, except
that printing expenses, proxy solicitor expenses and SEC fees shall be shared
equally between IJL and Wachovia.
9.07 NOTICES. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed given if personally delivered,
telecopied (with confirmation) or mailed by registered or certified mail
(return receipt requested) to such party at its address set forth below or such
other address as such party may specify by notice to the parties hereto.
If to IJL, to:
Interstate/Johnson Lane, Inc.
201 North Tryon Street
IJL Financial Center
P.O. Box 1012
Charlotte, North Carolina 28202
Attention: Chairman and Chief Executive Officer
and Chief Financial Officer
Telephone: (704) 379-9000
Facsimile: (704) 379-9122
With a copy to:
Moore & Van Allen
NationsBank Corporate Center
100 North Tryon Street, 47th Floor
Charlotte, North Carolina 28202
Attention: Barney Stewart III, Esq.
Telephone: (704) 331-1029
Facsimile: (704) 378-2029
A-27
<PAGE>
With a copy to:
Morris, Nichols, Arsht and Tunnell
1201 North Market Street, 18th Floor
Wilmington, Delaware 19801
Attention: Frederick H. Alexander, Esq.
Telephone: (302) 575-7228
Facsimile: (302) 658-3989
If to Wachovia, to:
Wachovia Corporation
301 North Main Street
Winston-Salem, North Carolina 27101
Attention: Chairman of the Board
Telephone: (910) 770-5000
Facsimile: (910) 770-5959
With a copy to:
Wachovia Corporation
301 North Main Street
Winston-Salem, North Carolina 27101
Attention: Kenneth W. McAllister
Telephone: (910) 732-5141
Facsimile: (910) 732-5959
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Mark J. Menting, Esq.
H. Rodgin Cohen, Esq.
Telephone: (212) 558-4000
Facsimile: (212) 558-3588
9.08 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
and the Stock Option Agreement entered into represent the entire understanding
of the parties hereto with reference to the transactions contemplated hereby
and thereby and supersede any and all other oral or written agreements
heretofore made (including the existing confidentiality agreement between the
parties). Except for Section 6.12, nothing in this Agreement expressed or
implied, is intended to confer upon any Person, other than the parties hereto
or their respective successors, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.09 INTERPRETATION; EFFECT. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit 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."
* * *
A-28
<PAGE>
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.
INTERSTATE/JOHNSON LANE, INC.
By: /s/ JAMES H. MORGAN
----------------------------------
Name: James H. Morgan
Title: Chairman/Chief Executive
Officer
WACHOVIA CORPORATION
By: /s/ L.M. BAKER, JR.
----------------------------------
Name: L.M. Baker, Jr.
Title: President, Chairman and
Chief Executive Officer
A-29
Exhibit 3(a)
RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERSTATE SECURITIES, INC.
The Certificate of Incorporation was filed in the Office of Secretary of
State on April 25, 1985. This Restated Certificate of Incorporation is pursuant
to Sections 245 and 242 of the General Corporation Law.
ARTICLE I
The name of the corporation is INTERSTATE SECURITIES, INC.
ARTICLE II
The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle,
Delaware. The name of the corporation's registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the
corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
<PAGE>
ARTICLE IV
The total number of shares of stock which the corporation shall have
authority to issue is Fifteen Million (15,000,000) shares of common stock, and
the par value of each of such shares is Twenty Cents ($.20) amounting in the
aggregate to Three Million Dollars ($3,000,000).
ARTICLE V
The Board of Directors is expressly authorized and empowered to make,
alter and repeal the By-Laws of the corporation, subject to the powers of the
stockholders of the corporation to alter or repeal any By-Laws made by the Board
of Directors.
ARTICLE VI
The business of the corporation shall be managed by a Board of Directors,
and the number of Directors comprising the Board shall be fixed by the By-Laws
and such number may from time to time be increased or decreased in such manner
as provided by the By-Laws of the corporation.
ARTICLE VII
The capital stock after the amount of subscription price or par value has
been paid and shall not be subject to assessment to pay the debts of the
corporation.
ARTICLE VIII
No director shall be personally liable to the corporation or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director shall be liable under
Section 174 of Title 8 of the Delaware Code (relating to the Delaware General
Corporation Law) or any amendment thereto or successor provision thereto or
shall be liable by reason that, in addition to any and all other requirements
for such liability, he
2
<PAGE>
(i) shall have breached his duty of loyalty to the corporation or its
stockholders, (ii) shall not have acted in good faith or, in failing to act,
shall not have acted in good faith, (iii) shall have acted in a manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or (iv) shall have derived an improper personal benefit.
Neither the amendment nor repeal of this Article, nor the adoption of any
provision of the corporation's Certificate of Incorporation inconsistent with
this Article, shall eliminate or reduce the effect of this Article in respect of
any matter occurring, or any cause of action, suit or claim that, but for this
Article would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
ARTICLE IX
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, or by the Amended and
Restated Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
This Restated Certificate of Incorporation shall supersede and take the
place of the heretofore existing Certificate of Incorporation of the corporation
and all amendments thereto.
The undersigned officer of Interstate Securities, Inc., for the purpose of
amending and restating the Certificate of Incorporation, hereby declaring and
certifying that this is the act and deed of such corporation and that the facts
herein stated are true, and accordingly has hereunto set his hand this 30th day
of April, 1987.
/s/ Edward C. Ruff
---------------------------------------
Edward C. Ruff, Vice President
3
<PAGE>
ATTEST:
/s/ Michael D. Hearn
- - ------------------------------------
Michael D. Hearn, Secretary
(SEAL)
4
Exhibit 3(b)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
INTERSTATE SECURITIES, INC.
Interstate Securities, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Interstate
Securities, Inc. resolutions were duly adopted setting forth proposed amendments
to the Restated Certificate of Incorporation of said corporation, declaring said
amendments to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolutions setting forth the
proposed amendments are as follows:
RESOLVED, that the Company's Restated Certificate of Incorporation
be, upon approval by the Company's stockholders, amended to delete Article
I thereof in its entirety and to insert in lieu thereof a new Article I
which shall be and read as follows:
"The name of the corporation is Interstate/Johnson
Lane, Inc."
RESOLVED, that the Company's Restated Certificate of Incorporation
be, upon approval by the Company's stockholders, amended to delete Article
IV thereof in its entirety and to insert in lieu thereof a new Article IV
which shall be and read as follows:
"The total number of shares of stock which the corporation is
authorized to issue is Thirty Million (30,000,000) shares of common
stock, and the par value of each of such shares is Twenty-Cents
($.20) amounting in the aggregate to Six Million Dollars
($6,000,000)."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of said corporation was duly called and
held on October 14, 1988, upon notice in accordance with Sections 222, 228 and
242 of the General Corporation Law of the
<PAGE>
State of Delaware, at which meeting the necessary number of shares as required
by statute were voted in favor of the amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Sections 222, 228 and 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, said Interstate Securities, Inc. has caused this
certificate to be signed by Edward C. Ruff, its Vice President, and attested by
Michael D. Hearn, its Secretary, this 14th day of October, 1988.
INTERSTATE SECURITIES, INC.
By /s/ Edward C. Ruff
------------------------------
Edward C. Ruff
Vice President
(Corporate Seal)
ATTEST:
BY /s/ Michael D. Hearn
---------------------------
Michael D. Hearn
Secretary
Exhibit 3(c)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
INTERSTATE/JOHNSON LANE, INC.
(Section 242)
The undersigned corporation hereby executes and certifies this Certificate
of Amendment for the purpose of amending its Certificate of Incorporation.
1. The name of the corporation is Interstate/Johnson Lane, Inc.
2. At a meeting of the Board of Directors of Interstate/Johnson, Lane,
Inc., the following amended Article VI of the Certificate of incorporation was
duly adopted, upon approval by the Company's stockholders:
The business of the corporation shall be managed by a Board of
Directors, and the number of Directors comprising the Board shall be fixed
by the By-Laws and such number may from time to time be increased or
decreased in such manner as provided by the By-Laws of the corporation.
Each Director shall be classified as Class I, Class II and Class III
Directors and will serve staggered one, two and three-year terms. At each
annual meeting following the initial classification and election, the
successors to the class of directors whose terms expire at that meeting
would be elected for a term of office to expire at the third succeeding
annual meeting after their election and until their successors have been
duly elected and qualified.
3. Thereafter, pursuant to the resolution proposing the amendment of
Article VI of the Certificate of Incorporation, the annual meeting of
stockholders of said corporation was duly called and held on January 21, 1997,
at which meeting the necessary number of shares as required by Delaware statute
was voted in favor of the amendment.
4. Said amendment was duly adopted in accordance with the provisions of
the General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said Interstate/Johnson Lane, Inc. has caused
this certificate to be signed by Edward C. Ruff, its Vice President/Chief
Financial Officer, and Michael D. Hearn, its Secretary, this 29th day of
January, 1997.
INTERSTATE/JOHNSON LANE, INC.
BY: /s/ Edward C. Ruff
----------------------------------------
Edward C. Ruff
[Corporate Seal] Vice President/Chief Financial Officer
ATTEST:
BY: /s/ Michael D. Hearn
-------------------------
Michael D. Hearn
Secretary
Exhibit 3(d)
STATE OF DELAWARE
BY-LAWS
OF
INTERSTATE/JOHNSON LANE, INC.
ARTICLE I
---------
OFFICES
Section 1. Principal Office. The principal office of the corporation
shall be located in Charlotte, North Carolina.
Section 2. Registered Office. The registered office in Delaware shall be
in the City of Wilmington, County of New Castle, State of Delaware.
Section 3. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
Section 1. Location. All meetings of the stockholders for the election of
directors shall be held in the City of Charlotte, State of North Carolina, at
such place as may be fixed from time to time by the board of directors. Meetings
of stockholders for any other purpose may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting or in a duly-executed waiver of notice thereof.
Section 2. Annual Meeting. The annual meeting of stockholders shall be
held within one hundred twenty (120) days of the fiscal year of the corporation
at such time and place, either within or without the State of Delaware, as shall
be specified in the notice of meeting at which they shall elect by plurality of
vote a classified board of directors serving staggered one-, two- and three-year
terms. At each annual meeting following the initial classification and election,
the successors to the class of directors whose terms expire at that meeting
would be elected for a term of office to expire at the third succeeding annual
meeting after their election and until their successors have been duly elected
and qualified. The annual meeting of stockholders shall also serve to transact
such other business as may properly be brought before the meeting.
Section 3. Notice. Written notice of the annual meeting shall be given
to each stockholder entitled to vote thereat at least ten days before the date
of the meeting.
<PAGE>
Section 4. Stock Ledger. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every election
of directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, showing the address of and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, during ordinary business hours, for a period
of at least ten days prior to the election, either at a place within the city,
town or village where the election is to be held and which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
said meeting is to be held, and the list shall be produced and kept at the time
and place of election during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
Section 5. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the chief executive officer and
shall be called by the chief executive officer or secretary at the request in
writing of a majority of the board of directors, or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Notice of Special Meeting. Written notice of a special meeting
of stockholders, stating the time, place and object thereof, shall be given to
each stockholder entitled to vote thereat, at least five days before the date
fixed for the meeting.
Section 7. Business at Special Meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 8. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. Vote. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 10. Proxies. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power
<PAGE>
held by such stockholder, but no proxy shall be voted on after three years from
its date, unless the proxy provides for a longer period, and, except where the
transfer books of the corporation have been closed or a date has been fixed as a
record date for determination of its stockholders entitled to vote, no share of
stock shall be voted on at any election for directors which has been transferred
on the books of the corporation within twenty days next preceding such election
of directors.
Section 11. Action Without Meeting. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken in connection with any
corporate action by any provisions of the statutes or of the certificate of
incorporation, the meeting and vote of stockholders may be dispensed with, if
all stockholders who would have been entitled to vote upon the action if such
meetings were held, shall consent in writing to such corporate action being
taken.
ARTICLE III
-----------
DIRECTORS
Section 1. Number. The number of directors which shall constitute the
whole board shall be no less than three (3) and such number may be increased by
the vote of a majority of the directors then constituting the board of
directors. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article. The Directors
shall be classified serving staggered one-, two- and three-year terms with one
class holding office initially for a term expiring at the 1998 annual meeting of
stockholders, another class holding office initially for a term expiring at the
1999 annual meeting and another class holding office initially for a term
expiring at the 2000 annual meeting, with the members of each class holding
office until their successors have been duly elected and qualified. At each
annual meeting following the initial classification and election, the successors
to the class of directors whose terms expire at that meeting would be elected
for a term of office to expire at the third succeeding annual meeting after
their election and until their successors have been duly elected and qualified.
Directors need not be stockholders.
Section 2. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, and the
directors so chosen shall hold office until their successors are duly elected
and shall qualify, unless sooner displaced.
Section 3. Nominations. Nominations for the election of directors may be
made by the board of directors or a nominating committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally. However, any stockholder entitled to vote in the election of
directors generally may nominate one or more persons for election as directors
at a meeting only if written notice of such stockholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United States mail, postage prepaid, to the secretary of the corporation not
later than (I) with respect to an election to be held at an annual meeting of
stockholders, ninety days prior to the anniversary date of the
<PAGE>
immediately preceding annual meeting, and (ii) with respect to an election to be
held at a special meeting of stockholders for the election of directors, the
close of business on the tenth day following the date on which notice of such
meeting is first given to stockholders. Each such notice shall set forth: (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission; and (e) the consent of each nominee
to serve as a director of the corporation if so elected. The presiding officer
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedure.
Section 4. Powers. The business of the corporation shall be managed by its
board of directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. Location. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 6. Regular Meetings. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board.
Section 7. Special Meetings. Special meetings of the board may be called
by the chief executive officer on not less than two, or, in the case of notice
given by mail, not less than three days' notice to each director, either
personally or by mail or by telegram; special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of two directors.
Section 8. Quorum. At all meetings of the board a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
<PAGE>
Section 9. Action Without Meeting. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if prior to such action a written consent
thereto is signed by all members of the board or of such committee as the case
may be, and such written consent is filed with the minutes of proceeding of the
board or committee.
Section 10. Meeting by Telephone Conference. Unless otherwise restricted
by the certificate of incorporation, members of the board of directors or any
committee designated by the board may participate in the meeting of the board or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
and such participation in a meeting shall constitute presence in person at such
meeting.
COMMITTEES OF DIRECTORS
Section 11. Committees. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which,
to the extent provided in the resolution, shall have and may exercise the powers
of the board of directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors.
Section 12. Minutes. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the board of directors and may be paid a
fixed sum for attendance at each meeting of the board of directors and such
additional compensation as may be fixed from time to time by the board. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
ARTICLE IV
----------
NOTICES
Section 1. Writing. Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders at
their addresses appearing on the books of the corporation. Notice to directors
may also be given by telegram.
<PAGE>
Section 2. Waiver. Whenever any notice is required to be given under
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
---------
OFFICERS
Section 1. Officers. The officers of the corporation may consist of a
chairman of the board and chief executive officer, a vice-chairman of the board,
a president and chief operating officer, a secretary, a treasurer and such other
executive vice presidents, senior vice presidents, vice presidents, assistant
vice presidents, assistant secretaries, assistant treasurers, a controller and
such other officers as the board of directors may from time to time elect. The
same person may at the same time hold any two of the above-named offices.
Section 2. Election and Term. The officers of the corporation shall be
elected by the board of directors. Such elections may be held at any regular or
special meeting of the board. Each officer shall hold office until his death,
resignation, retirement removal, disqualification or his successor is elected
and qualifies.
Section 3. Removal. Any officer or agent elected or appointed by the board
of directors may be removed by the board, with or without cause, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 4. Compensation. The compensation of all officers of the
corporation shall be fixed by the board of directors.
Section 5. The Chairman of the Board. The chairman of the board of
directors shall, when present, preside at all meetings of the stockholders. In
addition he shall, when present, preside at all meetings of the board of
directors. He shall also perform such other duties as may be directed by the
board of directors.
Section 6. The Vice Chairman. The vice chairman of the board of directors
shall, in the absence of the chairman of the board of directors, preside at all
meetings of the stockholders. In addition, he shall in the absence of the
chairman of the board of directors, preside at all meetings of the board of
directors. He shall also perform such other duties as may be directed by the
board of directors.
Section 7. The Secretary. The secretary shall have the duty to record the
proceedings of the meetings of the stockholders and directors in a book to be
kept for that purpose. He shall give all notices required by law and by these
by-laws. He shall have general charge of the corporate seal to any lawfully
executed instruments requiring it. He shall have general charge of the stock
transfer books of the corporation and shall keep, at the registered or principal
office of
<PAGE>
the corporation, a record of stockholders showing the name and address
of each stockholder and the number and class of shares held by each. He shall
sign such instruments as may require his signature and, in general, shall
perform all duties incident to the office of secretary and such other duties as
may be assigned to him from time to time by the chief executive officer or by
the board of directors.
Section 8. The Treasurer. The treasurer shall have custody of all funds
and securities belonging to the corporation and shall receive, deposit and
disburse the same under the direction of the board of directors. He shall keep
full and accurate accounts of the finances of the corporation in books
especially provided for that purpose; and shall cause a true statement of its
assets and liabilities as of the close of each fiscal year and of the results of
its operations and of changes in surplus for each year, all in reasonable
detail, to be made and filed at the registered or principal office of the
corporation within four months after the end of such fiscal year. The statement
so filed shall be kept available for inspection by any stockholder for a period
of ten years. The treasurer shall, in general, perform all duties incident to
his office and such other duties as may be assigned to him from time to time by
the chief executive office or by the board of directors.
Section 9. Assistant Secretaries and Treasurers. The assistant secretaries
and assistant treasurers shall, in the absence or disability of the secretary or
the treasurer, respectively, perform the duties and exercise the powers of those
officers, and they shall, in general, perform such other duties as shall be
assigned to them by the secretary or the treasurer, respectively, or by the
chief executive officer or the board of directors.
Section 10. Other Officers. The board of directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 11. Bonds. The board of directors may, by resolution, require any
and all officers, agents and employees of the corporation to give bond to the
corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of their respective offices or positions, and to comply with such
other conditions as may from time to time be required by the board of directors.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Certificates. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the chairman of the board, the president or a vice-president and the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by him in the corporation. If
the corporation shall be authorized to issue more than one class of stock, or
ore than one series of any class, the designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or
<PAGE>
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class of stock; provided, however, that except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests, the designations, preferences and relative,
participating, option or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 2. Facsimile Signatures. Where a certificate is signed by a
transfer agent and a registrar, the signature of any such chairman of the board,
president, vice-president, treasurer, assistant treasurer, secretary or
assistant secretary may be facsimile. In case any officer or officers who have
signed, or whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the corporation, such
certificate or certificates may nevertheless be adopted by the corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the corporation.
Section 3. Lost Certificate. The board of directors may direct a new
certificate or certificates to be issued in place or any certificate or
certificates theretofore issued by the corporation alleged to have been lost or
destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give corporation
a bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost or destroyed.
Section 4. Transfers of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for share duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. Closing of Transfer Books. The board of directors may close the
stock transfer books of the corporation for a period not exceeding fifty days
preceding the date of any meeting of stockholders or the date for payment of any
dividend or the date for the allotment of rights or the date when any change or
conversion or exchange of capital stock shall go into effect or for a period of
not exceeding fifty days in connection with obtaining the consent of
stockholders for any purpose. In lieu of closing the stock transfer books as
aforesaid, the board of directors may fix in advance a date, not exceeding fifty
days preceding the date of any meeting
<PAGE>
of stockholders, or the date for the payment of any dividend, or the date for
the allotment of rights, or the date when any change or conversion or exchange
of capital stock shall go into effect, or a date in connection with obtaining
such consent, as a record date for the determination of the stockholders
entitled to notice of, and to vote at, any such meeting, and any adjournment
thereof, or entitled to receive payment of any such dividend, or to any such
allotment of rights, or to exercise the rights in respect of any such change,
conversion or exchange of capital stock, or to give such consent, and in such
case such stockholders and only such stockholders as shall be stockholders of
record on the date so fixed shall be entitled to such notice of, and to vote at,
such meeting and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights, or
to give such consent, as the case may be notwithstanding any transfer of any
stock on the books of the corporation after any such record date fixed as
aforesaid.
Section 6. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
-----------
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conductive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
Section 3. Annual Statement. The board of directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
Section 4. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
<PAGE>
Section 6. Seal. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. Amendments. These by-laws may be altered or repealed at any
regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors if notice of
such alteration or repeal be contained in the notice of such special meeting.
Exhibit 10(p)
[CONFORMED COPY WITH SUBSTANTIALLY
ALL EXHIBITS CONFORMED AS EXECUTED]
INTERSTATE/JOHNSON LANE, INC.
NOTE PURCHASE AGREEMENT
DATED AS OF APRIL 15, 1997
$21,000,000 SENIOR SECURED NOTES DUE APRIL 15, 2007
<PAGE>
TABLE OF CONTENTS
PAGE
1. PURCHASE AND SALE OF NOTES................................................1
1.1 Issue of Notes.....................................................1
1.2 The First Closing..................................................1
1.3 The Second Closing.................................................2
1.4 Closing Fee........................................................2
1.5 Security...........................................................2
2. WARRANTIES AND REPRESENTATIONS............................................3
3. CLOSING CONDITIONS........................................................3
3.1 First Closing......................................................3
3.2 Second Closing.....................................................3
4. PAYMENTS..................................................................3
4.1 Interest Payment...................................................3
4.2 Required Principal Payments........................................3
4.3 Optional Principal Payments........................................4
4.4 Partial Payment Pro Rata...........................................5
4.5 Notation of Notes on Payment.......................................5
4.6 Offer to Pay upon Change in Control................................5
4.7 No Other Payments of Principal; Acquisition of Notes...............8
4.8 Payments on Notes..................................................8
5. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.............................9
5.1 Registration of Notes..............................................9
5.2 Exchange of Notes..................................................9
5.3 Replacement of Notes..............................................10
5.4 Issuance Taxes....................................................10
5.5 Limitation on Transfer to Competitors.............................10
5.6 Securities Act Legends............................................11
6. GENERAL COVENANTS........................................................12
6.1 Payment of Taxes and Claims.......................................12
6.2 Maintenance of Properties and Existence...........................12
6.3 Maintenance of Security Licenses..................................13
6.4 Payment of Notes and Maintenance of Office........................13
6.5 ERISA.............................................................13
6.6 Maintenance of Business Characteristics...........................14
6.7 Maintenance of Ownership..........................................14
6.8 Subsidiary Guaranties.............................................14
6.9 Transactions with Affiliates......................................14
6.10 Private Offering.................................................15
6.11 Ranking of Notes.................................................15
6.12 Further Assurances...............................................15
7. FINANCIAL COVENANTS......................................................15
7.1 Required Net Capital..............................................15
7.2 Consolidated Tangible Net Worth...................................16
7.3 Limitation on Indebtedness........................................17
<PAGE>
7.4 Restricted Payments and Restricted Investments....................18
7.5 Merger; Sale of Assets; Restricted Subsidiary Stock...............19
8. REPORTING COVENANTS......................................................22
8.1 Financial and Business Information................................22
8.2 Manager's Certificates............................................24
8.3 Accountants'Certificates..........................................25
8.4 Inspection........................................................25
8.5 Confidentiality...................................................25
9. EVENTS OF DEFAULT........................................................26
9.1 Events of Default.................................................26
9.2 Default Remedies..................................................30
9.3 Annulment of Acceleration of Notes................................31
10. INTERPRETATION OF THIS AGREEMENT........................................32
10.1 Terms Defined....................................................32
10.2 Accounting Principles............................................50
10.3 Section Headings and Table of Contents and Construction..........50
10.4 Governing Law....................................................50
11. PURCHASER REPRESENTATIONS...............................................50
11.1 Purchase of Notes................................................50
11.2 ERISA............................................................51
12. MISCELLANEOUS...........................................................52
12.1 Communications...................................................52
12.2 Reproduction of Documents........................................52
12.3 Survival.........................................................53
12.4 Successors and Assigns...........................................53
12.5 Amendment and Waiver.............................................53
12.6 Consent to Jurisdiction..........................................55
12.7 Expenses.........................................................56
12.8 Entire Agreement.................................................56
12.9 Execution in Counterpart.........................................56
Attachment A -- Warranties and Representations
Attachment B -- First Closing Conditions Precedent
Attachment C -- Second Closing Conditions Precedent
Annex 1 -- Information as to Purchasers
Annex 2 -- Payment Instructions at Closing
Annex 3 -- Information as to the Company
Exhibit A -- Form of Note
Exhibit B -- Form of Subsidiary Guaranty
Exhibit C -- Form of Indenture
Exhibit D -- Form of Pledge Agreement
Exhibit E1 -- Form of Company Counsel's Closing Opinion
Exhibit E2 -- Form of Trustee's Counsel's Closing Opinion
Exhibit E3 -- Form of Special Counsel's Closing Opinion
ii
<PAGE>
Exhibit F1 -- Form of Company Secretary's Certificate
Exhibit F2 -- Form of Subsidiary Secretary's Certificate
Exhibit G1 -- Form of Company Officer's Certificate
Exhibit G2 -- Form of Company Secretary's Certificate
iii
<PAGE>
INTERSTATE/JOHNSON LANE, INC.
NOTE PURCHASE AGREEMENT
$21,000,000 SENIOR SECURED NOTES DUE APRIL 15, 2007
Dated as of April 15, 1997
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
Ladies and Gentlemen:
Interstate/Johnson Lane, Inc., (together with its successors and assigns,
the "Company"), a Delaware corporation, hereby agrees with you as follows:
1. PURCHASE AND SALE OF NOTES
1.1 Issue of Notes.
The Company will authorize the issue of Twenty-One Million Dollars
($21,000,000) in aggregate principal amount of its Senior Secured Notes due
April 15, 2007 (all such notes, whether initially issued, or issued in exchange
or substitution for, any such note, in each case in accordance with this
Agreement, and as amended from time to time, the "Notes"). The Notes shall be in
the form of Exhibit A, and shall have the terms as herein and therein provided.
1.2 The First Closing.
(a) Purchase and Sale of Notes. The Company hereby agrees to sell to
you and you hereby agree to purchase from the Company, in accordance with
the provisions hereof, the aggregate principal amount of Notes set forth
below your name on Annex 1 in reference to the First Closing at one
hundred percent (100%) of the principal amount thereof.
(b) The Closing. The first closing (the "First Closing") of the
Company's sale of Notes will be held on April 17, 1997 (the "First Closing
Date") at 9:00 a.m., local time, at the office of Hebb & Gitlin, a
Professional Corporation, One State Street, Hartford, Connecticut 06103.
At the First Closing, the Company will deliver to you one or more Notes
(as set forth below your name on Annex 1), in the denominations indicated
on Annex 1, in the aggregate principal amount of your purchase, dated the
First Closing Date and payable to you or payable as indicated on Annex 1,
against payment by federal funds wire transfer in immediately available
funds of the purchase price thereof, as directed by the Company on Annex
2, which shall be an account at a bank located in the United States of
America.
<PAGE>
1.3 The Second Closing.
(a) Notice. On or after the First Closing Date, and prior to July 1,
1997, the Company may, but shall not be required to, deliver to the
Purchaser an irrevocable written notice specifying:
(i) the date (the "Second Closing Date") of the second closing
(the "Second Closing"), which shall be not more than ninety (90)
days after the First Closing Date and which shall be not less than
three (3) Business Days after the date of the giving of such notice;
and
(ii) the amount of the Notes to be sold at the Second Closing,
which shall be in an aggregate principal amount not less than One
Million Dollars ($1,000,000) in multiples of One Hundred Thousand
Dollars ($100,000) and not greater than Five Million Dollars
($5,000,000).
(b) Purchase and Sale of Notes. The Company hereby agrees to sell to
you and you hereby agree to purchase from the Company, in accordance with
the provisions hereof, the aggregate principal amount of Notes at the
Second Closing specified in accordance with Section 1.3(a) at one hundred
percent (100%) of the principal amount thereof. The failure of the Company
to deliver a notice complying with the provisions of Section 1.3(a) shall
relieve the Purchaser of the obligation to purchase Notes after the First
Closing Date.
(c) The Second Closing. The Second Closing of the Company's sale of
Notes will be held on the Second Closing Date at 9:00 a.m., local time, at
the office of Hebb & Gitlin, a Professional Corporation, One State Street,
Hartford, Connecticut 06103. At the Second Closing, the Company will
deliver to you one or more Notes in the denominations complying with this
Section 1.3, dated the Second Closing Date and payable to you or payable
as indicated on Annex 1, against payment by federal funds wire transfer in
immediately available funds of the purchase price thereof, as directed by
the Company on Annex 2, which shall be an account at a bank located in the
United States of America.
1.4 Closing Fee.
In consideration of your commitment to purchase the Notes at the First
Closing and at the Second Closing, the Company agrees to pay to you on the First
Closing Date and on the Second Closing Date, a fee equal to three and six
hundred seventy-six one-thousandths percent (3.676%) of the principal amount of
each of the Notes purchased by you at each of the First Closing and the Second
Closing.
1.5 Security.
The Company's obligations in respect of the Notes will be secured by a
pledge of the capital stock of the Restricted Subsidiaries, a pledge of a Twenty
One Million Dollar ($21,000,000) subordinated loan maturing March 31, 2011 from
the Company to IJLC and guarantees of the Notes and the obligations hereunder by
certain of the Restricted Subsidiaries.
2
<PAGE>
2. WARRANTIES AND REPRESENTATIONS
To induce you to enter into this Agreement and to purchase and pay for the
Notes to be delivered to you at the First Closing and the Second Closing, the
Company makes the warranties and representations set forth in Attachment A,
effective as of the First Closing Date, which are incorporated herein by
reference with the same force and effect as though set forth herein in full.
3. CLOSING CONDITIONS
3.1 First Closing.
Your obligations under this Agreement, including, without limitation, the
obligation to purchase and pay for the Notes to be delivered to you at the First
Closing, are subject to the conditions precedent set forth in Attachment B,
which are incorporated herein by reference with the same force and effect as
though set forth herein in full, and the failure by the Company to satisfy all
such conditions shall relieve you, at your election, of all obligations set
forth in the Financing Documents. The failure of the Company to satisfy such
conditions shall not operate to relieve the Company of its obligations hereunder
or to waive any of your rights against the Company.
3.2 Second Closing.
Your obligations under this Agreement to purchase and pay for the Notes to
be delivered to you at the Second Closing are subject to the conditions
precedent set forth in Attachment C, which are incorporated herein by reference
with the same force and effect as though set forth herein in full, and the
failure by the Company to satisfy all such conditions shall relieve you, at your
election, of all such obligations. The failure of the Company to satisfy such
conditions shall not operate to relieve the Company of its obligations hereunder
or to waive any of your rights against the Company.
4. PAYMENTS
4.1 Interest Payment.
Interest on the Notes shall be computed and paid in the manner and on the
dates provided in the Notes.
4.2 Required Principal Payments.
The Company shall pay (each such payment a "Scheduled Principal Payment"),
and there shall become due and payable, an amount of the principal of the Notes
equal to the Scheduled Principal Payment Amount on April 15 in each year
beginning on April 15, 2001 and ending on April 15, 2007, inclusive. Each such
Scheduled Principal Payment shall be at one hundred percent (100%) of the
principal amount prepaid, together with interest accrued thereon to the date of
payment. The principal of the Notes remaining outstanding on April 15, 2007,
together with interest accrued thereon, shall become due and payable on April
15, 2007. The "Scheduled Principal Payment Amount" shall equal 14.2857143% of
the principal amount of the Notes outstanding on the close of business on the
Second Closing Date.
3
<PAGE>
4.3 Optional Principal Payments.
(a) Optional Principal Payments. The Company may pay the principal
amount of the Notes in whole or in part, at any time, in amounts equal to
or greater than Five Hundred Thousand Dollars ($500,000) (or, if the
aggregate outstanding principal amount of the Notes is less than Five
Hundred Thousand Dollars ($500,000) at such time, then such principal
amount), together with
(i) an amount equal to the Make-Whole Amount due at such time
in respect of the principal amount of the Notes being so paid, and
(ii) interest on such principal amount then being paid accrued
to the payment date.
(b) Notice of Optional Payment. The Company will give notice of any
optional payment of the Notes to each holder of Notes not less than thirty
(30) days nor more than sixty (60) days before the specified payment date,
stating:
(i) the specified payment date;
(ii) the Section under which the payment is to be made;
(iii) the principal amount of each Note to be paid on such
date;
(iv) the interest to be paid on each such Note, accrued to the
specified payment date; and
(v) the calculation (with details) of an estimated Make-Whole
Amount (calculated as if the date of such notice was the date of
payment) due in connection with such payment.
Notice of payment having been so given, the aggregate principal amount of
the Notes to be paid stated in such notice (at one hundred percent (100%)
of the principal amount thereof), together with the Make-Whole Amount
determined as of the specified payment date, if any, and interest thereon
accrued to the specified payment date, shall become due and payable on the
specified payment date. Two (2) Business Days prior to the making of such
payment, the Company shall deliver to each holder of Notes by facsimile
transmission a certificate of a Senior Officer specifying the details of
the calculation of such Make-Whole Amount as of the specified payment
date, and including a copy of the source of interest rate information used
in the calculation thereof (confirmed by the sending on the same day by
overnight courier of such certificate and information).
(c) Effect of Optional Payments on Required Payments. The amount of
each payment of principal of the Notes made pursuant to this Section 4.3
will, at the time of such payment, be applied against and reduce the then
remaining Scheduled Principal Payments in the inverse order of the due
dates of such payments.
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4.4 Partial Payment Pro Rata.
If at the time any required or optional prepayment under this Section 4 is
due there is more than one Note outstanding, the aggregate principal amount of
each required or optional partial prepayment of the Notes shall be allocated
among the holders of the Notes at the time outstanding in proportion, as nearly
as practicable, to the respective unpaid principal amounts of the Notes then
outstanding, with adjustments, to the extent practicable, to equalize for any
prior prepayments not in such proportion.
4.5 Notation of Notes on Payment.
Upon any partial payment of a Note, the holder of such Note may (but shall
not be required to), at its option,
(a) surrender such Note to the Company pursuant to Section 5.2 in
exchange for a new Note in a principal amount equal to the principal
amount remaining unpaid on the surrendered Note,
(b) make such Note available to the Company for notation thereon of
the portion of the principal so paid, or
(c) mark such Note with a notation thereon of the portion of the
principal so paid.
In case the entire principal amount of any Note is paid, such Note shall be
surrendered to the Company for cancellation and shall not be reissued, and no
Note shall be issued in lieu of the paid principal amount of any Note.
4.6 Offer to Pay upon Change in Control.
(a) Notice of Change in Control Notice Event. In the event of the
obtaining of knowledge of a Change in Control Notice Event by any Senior
Officer (including, without limitation, via the receipt of notice of a
Change in Control Notice Event from any holder of Notes), the Company
will, not later than five (5) days after such obtaining of knowledge, give
notice of such Change in Control Notice Event to each holder of Notes.
Such notice will
(i) refer to this Section 4.6(a),
(ii) be dated the date of the sending of such notice,
(iii) specify, in reasonable detail, the nature and date of
the Change in Control Notice Event, and
(iv) be executed by a Senior Officer.
(b) Offer in Respect of a Change in Control. In connection with a
Change in Control, the Company shall make one (1) irrevocable separate
offer to each holder of Notes to pay the entire principal of all of such
holder's Notes (together with any interest accrued and unpaid thereon, but
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without a Make-Whole Amount), on a date (the "Change in Control Payment
Date") specified in such offer, which date will be not less than ten (10)
days nor more than twenty (20) days after the date the making of such
offer to the holders of the Notes. If the Change in Control Payment Date
shall not be specified in such offer, the Change in Control Payment Date
shall be the tenth (10th) day after the date of the making of such offer.
(c) Timing of Offer.
(i) Change in Control Requiring Company Action. The Company
will not take any action that consummates or finalizes a Change in
Control unless
(A) the offer required by Section 4.6(b) is given not
later than ten (10) days prior, nor earlier than twenty (20)
days prior, to the consummation or finalization of such Change
in Control, and
(B) contemporaneously with such action, the Company pays
all Notes in respect of which such offer shall have been
accepted.
(ii) Other Change in Control. If a Change in Control has
occurred in respect of which the Company did not take any action to
consummate or finalize, the offer required by Section 4.6(b) shall
be given not later than five (5) days after a Senior Officer obtains
knowledge of such Change in Control.
(iii) Failure to Respond. If the Company shall not have
received a written response to such offer from any holder of Notes
at least five (5) days prior to the expiration of the specified
offer period, then the Company shall immediately redeliver such
offer to each such holder of Notes.
(d) Content of Offer. Each such offer will
(i) refer to this Section 4.6(b),
(ii) be dated the date of the sending of such offer,
(iii) describe in reasonable detail the nature and material
terms of the Change in Control,
(iv) specify the Change in Control Date and the Change in
Control Payment Date,
(v) specify the last date upon which the offer can be accepted
or rejected, and the consequences of failing to provide an
acceptance or rejection as provided in Section 4.6(e),
(vi) specify the principal amount of each Note outstanding,
and the interest that would be due on each Note offered to be paid
if such offer was accepted, accrued to the Change in Control Payment
Date, and state that no Make-Whole Amount will be paid in connection
with such payment,
(vii) represent that this Section has been complied with, to
the extent applicable, and
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(viii) be executed by a Senior Officer.
(e) Acceptance, Rejection. To accept or reject such offered payment,
a holder of Notes shall send a notice of acceptance or rejection to the
Company prior to the expiration of the specified offer period. A failure
to respond to any such written offer of payment as provided in this
Section 4.6(e) shall be deemed to constitute an acceptance of such offer.
(f) Deferral of Obligation to Pay. The obligation of the Company to
pay the principal of the Notes pursuant to the offers required by Section
4.6(b) and accepted in accordance with Section 4.6(e) is subject to the
occurrence of the Change in Control in respect of which such offers and
acceptances have been made. In the event that such Change in Control does
not occur on or prior to the specified Change in Control Payment Date in
respect thereof, such payment shall be deferred until and shall be made on
the Change in Control Date (as deferred). The Company shall keep each
holder of Notes reasonably and timely informed of
(i) any deferral in, and the expected dates of, the Change in
Control Date and the Change in Control Payment Date, and
(ii) any determination by the Company that efforts to effect
such Change in Control have ceased or been abandoned (in which case
the offers and acceptances made pursuant to this Section 4.6 in
respect of such Change in Control shall be deemed rescinded,
provided that if such abandoned Change in Control is revived, it
shall be deemed to be a new Change in Control hereunder).
If the Change in Control Payment Date is deferred, the Company will
promptly deliver to the holders of the Notes the information required by
Section 4.6(d), updated accordingly.
(g) Material Alteration in Transaction. If, prior to the Change in
Control Payment Date, the terms of the transaction constituting the
related Change in Control are altered in any material respect, the Company
will immediately notify each holder of Notes of the details of such
alteration. Each holder of Notes will have the right to reverse its
acceptance or rejection of such offer (if already accepted or rejected)
until the end of the fifth (5th) day following the day on which such
holder is notified by the Company of such alteration. Each holder of Notes
which reverses its acceptance or rejection of such offer shall notify the
Company thereof during such five (5) day period. If any holder of Notes
fails to notify the Company of a reversal of its acceptance or rejection
of such offer during such five (5) day period, such holder of Notes shall
be deemed to have confirmed such acceptance or rejection. The Change in
Control Payment Date will be deferred, to the extent necessary, to
accommodate such five (5) day period, and the Company will promptly
deliver to the holders of the Notes the information required by Section
4.6(d), updated accordingly.
(h) Payment. The offered payment shall be made at one hundred
percent (100%) of the principal amount of the Notes to be prepaid
(together with any interest accrued and unpaid thereon, determined as of
the Change in Control Payment Date). Two (2) days prior to the making of
such payment, the Company shall deliver to each holder of Notes by
facsimile transmission a certificate of a Senior Officer specifying the
amounts and the due dates of the then remaining Scheduled Principal
Payments determined after giving effect to such payment.
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(i) Effect of Partial Payments on Scheduled Principal Payments. The
amount of each payment of principal of the Notes made pursuant to this
Section 4.6, will, at the time of such payment, be applied against and
reduce each of the then remaining Scheduled Principal Payments by a
percentage equal to the aggregate principal amount of the Notes so paid
divided by the aggregate principal amount of the Notes outstanding
immediately prior to such payment.
4.7 No Other Payments of Principal; Acquisition of Notes.
Except for payments of principal made in accordance with this Section 4,
the Company may not make any payment of principal in respect of the Notes. The
Company will not, and will not permit any Subsidiary or any Affiliate to,
directly or indirectly, acquire or make any offer to acquire any Notes unless
(a) the Company or such Subsidiary or Affiliate shall have offered
to acquire Notes, pro rata, from all holders of the Notes upon the same
terms,
(b) such offer will remain open for at least thirty (30) days from
the date the offer is received by each holder of Notes,
(c) the Company will provide each holder of Notes with sufficient
information (including, without limitation, a calculation of the estimated
Make-Whole Amount that would be due if the Company were to pay, in
accordance with Section 4.3, the amount of Notes in respect of which such
offer is being made) to enable each such holder to make an informed
decision with respect to such offer, and
(d) the Company will promptly provide each holder of Notes which
shall inquire (and as often as any such holder shall request) a written
list of all holders of Notes indicating the amount of the holdings of each
and whether such holder shall have accepted or rejected such offer, as of
the date of the provision of such list.
In case the Company acquires any Notes, such Notes will thereafter be cancelled
and no Notes will be issued in substitution therefor. The aggregate principal
amount of Notes so repurchased by the Company shall be applied against and
reduce the then remaining Required Principal Payments in the inverse order of
the due dates of such payments.
4.8 Payments on Notes.
(a) Manner of Payment. The Company shall pay all amounts payable
with respect to each Note (without any presentment of such Notes and
without any notation of such payment being made thereon) by crediting, by
federal funds bank wire transfer of immediately available funds, the
account of the holder thereof in any bank in the United States of America
as may be designated in writing by such holder, or in such other manner as
may be reasonably directed or to such other address in the United States
of America as may be reasonably designated in writing by such holder.
Annex 1 shall be deemed to constitute direction or designation (as
appropriate) by the Purchaser to the Company with respect to payments to
be made to the Purchaser as aforesaid. In the absence of written direction
or designation, all amounts payable with respect to each Note shall be
paid by check mailed and addressed to the registered holder of such Note
at the address shown in the register maintained by the Company pursuant to
Section 5.1.
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(b) Payments Due on Holidays. If any payment due on, or with respect
to, any Note shall fall due on a day other than a Business Day, then such
payment shall be made on the first Business Day following the day on which
such payment shall have so fallen due; provided that if all or any portion
of such payment shall consist of a payment of interest, for purposes of
calculating such interest, such payment shall be deemed to have been
originally due on such first following Business Day, such interest shall
accrue and be payable to (but not including) the actual date of payment,
and the amount of the next succeeding interest payment shall be adjusted
accordingly.
(c) Payments, When Received. Any payment to be made to a holder of
Notes hereunder or under the Notes shall be deemed to have been made on
the Business Day such payment actually becomes available to such holder at
such holder's bank prior to 12:00 noon (local time of such bank).
5. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES
5.1 Registration of Notes.
The Company will keep at its office, maintained pursuant to Section 6.4, a
register for the registration and transfer of Notes. The name and address of
each holder of one or more Notes, each transfer thereof made in accordance with
Section 5.2 and the name and address of each transferee of one or more Notes
shall be registered in such register. The Person in whose name any Note shall be
registered shall be deemed and treated as the owner and holder thereof for all
purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary, other than in accordance with Section 5.2.
5.2 Exchange of Notes.
(a) Exchange of Notes. Upon surrender of any Note at the office of
the Company maintained pursuant to Section 6.4, duly endorsed or
accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or such holder's attorney duly authorized
in writing, the Company will execute and deliver, at the Company's expense
(except as provided in Section 5.2(b)), a new Note or Notes in exchange
therefor, in an aggregate principal amount equal to the unpaid principal
amount of the surrendered Note. Each such new Note shall be payable to
such Person as such holder may request and shall be substantially in the
form of Exhibit A. Each such new Note shall be dated and bear interest
from the date to which interest shall have been paid on the surrendered
Note or dated the date of the surrendered Note if no interest shall have
been paid thereon. Each such new Note shall carry the same rights to
unpaid interest and interest to accrue that were carried by the Note so
exchanged or transferred. Notes shall not be transferred in denominations
of less than One Million Dollars ($1,000,000), provided that a holder of
Notes may transfer its entire holding of Notes regardless of the principal
amount of such holder's Notes.
(b) Costs. The Company will pay the cost of delivering to or from
such holder's home office or custodian bank from or to the Company,
insured to the reasonable satisfaction of such holder, the surrendered
Note and any Note issued in substitution or replacement for the
surrendered Note. The Company may require payment of a sum sufficient to
cover any stamp tax or governmental charge imposed in respect of any such
transfer of Notes.
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5.3 Replacement of Notes.
Upon receipt by the Company from the registered holder of a Note of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Note (which evidence shall be, in the case of an
institutional investor, notice from such institutional investor of such loss,
theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company (provided that if the holder of
such Note is an institutional investor or a nominee of an institutional
investor, such holder's own unsecured agreement of indemnity shall be
deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense will execute and deliver, in lieu thereof, a
replacement Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest shall
have been paid thereon.
5.4 Issuance Taxes.
The Company will pay all taxes (if any) due (but not, in any event, income
taxes) in connection with and as the result of the initial issuance and sale of
the Notes and in connection with any modification, waiver or amendment of this
Agreement or the Notes and shall save each holder of Notes harmless without
limitation as to time against any and all liabilities with respect to all such
taxes.
5.5 Limitation on Transfer to Competitors.
(a) Transfer to Competitors. No holder of Notes may, without the
prior written consent of the Company, transfer its Notes to a Competitor,
provided that the prior written consent of the Company will not be
required in connection with any of the following transfers:
(i) a transfer to a Person which is a holder of Notes at such
time;
(ii) a transfer by a holder of Notes to a Person which is not
a Competitor;
(iii) a transfer by a holder of Notes to an Allowed
Intermediary for the purpose of resale to a Person which is not a
Competitor; and
(iv) a transfer made at any time after a Senior Officer has
obtained knowledge (including knowledge obtained by notification by
a holder of Notes) of the existence and continuation for thirty (30)
days of an Event of Default, until such Event of Default is no
longer continuing and the Company has informed the holders of the
Notes in writing thereof.
(b) Competitor Defined. The term "Competitor" means
(i) (A) any Person or any subsidiary of any such Person that
is listed on Part 5.5 of Annex 3, or
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(B) a registered broker-dealer with capital in excess of
One Hundred Million Dollars ($100,000,000),
(each a "Broker-Dealer"), or
(ii) a Person that
(A) owns and controls more than fifty percent (50%) of
the equity interest (determined by voting rights) of any
Broker-Dealer, and
(B) does not, at all times while such Person holds any
Notes, have procedures and policies in effect to reasonably
assure that non-public information obtained pursuant hereto
with respect to the Company or any Subsidiary will not be
shared with or made available to such Broker-Dealer.
The Purchaser shall not be deemed to be a Competitor hereunder. In
determining whether a Person is a Competitor pursuant to the immediately
preceding clause (ii), reliance may be placed on a written representation
of such Person.
(c) Allowed Intermediary Defined. An "Allowed Intermediary" is a
financial intermediary engaged by a holder of Notes to effect the transfer
of Notes, provided that
(i) such financial intermediary is purchasing the Notes only
for prompt resale to a Person which is not a Competitor, and
(ii) only pricing information and information that is publicly
available with respect to the Notes is provided by the transferor to
a financial intermediary that is a Competitor.
In determining compliance with the immediately preceding clause (i),
reliance may be placed on a written representation of such financial
intermediary.
5.6 Securities Act Legends.
Each Note issued prior to the second anniversary of the Second Closing
shall contain the following legend:
The Notes have not been registered under the Securities Act of 1933 and may not
be offered or sold except pursuant to an effective registration statement or in
accordance with an applicable exemption from the registration requirements of
the Securities Act of 1933.
Notes issued after such date shall not contain such legend. On or after the
second anniversary of the Second Closing (or such earlier date as may be
permitted under applicable securities law) any holder of Notes may return any of
the Notes held by it in exchange for a Note that does not contain such legend,
and any transferee of a Note may request in writing to the Company that Notes
issued to such transferee not contain such legend, in which cases the Company
shall issue such Notes without such legend.
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6. GENERAL COVENANTS
The Company covenants that on and after the First Closing Date and so long
as any of the Notes shall be outstanding:
6.1 Payment of Taxes and Claims.
The Company will, and will cause each Restricted Subsidiary to, pay before
they become delinquent,
(a) all taxes, assessments and governmental charges or levies
imposed upon it or its Property, and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons that, if unpaid, could
reasonably be expected to result in the creation of a Lien upon its
Property,
provided, that items of the foregoing description need not be paid
(i) while being contested in good faith and by appropriate
proceedings as long as book reserves in compliance with GAAP have been
established and maintained and exist with respect thereto, and
(ii) so long as the title of the Company or the Restricted
Subsidiary, as the case may be, to, and its right to use, such Property,
is not materially adversely affected thereby.
6.2 Maintenance of Properties and Existence.
The Company will, and will cause each Restricted Subsidiary to:
(a) Property -- maintain its Property in good condition, ordinary
wear and tear excepted, and make all necessary renewals, replacements,
additions, betterments and improvements thereto, except where the failure
to do so could not reasonably be expected to have a Material Adverse
Effect;
(b) Insurance -- maintain, with financially sound and reputable
insurers, insurance with respect to its Property and business against such
casualties and contingencies, of such types and in such amounts as is
customary in the case of entities of established reputations engaged in
the same or a similar business and similarly situated;
(c) Financial Records -- keep adequate books of records and accounts
of its business transactions that permit the provision of accurate and
complete financial statements in accordance with GAAP;
(d) Legal Existence and Rights -- do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate,
company and partnership existence, rights (charter and statutory) and
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franchises, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect, provided that this Section
6.2(d) is subject in each case to Section 7.5; and
(e) Compliance with Law -- not be in violation of any law, ordinance
or governmental rule or regulation to which it is subject (including,
without limitation, any Environmental Protection Law) and not fail to
obtain any license, certificate, permit, franchise or other governmental
authorization necessary to the ownership of its Properties or to the
conduct of its business if such violation or failure to obtain could be
reasonably expected to have a Material Adverse Effect.
6.3 Maintenance of Security Licenses.
The Company will cause IJLC to at all times be registered as a
broker-dealer with the SEC under the Securities Exchange Act, be registered with
state securities authorities in each state where IJLC is required to be so
registered, be a member organization in good standing of the NYSE and the NASD,
and to the extent necessary, with the CFTC under the CEA as a futures commission
merchant.
6.4 Payment of Notes and Maintenance of Office.
The Company will punctually pay, or cause to be paid, the principal of and
interest (and Make-Whole Amount, if any) on, the Notes, as and when the same
shall become due according to the terms hereof and of the Notes, and will
maintain an office at the address of the Company referred to in Section 12.1
where notices, presentations and demands in respect hereof or of the Notes may
be made upon it. Such office will be maintained at such address until such time
as the Company will notify the holders of the Notes of any change of location of
such office, which will in any event be located within the United States of
America.
6.5 ERISA.
(a) Compliance. The Company will, and will cause each ERISA
Affiliate to, at all times with respect to each Pension Plan, comply with
all applicable provisions of ERISA and the IRC, except for such failures
to comply that, in the aggregate, could not reasonably be expected to have
a Material Adverse Effect.
(b) Prohibited Actions. The Company will not, and will not permit
any ERISA Affiliate to:
(i) engage in any "prohibited transaction" (as such term is
defined in section 406 of ERISA or section 4975 of the IRC) or
"reportable event" (as such term is defined in section 4043 of
ERISA) that could result in the imposition of a tax or penalty;
(ii) incur with respect to any Pension Plan any "accumulated
funding deficiency" (as such term is defined in section 302 of
ERISA), whether or not waived;
(iii) terminate any Pension Plan in a manner that could result
in the imposition of a Lien on the Property of the Company or any
Subsidiary pursuant to section 4068 of ERISA or the creation of any
liability under section 4062 of ERISA;
(iv) fail to make any payment required by section 515 of
ERISA;
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(v) incur any withdrawal liability under Title IV of ERISA
with respect to any Multiemployer Plan or any liability as a result
of the termination of any Multiemployer Plan; or
(vi) incur any liability or suffer the existence of any Lien
on the Property of the Company or any ERISA Affiliate, in either
case pursuant to Title I or Title IV of ERISA or pursuant to the
penalty or excise tax or security provisions of the IRC,
if the aggregate amount of the taxes, penalties, funding deficiencies,
interest, amounts secured by Liens, and other liabilities in respect of
any of the foregoing at any time could reasonably be expected to have a
Material Adverse Effect.
6.6 Maintenance of Business Characteristics.
(a) Line of Business. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any business if as a result thereof,
the business of the Company and the Restricted Subsidiaries, considered as
a whole, will not be substantially the same as the businesses engaged in
by such Persons during the fiscal year of the Company ended September 30,
1996 and activities that are ancillary, incidental or necessary to the
ongoing business of the Company and the present and future Restricted
Subsidiaries as conducted during such fiscal year.
(b) Maintenance of Status. The Company will cause IJLC to, at all
times, maintain its status, among the consolidated group of the Company
and the Restricted Subsidiaries, as the principal underwriter of and
dealer in securities products.
6.7 Maintenance of Ownership.
The Company will at all times hold legal and beneficial title to the
entire outstanding equity interest of IJLC and to all Securities and instruments
exchangeable for, convertible into, or representing the right to purchase, any
equity interest in IJLC.
6.8 Subsidiary Guaranties.
The Company will cause each Person which becomes a Restricted Subsidiary
other than CapTrust to duly authorize, execute and deliver to each holder of
Notes a Subsidiary Guaranty within 30 days of so becoming a Restricted
Subsidiary of the Company.
6.9 Transactions with Affiliates.
The Company will not, nor will it permit any Restricted Subsidiary to, at
any time, enter into any transaction, including, without limitation, the
purchase, sale or exchange of Property or the rendering of any service, with any
Affiliate, except in the ordinary course of and pursuant to the reasonable
requirements of the Company's or such Restricted Subsidiary's business and upon
fair and reasonable terms no less favorable to the Company or such Restricted
Subsidiary than would obtain in a comparable arm's-length transaction with a
Person not an Affiliate.
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6.10 Private Offering.
The Company will not, nor will it permit any Person acting on its behalf
to, offer the Notes or any part thereof or any similar Securities for issue or
sale to, or solicit any offer to acquire any of the same from, any Person so as
to bring the issuance and sale of the Notes within the provisions of section 5
of the Securities Act.
6.11 Ranking of Notes.
The Notes shall at all times rank as direct unsubordinated obligations of
the Company, shall rank at least pari passu with all other unsubordinated
Indebtedness of the Company present and future, and shall rank senior to all
capital stock, limited partnership interests, general partnership interests,
membership interests and all other equity interests in the Company that may from
time to time exist.
6.12 Further Assurances.
(a) Generally. The Company will, and will cause each Restricted
Subsidiary to, execute and deliver, within 30 days after any request
therefor by the Required Holders, all further instruments and documents
and take all further action that may be necessary, in order to give effect
to, and to aid in the exercise and enforcement of the Liens, rights and
remedies of the holders of Notes under, the Financing Documents.
(b) Pledge of Restricted Subsidiary Stock. The Company will and will
cause each Restricted Subsidiary to, deliver to the Trustee all capital
stock of Restricted Subsidiaries that is obtained by the Company or any
Restricted Subsidiary after the First Closing Date, within thirty (30)
days after becoming the owner thereof (including capital stock of Persons
that become Restricted Subsidiaries after the First Closing Date) to be
pledged pursuant to the Pledge Agreement, provided that the membership
interest of CapTrust shall not be so pledged. The Company will, and will
cause each Restricted Subsidiary to, execute and deliver, within thirty
(30) days after any request therefor by the Required Holders, all further
instruments and documents and take all further action that may be
necessary, in order to create and perfect Liens in favor of the Trustee in
such capital stock.
7. FINANCIAL COVENANTS
7.1 Required Net Capital.
The Company will not permit, at any time,
(a) (i) NYSE Net Capital to be less than one hundred fifty percent
(150%) of NYSE Required Net Capital, and
(ii) SEC Net Capital to be less than one hundred fifty percent
(150%) of SEC Required Net Capital,
in each case determined at such time, and
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(b) Excess Net Capital to be less than Seventeen Million Dollars
($17,000,000), determined as of the then most recently ended fiscal
quarter of the Company.
7.2 Consolidated Tangible Net Worth.
The Company will not permit, on any date (the "determination date"),
Consolidated Tangible Net Worth to be less than the sum of
(a) on any date
(i) prior to October 31, 1997, Fifty-Six Million Dollars
($56,000,000), and
(ii) on or after October 31, 1997, the greater of
(A) eighty-five percent (85%) of Consolidated Tangible
Net Worth, determined as of October 31, 1997, or
(B) Fifty Million Dollars ($50,000,000), plus
(b) on any date
(i) prior to October 31, 1997, an amount equal to 50% of its
Consolidated Net Earnings (but, in each case, only if a positive
number) for each completed fiscal quarter after December 31, 1996,
and
(ii) on or after October 31, 1997, an amount equal to 50% of
its Consolidated Net Earnings (but, in each case, only if a positive
number) for each completed fiscal quarter after October 31, 1997,
plus
(c) on any date, an amount equal to the greater of
(i) Zero Dollars ($0) or
(ii) (A) if such date is prior to October 31, 1997,
seventy-five percent (75%) of an amount equal to
(I) the net proceeds from each sale of all capital
stock of the Company sold by the Company subsequent to
December 31, 1996 to Persons other than Subsidiaries
(including in such net proceeds the net amount paid upon
issuance and exercise of a right to acquire any capital
stock, or to convert a convertible debt security to
capital stock, but excluding any amount paid to the
Company upon issuance of such convertible debt
security), minus
(II) the aggregate amount of cash expended by the
Company subsequent to December 31, 1996 in repurchasing
or redeeming capital stock of the Company, and
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(B) if such date is on or after to October 31, 1997,
seventy-five percent (75%) of an amount equal to
(I) the net proceeds from each sale of all capital
stock of the Company sold by the Company subsequent to
October 31, 1997 to Persons other than Subsidiaries
(including in such net proceeds the net amount paid upon
issuance and exercise of a right to acquire any capital
stock, or to convert a convertible debt security to
capital stock, but excluding any amount paid to the
Company upon issuance of such convertible debt
security), minus
(II) the aggregate amount of cash expended by the
Company subsequent to October 31, 1997 in repurchasing
or redeeming capital stock of the Company.
7.3 Limitation on Indebtedness.
(a) Leverage Test. The Company shall not at any time permit Total
Debt to exceed forty percent (40%) of Total Capitalization, in each case
determined at such time.
(b) Incurrence of Indebtedness. The Company will not, nor will it
permit any Restricted Subsidiary to, at any time, create, incur, or assume
any Indebtedness, provided that:
(i) the Company and the Restricted Subsidiaries may incur
obligations in respect of the Notes;
(ii) any one or more of the Company and the Restricted
Subsidiaries may incur Short-Term Ordinary Course Debt;
(iii) the Company may incur Funded Debt, provided that after
giving effect to such incurrence,
(A) the aggregate amount of Consolidated Funded Debt
outstanding at such time will not exceed twenty percent (20%)
of Total Capitalization determined as of the last day of the
then most recently ended fiscal quarter of the Company, and
(B) Consolidated Priority Debt at such time will not
exceed fifteen percent (15%) of Consolidated Tangible Net
Worth determined as of the last day of the then most recently
ended fiscal quarter of the Company; and
(iv) the Restricted Subsidiaries may incur Funded Debt,
provided that after giving effect to such incurrence, Consolidated
Priority Debt at such time will not exceed fifteen percent (15%) of
Consolidated Tangible Net Worth determined as of the last day of the
then most recently ended fiscal quarter of the Company.
Any Person which becomes a Restricted Subsidiary after the First Closing
Date shall be deemed to have incurred, on the date it becomes a Restricted
Subsidiary, all of the Indebtedness of such Person existing immediately
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after such Person becomes a Restricted Subsidiary. The sale or other
transfer (but not repayment) of Indebtedness of a Restricted Subsidiary by
the Company or another Restricted Subsidiary to a Person other than the
Company or a Restricted Subsidiary will be deemed to be an incurrence of
Indebtedness under this Agreement.
7.4 Restricted Payments and Restricted Investments.
(a) Generally. The Company will not, nor will it permit any
Restricted Subsidiary to, at any time,
(i) make or authorize any Restricted Investment, or
(ii) declare or make or incur any liability to declare or make
any Restricted Payment,
unless, immediately after giving effect to the proposed Restricted
Investment or Restricted Payment,
(A) the sum of
(I) the aggregate amount of all Restricted Investments
(valued immediately after such action), plus
(II) the aggregate amount of all Restricted Payments
made during the period commencing on the First Closing Date
and ending at such time, inclusive,
would not exceed twenty-five percent (25%) of Consolidated Tangible
Net Worth, determined as of the immediately preceding fiscal quarter
of the Company, and
(B) no Default or Event of Default would exist.
Any Person which becomes a Restricted Subsidiary after the First Closing
Date shall be deemed to have made, at the time it becomes a Restricted
Subsidiary, all Restricted Investments of such Person existing immediately
after it becomes a Restricted Subsidiary. All outstanding Investments in a
Restricted Subsidiary will be deemed to be Restricted Investments if a
transaction or transactions occur that result in such Restricted
Subsidiary no longer qualifying as a Restricted Subsidiary, and such
Investments will be deemed to have been made at the time such Person no
longer so qualifies. Restricted Investments made solely by issuance of
common stock of the Company shall be excluded.
(b) Investments in CapTrust. Neither the Company nor any Restricted
Subsidiary will make any Investment in CapTrust if, after giving effect to
such Investment, the aggregate amount of the Investment of the Company and
the Restricted Subsidiaries in CapTrust
(i) exceeds Five Million Dollars and at the time of the making
of such Investment, the retained earnings of CapTrust is less than
Zero Dollars ($0), or
(ii) exceeds Ten Million Dollars.
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The Investment of the Company and the Restricted Subsidiaries in CapTrust
shall be valued at cost less any dividends or distributions paid in cash
in respect thereof to the Company or the Restricted Subsidiaries other
than IJL Holdings.
7.5 Merger; Sale of Assets; Restricted Subsidiary Stock.
(a) Merger and Consolidation. The Company will not, nor will it
permit any Restricted Subsidiary to, at any time, merge into, consolidate
with, or sell, lease, transfer or otherwise dispose of all or
substantially all of its Property (collectively, a "Merger Transaction")
to, any other Person or permit any other Person to consolidate with or
merge into it, or enter into any transaction that is in substance a
transaction of such type; provided that
(i) The Company -- the foregoing restriction does not apply to
a Merger Transaction of the Company so long as each of the following
conditions is satisfied with respect thereto:
(A) if the Company is not the Person (the "Surviving
Person") which results from such Merger Transaction,
(I) the Surviving Person shall be a corporation,
limited liability company, general partnership or
limited partnership organized under the laws of the
United States of America or any jurisdiction thereof,
and
(II) the due and punctual payment of the principal
of and Make-Whole Amount, if any, and interest on all of
the Notes, according to their tenor, and the due and
punctual performance and observance of all the covenants
in the Financing Documents to be performed or observed
by the Company, are expressly assumed by the Surviving
Person pursuant to such agreements and instruments of
assumption as shall be approved by the Required Holders,
and the Company will cause to be delivered to each
holder of Notes an opinion of independent counsel to the
effect that such agreements and instruments are
enforceable in accordance with their terms;
(B) no Default or Event of Default exists or would exist
under any provision hereof; and
(C) the Surviving Person would be permitted to incur at
least One Dollar ($1.00) of additional Funded Debt under
Section 7.3(b)(iii);
(ii) Restricted Subsidiaries -- the foregoing restriction does
not apply to a Merger Transaction of a Restricted Subsidiary so long
as each of the following conditions is satisfied with respect
thereto:
(A) the Person surviving such Merger Transaction shall
be another Restricted Subsidiary or the Company;
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(B) after giving effect to such Merger Transaction, no
Default or Event of Default shall exist under any provision
hereof; and
(C) the due and punctual performance and observance of
all the covenants in the Financing Documents to be performed
or observed by such Restricted Subsidiary are expressly
assumed by the Person surviving such Merger Transaction
pursuant to such agreements and instruments of assumption as
shall be approved by the Required Holders, and the Company
will cause to be delivered to each holder of Notes an opinion
of independent counsel to the effect that such agreements and
instruments are enforceable in accordance with their terms.
(b) Sale of Assets. Except as permitted under Section 7.5(a), the
Company will not, and will not permit any of its Restricted Subsidiaries
to, make any Asset Disposition unless:
(i) In the good faith opinion of the Company, the Asset
Disposition is in exchange for consideration having a Fair Market
Value at least equal to that of the property exchanged and is in the
best interest of the Company or such Restricted Subsidiary;
(ii) immediately after giving effect to the Asset Disposition,
no Default or Event of Default would exist;
(iii) immediately after giving effect to the Asset
Disposition,
(A) the aggregate Disposition Value of all Property that
was the subject of any Asset Disposition occurring in the
period commencing on the first day of the period of twelve
(12) consecutive calendar months then most recently completed
and ending on and including the date of such Asset Disposition
does not exceed ten percent (10%) of Consolidated Assets,
determined as of the end of the then most recently completed
fiscal year of the Company, and
(B) the Property that was the subject of any Asset
Disposition occurring in the period commencing on the first
day of the period of twelve (12) consecutive calendar months
then most recently completed and ending on and including the
date of such Asset Disposition did not contribute more than
ten percent (10%) of Consolidated Net Earnings (the
determination of such contribution to be based on the
aggregation of the respective percentage contribution of each
item of such Property to Consolidated Net Earnings during the
twelve (12) calendar months preceding the disposition of each
such item of Property); and
(iv) immediately after giving effect to the Asset Disposition,
(A) the aggregate Disposition Value of all Property that
was the subject of any Asset Disposition occurring in the
period commencing on the First Closing Date and ending on and
including the date of such Asset Disposition would not exceed
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twenty-five (25%) of Consolidated Assets, determined as of the
end of the then most recently completed fiscal year of the
Company, and
(B) the Property that was the subject of any Asset
Disposition occurring in the period commencing on the First
Closing Date and ending on and including the date of such
Asset Disposition did not contribute more than twenty-five
percent (25%) of Consolidated Net Earnings determined in
respect of such period (the determination of such contribution
to be based on the aggregation of the respective percentage
contribution of each item of such Property to Consolidated Net
Earnings during such period).
Notwithstanding the foregoing sentence, the Company will not, and will not
permit any Restricted Subsidiary to, make Asset Dispositions of Property
of the Interstate Group that, when aggregated with all other Asset
Dispositions of Property of the Interstate Group occurring on or after the
First Closing date, constitute a Substantial Part of the Property of the
Interstate Group, without the written consent of the Required Holders.
(c) Transfers of Restricted Subsidiary Stock. The Company will not,
nor will it permit any Restricted Subsidiary to, issue, sell or otherwise
dispose of any equity interest (or any Securities or agreements
exchangeable for, convertible into, or representing the right to purchase
any equity interest) of a Restricted Subsidiary (such equity interest and
Securities and agreements referred to as "Restricted Subsidiary Stock"),
nor will any Restricted Subsidiary issue, sell or otherwise dispose of any
shares of its own Restricted Subsidiary Stock, provided that the foregoing
restrictions do not apply to:
(i) the sale or other disposition by the Company or a
Restricted Subsidiary of shares of Restricted Subsidiary Stock to
the Company or to a Wholly-Owned Subsidiary;
(ii) the issuance by a Restricted Subsidiary of shares of its
own Restricted Subsidiary Stock to either the Company or a
Wholly-Owned Subsidiary;
(iii) the issuance by a Restricted Subsidiary of directors'
qualifying shares;
(iv) the sale of up to ninety-eight percent (98%) of
non-voting capital stock of IJL Holdings so long as such sales are
to registered broker-dealers or financial advisors employed by
CapTrust, and provided that the Company shall at all times be the
direct or indirect owner of one hundred percent of the voting
capital stock of IJL Financial and not less than two percent (2%) of
non-voting capital stock of IJL Holdings; and
(v) the Transfer of all of the Restricted Subsidiary Stock of
a Restricted Subsidiary of the Company owned by the Company and the
Restricted Subsidiaries if:
(A) such Transfer satisfies the requirements of Section
7.5(b); and
(B) the Restricted Subsidiary being disposed of has no
continuing Investment in the Company or any other Restricted
Subsidiary not being simultaneously disposed of.
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Notwithstanding any provision of this Section 7.5(c) to the contrary,
neither the Company nor any Restricted Subsidiary will sell any Restricted
Subsidiary Stock issued by IJLC or IJL Financial. Prior to the sale of any
Restricted Subsidiary Stock pursuant to this Section 7.5(c) which has been
pledged pursuant to the Pledge Agreement, the Company shall provide each
holder of Notes a certificate of a Senior Officer which sets forth the
financial information to establish that such sale is in compliance with
Section 7.5(b).
8. REPORTING COVENANTS
8.1 Financial and Business Information.
The Company shall deliver to each holder of Notes:
(a) Quarterly Statements --
(i) as soon as practicable after the end of each quarterly
fiscal period of the Company, and in any event within thirty (30)
days thereafter, duplicate copies of IJLC's FOCUS Report for such
period as filed, and accompanied by the certificate required by
Section 8.2;
(ii) as soon as practicable after the end of each quarterly
fiscal period in each fiscal year of the Company (other than the
last quarterly fiscal period of each such fiscal year), and in any
event within forty-five (45) days thereafter,
(A) a consolidated balance sheet as at the end of such
quarter,
(B) and consolidated statements of income, changes in
shareholders' equity and cash flows for such quarter and (in
the case of the second and third quarters) for the portion of
the fiscal year ending with such quarter,
separately for the Company and its consolidated subsidiaries, and
the Company and the Restricted Subsidiaries, setting forth in each
case, in comparative form, the financial statements for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified as complete and
correct by a Senior Financial Officer, and accompanied by the
certificate required by Section 8.2; provided, that delivery of
copies of the Company's Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission within the time period specified
above shall be deemed to satisfy the requirements of this Section
8.1(a) so long as such Quarterly Report contains or is accompanied
by the information specified in this Section 8.1(a)(ii);
(b) Annual Financial Statements -- as soon as practicable after the
end of each fiscal year of the Company, and in any event within ninety
(90) days thereafter,
(i) consolidated and consolidating balance sheets as at the
end of such year, and
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(ii) consolidated and consolidating statements of income,
changes in shareholders' equity and cash flows for such year,
separately for the Company and its consolidated subsidiaries, and the
Company and the Restricted Subsidiaries, setting forth in the case of each
consolidated financial statement, in comparative form, the financial
statement for the previous fiscal year, all in reasonable detail, prepared
in accordance with GAAP, and accompanied by
(A) in the case of the consolidated financial statements of
the Company and its consolidated subsidiaries, an audit report
thereon of independent certified public accountants of recognized
national standing, which report shall state without qualification
(including, without limitation, qualifications related to the scope
of the audit, the compliance of the audit with generally accepted
auditing standards, or the ability of the Company or a material
subsidiary thereof to continue as a going concern), that such
financial statements have been prepared and are in conformity with
GAAP,
(B) a certification by a Senior Officer that such consolidated
and consolidating statements are complete and correct, and
(C) the certificates required by Section 8.2 and Section 8.3,
provided, that the delivery of the Company's Annual Report on Form 10-K
for such fiscal year filed with the Securities and Exchange Commission
within the time period specified above shall be deemed to satisfy the
requirements of this Section 8.1(b) so long as such Annual Report contains
or is accompanied by the reports and other information otherwise specified
in this Section 8.1(b);
(c) Audit Reports -- promptly upon receipt thereof, a copy of each
other report submitted to the Company or any Restricted Subsidiary by
independent accountants in connection with any annual, interim or special
audit made by them of the books of the Company or any Subsidiary,
including, without limitation, any comment letter submitted to a Senior
Officer by such accountants in connection with their annual audit;
(d) SEC and Other Reports -- promptly upon their becoming available,
during any period in which the Company has Securities registered under the
Securities Act, one copy of each regular or periodic report, and any
registration statement, prospectus or written communication (other than
routine transmittal letters), and each amendment thereto, in respect
thereof required to be filed by the Company or any Subsidiary as a result
of the existence of such Securities, with, or received by, such Person in
connection therewith from, the NASD, any securities exchange or the SEC or
any successor agency;
(e) ERISA -- immediately upon becoming aware of the occurrence of
any
(i) "reportable event" (as such term is defined in section
4043 of ERISA) or
(ii) "prohibited transactions" (as such term is defined in
section 406 or section 4975 of the IRC),
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in connection with any Pension Plan, any Multiemployer Plan, or any trust
created thereunder, a written notice specifying the nature thereof, what
action the Company is taking or proposes to take with respect thereto,
and, when known, any action taken by the IRS, the Department of Labor or
the PBGC with respect thereto;
(f) Notice of Default or Event of Default -- within two (2) Business
Days of becoming aware
(i) of the existence of any condition or event which
constitutes a Default or an Event of Default, or
(ii) that the holder of any Note, or of any Indebtedness of
the Company or any Subsidiary, shall have given notice or taken any
other action with respect to a claimed Default, Event of Default or
default or event of default,
a notice specifying the nature of the claimed Default, Event of Default or
default or event of default and the notice given or action taken (if any)
by such holder and what action the Company is taking or proposes to take
with respect thereto;
(g) Actions, Proceedings -- promptly after the commencement of any
action or proceeding relating to the Company or any Subsidiary in any
court or before any Governmental Authority or arbitration board or
tribunal as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, is reasonably likely to
have a Material Adverse Effect, a notice specifying the nature and period
of existence thereof and what action the Company is taking or proposes to
take with respect thereto;
(h) Other Creditors -- promptly upon the request of any holder of
Notes, copies of any statement, report or certificate furnished to any
holder of Indebtedness of the Company or any Subsidiary to the extent that
the information contained in such statement, report or certificate has not
already been delivered to each holder of Notes;
(i) Requested Information -- with reasonable promptness, such other
data and information as from time to time may be reasonably requested,
including, without limitation, information required by 17 C.F.R.
ss.230.144A, as amended from time to time (provided that it is agreed and
understood that the Company does not have any obligation or intention to
register the Notes under the Securities Act).
8.2 Manager's Certificates.
Each set of financial statements delivered to each holder of Notes
pursuant to Section 8.1(a) or Section 8.1(b) shall be accompanied by a
certificate of a Senior Officer setting forth:
(a) Covenant Compliance -- the financial information (including
detailed calculations) required in order to establish whether the Company
was in compliance with the requirements of Section 7 (in each case where
such Section imposes numerical financial requirements) as of the end of
the period covered by the financial statements then being furnished
(including with respect to such Section, where applicable, the
calculations of the maximum or minimum amount, ratio or percentage, as the
case may be, permissible under the terms of such Section, and the
calculation of the amount, ratio or percentage then in existence); and
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(b) Event of Default -- a statement that the signer has reviewed the
relevant terms hereof and has made, or caused to be made, under his or her
supervision or authority, a review of the transactions and conditions of
the Company and its subsidiaries from the beginning of the accounting
period covered by the income statements being delivered therewith to the
date of the certificate and that such review shall not have disclosed the
existence during such period of any condition or event that constitutes a
Default or an Event of Default or, if any such condition or event existed
or exists, specifying the nature and period of existence thereof and what
action the Company shall have taken or proposes to take with respect
thereto.
8.3 Accountants' Certificates.
Each set of annual financial statements delivered pursuant to Section
8.1(b) shall be accompanied by a certificate of the accountants who certify such
financial statements, stating that they have reviewed this Agreement and stating
further, whether, in making their audit, such accountants have become aware of
any condition or event related to accounting and financial determinations and
matters, that, as of the date of such financial statements, constitutes a
Default or an Event of Default, and, if such accountants are aware that any such
condition or event then exists, specifying the nature and period of existence
thereof.
8.4 Inspection.
The Company shall permit the representatives of each Significant Holder,
at such holder's expense (or, if a Default or an Event of Default shall then
exist, at the expense of the Company), to visit and inspect any of the
Properties of the Company or any Subsidiary, to examine all their respective
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers, directors, partners, employees and independent public
accountants (and by this provision the Company authorizes said accountants to
discuss the finances and affairs of the Company and the Subsidiaries) all at
such reasonable times and as often as may be reasonably requested provided that
the Company will be provided at least three (3) Business Days written notice of
such visit, inspection, examination and discussions, and provided further that a
Senior Officer shall be permitted to be present at all such inspections, visits,
examination and discussions.
8.5 Confidentiality.
(a) Generally. Each holder of Notes shall treat Confidential
Information as confidential by such holder in accordance with the
procedures and standards that such holder generally applies to information
of a confidential nature, provided that it is understood that a holder of
Notes may disclose any such Confidential Information (in any form,
including copies of documents) to
(i) such holder's directors, trustees, officers, employees,
agents and professional consultants which have responsibilities with
respect to the management, ownership, monitoring, administering or
enforcing of such holder's investment in the Notes,
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(ii) any other holder of any Note,
(iii) any Person to which such holder offers to sell such Note
or any part thereof or participation therein, provided that such
Person first agrees in writing for the benefit of the Company to be
subject to the requirements of this Section 8.5,
(iv) any federal or state regulatory authority having
jurisdiction over such holder, and the National Association of
Insurance Commissioners or any similar organization,
(v) Standard & Poor's, a division of McGraw-Hill, Inc.,
Moody's Investor Services, Inc., or other nationally recognized
financial rating service, which is reviewing the credit rating of
any holder of Notes, and
(vi) any other Person to which such delivery or disclosure may
be necessary or appropriate in compliance with any law, rule,
regulation or order applicable to such holder, in response to any
subpoena or other legal process, in connection with any litigation
to which such holder is a party, or in order to protect such
holder's investment in such Note or enforce such holder's rights.
(b) "Confidential Information" Defined. The term "Confidential
Information" means, at any time, written information delivered to a holder
of Notes by or on behalf of the Company or any Subsidiary in connection
with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was adequately marked or
labeled or otherwise adequately identified when received by such holder as
being confidential information of the Company or such Subsidiary, and that
has not become
(i) publicly known other than by an act or omission by such
holder or a person acting on such holder's behalf, or
(ii) known to such holder from sources other than the Company
or a Subsidiary prior to the time of such disclosure.
9. EVENTS OF DEFAULT
9.1 Events of Default.
An "Event of Default" shall exist if any of the following occurs and is
continuing:
(a) Payments on the Notes --
(i) Principal or Make-Whole Amount Payments -- the Company
shall fail to make any payment of principal or Make-Whole Amount on
any Note on or before the date such payment is due;
(ii) Interest Payments -- the Company shall fail to make any
payment of interest on any Note on or before five (5) days after the
date such payment is due;
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(b) Particular Covenant Defaults -- the Company or any Subsidiary
shall fail to perform or observe any covenant contained in Section 7, or
in Section 8.1(f);
(c) Other Defaults -- the Company or any Subsidiary shall fail to
comply with any other provision hereof, or of any other Financing
Document, and such failure continues for more than thirty (30) days after
such failure shall first become known to any Senior Officer;
(d) Warranties or Representations -- any warranty, representation or
other statement by or on behalf of the Company contained herein or any
warranty, representation or other statement by or on behalf of the Company
contained in any instrument furnished in compliance herewith or in
reference hereto or any other Financing Document shall have been false or
misleading in any material respect when made;
(e) Default on Indebtedness --
(i) the Company or any Restricted Subsidiary fails to make any
payment on any Indebtedness when due; or
(ii) any event shall occur or any condition shall exist in
respect of Indebtedness of the Company or any Restricted Subsidiary,
or under any agreement securing or relating to such Indebtedness,
that immediately or with any one or more of the passage of time or
the giving of notice:
(A) causes (or permits any one or more of the holders
thereof or a trustee therefor to cause) such Indebtedness, or
a portion thereof, to become due prior to its stated maturity
or prior to its regularly scheduled date or dates of payment;
or
(B) permits any one or more of the holders thereof or a
trustee therefor to require the Company or any Restricted
Subsidiary to repurchase such Indebtedness from the holders
thereof;
provided that the aggregate amount of all obligations in respect of all
such Indebtedness exceeds at such time Five Million Dollars ($5,000,000);
(f) Insolvency --
(i) Involuntary Bankruptcy Proceedings --
(A) a receiver, liquidator, custodian or trustee of the
Company or any Restricted Subsidiary, or of all or any
substantial part of the Property of either, is appointed by
court order or under the SIPA and such order remains in effect
for more than sixty (60) days; or an order for relief is
entered with respect to the Company or any Restricted
Subsidiary, or the Company or any Restricted Subsidiary is
adjudicated a bankrupt or insolvent;
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(B) all or any substantial part of the Property of the
Company or any Restricted Subsidiary is sequestered by court
order and such order remains in effect for more than sixty
(60) days; or
(C) a petition is filed against the Company or any
Restricted Subsidiary under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter
in effect (including, without limitation, the SIPA), and is
not dismissed within sixty (60) days after such filing,
(ii) Voluntary Petitions -- the Company or any Restricted
Subsidiaryfiles a petition in voluntary bankruptcy or seeks relief
under any provision of any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect, or consents to
the filing of any petition against it under any such law, or
(iii) Assignments for Benefit of Creditors, etc. -- the
Company or a Restricted Subsidiary makes an assignment for the
benefit of its creditors, or admits in writing its inability, or
fails, to pay its debts generally as they become due, or consents to
the appointment of a receiver, liquidator or trustee of the Company
or a Restricted Subsidiary or of all or a substantial part of its
Property;
(g) IJLC Defaults --
(i) SIPC Decree -- the making of an application by SIPC for a
decree adjudicating that customers of IJLC are in need of protection
under SIPA and the failure of IJLC to obtain the dismissal of such
application within thirty (30) days;
(ii) Net Capital --
(A) if IJLC is not operating pursuant to paragraph
(a)(1)(ii) of Rule 15c3-1, the Aggregate Indebtedness of IJLC
shall exceed one thousand five hundred percent (1500%) of Net
Capital of IJLC, or
(B) (I) if the Company is operating pursuant to
paragraph (a)(1)(ii) of Rule 15c3-1, Net Capital of IJLC
shall be less than two percent (2%) of Aggregate Debit
Items of IJLC, or
(II) if IJLC is registered as a futures commission
merchant, Net Capital of IJLC shall be less than four
percent (4%) of the funds required to be segregated by
IJLC pursuant to the CEA and the regulations thereunder
(less the market value of commodity options purchased by
option customers on or subject to the rules of a
contract market, each such deduction not to exceed the
amount of funds in the option customer's account), if
greater than the amount required in the preceding clause
(I);
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in each case for a period of fifteen (15) consecutive Business
Days commencing on the date IJLC first determines such fact,
or the Examining Authority or the SEC first determines and
notifies IJLC of such fact;
(iii) Revocation of Broker-Dealer Status -- the SEC shall
revoke the registration of IJLC as a broker-dealer; or
(iv) Suspension of Membership Status -- the Examining
Authority shall suspend (and not reinstate within ten (10) days) or
revoke IJLC's status as a member thereof; or
(h) Financing Documents --
(i) (A) any Financing Document shall cease to be in full force
and effect in whole or in part or shall be declared by a court
or Governmental Authority of competent jurisdiction to be
void, voidable or unenforceable in whole or in part against
the Company or any Subsidiary party thereto, in either case
for any reason whatsoever, and
(B) in the reasonable opinion of counsel to the Required
Holders, such cessation or declaration is not curable by
action of the Company or any Subsidiary;
(ii) (A) any Financing Document shall cease to be in full
force and effect or shall be declared by a court or
Governmental Authority of competent jurisdiction to be void,
voidable or unenforceable against the Company or any
Subsidiary party thereto,
(B) in the reasonable opinion of counsel to the Required
Holders, such cessation or declaration is curable by action of
the Company or any Subsidiary, and
(C) such cessation or declaration is not cured by the
Company or any Subsidiary within fifteen (15) days of a Senior
Officer becoming aware thereof;
(iii) any security interest granted to the Trustee pursuant to
the Pledge Agreement shall fail at any time to constitute a
perfected first priority security interest in or assignment of the
collateral described in the Pledge Agreement;
(iv) the validity or enforceability of any Financing Document
against the Company or any Subsidiary shall be contested by the
Company, any Subsidiary, or any Affiliate;
(v) any Restricted Subsidiary, or any subsidiary or affiliate
thereof, shall deny that such Restricted Subsidiary has any further
liability or obligation under any Subsidiary Guaranty; or
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(i) Litigation --
(i) Liens arising from judicial attachments and judgments,
securing or relating to claims in an aggregate amount in excess of
Two Million Dollars ($2,000,000) shall have been filed or entered
against any one or more of the Company or IJLC or any Property of
any of them and shall not have been effectively stayed, vacated,
discharged, or bonded within sixty (60) days after the Company
receives notice thereof, or
(ii) Liens arising from judicial attachments and judgments,
securing or relating to claims shall have been filed or entered
against any one or more of the Restricted Subsidiaries (other than
IJLC) or any Property of any of them and shall not have been
effectively stayed, vacated, discharged, or bonded within sixty (60)
days after the Company receives notice thereof, provided that with
respect to any claim or claims entered against the same Persons or
Property,
(A) such claim or claims are in an aggregate amount in
excess of Two Million Dollars ($2,000,000), and
(B) the Fair Market Value of the assets of such Persons
and such Property, less the value of any consensual Liens that
are prior in right to the Lien securing such claim, is in
excess of Two Million Dollars ($2,000,000).
9.2 Default Remedies.
(a) Acceleration of Maturity of Notes.
(i) Acceleration on Event of Default.
(A) Automatic. If any Event of Default specified in
Section 9.1(f) shall exist, all of the Notes at the time
outstanding shall automatically become immediately due and
payable together with interest accrued thereon and, to the
extent permitted by law, the Make-Whole Amount at such time
with respect to the principal amount of such Notes, without
presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, and,
(B) Required Holders. If any Event of Default other than
those specified in Section 9.1(a) shall exist, the holder or
holders of more than fifty percent (50%) in principal amount
of the Notes then outstanding (exclusive of Notes then owned
by any one or more of the Company, any Subsidiary or any
Affiliate) may exercise any right, power or remedy permitted
to such holder or holders by law, and shall have, in
particular, without limiting the generality of the foregoing,
the right to declare the entire principal of, and all interest
accrued on, all the Notes then outstanding to be, and such
Notes shall thereupon become, forthwith due and payable,
without any presentment, demand, protest or other notice of
any kind, all of which are hereby expressly waived, and the
Company shall forthwith pay to the holder or holders of all
the Notes then outstanding the entire principal of, and
interest accrued on, the Notes and, to the extent permitted by
law, the Make-Whole Amount at such time with respect to such
principal amount of such Notes.
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(ii) Acceleration on Payment Default. During the existence of
an Event of Default described in Section 9.1(a), and irrespective of
whether the Notes then outstanding shall have become due and payable
pursuant to Section 9.2(a)(i)(B), any holder of Notes who or which
shall have not consented to any waiver with respect to such Event of
Default may, at his or its option, by notice in writing to the
Company, declare the Notes then held by such holder to be, and such
Notes shall thereupon become, forthwith due and payable together
with all interest accrued thereon, without any presentment, demand,
protest or other notice of any kind, all of which are hereby
expressly waived, and the Company shall forthwith pay to such holder
the entire principal of and interest accrued on such Notes and, to
the extent permitted by law, the Make-Whole Amount at such time with
respect to such principal amount of such Notes.
(b) Valuable Rights. The Company acknowledges, and the parties
hereto agree, that the right of each holder to maintain its investment in
the Notes free from repayment by the Company (except as herein
specifically provided for) is a valuable right and that the provision for
payment of a Make-Whole Amount by the Company in the event that the Notes
are prepaid or are accelerated as a result of an Event of Default is
intended to provide compensation for the deprivation of such right under
such circumstances.
(c) Other Remedies. During the existence of an Event of Default and
irrespective of whether the Notes then outstanding shall become due and
payable pursuant to Section 9.2(a), and irrespective of whether any holder
of Notes then outstanding shall otherwise have pursued or be pursuing any
other rights or remedies, any holder of Notes may proceed to protect and
enforce its rights hereunder and under such Notes by exercising such
remedies as are available to such holder in respect thereof under
applicable law, either by suit in equity or by action at law, or both,
whether for specific performance of any agreement contained herein or in
aid of the exercise of any power granted herein, provided that the
maturity of such holder's Notes may be accelerated only in accordance with
Section 9.2(a).
(d) Nonwaiver; Remedies Cumulative. No course of dealing on the part
of any holder of Notes nor any delay or failure on the part of any holder
of Notes to exercise any right shall operate as a waiver of such right or
otherwise prejudice such holder's rights, powers and remedies. All rights
and remedies of each holder of Notes hereunder and under applicable law
are cumulative to, and not exclusive of, any other rights or remedies any
such holder of Notes would otherwise have.
9.3 Annulment of Acceleration of Notes.
If a declaration is made pursuant to Section 9.2(a)(i)(B), then and in
every such case, the holders of more than fifty percent (50%) in aggregate
principal amount of the Notes then outstanding (exclusive of Notes then owned by
any one or more of the Company, any Subsidiaries and any Affiliates) may, by
written instrument filed with the Company, rescind and annul such declaration,
and the consequences thereof, provided that at the time such declaration is
annulled and rescinded:
(a) no judgment or decree shall have been entered for the payment of
any moneys due on or pursuant hereto or the Notes;
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(b) all arrears of interest upon all of the Notes and all of the
other sums payable hereunder and under the Notes (except any principal of,
or interest or Make-Whole Amount on, the Notes which shall have become due
and payable by reason of such declaration under Section 9.2(a)(i)(B))
shall have been duly paid; and
(c) each and every other Default and Event of Default shall have
been waived pursuant to Section 12.5 or otherwise made good or cured;
and provided further that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.
10. INTERPRETATION OF THIS AGREEMENT
10.1 Terms Defined.
As used herein, the following terms have the respective meanings set forth
below or set forth in the Section following such term:
Affiliate -- means, at any time, a Person (other than a Wholly-Owned
Subsidiary)
(a) that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the
Company,
(b) that beneficially owns or holds ten percent (10%) or more of the
Voting Equity Interest of the Company,
(c) ten percent (10%) or more of the Voting Equity Interest (or in
the case of a Person which is not a corporation, ten percent (10%) or more
of the equity interest) of which is beneficially owned or held by the
Company or a Subsidiary, or
(d) who is an officer or member of the Board of Directors, or their
equivalent, of the Company,
at such time. As used in this definition,
Control -- means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
Aggregate Debit Items -- means "aggregate debit items" as computed in
accordance with Exhibit A to 17 C.F.R. ss.240.15c3-3 as amended from time to
time, and any successor rule or regulation of the SEC regulating the same
subject matter.
Aggregate Indebtedness -- means "aggregate indebtedness" as defined by
Rule 15c3-1.
Agreement, this -- means this agreement, as it may be amended and restated
from time to time.
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Allowed Intermediary -- Section 5.5(c).
Asset Disposition -- means any Transfer except:
(a) any
(i) Transfer from a Restricted Subsidiary to the Company or a
Wholly-Owned Subsidiary; or
(ii) Transfer from the Company to a Wholly-Owned Subsidiary,
so long as immediately before and immediately after the consummation of
any such Transfer and after giving effect thereto, no Default or Event of
Default exists; and
(b) any Transfer made in the ordinary course of business and
involving only property that is either inventory held for sale or
equipment, fixtures, supplies or materials no longer required in the
operation of the business of the Company or any of its Subsidiaries or
that is obsolete.
As used in this definition,
Transfer -- means, with respect to any Person, any transaction in
which such Person sells, conveys, transfers or leases (as lessor) any of
its Property, including, without limitation, Restricted Subsidiary Stock.
Business Day -- means, at any time, a day other than a Saturday, a Sunday,
or a day on which the bank designated (by the holder of such Note) to receive
(for such holder's account) payments on such Note is required by law (other than
a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
Board of Directors -- at any time means the board of directors of the
Company or any committee thereof which, in the instance, shall have the lawful
power to exercise the power and authority of such board of directors.
Broker-Dealer -- Section 5.5(b)(i)(B).
Capital Lease -- means, at any time, a lease with respect to which the
lessee is required to recognize the acquisition of an asset and the incurrence
of a liability at such time in accordance with GAAP.
CapTrust -- means CapTrust Financial Advisors, LLC, a North Carolina
Limited Liability Company and its successors and assigns.
CEA -- means the Commodity Exchange Act, together with all rules and
regulations promulgated pursuant thereto, as amended from time to time.
CFTC -- means the Commodity Futures Trading Commission and any successor
organization discharging the regulatory functions of the Commodity Futures
Trading Commission.
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Change in Control -- means the occurrence of either of the following
events:
(a) the acquisition (whether directly or indirectly, and whether
effected by purchase, merger, consolidation, or otherwise, and regardless
of whether such transaction complies with Section 7.5(a)) of beneficial
ownership of common stock of the Company by a 13d Person if, after giving
effect to such acquisition, such 13d Person holds more than thirty percent
(30%) of any class of common stock of the Company outstanding at such
time; or
(b) for a period of thirty (30) consecutive days, beneficial
ownership of eighty percent (80%) or more of any class of common stock of
the Company is held by Persons other than Acceptable Persons.
As used in this definition,
13d Person -- means any person (as such term is used in section
13(d)(3) and section 14(d)(2) of the Securities Exchange Act as in effect
on the First Closing Date), or related persons constituting a group (as
such terms are used in rule 13d-5 under the Securities Exchange Act as in
effect on the First Closing Date), if such person, or any one or more
members of such group, was not an Acceptable Person at such time.
Acceptable Person -- means, at any time, a natural person who is at such
time, and has been during the then ended period of two-hundred seventy (270)
days, engaged in full-time employment by the Company or a Subsidiary (which has
been a Subsidiary during such period) on a continuous basis or any employee
stock ownership plan sponsored by the Company, or a member of the Family, or a
Family Trust, of such natural person.
Family -- means, with respect to any natural person, the heirs,
legatees, descendants and blood relatives to the third degree of
consanguinity of such natural person.
Family Trusts -- means, with respect to any natural person, any
trusts for the exclusive benefit of such natural person and the spouse and
lineal descendants of such natural person.
Change in Control Date -- means, at any time in respect of a Change in
Control, if prior to such Change in Control, the date upon which the Company
reasonably believes such Change in Control will occur, and if such Change in
Control has occurred, the date on which such Change in Control occurred.
Change in Control Notice Event -- the execution of any definitive written
agreement which, when fully performed by the parties thereto, would result in a
Change in Control, provided that the existence of customary closing conditions
shall not render an otherwise definitive written agreement non-definitive.
Change in Control Payment Date -- Section 4.6(b).
Company -- has the meaning specified in the introductory sentence hereof.
Competitor -- Section 5.5(b).
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Consolidated Assets -- means, at any time, the aggregate amount of assets
of the Company and the Restricted Subsidiaries, determined on a consolidated
basis at such time.
Consolidated Funded Debt -- means, at any time, an amount equal to the
amount of Funded Debt of the Company and the Restricted Subsidiaries, determined
on a consolidated basis at such time, provided that during the five (5) Business
Day period starting on the First Closing Date, the Convertible Debt shall not be
included in the determination of Consolidated Funded Debt.
Consolidated Net Earnings -- means, with respect to any period, an amount
equal to the amount of net earnings of the Company and the Restricted
Subsidiaries for such period, determined on a consolidated basis (after giving
effect to, without limitation, income taxes, income or loss from discontinued
operations and income or loss from extraordinary items) but excluding, to the
extent included in the determination of such Consolidated Net Earnings, without
duplication:
(a) the earnings of any Restricted Subsidiary accrued prior to the
date it became a Restricted Subsidiary;
(b) the earnings of any Person, substantially all the assets of
which have been acquired in any manner by the Company or a Restricted
Subsidiary, realized by such other Person prior to the date of such
acquisition;
(c) the net earnings of any Person (other than a Subsidiary) in
which the Company or any Restricted Subsidiary shall have an ownership
interest unless such net earnings shall have actually been received by the
Company or such Restricted Subsidiary in the form of cash distributions;
(d) any portion of the net earnings of any Subsidiary which is not a
Restricted Subsidiary that for any reason is unavailable for payment of
dividends to the Company or any Restricted Subsidiary;
(e) the earnings of any Person to which assets of the Company shall
have been sold, transferred or disposed of, or into which the Company
shall have merged, prior to the date of such transaction;and
(f) any portion of the net earnings of the Company or any Restricted
Subsidiary that cannot be freely converted into United States dollars.
Consolidated Priority Debt -- means, at any time, without duplication, the
sum of Consolidated Subsidiary Funded Debt plus Consolidated Secured
Indebtedness (excluding the Notes), minus the Voluntary Deferred Compensation
Obligation, determined at such time. As used in this definition,
Consolidated Secured Indebtedness -- means, at any time, an amount
equal to the amount of Funded Debt secured by a Lien on the Property of
the Company or any Restricted Subsidiary, determined on a consolidated
basis at such time.
Consolidated Subsidiary Funded Debt -- means, at any time, an amount
equal to the amount of Funded Debt of the Restricted Subsidiaries,
determined on a combined basis at such time and excluding Funded Debt
owing to the Company.
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Voluntary Deferred Compensation Amount -- means, at any time, an
amount equal to the lesser of
(a) Two Million Four Hundred Thousand Dollars ($2,400,000) or
(b) the amount of the obligations of the Company and the
Restricted Subsidiaries in respect of each of their voluntary
deferred compensation plans to the extent that such obligations
constitute Consolidated Funded Debt determined at such time.
Consolidated Tangible Net Worth -- means, at any time,
(a) Consolidated Net Worth minus
(b) (i) Consolidated Intangible Assets plus
(ii) the Excess CapTrust Investment, plus
(iii) the Excess Equity Method Amount,
determined at such time. As used in this definition,
Consolidated Net Worth -- means, at any time, an amount equal to
shareholders' equity of the Company and the Restricted Subsidiaries,
determined on a consolidated basis at such time.
Consolidated Intangible Assets -- means, at any time, the aggregate
amount of good will, trademarks, trade names, service marks, brand-names,
copyrights, patents and unamortized debt discount and expense,
organizational expenses, the excess of the equity in any Subsidiary over
the cost of the investment in such Subsidiary and all other Property which
would be considered to be intangible under GAAP of the Company and the
Restricted Subsidiaries, determined on a consolidated basis at such time.
Excess CapTrust Investment -- means, at any time, the aggregate
amount of the Investment of the Company and the Restricted Subsidiaries in
CapTrust in excess of Five Million Dollars ($5,000,000). The Investment of
the Company and the Restricted Subsidiaries in CapTrust shall be valued at
cost less any dividends or distributions paid in cash in respect thereof
to the Company or the Restricted Subsidiaries other than IJL Holdings.
Excess Equity Method Amount -- means, at any time, the greater of
(a) Zero Dollars ($0), or
(b) (i) the amount of the investment in all Persons accounted
for by the equity method as shown in the consolidated balance
sheet of the Company and the Restricted Subsidiaries, minus
(ii) the cost of such investments to the Company and the
Restricted Subsidiaries
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determined at such time.
Convertible Debt -- means the Company's 7 3/4% Subordinated Convertible
Debentures due March 11, 2011.
Default -- means an event or condition the occurrence of which would, with
the lapse of time or the giving of notice or both, become an Event of Default.
Disposition Value -- means, at any time, with respect to any Property
(a) in the case of Property that does not constitute Restricted
Subsidiary Stock, the book value thereof, valued at the time of such
disposition in good faith by the Company, and
(b) in the case of Property that constitutes Restricted Subsidiary
Stock, an amount equal to that percentage of book value of the assets of
the Subsidiary that issued such stock as is equal to the percentage that
the book value of such Restricted Subsidiary Stock represents of the book
value of all of the outstanding capital stock of such Subsidiary
determined at the time of the disposition thereof, in good faith by the
Company.
DSRO -- means the designated self-regulatory organization of the Company
pursuant to a plan filed with the CFTC pursuant to section 1.52 of the
regulations of the CFTC (17 C.F.R. ss.1.52).
Environmental Protection Law -- means any law, statute or regulation
enacted by any Governmental Authority in connection with or relating to the
protection or regulation of the environment, including, without limitation,
those laws, statutes and regulations regulating the disposal, removal,
production, storing, refining, handling, transferring, processing or
transporting of hazardous or toxic substances, and any orders, decrees or
judgments issued by any court of competent jurisdiction in connection with any
of the foregoing.
ERISA -- means the Employee Retirement Income Security Act of 1974,
together with all rules and regulations promulgated pursuant thereto, as amended
from time to time.
ERISA Affiliate -- means any corporation or trade or business that
(i) is a member of the same controlled group of corporations (within
the meaning of section 414(b) of the IRC) as the Company, or
(ii) is under common control (within the meaning of section 414(c)
of the IRC) with the Company.
Event of Default -- Section 9.1.
Examining Authority -- has the meaning assigned to it by Rule 15c3-1.
Excess Net Capital -- means, at any time, the lesser of
(a) NYSE Net Capital minus NYSE Required Net Capital, or
(b) SEC Net Capital minus SEC Required Net Capital,
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at such time.
Fair Market Value -- means, at any time with respect to any Property, the
sale value of such Property that would be realized in an arm's-length sale at
such time between an informed and willing buyer, and an informed and willing
seller, under no compulsion to buy or sell, respectively.
Financing Documents -- means this Agreement, the Notes, the Pledge
Agreement, the Subsidiary Guarantees, and each document, instrument or agreement
executed by or enforceable against any one or more of the Company and the
Subsidiaries in connection with any of such agreements, notes and instruments,
as each may be amended from time to time.
First Closing -- Section 1.2(b).
First Closing Date -- Section 1.2(b).
FOCUS Report -- means a Financial and Operational Combined Uniform Single
Report of IJLC required to be filed on a monthly or quarterly basis, as the case
may be, with the SEC or the NYSE, or, if IJLC is registered as a futures
commission merchant, with the CFTC, or any report that is required in lieu of
such report.
Funded Debt -- means, with respect to any Person, without duplication,
(a) all Indebtedness of such Person excluding Short-Term Ordinary
Course Debt of such Person and Subordinated Debt of such Person, and
(b) all Sale-Leaseback Obligations of such Person.
GAAP -- means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States.
Governmental Authority -- means
(a) the government of
(i) the United States of America and any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
Guaranty -- means with respect to any Person (for the purposes of this
definition, the "Guarantor") any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend
or other obligation of any other Person (the "Primary Obligor") in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by the Guarantor:
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(a) to purchase such indebtedness or obligation or any Property or
assets constituting security therefor;
(b) to advance or supply funds
(i) for the purpose of payment of such indebtedness or
obligation, or
(ii) to maintain working capital or other balance sheet
condition or any income statement condition of the Primary Obligor
or otherwise to advance or make available funds for the purchase or
payment of such indebtedness or obligation;
(c) to lease Property or to purchase Securities or other Property or
services primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of the Primary Obligor to make
payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or obligation
of the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guaranty, in connection with any
computation of indebtedness or other liability, it shall be assumed that the
indebtedness or other liabilities that are the subject of such Guaranty are
direct obligations of the issuer of such Guaranty.
IJL Holdings -- means IJL Holdings, Inc., a North Carolina corporation,
and its successors and assigns.
IJL Financial -- means IJL Financial, Inc., a North Carolina corporation,
and its successors and assigns.
IJLC -- means Interstate/Johnson Lane Corporation., a North Carolina
corporation, and its successors and assigns.
Indebtedness -- with respect to any Person means, at any time, without
duplication:
(a) its liabilities for borrowed money (whether or not evidenced by
a Security) and the book value of mandatorily redeemable preferred stock;
(b) any liabilities for borrowed money secured by any Lien existing
on Property owned by such Person (whether or not such liabilities have
been assumed) provided that in the case of non-recourse liabilities, the
amount of such liability shall equal the Fair Market Value of the Property
securing such liability;
(c) any obligations in respect of any Capital Lease of such Person;
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(d) the present value of all payments due under any arrangement for
retention of title or any conditional sale agreement (other than a Capital
Lease) discounted at the implicit rate, if known, with respect thereto or,
if unknown, at 8% per annum;
(e) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including all liabilities created or
arising under any conditional sale or other title retention agreement with
respect to any such property); and
(f) any Guaranty of such Person of any obligation or liability of
another Person.
Notwithstanding the foregoing, an amount equal to the lesser of Three Million
Four Hundred Thousand Dollars ($3,400,000) or the amount of the JLSS Deferred
Compensation Obligation shall not be Indebtedness. As used in this definition,
JLSS Deferred Compensation Obligation -- means obligations of one or more
of the Company and IJLC incurred in connection with the acquisition by the
Company of JLSS in the nature of deferred compensation obligations owing to
certain present and/or former employees of JLSS.
Indenture -- Section A.21(a).
Intercompany Debt Documents -- Section A.20(b).
Intercompany Loan Agreement -- Section A.20(b).
Intercompany Note -- Section A.20(b).
Interstate Group -- means that certain unincorporated business segment of
IJLC that offers securities trade execution services and provides independent
research to institutional investors nationwide.
Investments -- has the meaning specified in the definition of "Restricted
Investment" in this Section 10.1.
IRC -- means the Internal Revenue Code of 1986, together with all rules
and regulations promulgated pursuant thereto, as amended from time to time.
IRS -- means the Internal Revenue Service and any successor agency.
JLSS -- means The Johnson, Lane, Space, Smith Corporation, a Georgia
corporation.
Lien -- means any interest in Property securing an obligation owed to, or
a claim asserted by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes, and the filing of any financing statement under the
Uniform Commercial Code of any jurisdiction, or an agreement to give in the
future any of the foregoing. The term "Lien" includes reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances with respect to real property
and includes, with respect to stock, stockholder agreements, voting trust
agreements, buy-back agreements and all similar arrangements. For the purposes
hereof, the Company and each Subsidiary is deemed to be the owner of any
Property that it shall have acquired or holds subject to a conditional sale
agreement, Capital Lease or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes, and such retention or vesting is deemed a Lien. The term "Lien" does
not include negative pledge clauses in agreements relating to the borrowing of
money.
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Make-Whole Amount -- means, with respect to any date (the "Payment Date")
and any principal amount of Notes required for any reason to be paid prior to
the regularly scheduled maturity thereof on such Payment Date,
(a) if the Reinvestment Rate determined in respect of such principal
amount and such Payment Date equals or exceeds nine and seven-tenths
percent (9.7%), then Zero Dollars ($0), or
(b) if the Reinvestment Rate determined in respect of such principal
amount and such Payment Date is less than nine and seven-tenths percent
(9.7%), then an amount equal to the remainder of
(i) the sum of the present values of the then remaining
scheduled payments of principal and interest (minus, in the case of
the first of such interest payments, the amount of interest accrued
on such principal amount since the scheduled interest payment date
immediately preceding such Payment Date) that would be payable in
respect of such principal amount but for such prepayment, minus
(ii) such principal amount.
In determining such present values, a discount rate equal to the Reinvestment
Rate divided by two (2), and a semi-annual discount period comprised of six (6)
months of thirty (30) days each, shall be used. As used in this definition:
Reinvestment Rate -- means, with respect to any Payment Date and any
principal amount of Notes required for any reason to be paid prior to the
regularly scheduled maturity thereof on such Payment Date, the sum of
(a) one and fifty one-hundredths percent (1.50%), plus
(b) (i) the per annum yield reported on the Bloomberg
Financial Markets System (page USD) (or, if not available, any
other nationally recognized trading screen reporting on-line
intraday trading in United States government Securities) at
10:00 a.m. (New York time) on the second (2nd) Business Day
preceding such Payment Date for United States government
Securities having a maturity (rounded to the nearest month)
corresponding to the Weighted Average Life to Maturity of the
principal of the Notes being so prepaid, or in the event that
no such nationally recognized trading screen reporting on-line
trading in United States government Securities is available,
(ii) the arithmetic mean of the yields under the
respective headings "This Week" and "Last Week" published in
the Statistical Release under the caption "Treasury Constant
Maturities" for the maturity (rounded to the nearest month)
corresponding to the Weighted Average Life to Maturity of the
principal of the Notes being so prepaid; for the purposes of
calculating the Reinvestment Rate, the most recent Statistical
Release published prior to the second (2nd) Business Day
preceding the Payment Date shall be used.
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For purposes of clause (b) of the preceding sentence, if no maturity
determined in accordance therewith exactly corresponds to the Weighted
Average Life to Maturity of the principal amount of the Notes being so
prepaid, the yields for the two (2) maturities most closely corresponding
to such Weighted Average Life to Maturity (one (1) with a longer maturity
and one (1) with a shorter maturity, if available) shall be calculated
pursuant to the immediately preceding clause (b) and the Reinvestment Rate
shall be interpolated or extrapolated from such yields on a straight-line
basis.
Remaining Dollar-Years -- means, with respect to any date and any
principal amount of indebtedness being paid prior to the regularly
scheduled maturity thereof for any reason on such date, the result
obtained by
(a) multiplying, in the case of each required payment of
principal (including payment at maturity) that would be payable in
respect of such principal amount being so prepaid but for such
prepayment,
(i) an amount equal to such required payment of
principal, by
(ii) the number of years (calculated to the nearest
one-twelfth) that will elapse between the date of such
prepayment and the date such required principal payment would
be due if such prepayment had not occurred, and
(b) calculating the sum, with respect to each of such required
payments of principal, of each of the products obtained in the
preceding subsection (a).
Statistical Release -- means, at any time, the then most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve System and
which establishes yields on actively traded U.S. government Securities
adjusted to constant maturities or, if such statistical release is not
published at the time of any determination hereunder, then such other
reasonably comparable index which shall be so designated by the Required
Holders.
Weighted Average Life to Maturity -- means, with respect to any date
and any principal amount of indebtedness being paid on such date, the
number of years obtained by dividing the Remaining Dollar-Years of such
principal amount, determined on such date, by such principal amount.
Margin Security -- means "margin security" within the meaning of
Regulation G, Regulation T, and Regulation X of the Board of Governors of the
Federal Reserve System, 12 C.F.R., Chapter II, as amended from time to time.
Material Adverse Effect -- means a material adverse effect on
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(a) the business operations, financial condition, Properties or
business prospects of the Company and the Restricted Subsidiaries, in the
aggregate,
(b) the ability of the Company and the Restricted Subsidiaries to
perform their respective obligations set forth in the Financing Documents,
or
(c) the validity or enforceability of any of the Financing
Documents.
Merger Transaction -- Section 7.5(a).
Multiemployer Plan -- means any multiemployer plan (as defined in section
3(37) of ERISA) in respect of which the Company or any ERISA Affiliate is an
"employer" (as such term is defined in section 3 of ERISA).
Multiple Employer Pension Plan -- means any employee benefit plan within
the meaning of section 3(3) of ERISA (other than a Multiemployer Plan), subject
to Title IV of ERISA, to which the Company or any ERISA Affiliate and an
employer (as such term is defined in section 3 of ERISA) other than an ERISA
Affiliate or the Company contribute.
NASD -- means the National Association of Securities Dealers, Inc., and
any successor organization discharging the regulatory functions of the National
Association of Securities Dealers, Inc.
Net Capital -- means "net capital," as defined by Rule 15c3-1.
Notes -- Section 1.1.
NYSE -- means the New York Stock Exchange, Inc., or if IJLC is terminated
as a member of the NYSE, then "NYSE" shall mean the Examining Authority at such
time.
NYSE Net Capital -- means, at any time, the "net capital" of IJLC at such
time, computed in accordance with Rule 325 of the NYSE, or any later enacted
rule of the NYSE that supersedes such Rule 325.
NYSE Required Net Capital -- means, at any time, the minimum amount to
which NYSE Net Capital must be equal at such time in order to permit IJLC to
"expand its business" as defined by and pursuant to Rule 326(a) of the NYSE, or
any later enacted rule of the NYSE that supersedes such Rule 326(a).
PBGC -- means the Pension Benefit Guaranty Corporation and any successor
corporation or governmental agency.
Pension Plan -- means, at any time, any "employee pension benefit plan"
(as such term is defined in section 3 of ERISA) maintained at such time by the
Company or any ERISA Affiliate for employees of the Company or such ERISA
Affiliate, excluding any Multiemployer Plan, but including, without limitation,
any Multiple Employer Pension Plan.
Person -- means an individual, partnership, corporation, limited liability
company, trust, unincorporated organization, or a government or agency or
political subdivision thereof.
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Pledge Agreement -- Section A.21(b).
Pledge Letter Agreement -- Section A.16(a).
Property -- means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
Purchaser -- means a Person listed as a purchaser of Notes on Annex 1
hereto.
Required Holders -- means, at any time, the holders of more than fifty
percent (50%) in principal amount of the Notes at the time outstanding
(exclusive of Notes then owned by any one or more of the Company, any
Subsidiary, any Affiliate, and any officer, director or partner of any thereof).
Restricted Investments -- means at any time all Investments, made in cash
or by delivery of Property, by any one or more of the Company and the
Subsidiaries (x) in any Person, whether by acquisition of stock, indebtedness or
other obligation or Security, or by loan, Guaranty, advance or capital
contribution, or otherwise, or (y) in any Property (items (x) and (y) herein
called "Investments"), except the following:
(a) Investments in any other Person which is a Restricted
Subsidiary, or concurrently with such investment becomes a Restricted
Subsidiary;
(b) real property, office equipment and leasehold improvements used
in the ordinary course of business of the Company and the Restricted
Subsidiaries and not held for investment or sale;
(c) clearing and other deposits, and receivables from
brokers-dealers and customers, in each case arising in the ordinary course
of business of the Company and the Restricted Subsidiaries;
(d) securities held for sale or investment in the ordinary course of
business of the Company and the Restricted Subsidiaries;
(e) Repurchase Agreements of IJLC entered into in the ordinary
course of business;
(f) securities purchased pursuant to the requirements of federal and
state regulations applicable to the Company's and the Restricted
Subsidiaries' businesses as broker-dealers and futures commission
merchants;
(g) memberships in stock exchanges and commodity exchanges; and
(h) loans provided to brokers or other professional employees as an
inducement to employment, provided that
(i) no such loan at any time has a remaining term in excess of
five (5) years, and
(ii) the aggregate outstanding amount of all such loans does
not at any time exceed Five Million Dollars ($5,000,000).
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Investments shall be valued at cost less any net return of capital through the
sale or liquidation thereof or other return of capital thereon. As used in this
definition,
Credit Qualified Customer -- means individuals and
institutions whose financial condition satisfies IJLC internal lending
standards and guidelines, consistent with its historical practices, in
connection with repurchase agreements with individuals and institutions,
provided that such individuals shall in addition be individuals with whom
IJLC may enter into a repurchase agreement without maintaining a margin
pursuant to Rule 15c3-1(c)(2)(xii)/01, and.
Repurchase Agreement -- means any written agreement of IJLC
(a) that provides for
(i) the transfer of one or more fixed-income Securities
by Credit Qualified Customer (each a "Transferor") against a
transfer of funds (the "Transfer Price") by IJLC to such
Transferor, and
(ii) a simultaneous agreement by IJLC in connection with
such transfer of funds, to transfer to such Transferor the
same or substantially similar fixed-income Securities for a
price not less than the Transfer Price plus a reasonable
return thereon within ninety (90) days,
(b) in respect of which IJLC shall have the right, whether by
contract or pursuant to applicable law, to liquidate such repurchase
agreement upon the occurrence of any default thereunder, and
(c) in connection with which IJLC, shall take physical
possession of the fixed-income Securities so transferred to IJLC,
or, in the case of any uncertificated fixed-income Securities so
transferred, shall have taken all action required by applicable law
or regulations to perfect its Lien therein,
provided that at no time will the aggregate amount of the Transfer Prices
of Repurchase Agreements outstanding with any one Credit Qualified
Customer exceed the net worth of such customer.
Restricted Payment -- means, with respect to any Person
(a) any dividend or other distribution, direct or indirect, on
account of any shares of capital stock, or membership interest, of such
Person now or hereafter outstanding, whether in cash or Property, except a
dividend payable solely in shares of stock of any such Person that is a
corporation;
(b) any redemption, retirement, purchase or other acquisition,
direct or indirect, of any shares of stock of any such Person now or
hereafter outstanding, or of any warrants, rights, or options to acquire
any shares of such stock, provided, that
(i) the repurchase or redemption of common stock of the
Company at a cost to the Company of up to Nine Million Dollars
($9,000,000), plus
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(ii) the repurchase of a number of shares of common stock up
to the number of shares of common stock issued in connection with
the calling of the Convertible Debt, in addition to the repurchases
and redemptions made pursuant to the immediately preceding clause
(i),
if effected within one hundred eighty (180) days after the First Closing,
shall not be a Restricted Payment; and
(c) any payment of principal of Subordinated Debt other than
payments of principal of the Convertible Debt.
Restricted Subsidiary -- means any Subsidiary except
(a) JLSS and those Persons that qualify as subsidiaries of JLSS in
accordance with GAAP as of the First Closing Date and that are listed on
Part 10.1 of Annex 3, and
(b) ISC Realty Corporation, a North Carolina corporation,
provided that no limited partnership or limited liability company shall be a
Restricted Subsidiary unless such Person qualifies as a consolidated subsidiary
of the Company in accordance with GAAP.
Restricted Subsidiary Stock -- Section 7.5(c).
Rule 15c3-1 -- means 17 C.F.R. ss.240.15c3-1 as amended from time to time,
and any successor rule or regulation of the SEC regulating the same subject
matter.
Sale-Leaseback Obligation -- means the amount of the obligation that would
be recognized in connection with any Sale-Leaseback Transaction as a liability
on the books of the lessee assuming, for purposes of calculation, that such
transaction met the requirements of GAAP for the recognition and capitalization
of such liability.
Sale-Leaseback Transaction -- means any transaction or series of related
transactions in which the Company or a Subsidiary sells or transfers, or has
sold or transferred, any of its Property to any Person (other than to the
Company or to a Subsidiary) and concurrently with such sale or transfer, or
within one hundred twenty (120) days of such sale or transfer, rents or leases
such transferred Property or substantially similar Property from any Person
pursuant to one or more leases.
Scheduled Principal Payment -- Section 4.2.
Scheduled Principal Payment Amount -- Section 4.2.
SEC -- means the Securities and Exchange Commission and any successor
organization discharging the regulatory functions of the Securities and Exchange
Commission.
SEC Net Capital -- means, at any time, the "net capital" of IJLC at such
time, computed in accordance with Rule 15c3-1.
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SEC Required Net Capital -- means, at any time, the minimum amount to
which SEC Net Capital must be equal at such time pursuant to Rule 15c3-1 to
remain in compliance with all provisions thereof applicable to IJLC, including
the provisions thereof imposing restrictions on IJLC obligation to pay its
obligations under the Subsidiary Guarantee as such obligations come due.
Second Closing -- Section 1.3(a)(i).
Second Closing Date -- Section 1.2(b).
Securities Act -- means the Securities Act of 1933, together with all
rules and regulations promulgated pursuant thereto, as amended from time to
time.
Securities Exchange Act -- means the Securities Exchange Act of 1934,
together with all rules and regulations promulgated pursuant thereto, as amended
from time to time.
Security -- means "security" as defined by section 2(1) of the Securities
Act.
Senior Officer -- means any one of the president, the chief executive
officer, the chief operating officer and the chief financial officer of the
Company.
Short-Term Ordinary Course Debt -- means on any date, Indebtedness
incurred by the Company or any Subsidiary in respect of free credit balances and
similar payables, day loans, Street Loans, Secured Letters of Credit, Clearing
House Letters of Credit, Tax Credit Letters of Credit, unsecured letters of
credit, lines of credit payable on demand, and other obligations to and for
customers, brokers, banks and others incurred in the ordinary course of business
of the Company (or the business of any Subsidiary the obligations of which have
been guaranteed by the Company as provided in Appendix C to Rule 15c3-1) as an
investment banker, futures commission merchant, broker-dealer or financial
services institution, and which obligations mature not more than thirty (30)
days from such date (except that Short-Term Ordinary Course Debt shall include
commercial paper which matures not more than sixty (60) days from such date). As
used in this definition,
Secured Letters of Credit -- means, on any date, a letter of credit
in respect of which IJLC is the account party, and which is fully
collateralized by Securities owned by IJLC and which expires not more than
thirty (30) days after such date.
Clearing House Letters of Credit -- means, on any date, letters of
credit deposited with any one or more of exchanges, depositories and
clearing corporations in the ordinary course of business of IJLC in
respect of securities clearing transactions, provided that each such
letter of credit shall expire not more than three hundred sixty-six (366)
days after such date.
Tax Credit Letters of Credit -- means, on any date, letters of
credit obtained in respect of interim financing associated with investment
banking deals involving real estate tax credits, provided that the
aggregate face amount of such letters of credit shall not at any time
exceed Two Million Dollars ($2,000,000) and provided further that each
such letter of credit shall expire not more than three hundred sixty-six
(366) days after such date.
Street Loans -- means short-term borrowings made by IJLC for the
purposes of purchasing or carrying Securities for IJLC or for customers of
IJLC, including, without limitation, repurchase and reverse repurchase
agreements.
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Significant Holder -- means, at any time, any holder of Notes which
holds, in the aggregate, at least five percent (5%) of the principal
amount of the Notes then outstanding.
SIPA -- means Securities Investor Protection Act of 1970, together
with all rules and regulations promulgated pursuant thereto, as amended
from time to time.
SIPC -- means the Securities Investor Protection Corporation and any
successor organization discharging the functions of the Securities
Investor Protection Corporation.
Sovereign Capital Management -- means Sovereign Capital Management,
Inc., a North Carolina corporation.
Subordinated Debt -- means
(a) any obligation for money borrowed of the Company that is
subordinated in right of payment and right of priority to the Notes, and
(b) any obligation for money borrowed of any Restricted Subsidiary
that is subordinated in right of payment and right of priority to the
Subsidiary Guarantees.
Subsidiary -- means, at any time, a corporation, general partnership,
limited partnership, limited liability company or other business entity, of
which the Company owns, directly or indirectly, more than fifty percent (50%) of
each class of Voting Equity Interest provided that no limited partnership or
limited liability company shall be a Subsidiary unless such Person qualifies as
a consolidated subsidiary of the Company in accordance with GAAP.
Subsidiary Guarantee -- Section A.20(a).
Substantial Part of the Property of the Interstate Group -- means, when
used with respect to Property of the Interstate Group that has been the subject
of an Asset Disposition, Property
(a) the Disposition Value of which together with the Disposition
Value of all other Property of the Interstate Group subject to an Asset
Disposition on or after the First Closing Date, would equal or exceed ten
percent (10%) of Consolidated Assets, determined as of the end of the then
most recently completed fiscal year of the Company, and
(b) that, when aggregated with all other Property of the Interstate
Group subject to an Asset Disposition on or after the First Closing Date,
contributed at least ten percent (10%) of Consolidated Net Earnings
determined in respect of the period commencing on the First Closing Date
and ending on the date of the last of such Asset Dispositions (the
determination of such contribution to be based on the aggregation of the
respective percentage contribution of each item of such Property to
Consolidated Net Earnings during such period).
Surviving Person -- Section 7.5(a)(i)(A).
Total Capitalization -- means, at any time, without duplication, the
aggregate amount of Consolidated Funded Debt, Consolidated Subordinated Debt and
Consolidated Tangible Net Worth Capital, determined at such time. As used in
this definition,
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Consolidated Subordinated Debt -- means, at any time, the aggregate
amount of Subordinated Debt, determined on a consolidated basis at such
time.
Total Debt -- means, at any time, the aggregate amount of all Indebtedness
(other than Short-Term Ordinary Course Debt) plus Sale-Leaseback Obligations of
the Company and the Restricted Subsidiaries, determined on a consolidated basis
at such time.
Trustee -- has the meaning specified in the Indenture.
Voting Equity Interest -- means,
(a) in the case of a corporation, capital stock of any class or
classes of a corporation the holders of which are ordinarily, in the
absence of contingencies, entitled to elect corporate directors (or
Persons performing similar functions),
(b) in the case of a general partnership, a general partnership
interest,
(c) in the case of a limited partnership, any one or more of a
general partnership interest and a limited partnership interest,
(d) in the case of a limited liability company, a membership
interest, and
(e) in the case of any other business entity, any class of equity or
beneficial interest which
(i) ordinarily, in the absence of contingencies, is entitled
to elect a majority of Persons carrying out or supervising the
carrying out of the management of such business entity, or
(ii) grants to the holder thereof the right to carry out or
supervise the carrying out of the management of such business
entity.
Wholly-Owned Subsidiary -- means, at any time, a Restricted Subsidiary in
respect of which one hundred percent (100%) of each class of Voting Equity
Interest of such Subsidiary and one hundred percent (100%) of all other equity
interest of such Restricted Subsidiary is legally and beneficially owned by the
Company and any one or more other Wholly-Owned Subsidiaries.
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10.2 Accounting Principles.
(a) Generally. Unless otherwise provided herein, all financial
statements delivered in connection herewith will be prepared in accordance
with GAAP as in effect on the date of, or during the period covered by,
such financial statements. Where the character or amount of any asset or
liability or item of income or expense, or any consolidation or other
accounting computation is required to be made for any purpose hereunder,
it shall be done in accordance with GAAP as in effect on the date of, or
at the end of the period covered by, the financial statements from which
such asset, liability, item of income, or item of expense, is derived, or,
in the case of any such computation, as in effect on the date as of which
such computation is required to be determined, provided, that if any term
defined herein includes or excludes amounts, items or concepts that would
not be included in or excluded from such term if such term was defined
with reference solely to GAAP, such term will be deemed to include or
exclude such amounts, items or concepts as set forth herein.
(b) Consolidation. Whenever accounting amounts of a group of Persons
are to be determined "on a consolidated basis" it shall mean that, as to
balance sheet amounts to be determined as of a specific time, the amount
that would appear on a consolidated balance sheet of such Persons prepared
as of such time, and as to income statement amounts to be determined for a
specific period, the amount that would appear on a consolidated income
statement of such Persons prepared in respect of such period, in each case
with all transactions among such Persons eliminated, and prepared in
accordance with GAAP except as otherwise required hereby.
10.3 Section Headings and Table of Contents and Construction.
(a) Section Headings and Table of Contents, etc. The titles of the
Sections and the Table of Contents appear as a matter of convenience only,
do not constitute a part hereof and shall not affect the construction
hereof. The words "herein," "hereof," "hereunder" and "hereto" refer to
this Agreement as a whole and not to any particular Section or other
subdivision.
(b) Construction. Each covenant contained herein shall be construed
(absent an express contrary provision herein) as being independent of each
other covenant contained herein, and compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with one or more other covenants.
10.4 Governing Law.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW.
11. PURCHASER REPRESENTATIONS
11.1 Purchase of Notes.
You represent that
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(a) you are purchasing the Notes for investment for your own
account, for a separate account (as such term is used in Rule 144A, 17
C.F.R. ss.230.144A), for the account of another for which you have sole
investment discretion, or for a trust of which you are the trustee, and
(b) you are not purchasing the Notes with a view to or for sale in
connection with any distribution thereof within the meaning of the
Securities Act;
provided, that this representation shall not be deemed to prejudice your
right to
(i) sell or otherwise dispose of all or any part of the Notes in
compliance with the Securities Act or the rules and regulations
thereunder; and
(ii) have control over the disposition of all of your assets to the
fullest extent permitted or required by any applicable law.
11.2 ERISA.
You represent, with respect to the funds with which you are acquiring the
Notes, and solely for purpose of determining whether such purchase is a
"prohibited transaction" (as provided for in section 406 of ERISA or section
4975 of the IRC), that all of such funds are from or are attributable to one or
more of:
(a) General Account -- your "insurance company general account" as
defined in Department of Labor Prohibited Transaction Exemption 95-60 (60
FR 35925, July 12, 1995) and in respect thereof you represent that there
is no "employee benefit plan" (as defined in section 3(3) of ERISA and
section 4975(e)(1) of the IRC, treating as a single plan all plans
maintained by the same employer or employee organization or affiliate
thereof) with respect to which the amount of the general account reserves
and liabilities of all contracts held by or on behalf of such plan exceed
ten percent (10%) of the total reserves and liabilities of such general
account (exclusive of separate account liabilities) plus surplus, as set
forth in the NAIC Annual Statement filed with your state of domicile;
(b) Separate Account -- a "separate account" (as defined in section
3 of ERISA),
(i) 10% Pooled Separate Account -- in respect of which all
requirements for an exemption under Department of Labor Prohibited
Transaction Class Exemption 90-1 are met with respect to the use of
such funds to purchase the Notes,
(ii) Identified Plan Assets -- that is comprised of employee
benefit plans identified by you in writing and with respect to which
the Company hereby warrants and represents that, as of the Closing
Date, neither the Company nor any ERISA Affiliate is a "party in
interest" (as defined in section 3 of ERISA) or a "disqualified
person" (as defined in section 4975 of the IRC) with respect to any
plan so identified, or
(iii) Guaranteed Separate Account -- that is maintained solely
in connection with fixed contractual obligations of an insurance
company, under which any amounts payable, or credited, to any
employee benefit plan having an interest in such account and to any
participant or beneficiary of such plan (including an annuitant) are
not affected in any manner by the investment performance of the
separate account (as provided by 29 C.F.R. ss.2510.3-101(h)(1)
(iii));
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(c) Qualified Professional Asset Manager -- an "investment fund"
managed by a "qualified professional asset manager" (as such terms are
defined in Part V of Department of Labor Prohibited Transaction Class
Exemption 84-14) with respect to which the requirements of such exemption
have been satisfied, provided that in making this representation, it is
assumed that the conditions set forth in Part I(a), Part I(d) and Part
I(e) of such Exemption have been satisfied;
(d) Excluded Plan -- an employee benefit plan that is excluded from
the provisions of section 406(a) of ERISA by virtue of section 4(b) of
ERISA; or
(e) Exempt Funds -- a separate investment account that is not
subject to ERISA and no funds of which come from assets of an "employee
benefit plan" or a "plan" or any other entity that is deemed to hold
assets of an "employee benefit plan" or a "plan," ("employee benefit plan"
is defined in section 3 of ERISA, and "plan" is defined in section
4975(e)(1) of the IRC).
12. MISCELLANEOUS
12.1 Communications.
(a) Method; Address. All communications hereunder or under the Notes
shall be in writing and shall be delivered either by nationwide overnight
courier or by facsimile transmission (confirmed by delivery by nationwide
overnight courier sent on the day of the sending of such facsimile
transmission). Communications to the Company shall be addressed as set
forth on Annex 2, or at such other address of which the Company shall have
notified each holder of Notes. Communications to the holders of the Notes
shall be addressed as set forth on Annex 1 by such holder, or at such
other address of which such holder shall have notified the Company (and
the Company shall record such address in the register for the registration
and transfer of Notes maintained pursuant to Section 5.1).
(b) When Given. Any communication addressed and delivered as herein
provided shall be deemed to be received when actually delivered to the
address of the addressee (whether or not delivery is accepted) or received
by the telecopy machine of the recipient. Any communication not so
addressed and delivered shall be ineffective.
12.2 Reproduction of Documents.
This Agreement and all documents of whatever nature relating hereto may be
reproduced by any holder of Notes or the Company by any reasonable means. Any
such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by such holder of Notes
or the Company in the regular course of business). Nothing in this Section 12.2
shall prohibit the Company or any holder of Notes from contesting the accuracy
or validity of any such reproduction.
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12.3 Survival.
All warranties, representations, certifications and covenants made by the
Company herein or in any certificate or other instrument delivered by it or on
its behalf hereunder at or prior to the Second Closing shall be considered to
have been relied upon by you and shall survive the delivery to you of the Notes
regardless of any investigation made by the Purchaser. All statements in any
certificate or other instrument delivered by or on behalf of the Company
pursuant to the terms hereof shall constitute warranties and representations by
the Company hereunder. All payment obligations of the Company hereunder
(including, without limitation, reimbursement obligations in respect of costs,
expenses and fees of or incurred by the holders of the Notes) shall survive the
payment of the Notes and the termination hereof.
12.4 Successors and Assigns.
This Agreement and the Notes shall inure to the benefit of and be binding
upon and enforceable by the Company and the holders, from time to time, of the
Notes, provided that the identity of the holders of the Notes shall be
determined solely by reference to the register for the registration and transfer
of Notes maintained pursuant to Section 5.1.
12.5 Amendment and Waiver.
(a) Requirements. This Agreement may be amended, and the observance
of any term hereof may be waived, with (and only with) the written consent
of the Company and the Required Holders (and, if required by applicable
law or regulation, the NYSE); provided that no such amendment or waiver of
any of the provisions of Section 1 through Section 3, inclusive, or any
defined term to the extent used therein, shall be effective as to any
holder of Notes unless consented to by such holder in writing; and
provided further that no such amendment or waiver shall, without the
written consent of the holders of all Notes (exclusive of Notes held by
the Company, any Subsidiary or any Affiliate) at the time outstanding,
(i) change the amount or time of any payment of principal or
Make-Whole Amount or the rate or time of payment of interest;
(ii) amend or waive the provisions of Section 9.1(a), Section
9.2 or Section 9.3 or amend or waive any defined term to the extent
used therein,
(iii) amend or waive the definition of "Required Holders," or
(iv) amend or waive this Section 12.5 or amend or waive any
defined term to the extent used herein.
(b) Solicitation of Noteholders.
(i) Solicitation. The Company shall not solicit, request or
negotiate for or with respect to any proposed waiver or amendment of
any of the provisions hereof or the Notes unless each holder of the
Notes (irrespective of the amount of Notes then owned by it) shall
be informed thereof by the Company with sufficient information to
enable it to make an informed decision with respect thereto.
Executed or true and correct copies of any waiver or consent
effected pursuant to the provisions of this Section 12.5 shall be
delivered by the Company to each holder of outstanding Notes
forthwith following the date on which the same shall have been
executed and delivered by all holders of outstanding Notes required
to consent or agree to such waiver or consent.
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(ii) Payment. The Company shall not, directly or indirectly,
pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, or grant any
security, to any holder of Notes as consideration for, or as an
inducement to the entering into, by any holder of Notes of any
waiver or amendment of any of the terms and provisions hereof unless
such remuneration shall have been offered, or security shall have
been offered, on the same terms, ratably to the holders of all Notes
then outstanding.
(iii) Scope of Consent. Any consent made pursuant to this
Section 12.5 by a holder of Notes that has transferred or has agreed
to transfer its Notes to the Company, any Subsidiary or any
Affiliate and has provided or has agreed to provide such written
consent as a condition to such transfer shall be void and of no
force and effect except solely as to such holder, and any amendments
effected or waivers granted or to be effected or granted that would
not have been or would not be so effected or granted but for such
consent (and the consents of all other holders of Notes that were
acquired under the same or similar conditions) shall be void and of
no force and effect, retroactive to the date such amendment or
waiver initially took or takes effect, except solely as to such
holder or holders.
(c) Binding Effect. Except as provided in Section 12.5(b), any
amendment or waiver consented to as provided in this Section 12.5 shall
apply equally to all holders of Notes and shall be binding upon them and
upon each future holder of any Note and upon the Company whether or not
such Note shall have been marked to indicate such amendment or waiver. No
such amendment or waiver shall extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or
waived or impair any right consequent thereon.
54
<PAGE>
12.6 Consent to Jurisdiction.
(a) Consent to Jurisdiction. THE COMPANY HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE FINANCING DOCUMENTS OR ANY ACTION OR PROCEEDING TO
EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER
THE FINANCING DOCUMENTS BROUGHT BY ANY HOLDER OF A NOTE AGAINST THE
COMPANY OR ANY OF ITS PROPERTY, MAY BE BROUGHT BY SUCH HOLDER OF A NOTE IN
ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK CITY, NEW YORK OR ANY NEW
YORK STATE COURT SITTING IN NEW YORK CITY, NEW YORK, AS SUCH HOLDER OF A
NOTE MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY
OF THIS AGREEMENT, THE COMPANY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO
THE NON-EXCLUSIVE IN PERSONAM JURISDICTION OF EACH SUCH COURT, AND THE
COMPANY IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT IN ANY PROCEEDING
BEFORE ANY TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY
CLAIM THAT IT IS NOT SUBJECT TO THE IN PERSONAM JURISDICTION OF ANY SUCH
COURT. IN ADDITION, THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE
TO THE LAYING OF VENUE IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THE FINANCING DOCUMENTS BROUGHT IN ANY SUCH COURT, AND HEREBY
IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OR RIGHT OF
ANY HOLDER OF A NOTE TO OBTAIN JURISDICTION OVER THE COMPANY IN SUCH OTHER
JURISDICTION AS MAY BE PERMITTED BY APPLICABLE LAW.
(b) Service of Process. THE COMPANY HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT PROCESS SERVED EITHER PERSONALLY OR BY
REGISTERED MAIL SHALL CONSTITUTE, TO THE EXTENT PERMITTED BY LAW, ADEQUATE
SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THE FINANCING DOCUMENTS OR ANY ACTION OR PROCEEDING TO EXECUTE
OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THE
FINANCING DOCUMENTS BROUGHT BY ANY HOLDER OF A NOTE AGAINST THE COMPANY OR
ANY OF ITS PROPERTY. RECEIPT OF PROCESS SO SERVED SHALL BE CONCLUSIVELY
PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED BY THE UNITED STATES
POSTAL SERVICE OR ANY COMMERCIAL DELIVERY SERVICE. NOTHING HEREIN SHALL IN
ANY WAY BE DEEMED TO LIMIT THE ABILITY OR RIGHT OF ANY HOLDER OF A NOTE TO
SERVE ANY WRITS, PROCESS OR SUMMONSES IN ANY MANNER PERMITTED BY
APPLICABLE LAW.
55
<PAGE>
12.7 Expenses.
(a) Closing Expenses. Whether or not the Notes are sold, the Company
shall pay, at the First Closing and the Second Closing (if the Notes are
sold, and otherwise upon receipt of any statement or invoice therefor),
all reasonable fees, expenses and costs relating thereto incurred by you
relating hereto, including, without limitation, the statement presented at
the First Closing and the Second Closing by your special counsel for fees
and disbursements incurred in connection herewith, each additional
statement for fees and disbursements (promptly upon receipt thereof) of
your special counsel rendered after the First Closing and the Second
Closing in connection with the issuance of the Notes, and all expenses
incurred by you on your behalf or the Company's behalf in complying with
each of the conditions to closing set forth in Section 3.
(b) Amendments and Waivers. The Company shall pay when billed the
reasonable costs and expenses (including reasonable attorneys' fees for
one (1) firm of attorneys representing all of the holders of the Notes)
incurred by the holders of the Notes in connection with the consideration,
negotiation, preparation or execution of any amendments, waivers,
consents, standstill agreements and other similar agreements with respect
hereto (whether or not any such amendments, waivers, consents, standstill
agreements or other similar agreements are executed).
(c) Restructuring and Workout, Inspections. At any time when the
Company and the holders of Notes are conducting restructuring or workout
negotiations in respect hereof, or a Default or Event of Default exists,
the Company shall pay when billed the reasonable costs and expenses
(including reasonable attorneys' fees of one (1) firm of attorneys
representing all of the holders of the Notes and the fees of professional
advisors) incurred by the holders of the Notes in connection with the
assessment, analysis or enforcement of any rights or remedies that are or
may be available to the holders of Notes and in connection with
inspections made pursuant to Section 8.4 (provided that at all other times
inspections will be at the expense of the inspecting holder of Notes).
(d) Collection. If the Company shall fail to pay when due any
principal of, or Make-Whole Amount or interest on, any Note, the Company
shall pay to each holder of Notes, to the extent permitted by law, such
amounts as shall be sufficient to cover the costs and expenses, including
but not limited to reasonable attorneys' fees, incurred by such holder in
collecting any sums due on such Notes.
12.8 Entire Agreement.
This Agreement constitutes the final written expression of all of the
terms hereof and is a complete and exclusive statement of those terms, except
that this Section does not affect any document or agreement executed and
delivered in connection with and in respect of the First Closing.
12.9 Execution in Counterpart.
This Agreement may be executed in one or more counterparts and shall be
effective when at least one counterpart shall have been executed by each party
hereto, and each set of counterparts which, collectively, show execution by each
party hereto shall constitute one duplicate original.
56
<PAGE>
[Remainder of Page Intentionally Blank. Next page is signature page.]
57
<PAGE>
If this Agreement is satisfactory to you, please so indicate by signing
the acceptance at the foot of a counterpart hereof and returning such
counterpart to the Company, whereupon this Agreement shall become binding
between us in accordance with its terms.
Very truly yours,
INTERSTATE/JOHNSON LANE, INC.
By: /s/ James H. Morgan
-------------------------------
Name: James H. Morgan
Title: President & Chief Executive
Officer
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By: /s/ Gary A. Poliner
----------------------------
Name: Gary A. Poliner
Title: Vice President
58
<PAGE>
Form of Note
INTERSTATE/JOHNSON LANE, INC.
SENIOR SECURED NOTE DUE APRIL 15, 2007
Solely for purposes of Section 1275 of the Internal Revenue Code of 1986, it is
the opinion of the Company that: the issue price of this instrument is: Fifteen
Million Four Hundred Eleven Thousand Eight Hundred Forty-Three Dollars
($15,411,843): the amount of original issue discounts is: Five Hundred
Eighty-Eight Thousand One Hundred Fifty-Seven Dollars ($588,157); the issue date
is April 17, 1997; the yield to maturity is: 9.7%.
No. R-1 PPN: 460892 A*3
$16,000,000 April 17, 1997
Interstate/Johnson Lane, Inc. (the "Company"), a Delaware corporation, for
value received, hereby promises to pay to NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY or registered assigns the principal sum of SIXTEEN MILLION DOLLARS
($16,000,000) on April 15, 2007 and to pay interest computed on the basis of a
360-day year of twelve 30-day months) on the unpaid principal balance thereof
from the date of this Note at the rate of eighty and ninety-five one-hundredths
percent (8.95%) per annum, semi-annually on April 15 and October 15 in each
year, commencing on the later of October 15, 1997 or the payment date next
succeeding the date hereof, until the principal amount hereof shall become due
and payable; and to pay on demand interest on any overdue principal amount
hereof shall become due and payable; and to pay on demand interest on any
overdue principal and make-Whole Amount, if any, and (to extent permitted by
applicable law) on any overdue installment of interest, at a rate per annum
equal to the lesser of (a) the highest rate allowed by applicable law or (b) the
greater of (i) two percent in excess of the stated rate or (ii) the rate of
interest publicly announced by Morgan Guaranty Trust Company of New York in New
York City from time to time as its prime rate.
Payments of principal, Make-Whole Amount, if any, and interest shall be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts to the
registered holder hereof at the address shown in the register maintained by the
Company for such purpose, in the manner provided in the Note Purchase Agreement
(defined below).
This Note is one of an issue of Notes of the Company issued in an
aggregate principal amount limited to Twenty-One Million Dollars ($21,000,000)
pursuant to the Company's Note Purchase Agreement (the "Note Purchase
Agreement"), dated as of April 15, 1997, with the purchasers listed on Annex 1
thereto, and is entitled to the benefits thereof. Capitalized terms used herein
and not otherwise defined herein have the meanings specified in the Note
Purchase Agreement. As provided in the Note Purchase Agreement, this Note is
subject to prepayment, in whole or in part, in certain cases without a
Make-Whole Amount and in other cases with a Make-Whole Amount. The Company
agrees to make required prepayments on account of such Notes in accordance with
the provision of the Note Purchase Agreement.
<PAGE>
This Note is a registered Note and is transferable only by surrender
thereof at the principal office of the Company as specified in the Note Purchase
Agreement, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of this Note or his attorney duly authorized
in writing.
Under certain circumstances, as specified in the Note Purchase Agreement,
the principal of this Note (together with any applicable Make-Whole Amount) may
be declared due and payable in the manner and with the effect provided in the
Note Purchase Agreement.
The terms of this Note and the Note Purchase Agreements are subject to
that certain Trust Indenture, dated as of April 15, 1997 among the Company and
the other parties signatory thereto.
THIS NOTE AND THE NOTE PURCHASE AGREEMENT ARE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW.
INTERSTATE /JOHNSON LANE, INC.
By: /s/ Edward C. Ruff
-------------------------------
Name:Edward C. Ruff
Title: Vice President and
Chief Financial Officer
Exhibit 10(q)
<PAGE>
Information and Processing Services Schedule No. 2
To Master Services Agreement
Dated April 30,1991 (the "Agreement")
between
INTERSTATE/JOHNSON LANE CORP. (acting on behalf of itself and those of its
subsidiaries listed on the Subsidiary Schedule attached hereto and made a part
hereof, "Client")
and
ADP FINANCIAL INFORMATION SERVICES, INC. ("ADP")
This Information and Processing Schedule No. 2 to the Agreement (this
"Schedule") shall replace and supersede in its entirety Information and
Processing Services Schedule No. 1 to the Agreement, dated as of September l,
1996 between Client and ADP. Unless otherwise defined herein, all terms defined
in the Agreement shall have the same meanings when used herein.
1.A SERVICES TO BE PROVIDED
ADP agrees to provide, and Client agrees to receive, the brokerage processing
services (the "Services") listed in the Information and Processing Services
Price Schedules dated January 20, 1998 (the "Price Schedules") attached hereto
and made a part hereof. The "Services" shall also include, free of charge, any
generally available enhancements to, or replacements for, the Services and any
other ADP brokerage processing services generally available now or after the
date of this Schedule to any ADP back-office client, provided, that such
Services are not available on a stand-alone basis (whether such services are
developed or acquired by ADP, such as services of ICI, Merrin and Wilco). All
Services shall be provided in accordance with the terms and conditions of this
Schedule and the Agreement. The Services shall be provided on a service bureau
basis and, except as set forth below in Paragraph 12 with respect to BPS
Advantage, shall not include the licensing of any software to Client. Any
additional services will be provided by ADP to Client upon the execution of an
additional schedule by the parties.
1.B TERMINATION OF ADVENT SERVICES
Client acknowledges that ADP plans to discontinue support of its Advent
portfolio management interface product, known as "POINT." Client hereby agrees
to terminate all use of the POINT service upon 60 days' notice from ADP (the
"POINT Termination Date"). Client hereby acknowledges that ADP and Advent
Software, Inc. ("Advent") are in the process of developing a new interface that
will be available to connect Client to Advent's Axys 2.0 product which product
will be available to replace the POINT service and, if Client elects to use Axys
2.0, ADP will provide the related portfolio management interface at the same
cost to Client as the POINT service and will implement Client's conversion to
Axys 2.0 at no charge, except for reimbursement of out-of-pocket costs incurred
by ADP in connection with such conversion. Charges for Client's use of the Axys
2.0 product shall be determined between Client and Advent. Notwithstanding
anything herein or in the Agreement to the contrary, ADP shall not be obligated
to continue to provide the POINT service to Client after the POINT Termination
Date. ADP shall have no liability to Client as a result of the discontinuation
of the POINT Service.
2. TERM OF SCHEDULE
The initial term of this Schedule shall be for a period commencing as of July 1,
1998 (the "Effective Date") and ending June 30, 2003 (the "Initial Schedule
Term"). After the expiration of the Initial Schedule Term, the term of this
Schedule shall automatically continue until terminated by either party by giving
at least six months' prior written notice of termination to the other.
<PAGE>
3. MONTHLY CHARGES
A. Charges/Monthly Service Minimum. The initial charges for the Services,
including the minimum monthly charges (the "Monthly Service Minimum"), are set
forth in the Price Schedules. The parties hereby acknowledge and agree that (i)
Client shall be billed additionally for each customer trade in excess of 78,174
per month and (ii) additional billing for firm trades will begin when firm trade
volume exceeds 24,600 trades per month. Trade counts are based on ADP's S211
detail. (As of the date hereof, Client customer trades are calculated as
follows: S211 Account Number 9003141 - (S211 Account Number 8093047 + S211
Account Number 8093120 + S211 Account Number 8093119; and Client firm trades are
calculated as follows: S211 Account Number 9003150 + S211 Account Number
9048790.)) As Client changes its business or ADP implements new processing
procedures, billing counters may be changed accordingly. Trade counts consist of
all customer and firm account ranges. Mutual Funds Routing System (MFRS) offset
trades are netted from the customer trades. If Client requires the processing of
trade types other than those provided for in the Price Schedules, the rate to be
charged for such other trade types shall be mutually agreed upon by the parties.
B. Price Protection. Monthly charges for the Services shall not be increased
during the Initial Schedule Term except as provided in Paragraph 3(C) below.
Unless otherwise agreed, the charges for the Services following the expiration
of the Initial Schedule Term shall be equal to 110% of ADP's then-current
charges for the Services.
C. Material Transaction Adjustment. In the event that Client (directly, or
through any of its subsidiaries) increases the number of its terminals to more
than 1375 through acquisition, merger, consolidation or otherwise, the parties
hereto shall mutually agree upon an increase in the Monthly Service Minimum to
take into account such acquisition, merger, consolidation or other increase.
D. TCP/IP Charges. TCP/IP charges (Interactive Terminal Access charges and IP
Address Translation charges) will be waived for the first 1375 devices (or
sessions) using such service. All devices (or sessions) above 1375 will be
billed at ADP's then standard rates.
E. Third Party Charges (Pass-Throughs). All pass-through and/or direct
entitlement fees authorized by Client, including, but not limited to, charges
for supplies, postage and delivery, communication charges, data base and other
information provider fees (including exchange fees) and/or royalties and
federal, state and local government fees shall not be included in the Monthly
Service Minimum and shall be borne by Client. Any increases in such charges made
by the respective third party shall also be borne by Client.
F. Disaster Recovery Charges. The monthly charge for disaster recovery services
provided to Client pursuant to the Disaster Recovery Addendum for Plan No. 2
dated October 31, 1993 as amended, is not included in the Monthly Service
Minimum.
G. Government Requests. Client agrees that ADP shall be entitled to the recovery
of charges incurred as a result of special requests for reports made by
authorized government agencies (which are made subject to subpoena or other
regulatory action) (not including industry investigations or information
requests). Such amounts shall not be included in the Monthly Service Minimum and
shall be borne by Client.
4. BACK OFFICE CREDIT
ADP will provide to Client a monthly credit of $50,000 against the monthly
service charges for the Services if Client is in compliance with the terms and
conditions of this Schedule and the Agreement.
<PAGE>
5. CORRESPONDENT TRADE CREDIT
ADP shall waive the trade processing charges set forth on Page 2 of the Price
Schedules for the first three months hereunder with respect to trades related to
a firm that becomes a correspondent of Client after the Effective Date that was
not an ADP or Securities Industry Software Corporation ("ADP/SIS") back office
client or a correspondent of an ADP or ADP/SIS back office client prior to
becoming a correspondent of Client, if (i) Client is not in default under the
Agreement and, (ii) Client has notified ADP within 6 months of such
correspondent's startup. With respect to any such correspondent, Client shall
remain responsible for (i) all charges for data communications, supplies, vendor
fees and other pass through charges related to such new correspondent and (ii)
all conversion charges.
6. OMS PLUS CONVERSION
Client hereby acknowledges that ADP's OMS Plus System will replace the DNS
System and, if Client elects to convert from the DNS System to the OMS Plus
System, ADP will implement such conversion at no charge. In connection with such
conversion services, ADP agrees to provide, at a central site agreed upon by
Client and ADP, training in the use of the OMS Plus System to the trainers and
network supervisors designated by Client as provided below. Such training shall
be provided at no charge, except for reimbursement of out-of-pocket costs
incurred by ADP in connection therewith. Any additional training requested by
Client shall be provided at ADP's then current rates, plus reimbursement of
out-of-pocket expenses. Notwithstanding anything herein or in the Agreement to
the contrary, ADP shall not be obligated to continue to provide DNS Services to
Client after the Initial Schedule Term if Client elects not to convert to the
OMS Plus System, and ADP shall have no liability to Client as a result of such
discontinuation of DNS Services.
7. INDEMNIFICATION
Client shall indemnify and hold harmless ADP from and against any loss,
liability, claim, damage or expense (other than any loss, liability, claim,
damage or expense arising out of infringement covered by Paragraph 19(B) of the
Agreement) arising from or in connection with any action, proceeding or claim
made or brought against ADP by any third party, for any inadvertent or
unintentional ADP error, omission or failure incident or pursuant to this
Agreement.
8. RETURN OF RECORDS
Upon termination of this Schedule for any reason, ADP, at Client's request, will
provide a computer printout or magnetic tape of all of Client's records then
retained by ADP, provided that ADP has been paid for all Services rendered to
the date of termination (not including amounts disputed by Client in good faith,
provided that Client delivers to ADP a reasonably detailed written summary of
any such disputes) and, provided further, that ADP is paid at its then-standard
rates for providing the services necessary to return such records.
9. CONFIDENTIALITY OF THE TERMS OF THE AGREEMENT
The parties agree that the terms and conditions of the Agreement and of this
Schedule shall constitute Confidential Information for purposes of Paragraphs 10
and 11 of the Agreement and shall be treated in accordance therewith.
10. CLIENT ACCESS LICENSE
A License. Client hereby grants to ADP the perpetual, non-exclusive right to use
the software, files, data bases, and all copyrights, trade secrets and other
intellectual or industrial property rights therein, and all modifications,
enhancements and custom programming thereto, relating to Client's Internet BPSA
front-end software product, "Client Access" (the "Software").
<PAGE>
B. Proprietary Rights Infringement. Client warrants that such Software is free
from any claim of infringement of any United States patent, copyright, trademark
or trade secret. Client shall indemnify and hold ADP harmless from any and all
losses, claims, damages, liabilities, costs and expenses (including reasonable
attorney's fees) arising out of any infringement by such Software of any United
States patent, copyright, trademark or trade secret of any third party provided
that:
a) promptly after becoming aware of the existence of any claim or
litigation for which indemnity may be sought under this Paragraph
10.B., ADP shall give Client written notice thereof, together with any
and all documentation related to such claim or litigation; and
b) ADP shall cooperate with Client in every reasonable way, at Client's
expense, to facilitate the defense or settlement of any such claim or
litigation.
If ADP is enjoined or otherwise prohibited form using such Software, Client
shall, at its sole expense and at Client's option, (x) procure for ADP the right
to continue using such Software or (y) substitute a noninfringing version of
such Software in a manner satisfactory to ADP so that such Software becomes
noninfringing and still conforms to its applicable functional and technical
specifications.
11. BPS Advantage Source Code License
A. License. ADP hereby grants to Client the non-exclusive, non-transferable
right to use the source code for the BPS Advantage graphical user interface
and the associated stored procedures (the "Source Code") during the term of this
Schedule solely in connection with its authorized use of the BPS Advantage data
model and in accordance with the terms and conditions hereof. Client shall not
distribute any form or portion of, or any derivative work from, the Source Code.
Upon execution and delivery of this Schedule, ADP shall furnish to Client one
copy of the Source Code for use in accordance herewith.
B. Ownership, Use and Confidentiality. The Source Code shall remain the sole and
exclusive property of ADP, and shall be, and shall be treated by Client as,
Confidential Information. Client will not use the Source Code for its own
corporate purposes or otherwise, except in accordance with the terms of this
Schedule. Without limiting the generality of the foregoing, Client shall store
the licensed copy of the Source Code in a secure place and shall ensure that
access thereto is controlled by an executive officer of Client. Client agrees
that it will not, and will not allow any person having access to the Source Code
to, disclose or use the same, except in accordance with the terms of this
Schedule. Client shall not use, or permit any third party to use, the Source
Code or any portion thereof for any software development or any other purpose
not explicitly authorized herein.
C. Compliance with Provision. From time to time upon ADP's request, Client shall
furnish to ADP a written certification, signed by an executive officer of
Client, stating that Client is in compliance with the terms of this Paragraph
11. If Client attempts to use, transfer or otherwise dispose of all or any
portion of the Source Code, or any duplication or modification thereof, in any
manner contrary to the terms of this Schedule, ADP shall have the right, in
addition to such other remedies which may be available to it, to injunctive
relief enjoining such acts or attempts, it being acknowledged that legal
remedies are inadequate.
D. Return of Source Code. The Source Code (including all copies thereof) shall
be returned to ADP upon the termination of this Schedule. Upon return of the
Source Code, Client shall, at ADP's request, furnish to ADP a written
certification, signed by an executive offficer of Client, stating that Client
has not retained any copies of the Source Code or any modifications thereof.
12. REQUIRED PROVISION OF SYBASE, INC.
Client acknowledges and agrees that the Sybase SQL Server Program and the Sybase
Replication Server Program (the "Programs") used in connection with ADP's BPS
Advantage product shall only be used by the Client as set forth below to read,
in a view-only format, the Services and the Programs shall not be downloaded or
used to create or alter tables, schemas or databases or otherwise develop or
modify in any
<PAGE>
way the applications or performance of other programming tasks. Notwithstanding
the foregoing, Client may access to the Programs through ADP tools or third
party tools; provided, that any access shall be restricted to the following:
Client may access the Services embedding a copy of the Programs which are
deployed on ADP's premises or Client's site, provided that in either instance,
Client shall not (i) copy the application(s) embedding the Programs, (ii) use
the Programs other than to process Client's own transactions and transactions
for entities that operate on a fully disclosed basis through Client as
correspondents, or (iii) access the Programs for general development. Client may
also develop applications against the BPS Advantage database using tools
supplied by ADP, Sybase or other third parties.
13. YEAR 2000
ADP represents that the software applications and systems which are components
of the Services, will be Year 2000 Compliant. For purposes of the foregoing,
"Year 2000 Compliant" means that all applications and system products, programs,
files, data bases and/or functionalities are no more likely to produce logical
or arithmetical inconsistencies when dealing with dates beyond December 31, 1999
than they are when dealing with dates prior to and including December 31, 1999.
IF THERE IS ANY CONFLICT BETWEEN THE PROVISIONS OF THIS SCHEDULE AND THE
PROVISIONS OF THE AGREEMENT, THE PROVISIONS OF THIS SCHEDULE SHALL
PREVAIL.
ADP FINANCIAL INFORMATION SERVICES, INC. INTERSTATE/JOHNSON LANE CORP.
By: /s/ Frederick J. Koczwara By: Ray Mulligan
---------------------------- ----------------------------
Name and Name and
Title: Frederick J. Koczwara Title: Ray Mulligan
------------------------- --------------------------
Senior Vice President Senior Vice President
------------------------- --------------------------
7/31/98 7/18/98
------------------------- --------------------------
THIS SCEHEDULE SHALL BECOME EFFECTIVE UPON BEING SIGNED BY AN AUTHORIZED OFFICER
OFFICER OF ADP AND CLIENT.
Exhibit 10(r)
LEASE AGREEMENT FOR 201 NORTH TRYON STREET
IJL FINANCIAL CENTER
NATIONSBANK, NATIONAL ASSOCIATION,
a national banking association, as Landlord,
and
INTERSTATE/JOHNSON LANE, INC.
a North Carolina corporation, as Tenant
DECEMBER 19, 1997
<PAGE>
TABLE OF CONTENTS
LEASE DEFINITIONS ............................................................ 1
CONSIDERATION ................................................................ 7
I. LEASE OF PREMISES .................................................... 7
1.1 Premises ..................................................... 7
1.2 Option To Expand ............................................. 8
1.3 Right of First Offer.......................................... 8
1.4 Delivery of Space ............................................ 8
1.5 Common Areas. ................................................ 8
11. TERM; RENT ........................................................... 8
2.1 Term. ........................................................ 8
2.2 Use .......................................................... 9
2.3 Base Rent .................................................... 9
2.4 Base Rent Adjustment. ........................................10
2.5 Additional Rent ..............................................10
2.6 Tenant's Audit Rights . ......................................10
2.7 Holding Over .................................................11
2.8 Late Charges .................................................11
III. GENERAL MATTERS ..............................................11
3.1 Initial Construction of the Premises .........................11
3.2 Services to Be Furnished by Landlord .........................11
3.3 Keys .........................................................11
3.4 Graphics .....................................................12
3.5 Repairs by Landlord ..........................................12
3.6 Peaceful Enjoyment ...........................................12
3.7 Landlord's Additional Representations and Warranties .........12
IV. TENANT'S OCCUPANCY OF PREMISES .......................................13
4.1 Care and Surrender of the Premises ...........................13
4.2 Legal Use and Violation of Insurance Coverage.................13
4.3 Hazardous Materials ..........................................14
4.4 Nuisance .....................................................14
4.5 Rules of the Buildinq ........................................14
4.6 Repairs by Tenant. ...........................................14
4.7 Alterations, Additions, Improvements..........................14
4.8 Entry for Repairs and Inspection .............................15
4.9 Assignment or Sublease .......................................16
4.10 Subordination to Mortgage ....................................17
4.11 Estoppel Certificate .........................................18
4.12 Defaults by Landlord .........................................18
V. INSURANCE ............................................................18
5.1 Casualty Insurance ...........................................18
5.2 Liability Insurance ..........................................18
5.3 Insurance Standards; Waiver of Subrogation....................19
5.4 Other Tenants; Parking Garage. ...............................19
5.5 Indemnity for Insurance Coverage. ............................19
5.6 No Release ...................................................19
5.7 Casualty Damage ..............................................19
5.8 Additional Rights Regarding Restoration. .....................20
5.9 Application of Insurance Proceeds ............................20
5.10 Self-Insurance. ..............................................20
5.11 Other Insurance ..............................................21
Vl. CONDEMNATION .................................................21
6.1 Effect of Condemnation .......................................21
6.2 Proceedings in Condemnation...................................21
6.3 Notice of Execution ..........................................21
Vll. TENANT'S DEFAULT .............................................21
7.1 Default by Tenant ............................................21
7.2 Landlord's Remedies ..........................................22
7.3 Remedies Cumulative ..........................................23
7.4 Cure Rights ..................................................23
7.5 Rights Upon Possession .......................................23
7.6 Prevailing Party; Venue. .....................................23
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VII. MISCELLANEOUS PROVISIONS ......................................23
8.1 Force Majeure .................................................23
8.2 Sale of Building ..............................................24
8.3 name of Building ..............................................24
8.4 Notices .......................................................24
8.5 No Waiver .....................................................25
8.6 Commissions ...................................................25
8.7 Rights of Light, View or Air ..................................25
8.8 Severability ..................................................25
8.9 Recordation ...................................................25
8.10 Binding Effect ................................................25
8.11 Entire Agreement ..............................................25
8.12 Amendments ....................................................26
8.13 Counterparts ..................................................26
8.14 Governing Law .................................................26
8.15 Intentionally Omitted .........................................26
8.16 Base Building Plans and Specification .........................26
8.17 Move-In........................................................26
8.18 Equipment Access ..............................................26
8.19 Limits on Certain Liabilities .................................27
8.20 Status as Sublease ............................................27
8.21 Intentionally omitted .........................................27
8.22 Tenant's Existing Lease .......................................27
8.23 Receive-Only Communications Dish ..............................27
8.24 Survival ......................................................28
8.25 Drafting ......................................................28
LIST OF EXHIBITS
Exhibit A Description of the Premises
Exhibit B Commencement Date and Construction of the Premises
Schedule 1 - Landlord's Work
Schedule 2 - Tenant's Work
Schedule 3 - Tenant's Plans
Exhibit C Cleaning Specifications
Exhibit D Rules and Regulations
Exhibit E Option to Expand
Exhibit F Right of First Offer
Exhibit G Renewal Term
Exhibit H Services to be Provided by Landlord
Exhibit I Tenant's Parking Rights and Charges
Schedule 1 - Initial Location of Reserved Spaces
Exhibit J Punch List
Exhibit K Schedule of Building Measurements
Exhibit L Schedule of Controllable and Non-Controllable Expenses
Exhibit M Signage
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LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") is made and entered into on this the
19th day of December, 1997 between NATIONSBANK, NATIONAL ASSOCIATION, a national
banking association ("Landlord"), whose address for purposes hereof is Real
Estate Services, Transamerica Square, Attn: Headquarters Real Estate Asset
Manager, NC1-021-06-05, 401 North Tryon Street, Charlotte, North Carolina,
28255, and Interstate/Johnson Lane, Inc., a North Carolina corporation
("Tenant"). Tenant's address is as set forth in Section 8.4.
LEASE DEFINITIONS
As used in this Lease, the following specified terms shall have the
meanings ascribed below unless the context clearly requires otherwise:
Actual Expenses. With respect to each calendar year during the Term, the
actual Expenses for such year.
Actual Expense Rate. The Actual Expenses for each calendar year during
the term divided by the Rentable Area in the Building.
Additional Allowance. As set forth in Exhibit B.
Additional Rent. As set forth in Section 2.5.
Alterations. As defined in Section 4.7.
Approved Architect. TBA2 Architects, or any other reputable
architectural firm as shall be agreed upon by Landlord and Tenant.
Base Expense Rate. The Actual Expenses, accounted for on a modified cash
basis in accordance with generally accepted accounting principles as further
described in subparagraph n. of the definition of Expenses set forth below,
during the calendar year 1998, divided by the Rentable Area in the Building.
Base Rent. As defined in Section 2.3.
Base Rent Adjustment. As defined in Section 2.4.
Block. The city block located in Charlotte, North Carolina and bounded
by North Tryon Street, East Sixth Street, North Church Street and East Fifth
Street.
Broker. Don Deutsch of Trammell Crow Company has served as Landlord's
real estate broker in connection with this Lease. Ben Trotter of the Harris
Group has served as Tenant's real estate broker in connection with this Lease.
Any commission due the Harris Group shall be by separate agreement between the
Harris Group and Trammell Crow Company.
Buildinq. Collectively, the twenty-nine (29) story Office Tower
constructed by or for Landlord, subject to alterations made in the final plans,
and the Common Areas, both located on the Block in the City of Charlotte, North
Carolina, which is included in the Project. Tenant acknowledges the Building
contains no floor number "13." The Building's office floors will be numbered 2
through 12 and 14 through 30.
Certificate of Occupancy. A certificate of occupancy or a temporary
certificate of occupancy issued by the Building Standards Department or other
appropriate Governmental Authority of the City of Charlotte, North Carolina.
<PAGE>
Commencement Date. As set forth in Section 2.1.
Common Areas. Common Areas shall be located on the Block and shall
include the lobby of the Building, outdoor plazas within the Project (including
outdoor plazas owned by any other third party but shared in whole or in part,
for one or any number of purposes, with the owner of the Building), driveways,
loading docks, corridors, communication shafts, building manager's offices,
escalators, elevators, elevator shafts and elevator foyers, stairwells,
entrances, lobbies, public restrooms, mechanical rooms, water holding areas,
janitorial closets, vending rooms, telephone rooms, mail rooms, electrical
rooms, elevator mechanical rooms located above the elevator shafts, and other
similar areas of the Building provided for Building systems or for the common
use or benefit of all tenants primarily or the public generally; provided,
however, that the identity and location of such Common Areas is subject to the
further provisions of Section 1.5.
Comparable Space. Comparable office space of similar floor height and
located in first-class, high-rise office buildings (including, without
limitation, the Building) with similar attendant parking facilities, with
consummated leases achieved in the central business district of uptown
Charlotte, North Carolina in such buildings as the Building, NationsBank
Corporate Center and One First Union Center. The parties agree that all of the
foregoing buildings are reasonably equivalent and comparable to the Building as
of the date of this Lease.
Construction Allowance. As set forth in Exhibit B.
Contract Rate. A rate of interest equal two percent (2%) above the rate
of interest announced from time to time as the "prime rate" by NationsBank, N.A.
or its successors at its home office in Charlotte, North Carolina.
Controllable Expenses. Those items of Expenses (hereafter defined) for
which Landlord has a reasonable ability to control the amount of any increases,
such items being limited to management fees, wages, salaries, and labor costs,
but excluding costs of materials, utilities, taxes, assessments, insurance
premiums, and any capital costs permitted by this Lease to be charged to
tenants, in accordance with Exhibit L.
Delivery Date. As defined in Section 2.1.2.
Environmental Laws. Any applicable current or future federal, state, or
local law, regulation, ordinance, order, guidance document, policy document, or
ruling applicable to health or environmental conditions on, under or about the
Building, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act, the Toxic Substances Control
Act, the Water Pollution Control Act, the Clean Air Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and analogous state and local laws.
Expansion Space. Any additions to the Premises pursuant to the
provisions of Exhibit E.
Exclusions. As defined in the definition of Expenses.
Expenses. Except as otherwise limited by the terms of this Lease, all
costs and expenses directly and reasonably incurred by Landlord (the nature,
character and extent of which are customarily incurred by landlords of
Comparable Space) in the operation and maintenance of the Building to the extent
owned by Landlord. Such costs include, without limitation, the following items:
a. All ad valorem or real property taxes and assessments, general or
special, which are levied, assessed or imposed by any Governmental Authority
upon any legal or equitable interest of Landlord in this Lease, Landlord as the
landlord of the Building, the Building, or the underlying real estate (whether
or not owned by Landlord), or any improvements, fixtures, equipment or other
property of Landlord, real or personal, located in or on the Building and used
in the operation or maintenance of the Building. Taxes shall also include any
levy, assessment or imposition in addition to or in lieu of such real or
personal property taxes; license fees; sales taxes imposed on supplies purchased
for the operation of the Building; business privilege taxes; and ad valorem
taxes measured by or imposed upon rents, but shall not include: (i) any federal,
state or local income taxes, (ii) franchise, estate, or inheritance taxes, and
(iii) real estate transfer taxes imposed by reason of the sale of the Project or
any portion thereof or any interest therein. Tenant shall only be responsible
for its share of taxes accruing during the Term of this Lease, including any
extensions thereof, notwithstanding the date of payment or collection. Any "tax
year" shall mean a calendar year, notwithstanding the use of
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any different period for assessment or collection. Notwithstanding the foregoing
definition, Expenses for taxes shall not include any penalties or interest for
Landlord's failure to comnIv with the obligation for the payment thereof.
b. The cost (without markup or profit to Landlord) of electricity (up to
three and one-half (3 1/2) watts per square foot of Rentable Area in the
Building), gas, water, sewer, power, heating, lighting, air conditioning,
ventilating and all similar services, which are or will be consumed by the
Building, but excluding special requirements of individual tenants above those
general requirements set forth in Section 3.2 and Exhibit H, whether or not
Landlord is being or has the right to be separately reimbursed therefor. Any use
of electricity by Tenant in excess of three and one-half (3 1/2) watts per
square foot of Rentable Area and, except as otherwise provided in this Lease,
any use of HVAC by Tenant outside Normal Business Hours shall be considered as
special requirements of Tenant which are excluded from Expenses and separately
billed to Tenant;
c. All wages, salaries, benefits, fees and other costs, including,
without limitation, uniforms, payroll and social security taxes, and insurance
directly borne by Landlord (or on its behalf) for all of its employees from time
to time located at the Building or the Project and engaged in the management,
operation, repair, replacement (other than capital replacement), maintenance and
supervision of the Building;
d. All supplies, materials, noncapital tools and equipment used in the
management, operation, repair, replacement (other than capital replacement),
cleaning, painting, maintenance and supervision of the Building;
e. All commercially reasonable maintenance and service agreements on
equipment in the Building, including, without limitation, alarm service and
elevator maintenance;
f. To the extent required of Landlord under Article V hereof, all
premiums for hazard insurance (including, without limitation, premiums for fire
and extended coverage and other casualty insurance), public liability insurance
for the Building and such insurance identified in Article V which Landlord
actually obtains, or in the event of self-insurance, would otherwise be in
force. In the event NationsBank, N.A., its affiliated companies, or a successor
to substantially all of its assets, as Landlord elects to self-insure, the
amount which would have been paid as premiums by Landlord but for the
self-insurance;
g. All repairs, noncapital replacements and general maintenance of the
Building;
h. All commercially reasonable service or maintenance contracts with
independent contractors for the operation, repair, maintenance, servicing or
supervision of the Building not included under subparagraph e. of this
definition of Expenses;
i. All janitorial services for the Building other than those of any
retail tenant in the Building; provided, however, special janitorial services
for other tenants above the Building's standard janitorial services as set forth
in Exhibit C shall not be included herein;
j. The proportionate, amortized cost of any capital improvements to the
Building or the Common Areas (which are classified as capital expenditures under
generally accepted accounting principles consistently applied) which (i) are
made for the purpose of reducing operating expenses if, in the reasonable
expectation of the Landlord, the anticipated savings over the amortization
period will equal or exceed the cost on an amortized basis; or (ii) are mandated
by Governmental Authority under any law or regulation relating to life safety
systems that was not applicable to the Building as of the Commencement Date;
provided, however, if any portion of the cost of capital improvements for life
safety systems results from the inadequacy of life safety systems required by
any Governmental Authority under any law or regulation that was in effect as of
the date of Certificate of Occupancy for the Building, such portion of the
capital expenditure shall not be included in Expenses; and provided further,
that the requirement to comply with any such law or regulation is not
necessitated by any request or application for any permit, license, approval,
variance or authorization from any such Governmental Authority; and provided
further, Expenses shall not include the costs of compliance with The Americans
With Disabilities Act Of 1990 (the "ADA"), and any rules and regulations
promulgated thereto and currently in effect to the extent such act and rules and
regulations affect the Building and the Common Areas but excluding any
improvements within the Premises designed or constructed by Tenant, its agents
or contractors. This cost shall be amortized over the useful or economic life of
the capital improvements as determined in accordance with generally accepted
accounting principles consistently applied, together with interest on the
unamortized balance at the lower of (1) the actual rate incurred by Landlord;
or (2) the Contract Rate at the time the expense is incurred;
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k. All reasonable management fees incurred by Landlord, which shall be
comparable to management fees customarily incurred by landlords of Comparable
Space;
l. All reasonable legal, accounting and other professional fees,
professional trade association memberships dues for the Building personnel,
including managers and organizers; costs and other expenses for the Building
incurred by Landlord in the ordinary course of the management, operation,
maintenance and promotion of an office building containing Comparable Space;
m. All reasonable fees incurred in the performance of any audit or
review of expenses and the computation and proration thereof undertaken by
Landlord; provided, however, any such audits or reviews conducted in excess of
one such audit or review annually shall not be included in Expenses;
n. For purposes only of determining Expenses and the Base Expense Rate,
all additional expenses (the "Variable Operating Costs") which Landlord
reasonably determines Landlord would have incurred had the Building been
ninety-five percent (95%) leased and occupied with all tenant improvements
constructed, and without regard to any abatements, curtailments or reductions in
any form of rent allowed under any lease of any portion of the Building, for
purposes of determining operating expenses or fees related to Building
management; provided, however, that (i) Variable Operating Costs shall
specifically include, but shall not be limited to, Landlord's direct costs in
supplying gas, electricity, heating, ventilating, air conditioning, water, and
any other utilities, waste disposal, supervision and janitorial services to the
Building, all of which vary based upon occupancy; (ii) no adjustment under this
subparagraph n. shall result in profit to Landlord and no cost allocable to
construction of any portion of the Common Areas and construction of any portion
of the Building shall be included in determining Variable Operating Costs; and
(iii) such costs shall specifically include all costs which Landlord would have
incurred but for the existence of warranties on any portion of the Project,
including, without limitation, any equipment or machinery used therein.
In addition to any items excluded from Expenses as set forth above, the
following items (collectively, "Exclusions") also shall be excluded from
Expenses: (1) expenses for any capital improvements except as provided elsewhere
herein; (2) expenses incurred in leasing space or procuring new tenants (e.g.,
lease commissions, advertising expenses, marketing studies, advertising and
promotional funds (except as permitted elsewhere herein) and expenses of
preparing, upfitting or renovating space for new tenants); (3) legal or
accounting expenses in negotiating or enforcing the terms of any space lease or
related to the sale of the Building or to any ground lease related to all or any
portion of the Building; (4) interest, amortization payments, late charges, fees
and other charges on any mortgage or other evidence of indebtedness, whether or
not secured by all or any portion of the Project except as provided in
subparagraph j. above; (5) extraordinary costs arising from the use by others of
the Common Areas for shows, promotions and other public or special events; (6)
Landlord's !ocal, state or federal income or gross receipts taxes or gift,
succession, franchise, inheritance or estate taxes; (7) wages, salaries and
benefits of executives or employees above the level of Senior Building Manager
of the Building; (8) costs incurred by Landlord for repairs or other work caused
by fire, windstorm or other casualty for which Landlord is required to maintain
insurance pursuant to this Lease, except costs incurred by Landlord in restoring
the Building in accordance with this Lease resulting from commercially
reasonable deductibles as provided in Article V; (9) the costs of contract
services provided by Landlord or its subsidiaries or affiliates, together with
overhead and profit increments paid to subsidiaries or affiliates of Landlord
for services on or to the Project, to the extent the costs, overhead or profit
related to such services to the Project exceeds the costs of such services
rendered on a competitive basis for Comparable Space by unaffiliated parties of
similar skill, competence and experience who are capable of providing such
services; (10) any rental or other payments due under any ground or underlying
lease or leases; (11) any syndication, financing or refinancing costs and
expenses (including interest on debt or amortization payments on debt) incurred
in connection with any mortgage or mortgages or any other debt instrument
encumbering all or any portion of the Project; (12) depreciation and
amortization, except as otherwise expressly provided in subparagraph j. of this
definition of Expenses; (13) rentals and other related operating expenses, if
any, incurred in leasing air conditioning systems, elevators or other equipment
ordinarily considered to be of a capital nature, except: (a) to the extent
capital costs are permitted to be included in Expenses pursuant to subparagraph
j. of the definition of Expenses, and (b) temporary rentals and related expenses
for a reasonable period to keep permanent systems in operation while Landlord
procures necessary repairs; (14) costs of initially constructing the base
Building work and the Common Areas of the Project; (15) costs of correcting any
defects in (a) the base Building work, (b) any tenant improvements, (c) Common
Areas and (d) other improvements installed by Landlord, Tenant's contractor or
Landlord's contractor; (16) except for necessary repair and maintenance expenses
of the Common Areas that are expressly included as Expenses herein, costs
incurred in renovating or otherwise altering, improving, decorating or
redecorating space in the Common Areas, or incurred in renovating or otherwise
altering, improving, decorating or redecorating vacant rentable space; (17) any
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bad debts loss, rent loss or reserves for bad debts or rent loss; (18) costs
associated with the operation of the business of the legal entity which
constitutes Landlord or of persons or entities which constitute or are
affiliated with Landlord or its partners, as such costs are separate and apart
from costs associated with the operation of the Building, including legal entity
formation, internal entity accounting and internal legal matters; (19)
attorneys' fees and other costs and expenses incurred in connection with
negotiations or disputes with present or prospective tenants or other occupants
of the Project or incurred by negotiating or enforcing any lease at the Project
or attorneys' fees awarded to any tenant pursuant to any lease, or incurred as a
result of Landlord's negligence, misconduct or failure to maintain any insurance
required of Landlord under this Lease or any other lease; (20) costs of repair,
abatement, removal or clean-up of any Hazardous Materials under laws in effect
as of the date of this Lease; (21) any costs or expenses that are incurred
directly or indirectly with respect to Landlord's indemnity obligations under
this Lease or any other lease related to the Project; (22) expenses for which
Landlord has received a credit, refund or rebate from any party; and (23) unless
Tenant consents in writing (which consent will not be withheld if such
management results in cost savings to Tenant), management fees and all other
costs associated with any building within the Project other than the Building.
In addition to the Exclusions set forth above, Expenses shall be reduced
by the amount of any insurance reimbursement and other reimbursement,
recoupment, payment, discount, credit, reduction, allowance or the like not
enumerated above but received by Landlord in connection with such Expenses that
are allocable to any Expenses payable in whole or in part by Tenant.
The following matters shall be taken into account when determining
Expenses: (1 ) The Parking Garage will be economically and operationally
independent from the remainder of the Project, although there will be
cross-easements for construction, for operation and repair of utilities, for
access and for other purposes between each part of the Project and the Parking
Garage; (2) any Expenses associated with usage of the Parking Garage or the
Common Areas by any third party, including but not limited to the owners,
managers, employees, tenants, contractors, agents, or visitors of or to any
Third Party Development, will be borne by such third party; (3) any Expenses
associated with the joint use of the Common Areas or the Parking Garage by the
owners, managers, employees, tenants, contractors, agents or visitors of or to
the Project, on the one hand, and the owners, managers, employees, tenants,
contractors, agents or visitors of or to any Third Party Development, on the
other hand, will be shared ratably between the Project and such Third Party
Development (the portion of such Expenses attributable to the Project being
considered to be "Expenses" for all purposes hereunder, including, without
limitation, allocation thereof to the tenants of the Project); (4) the Building,
Parking Garage and, to the extent applicable, various Third Party Developments,
may or will share the Building's central plant, but each such area will be
separately metered or submetered and the tenant in each such area shall be
solely responsible for its pro rata costs of utilities (including chilled water)
which it uses; (5) third parties, including; without limitation, Third Party
Developments, will be charged for any usage of the Building which creates
incremental costs attributable to such usage by such third parties. Each of the
Third Party Developments otherwise is created as a separate entity which, except
for the obligation to pay costs as set forth in the preceding sentence, has no
obligation to share any costs related to the Expenses of the Building and,
conversely, no tenant of the Building shall have any obligation to pay any
expenses of any Third Party Development except as otherwise provided herein; (6)
the outdoor plazas will be operated as integral portions of the Building; (7)
retail tenants in the Building shall be responsible for the costs of cleaning
and maintaining their space and other costs directly related to or arising out
of use of the retail areas of the Building after Normal Business Hours or
attributable to services in excess of those provided to office tenants (except
as otherwise provided herein) or attributable to any janitorial or related
services associated with the sale or consumption of food or other food handling
activities in the Building during Normal Business Hours; and (8) total Expenses
will be reduced by payments towards Expenses (as set forth in item (5) above)
that are or should be received from other tenants or from any Third Party
Development.
Additional Rent and Expenses shall be determined on a modified cash
basis consistently applied. "Modified cash basis" shall mean including all cash
basis accounting transactions for the year as they relate to Expenses and
modifying those balances to include twelve (12) months of activity. Modified
cash basis accounting differs from accrual basis accounting in that it attempts
to account for one (i) year's activity as opposed to analyzing exact work dates
and invoice dates to determine inclusion in a given year.
Final Documents. As defined in Exhibit B.
Force Majeure. As defined in Section 8.1.
Governmental Authoritv. The government of the United States of America,
the State of North Carolina and any political subdivision thereof, or any local,
state or national public authority, agency, department, commission, board,
bureau or instrumentality with authority over the Building or the Project. With
respect to matters pertaining to insurance, boards of fire underwritefs shall be
a Governmental Authority to the extent they have power to impose conditions on
the issuance of policies or the coverage thereof.
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Hazardous Materials. Polychlorinated biphenyls, petroleum and any
fraction thereof, radioactive materials, urea formaldehyde, asbestos, and any
waste, pollutant, contaminate, chemical compound, substance or material defined
or regulated as "hazardous" "extremely hazardous" or "toxic" under any
Environmental Law or by any federal, state, or local governmental agency or
authority.
Holidays. New Year's Day, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
HVAC. As defined in Exhibit H.
IJL Financial Center. The name by which the Project will become known on
the of execution of this Lease.
Landlord. NationsBank, National Association, a national banking
association.
Landlord's Work. Those items of Building and Premises construction which
are landlord's responsibility to complete in accordance with Exhibit B, Schedule
1.
Lease. As defined on Page 1.
Master Lease. As of the Commencement Date of this Lease, a special
purpose entity has been formed to own the Building and the entire Building is
subject to a lease between the special purpose entity and Landlord, said lease
being deemed the "Master Lease" for purposes hereunder.
Minor Sublet. Any sublease(s) of any portion(s) of the Premises which do
not exceed (a) as to any such sublease, including all extension and renewal
options, the lesser of (i) a term of five (5) years and zero (0) months, or (ii)
the remaining term of the Lease including any extension options which Tenant has
actually exercised; and (b) as to all subleases then in effect for any portion
of the Premises, an aggregate rentable area of twenty three thousand, seven
hundred sixty-three (23,763) square feet.
NationsBank Corporate Center. The sixty (60) story office tower located
on the northeastern corner of North Tryon Street and East Trade Street, having
an address of 100 North Tryon Street, Charlotte, North Carolina.
Normal Business Hours. As defined in Exhibit H. Owner. That entity which
owns the Building as of the Commencement Date of this
Parkinq Garage. The parking areas associated with the Project on the
Block, including, without limitation, any walkway connecting the Parking Garage
to the Building, stairways, elevators and mechanical systems. The Parking Garage
and the Building may be owned or managed separately.
Parking Rights and Charges. If Tenant is granted any rights to parking
in the Parking Garage, such rights and all charges to Tenant for same are
described in Exhibit I attached hereto and incorporated herein by this
reference.
Premises. That portion of the Building shown or described in Exhibit A
and further designated in Section 1.1.1 together with any changes made thereto
in accordance with this Lease.
Project. The mixed use development owned and constructed by Landlord and
others on the Block in the City of Charlotte, North Carolina. The Project
includes the Building, the Common Areas, the Parking Garage, exterior plazas,
walkways and additional land for undesignated development.
Projected Expense Rate. As defined in Section 2.5.
Ready for Occupancy. The condition of the Premises, as set forth in
Section 2.1.1 hereof, upon completion of so much of Landlord's Work as is
reasonably necessary for Tenant to commence construction in the Premises. The
Premises may be deemed Ready for Occupancy prior to substantial completion of
Landlord's Work, defined in Section 2.1.1 herein and Exhibit B, Schedule 1.
Rent. The Base Rent payable under Section 2.3 as adjusted by the Base
Rent Adjustment set forth in Section 2.4 plus all Additional Rent described in
Section 2.5, parking
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charges, if any, described in Exhibit I, and any and all other sums owed by
Tenant to Landlord under this Lease.
Rentable Area. The rentable portion of any leasable premises in the
Building expressed in square feet or fractions thereof, whether or not such
premises are to be used for office, retail or service-related uses.
Reserved Parking. As defined in Exhibit I.
Rentable Area in the Building. The aggregate Rentable Area in the
Building irrespective of the designated use of such Rentable Area for office,
retail or service related uses. Landlord and Tenant agree that the Rentable Area
in the Building is stipulated to be six hundred and sixty-nine thousand, four
hundred ninety-four (669,494) square feet.
ROFO Space. As defined in Exhibit F.
Rules and Regulations. Attached as Exhibit D.
Standard Buildinq Capacity. As defined in Exhibit H.
Supporting Documents. As defined in Exhibit B.
Tenant. As defined on Page 1.
Tenant Affiliate. Any entity owned or controlled by Tenant constituting
at a minimum a majority of the ownership interests in such entity. "Owned or
controlled by" shall mean ownership of more than a fifty percent (50%) interest
in such entity.
Tenant Improvement Allowance. As set forth in Exhibit E and Exhibit F.
Tenant's Plans. As defined in Exhibit B.
Tenant's Work. Those items of Premises construction which are Tenant's
respon to complete in accordance with Exhibit B, Schedule 2.
Term. As set forth in Section 2.1.2.
Third Party Development. Any office, retail or condominium development
(other than the Building and the Parking Garage) which may be located from time
to time on the Block, whether or not owned by Landlord.
Variable Operating Costs. As defined in subparagraph n. of the
definition of Expenses.
Year, Calendar Year, Lease Year. A year shall be any period of 365/366
consecutive days. Calendar year shall mean the period from January 1 to December
31. Lease Year shall refer to each year beginning on the Commencement Date.
CONSIDERATION
In consideration of the mutual promises and agreements set forth herein,
the legal sufficiency of which the panties hereto expressly acknowledge,
Landlord and Tenant agree as follows:
1.
LEASE OF PREMISES
1.1 Premises.
1.1.1 Demise of Premises. Subject to and upon the terms, provisions and
conditions hereinafter set forth, and each in consideration of and conditioned
upon the duties, covenants and obligations of the other hereunder, Landlord does
hereby lease, demise and let to Tenant, and Tenant does hereby lease from
Landlord, the Premises more particularly described as the twentieth,
twentyfirst, twenty-second, twenty-third and a portion of the twenty-fourth
(20th, 21st, 22nd, 23rd and a portion of the 24th) floors of the Building as
reflected on the floor plans attached hereto as Exhibit A and incorporated
herein by reference.
1.1.2 Warranty of Title. Landlord warrants and represents to Tenant that
Landlord has the right, power, authority and ability to lease all of the
Premises and to undertake all other obligations of Landlord set forth herein.
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1.1.3 Stipulations Regarding Rentable Area. For the purposes of this
Lease the Rentable Area of the Premises is stipulated to be one hundred ten
thousand, seven hundred seventy-seven 4110,777) square feet, distributed by
floor as follows:
Floor Rentable Area
20 23,652
21 23,652
22 23,652
23 23,321
24 16,500
1.2 Option To Expand. The option to expand to be granted by Landlord to
this Lease shall be set forth in Exhibit E hereto.
1.3 Right of First Offer. The right of first offer to be granted by
Landlord to Tenant under this Lease shall be set forth in Exhibit F hereto.
1.4 Delivery of Space. Subject to Landlord's obligations to deliver the
Expansion Space and ROFO Space described in Exhibits E and F to Tenant with
Landlord's Work therein substantially completed and to provide the applicable
Tenant Improvement Allowances, Landlord shall deliver any Expansion Space and
ROFO Space to Tenant in its "as is" condition and shall not be obligated to
perform any demolition.
1.5 Common Areas. Tenant, its employees and invitees shall have the
non-exclusive right to use the Common Areas as constituted for general use of
occupants of the Building from time to time (except for mechanical rooms and
janitorial closets), such use to be in common with Landlord, other tenants of
the Project and other persons and subject to the Rules and Regulations set forth
in Exhibit D attached hereto and by this reference made a part hereof, as such
Rules and Regulations may be amended from time to time provided such amendments
are nondiscriminatory in nature. Subject to t he limitations set forth in the
next sentence, Landlord reserves the right from time to time to undertake any or
all of the activities described below, provided such reservation of rights shall
not: (i) materially affect Tenant's use or enjoyment of or access to the
Premises, the Parking Garage or Tenant's other rights under this Lease, or
increase the amount of Rentable Area in the Premises; (ii) increase Tenant's
Rent or proportionate share of Expenses; (iii) reduce the number of Tenant's
parking privileges set forth herein; or (iv) materially, adversely affect any
signage rights of Tenant expressly granted to Tenant in this Lease or the
visibility of Tenant's Premises from the interior of the Building. In connection
therewith, Landlord reserves the following rights: to add to, or subtract from,
or change from time to time, the dimensions and location of the Common Areas, it
being understood that Landlord may, at its option, add any areas located within
the Block to the Common Areas; to create any additional improvements in the
Common Areas or to alter or remove any improvements in the Common Areas; to
convert areas previously designated by Landlord as part of the Common Areas to
an area leased to one or more tenants or to designate previously leased space as
part of the Common Areas provided equitable adjustments are made to the Rentable
Area in the Building and the Rentable Area in the Premises; to make alterations
or additions to the Building and to any other buildings or improvements within
the Project; to operate and/or maintain such Common Areas in conjunction with
other parties; and to construct, or permit others to construct, other buildings
or improvements within the Project. Landlord is not obligated to construct or
provide for Tenant any improvements outside the Building except as otherwise
provided in this Lease.
11.
TERM; RENT
2.1 Term.
2.1.1 Premises Ready for Occupancy. Landlord shall proceed to construct
improvements upon the Premises in substantial compliance with the "Landlord's
Work" as described in Exhibit B attached hereto, with such minor variations as
Landlord in its sole discretion may deem advisable, and tender the Premises to
Tenant by written notice (the "Ready for Occupancy Notice"). The Premises shall
be deemed to be Ready for Occupancy when Landlord tenders same to Tenant for
commencement of Tenant's Work, subject to Tenant's walk-through rights described
below. In no event shall the determination of the date upon which the Premises
are deemed Ready for Occupancy be predicated upon the construction of any of
Tenant's Work as described in Exhibit B. Upon Tenant's request, which request
shall be made within five (5) days following Landlord's delivery to Tenant of
the Ready for Occupancy Notice set forth above, Landlord agrees to participate
in a joint walk-through and inspection of the Premises with Tenant, which
inspection shall thereafter occur within five (5) days of such request. Tenant
shall have an additional period of five (5) days after the inspection to provide
a list of "punch-list" items to Landlord. Upon determination by Landlord's
architect that the punch list
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items have been satisfactorily completed, Landlord shall again deliver a Ready
for Occupancy notice in the manner provided above. If Landlord's and Tenant's
architects cannot thereafter reach agreement as to any remaining punch list
items, then Landlord and Tenant shall mutually select a third architect,
licensed in the State of North Carolina, to review the punch list items and
shall equally share the cost of such third architect. The determination of such
third architect shall thereafter become binding upon both Landlord and Tenant.
It is acknowledged and agreed that the standard to be used in determining punch
list items is not whether the Premises are substantially complete, but whether
Landlord's Work in the Premises has advanced to a stage that would permit
Tenant's contractors to begin their work in the Premises along with Landlord's
contractors. If the Premises are not Ready for Occupancy within sixty (60) days
after full execution hereof, Landlord shall not be deemed to be in default
hereunder or otherwise liable in damages to Tenant, nor shall the term of this
Lease be affected except as provided in Section 2.1.2 hereof; provided, however,
if the Premises are not Ready for Occupancy within eight (8) months following
the full execution hereof, Tenant may at its option terminate this Lease by
written notice to Landlord delivered within thirty (30) days following the
expiration of such eight (8) month period, in which event neither party shall
have any further liabilities or obligations hereunder, except the Landlord shall
repay to Tenant any Security Deposit paid by Tenant. When the Premises are Ready
for Occupancy, Tenant agrees to accept possession thereof and to proceed with
due diligence to perform the work described as "Tenant's Work" in Exhibit B, all
of such work to be performed in compliance with Exhibit B, and with all
applicable governmental taws, rules, regulations and ordinances, and to install
its fixtures, furniture and equipment. By failing to respond to a Ready for
Occupancy notice in the manner provided and within the time period described
above, or by failing to timely deliver to Landlord a punch list of incomplete or
unsatisfactory items, Tenant shall be deemed to have accepted the Premises and
to have acknowledged that the same fully complies with Landlord's covenants and
obligations hereunder. In the event of any dispute as to work performed or
required to be performed by Landlord or Tenant pursuant to Exhibit B, the
certificate of Landlord's architect or engineer shall be conclusive. By
initiating Tenant Work, Tenant shall be deemed to have accepted the Premises and
to have acknowledged that the same fully complies with Landlord's covenants and
obligations hereunder (irrespective of whether Landlord has certified to Tenant
that the Premises are Ready for Occupancy). Tenant agrees to furnish to Landlord
a Certificate of Occupancy from applicable local authorities on or before the
Commencement Date; provided, however, Tenant's failure to do so shall not delay
the Commencement Date.
2.1.2 Commencement Date. Subject to and upon the terms and conditions
set forth herein, or in any exhibit or addendum hereto, this Lease shall
continue in force for a term of approximately one hundred seventeen (1 17)
months, beginning on the earlier to occur of (i) March 1, 1998 or (ii) actual
occupancy of the Premises by Tenant (other than for the purpose of constructing
Tenant's Work) for the normal conduct of Tenant's business (the "Commencement
Date") and ending November 30, 2007 (the "Term"). Tenant acknowledges that, as
of the date of full execution of this Lease, (the "Delivery Date") Landlord has
delivered the Premises to Tenant, subject only to the punch list items set forth
in the letter from F.N. Thompson Company attached hereto as Exhibit K, which
punch list items shall not delay the Commencement Date. If Tenant's Work is
delayed by reason of force majeure, then the Commencement Date shall be delayed
by one day for each day of such delay. A delay in the Commencement Date shall
not extend the length of the initial Term but may, at Tenant's election,
proportionately extend the length of the Renewal Term. Upon mutual agreement,
either party will, upon request, execute and deliver a declaration specifying
the Commencement Date.
2.1.3 Election to Extend Term. By delivering written notice to Landlord
not earlier than one ( 1 ) month following the Commencement Date of this Lease
and not later than six months following the Commencement Date of this Lease,
Tenant shall have the right to extend the Term of this Lease for an additional
period of sixty-three (63) months, for a total Lease Term of approximately one
hundred eighty (180) months.
2.2 Use. The Premises are to be used and occupied by Tenant solely for
general office purposes including securities brokerage and professional business
offices and uses incidental thereto which are consistent with general office
purposes.
2.3 Base Rent. During the initial Term of this Lease, Tenant hereby
agrees to pay to Landlord base annual rental (as specified, the "Base Rent") at
the rate of $21.45 per square foot of Rentable Area in the Premises, subject to
annual adjustment beginning with the first anniversary of the Commencement Date,
in the manner provided in Section 2.4 and subject to any adjustments based on
Additional Allowance if granted to Tenant in accordance with Exhibit B. If
Tenant elects to extend the Term of this Lease to one hundred eighty (180)
months as provided in Section 2.1.3 above, then the initial Base Rent shall be
$20.80 per square foot of Rentable Area in the Premises subject to annual
adjustment beginning with the first anniversary of the Commencement Date as
provided in Section 2.4 and subject to any adjustments based on Additional
Allowance, if granted to Tenant in accordance with Exhibit B. Any overpayment of
Base Rent based upon Tenant's election to so extend shall be refunded by
Landlord within sixty (60) days of receipt of Tenant's election notice.
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The Base Rent, and any Additional Rent then in effect shall be due and
payable in twelve (12) equal monthly installments on the first day of each
calendar month during the Term. Except as elsewhere provided in this Lease,
Tenant agrees to pay Rent to Landlord monthly in advance without demand,
reduction, abatement, counterclaim or setoff at Landlord's designated address.
If the Term commences on a day other than the first day of a month or terminates
on a day other than the last day of a month, then the Rent for such month or
months shall be prorated in accordance with the actual number of days in the
relevant month and the installment or installments so prorated shall be paid in
advance.
2.4 Base Rent Adjustment. The Net Base Rent shall be increased effective
on each anniversary of the Commencement Date during the Term by an amount (the
"Base Rent Adjustment") equal to three and one-half percent (3-1/2%) over the
Net Base Rent in effect for the immediately preceding period, rounded to the
nearest cent. The "Net Base Rent" for purposes of this Section 2.4 shall mean
the Base Rent as adjusted on the immediately preceding adjustment date less the
Actual Expense Rate for the immediately preceding calendar year. Landlord shall
endeavor to provide Tenant with thirty (30) days advance notice of each Base
Rent Adjustment, but Landlord shall have no obligation to notify Tenant of the
Base Rent Adjustment amount, and Landlord's failure to provide such notice shall
not excuse performance by Tenant.
2.5 Additional Rent. Additional Rent shall be calculated on the basis of
the 1998 calendar year as the Base Year, but Tenant's obligation to pay adjusted
Additional Rent shall occur on each anniversary of the Commencement Date.
Additional Rent shall be due during any year or partial year of the Lease Term,
beginning with the first anniversary of the Commencement Date, during which the
Actual Expense Rate is greater than the Base Expense Rate. Beginning with the
first anniversary of the Commencement Date (or as soon thereafter as reasonably
possible), Landlord shall provide to Tenant a statement of Landlord's reasonable
estimate of the Expense Rate (calculated by dividing Landlord's reasonable
estimate of Expenses for the current calendar year, by the Rentable Area in the
Building) projected by Landlord for the calendar year in which such calculation
occurs (the "Projected Expense Rate"). Beginning on the first anniversary of the
Commencement Date, Tenant shall pay to Landlord on the first day of each month
one-twelfth (1/12th) of the product of (a) the positive difference (if any)
obtained by subtracting the Base Expense Rate from the Projected Expense Rate
for the calendar year in which such calculation occurs, and (b) the Rentable
Area in the Premises. Until Tenant has received the statement of the Projected
Expense Rate from Landlord, Tenant shall pay or continue to pay Additional Rent
to Landlord in the same amount (if any) as required for the last month of the
prior Lease year. After Tenant receives the statement, on the next date when
Base Rent is due, Tenant shall pay to Landlord, or Landlord shall credit to
Tenant (whichever is appropriate), the difference between the amount paid by
Tenant and the amount payable by Tenant as set forth in such statement. Not more
than twice during any Lease year, Landlord may in good faith revise the
Projected Expense Rate and provide Tenant with a revised statement, and
thereafter Tenant shall pay Additional Rent on the basis of the revised
statement. Landlord shall provide to Tenant, within one hundred fifty (150) days
after the end of each Lease year a statement of the Actual Expenses, the Actual
Expense Rate and the Additional Rent for such year. Landlord shall provide to
Tenant upon request, an itemized statement specifying actual expenses by major
category. Tenant shall pay to Landlord, within thirty (30) days after Tenant's
receipt of such statement, the uncollected Additional Rent for such Lease year.
If the actual Additional Rent payable by Tenant for any Lease year is less than
the aggregate of the actual Additional Rent collected by Landlord for such Lease
year, Landlord shall promptly refund the amount of such excess (or, at
Landlord's option, apply such excess against the next ensuing payments of Rent
due or to become due hereunder). Failure of Landlord to provide the statement
called for hereunder shall not relieve Tenant from its obligations under this
Section 2.5 or elsewhere in this Lease.
Provided, however, that for each calendar year subsequent to the calendar year
1998, the Controllable Expenses component of Actual Expenses shall not increase
by more than the (i) actual increase; or (ii) five percent (5%) in the aggregate
over the Controllable Expenses component of Actual Expenses for the previous
calendar year, whichever is less.
2.6 Tenant's Audit Rights. Tenant or its duly authorized representative
may, upon reasonable prior notice during regular business hours, inspect the
records of expenses kept by Landlord provided such inspection is commenced
within ninety (90) days after the receipt of a statement from Landlord; and is
limited to the period covered by such statement, and is conducted by a "Big
Five" accounting firm on a non-contingent basis. If Tenant's audit shall
disclose an overpayment or an underpayment of the Actual Expenses for such
period, then, unless Landlord disputes the correctness of such audit, Tenant
shall pay the amount of such underpayment or shall be credited for the amount of
such overpayment, as the case may be. Any such audit shall be at Tenant's
expenses, provided, however, that if such audit shall disclose an overpayment by
Tenant for the period covered by such statement in excess of five percent (5%),
the costs of such audit shall be paid by Landlord. Landlord may dispute the
results of Tenant's audit by referring the dispute to binding arbitration in
accordance with the rules of a nationally recognized arbitration association
within sixty (60) days after receipt of
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Tenant's audit. If one party is solely successful in arbitration, the
non-successful party shall bear the costs of arbitration; otherwise, such costs
are to be divided equally between the parties. Each party shall bear its own
attorney's fees.
2.7 Holding Over. In the event of holding over by Tenant after
expiration or termination of this Lease without the written consent of Landlord,
Tenant shall (i) pay Landlord, within thirty (30) days after Landlord's written
demand therefor, all damages caused by Tenant's holding over (including, without
limitation, all claims for damages by any other tenant to whom Landlord may have
leased all or any part of the Premises and all losses suffered by Landlord
arising out of other agreements concerning the Premises which Landlord is unable
to honor, in whole or in part, as a result of Tenant's holding over) and all
attorneys' fees incurred by Landlord as a result of Tenant's holding over and
(ii) pay to Landlord, for the first month's holdover, one hundred twenty-five
percent (125%) of all Rent owed by Tenant to Landlord in accordance with the
Lease, and thereafter, one hundred fifty percent (150%) of all Rent owed by
Tenant to Landlord in accordance with the terms of this Lease. Any holding over
with Landlord's written consent shall constitute a lease from month to month
under all the terms and provisions of this Lease, and unless otherwise agreed in
writing, either Landlord or Tenant may terminate this Lease upon at least thirty
(30) days prior written notice to the other.
2.8 Late Charges. If at any time any Rent is not received by the
fifteenth (15th) day following the date on which or period within which any
monetary obligation of Tenant under this Lease becomes due (including dishonored
checks), then in addition to the amount owed, Tenant shall pay to Landlord a
late charge equal to five percent (5%) of the past due obligation, except that
for the first such late payment, if any, in a given calendar year, the late
charge shall be One Hundred Dollars ($100.00). This provision shall not be
deemed to condone the late payment of any monetary obligation, and shall not be
construed as giving Tenant an option to pay late by paying the late charge.
Instead, all funds are due at the times specified in this Lease without any
grace period. Failure to pay shall subject Tenant to all applicable default
provisions provided hereunder or by law, and Landlord's remedies shall not be
abridged by claiming or collecting a late charge.
III.
GENERAL MATTERS
3.1 Initial Construction of the Premises. Prior to the Commencement
Date, Landlord, at Landlord's sole cost and expense, shall install, furnish and
perform all facilities, materials and work required for the Common Areas and the
core and shell of the Building and shall provide substantial completion of
Landlord's Work as described in Exhibit B, including, but not limited to, the
Building standard HVAC system, sprinkler system, Building standard ceiling
system and light fixtures. Subject to Landlord's obligation to provide certain
allowances to or for the benefit of Tenant, Tenant's Work in the Premises shall
be at Tenant's sole cost and expense and shall be provided in accordance with
the provisions of Exhibit B. Except with respect to latent defects and any
uncured items contained in an inspection punchlist delivered by Tenant to
Landlord within forty-five (45) days following Tenant's Commencement Date.
Tenant's occupancy of the Premises shall conclusively establish that the
Premises are at such time in satisfactory condition, order and repair. Landlord
shall be responsible for and shall rectify (i) any patent defects in the core
and shell of the Building identified in writing by Tenant or Tenant's
consultants within thirty (30) days of Tenant's possession of the Premises, and
(ii) any latent defects in, or deteriorations of, the core and shell of the
Building upon discovery by Tenant or Landlord. Landlord agrees to commence any
necessary remedial work within a reasonable time after receipt of Tenant's or
Tenant's consultant's identification of defects and thereafter shall diligently
pursue completion of any necessary remedial work. All delays prior to the
Commencement Date resulting from such defects shall be deemed Landlord delays
for the purposes of determining the Commencement Date of this Lease. With
respect to latent or patent defects in the Premises or in the Building of which
they form a part, Landlord's liability shall in no event extend beyond one (1)
year from the date the Premises are deemed Ready for Occupancy, whether or not
such defects are discovered within such one (1) year period.
3.2 Services to Be Furnished by Landlord. During the Term Landlord shall
manage the Project, operate the Building, and provide supervision, janitorial
and other services substantially the same or greater in service and quality to
those provided for Comparable Space. Landlord shall cause public utilities to
furnish electricity and water to the Building and the Premises and shall furnish
Tenant with the other services described in Exhibit H below during the Term.
3.3 Keys. Landlord shall furnish Tenant at no cost sufficient keys for
each of the Tenant's employees as of the Commencement Date, not to exceed three
hundred (300) keys or access cards for entering the Building and the Premises
and additional keys at a charge not to exceed Landlord's cost for each such key
without markup on an order signed by Tenant. All keys shall remain the property
of Landlord. No additional locks shall be allowed on any door of the Premises
without Landlord's written permission. If Tenant receives Landlord's permission
and installs locks requiring keys other than the keys provided by Landlord,
Tenant shall immediately provide Landlord with copies
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of such keys. Tenant shall not make, or permit to be made, any duplicate keys
except those furnished by Landlord. Landlord shall have the right to maintain
master keys and pass keys to all doors to and within the Premises. Upon
termination of this Lease, Tenant shall surrender to Landlord all keys related
to the Premises, and give to Landlord the combination of all locks for safes,
safe cabinets and vault doors, if any, to remain in the Premises.
3.4 Graphics. Landlord shall provide and install Tenant's name and suite
numerals of the Premises in Building standard graphics at the main entrance
doors to the Premises. All graphics of Tenant visible in or from public
corridors or the exterior of the Premises shall be subject to Landlord's
approval; provided, however, Tenant may not display any signs or graphics of
Tenant visible from the exterior of the Building except as may be permitted in
accordance with Section 8.3 hereof. Landlord, at Landlord's expense, will also
identify Tenant in the directory located in the main lobby of the Building and
on any other appropriate directory which may be part of the Project. The space
to be made available to Tenant in such directories shall be reasonably
proportionate to the space allotted other tenants with similar size Rentable
Area in the Building.
3.5 Repairs by Landlord. Landlord shall make all repairs necessary to
maintain the Building, the Common Areas, the plumbing, HVAC and electrical
systems installed or furnished by Landlord (excluding any special electrical
equipment or other fixtures installed or furnished by Landlord at Tenant's
request and not as part of Landlord's Work unless the maintenance and repair was
necessitated by the misrepresentation, negligence or misconduct of Landlord or
caused by the act, omission, accident or negligence of Landlord, its agents,
employees, invitees, licensees, subtenants or contractors, in which case such
maintenance or repairs shall be made at Landlord's sole cost and expense if not
otherwise reimbursed to Tenant by insurance carried by Landlord or Tenant), the
glass curtain walls, windows, flooring installed or furnished by Landlord, and
all other structural elements of the Premises installed or furnished by
Landlord. Tenant shall promptly notify Landlord of any condition which requires
repair. Landlord shall undertake such repairs with due diligence within a
reasonable time after written notice from Tenant that such repair is needed. In
no event shall Landlord be obligated to repair any nonstructural system damage
or any damage to systems not provided in base Building plans unless such damage
is caused by the act, omission, accident or negligence of Landlord or its
employees, agents, invitees, licensees, tenants, subtenants or contractors in
such capacity. Tenant shall not be required to make structural repairs or
repairs to the systems of the Building, but such repairs shall be made by
Landlord, and the costs of such repairs shall be Expenses to the extent
permitted in this Lease, unless the repairs were necessitated by the act,
omission, accident, negligence or misconduct of Tenant or its employees, agents,
invitees, licensees, subtenants or contractors, in which case such repairs shall
be at Tenant's sole cost and expense. Tenant shall not be required to maintain
or repair Building standard finishes within restrooms, drinking fountains and
other Building systems, all of which shall be maintained by Landlord and the
cost thereof shall be included in Expenses to the extent permitted in this
Lease. Any special leasehold improvements may, at Tenant's written request and
at Landlord's option, be maintained by Landlord at Tenant's expense which shall
be an amount equal to Landlord's actual cost plus an additional charge of
fifteen percent (15%) of such cost. Notwithstanding the provisions of this
Section 3.5 to the contrary, Landlord shall, at Landlord's sole cost and expense
and not as part of Expenses, repair any defects in the construction of the (i)
base Building work or any Tenant's Work installed by Landlord, or Landlord's
contractor, which are discovered by Tenant and communicated in writing by Tenant
to Landlord within the time period specified in Section 3.1 above, and (ii) the
base Building work and Tenant's Work installed by Landlord or Landlord's
contractor necessitated by the failure of Landlord or Landlord's contractor to
comply with the Building plans and Tenant's Plans for such work and all codes,
legal requirements and other applicable laws in effect at the time of
construction of the base Building work and Tenant's Work. If, within a
reasonable time after discovery, Tenant notifies Landlord of such defects,
Landlord shall thereafter, with reasonable diligence, proceed to repair such
defects to a reasonably satisfactory condition. Landlord shall not be liable to
Tenant, except as expressly provided in this Lease, for any damage or
inconvenience, and Tenant shall not be entitled to any damages nor to any
abatement or reduction of rent by reason of any maintenance, repairs,
replacements, alterations or additions made by Landlord under this Lease, except
as specified in paragraph 11 of Exhibit H attached hereto and incorporated
herein by reference.
3.6 Peaceful Enjoyment. Landlord warrants and represents to Tenant that
Tenant shall and may peacefully have, hold and enjoy the Premises, subject to
the other terms hereof. The parties hereto agree that said letting and hiring is
upon and subject to the terms, covenants and conditions herein set forth, and
each party covenants as a material part of the consideration for this Lease to
keep and perform each and all of the terms, covenants and conditions required to
be kept and performed by it, and that this Lease is made upon the condition of
such performance.
3.7 Landlord's Additional Representations and Warranties. In addition to
Landlord's other representations and warranties set forth in this Lease,
Landlord hereby represents, warrants and covenants to Tenant as follows:
(a) Landlord has full and lawful authority to enter into this Lease.
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(b) The Project has been and will be constructed in accordance with
all applicable laws, codes, ordinances, rules and regulations in effect as of
the time of obtaining the applicable building permits, including applicable
environmental regulations. Landlord shall be responsible for correcting any
violation of the foregoing, at Landlord's expense (which expense shall not be
included in Expenses).
(c) On the date of delivery of possession of the Premises to Tenant
and throughout the Term of this Lease, the Building (excluding Tenant's Work in
the Premises) will be in substantial compliance with all applicable federal,
state and local laws, ordinances, orders, rules, regulations and other
requirements of Governmental Authorities relating to the use, condition and
occupancy and the Building and all applicable rules, orders, regulations and
requirements of any board of fire underwriters or insurance service office or
any similar body having jurisdiction over the Building; provided, however,
Landlord has informed Tenant that the Building may not comply in some immaterial
respects with ADA or other applicable laws, but not to the extent which would
materially impair Tenant's use and occupancy of the Premises or the health or
safety of Tenant's employees or invitees.
(d) Landlord shall maintain, repair, operate, manage and lease the
Building at a standard consistent with the maintenance, repair, operation,
management and leasing of Comparable Space.
IV.
TENANT'S OCCUPANCY OF PREMISES
4.1 Care and Surrender of the Premises.
4.1.1 Damage; Load Capacity. Tenant shall not commit any waste or
damage, or allow any waste or damage, on any portion of the Premises or the
Project. Tenant also agrees that Tenant will not place upon or load any floor of
the Building with a load exceeding its design capacity. Landlord certifies that
the floors of the initial Premises are each designed generally to bear fifty
(50) pounds live load and fifty (50) pounds for partitions, per square foot of
floor space. Tenant shall take into account such load-bearing capacities when
locating all safes and heavy installations which Tenant wishes to place in the
Premises, which location must be approved by Landlord. Tenant shall notify
Building Manager and seek Building Manager's approval prior to any increase in
load or change in location of heavy installation throughout the Term.
4.1.2 Condition of Premises at End of Term. At the end of the Term,
by lapse of time or otherwise. Tenant shall deliver the Premises to Landlord
broom clean and in good order and repair except for ordinary wear and tear and
damage caused by insured casualty losses and acts of God. If Tenant does not so
deliver the Premises, Landlord may restore the Premises to such condition
following Tenant's surrender of possession and Tenant shall pay the cost
thereof, plus an administrative fee equal to fifteen percent (15%) of the cost
thereof. Unless the same are removed by Tenant prior to the end of the Term, all
installations, alterations, additions and improvements, including partitions
which may have been installed by either Landlord or Tenant, shall remain upon
the Premises and shall become Landlord's property, all without compensation,
allowance or credit. If Tenant elects to remove any alterations, additions or
improvements at the expiration or termination of this Lease, Tenant shall repair
all damage caused by such removal. Tenant shall be obligated to remove, at the
expiration or termination of this Lease all, alterations, additions or
improvements the installation of which was not consented to by Landlord.
Tenant's movable office equipment, furniture, furnishings and artwork shall
remain Tenant's property, and Tenant shall have the right prior to the end of
the Term to remove the same, if no uncured event of default then exists.
Tenant's goods, effects, personal property, business and trade fixtures,
machinery and equipment not removed at the end of the Term (or within one (1)
week after entry of a final unappealable order of possession of the Premises to
Landlord by a court of competent jurisdiction, and provided that during such
time Landlord has not hindered or impeded Tenant's efforts to remove such
property from the Premises by reason of Tenant's default) shall be considered
abandoned, and Landlord may dispose of the same in such commercially reasonable
manner as Landlord deems expedient after ten (10) days' prior written notice to
Tenant.
4.2 Legal Use and Violation of Insurance Coverage. Tenant shall comply
with all applicable laws, ordinances, orders, rules and regulations of any
Governmental Authority relating to the use, condition or occupancy of the
Premises. However, Landlord agrees that substantial compliance by Tenant shall
be sufficient for the purposes of Landlord's enforcement of this paragraph, but
only to the extent that failure to strictly comply does not adversely affect
Tenant's occupancy of the Premises, does not increase Landlord's insurance
premiums, will not have an impact on Landlord's Work, building systems,
aesthetics, Landlord's compliance with other Tenant leases or Landlord's
compliance with applicable laws. The foregoing exception shall in no event
excuse performance by Tenant as required by any applicable governmental
regulation or relieve Tenant of the obligation to maintain the Premises in first
class condition and in a safe manner. Landlord shall cause the original
construction of
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Landlord's Work in the Premises to comply with all applicable laws, ordinances,
rules and regulations of any Governmental Authority as the same may be amended
from time to time to the extent necessary to permit Tenant to enjoy all rights
and privileges hereunder. Landlord shall comply with all applicable laws,
ordinances, rules and regulations of any Governmental Authority relating to the
construction, ownership, leasing and management of the Building; provided,
however, Tenant agrees that the scope of Landlord's compliance with laws,
ordinances, orders, rules and regulations of any Governmental Authority
applicable to construction of the Building is limited to those in effect when
approvals, permits and licenses for construction of the Building were obtained
or issued or to the extent needed to not materially impair Tenant's use and
occupancy of the Premises or the health or safety of Tenant's employees or
invitees. Tenant shall not occupy or use, or permit any portion of the Premises
to be occupied or used, for any business or purpose which is unlawful,
disreputable or deemed to be extra-hazardous on account of fire. Tenant shall
not permit anything to be done in the Premises which would increase the rate of
fire insurance coverage on the Building.
4.3 Hazardous Materials.
4.3.1 No Storage. For the purposes of this Section 4.3, "Premises"
shall include the Premises and all space over which Tenant has the right to
exclusive use and control. Except for general office and cleaning supplies
typically used in the ordinary course of Tenant's business, without Landlord's
prior written consent, Tenant shall not knowingly use, release, generate, store
or dispose of on, under or about the Project or transport to or from the same
any Hazardous Materials or permit or allow any third party to do so.
4.3.2 Compliance; Citation. All of Tenant's activities on the
Project shall comply with Environmental Laws. As soon as practical after receipt
of same, Tenant shall furnish Landlord with a copy of any and all citations,
orders, notices, reports, subpoenas or requests concerning or having an impact
on the environmental condition of the Premises from any federal, state or local
governmental authority and a copy of any and all information, documents or
reports submitted to any Governmental Authority by or on behalf of Tenant
regarding the environmental condition of the Premises. Tenant shall provide
Landlord with written notice of any environmental condition affecting the
Premises which must be reported to any Governmental Authority no later than
twenty-four (24) hours after occurrence of the event which triggers the
reporting obligation.
4.4 Nuisance. Tenant shall conduct its business and shall use its best
efforts to control its officers, managers, agents, employees, invitees and
visitors in such manner as not to create any nuisance, or interfere with any
other tenant of the Building or with Landlord in its operation of the Project.
4.5 Rules of the Building. Tenant and its officers, managers, employees,
agents, visitors, contractors, assigns and licensees shall comply with the Rules
and Regulations of the Project attached as Exhibit D, as the same may be
reasonably amended from time to time. Landlord shall use reasonable efforts to
enforce all Rules and Regulations uniformly against all Building tenants.
4.6 Repairs by Tenant. At Tenant's own cost and expense, Tenant shall
repair or replace any damage or injury done to the Project or any part thereof
caused by Tenant or its contractors, subcontractors, officers, managers, agents,
employees, invitees or visitors (other than Landlord or its contractors,
subcontractors, agents, employees, invitees or visitors) to the extent such
damage or injury is not covered by insurance. If Tenant has not undertaken such
repairs or otherwise diligently pursued all actions preparatory to such repairs
within thirty (30) days after notice from Landlord of Tenant's obligation to do
so or if Tenant is not diligently pursuing completion of any repair undertaken
within the thirty (30) day period, Landlord may, at its option, make such
repairs or replacements, and Tenant shall repay to Landlord the cost thereof,
plus an administrative cost of fifteen percent (15%) to Landlord on demand.
4.7 Alterations, Additions, Improvements.
4.7.1 Right to Make Alterations. Tenant shall not make any
alterations, additions or improvements to the Premises without the prior written
consent of Landlord, except for Tenant's Work as described in Exhibit D and the
installation of unattached, moveable trade fixtures which may be installed
without drilling, cutting or otherwise defacing the Premises, and any other work
which does not exceed a cost of $20,000.00 per job or an aggregate cost of
$20,000.00 in any twelve (12) month period and which does not impact the
Building exterior, structural components, Building equipment or systems, alter
the appearance of the Premises as seen from the Building or elevator lobby, or
significantly impact the appearance of any public areas within the Premises. Any
Work which is divided into more than one phase for the purposes of avoiding the
$20,000.00 limit herein specified shall be deemed to be aggregated with the
other phases, regardless of the time period which separates the phases. In each
instance where Landlord's approval is required hereunder, Tenant shall reimburse
Landlord for all reasonable out of pocket costs and expenses incurred by
Landlord in engaging third parties to conduct such review or any portion
thereof, regardless of whether the request is approved, in accordance with
Section 4.7.3. As further specified in Article 20 below, Tenant is hereby
prohibited
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from creating or placing, or allowing to be created or placed, any lien or
encumbrance upon the Premises or the Building as a result of any alterations,
additions, improvements, equipment and/or fixtures which may be made or
installed upon the Premises. Landlord shall respond to any written request by
Tenant for consent pursuant to this paragraph within seven (7) days of receipt.
Landlord's failure to respond to such request within seven (7) days shall not be
deemed consent. However, if Landlord fails to respond within such seven (7) day
period, Tenant may send a second written request to Landlord, and Landlord's
failure to respond within three (3) days of any such second request delivered in
accordance with Section 8.4 hereof shall be deemed consent if and only if the
second request does not propose any new items (i.e., items not already presented
or not as presented in the first request.)
4.7.2 Agreements; Permits. Tenant shall enter into an agreement for
the performance of such approved Alterations with such contractors and
subcontractors selected by Tenant and approved by Landlord, such approval not to
be unreasonably withheld or delayed. Tenant's contractors shall obtain, on
behalf of Tenant and at Tenant's sole cost and expense, all necessary
governmental permits and approvals for the commencement and completion of such
Alterations and Tenant shall provide true copies of same to Landlord prior to
commencement of such Alterations.
4.7.3 Review by Landlord; Completion. If any Alterations require
Landlord's approval, Tenant shall pay to Landlord, as additional Rent, the
reasonable actual costs incurred by Landlord if third party consultants are
retained to review Tenant's plans. Such payment shall be made within thirty (30)
days after Tenant's receipt of invoices from Landlord, or at Landlord's option,
prior to the commencement of the Alteration. All Alterations shall be performed:
(i) in accordance with the approved plans, specifications and working drawings;
(ii) lien-free and in a good and workmanlike manner; (iii) in compliance with
all laws, ordinances, rules and regulations of all Governmental Authorities; and
(iv) in such a manner so as not to materially interfere with the use or
occupancy of the Building by any other tenant in the Building or its employees
or invitees, nor impose any additional expenses upon, nor delay Landlord in, the
maintenance and operation of the Building, nor endanger the health or safety of
any party in the Building.
4.7.4 Compliance With Laws. All work and materials installed in the
Premises by Tenant or at Tenant's request shall comply with all Rules and
Regulations of the Project, all insurance requirements, and with all laws,
ordinances, rules and regulations of all Governmental Authorities. Tenant agrees
to hold Landlord forever harmless from any and all claims and liabilities of
every kind and description which may arise out of or be connected in any way
with Alterations to the extent such claims and liabilities are not covered by
insurance, including Landlord's attorneys fees.
4.7.5 Insurance Requirements. In the event Tenant shall employ any
contractor to do any work in the Premises, Tenant shall provide Landlord with
certificates naming Landlord and such other parties as Landlord may designate as
additional insured(s) under policies of builder's risk and general liability
insurance in amounts and with insurers reasonably satisfactory to Landlord.
Tenant shall also provide evidence of satisfactory worker's compensation
coverage in accordance with statutory requirements.
4.7.6 Lien Waivers; Liens. Upon completion of such Alterations,
Tenant shall arrange to have its contractor deliver to Landlord a lien waiver
sufficient to assure Landlord that no statutory lien could be filed against the
Building relating to such Alterations. Notwithstanding the foregoing, if any
statutory lien shall be filed against the Premises or the Project purporting to
be for labor or materials furnished or to be furnished at the request of Tenant,
then Tenant shall at its expense cause such lien to be discharged by payment, by
posting of a cash or surety bond reasonably satisfactory to Landlord or by other
assurances reasonably satisfactory to Landlord, within fifteen (15) days after
Tenant's receipt of actual notice of the filing thereof. If Tenant shall fail to
take such action within such fifteen (15) day period, upon written notice to
Tenant, Landlord may cause such lien to be discharged by payment, bond or
otherwise. Tenant shall indemnify and hold harmless Landlord against any and all
claims, costs, damages, liabilities and expenses (including attorneys' fees)
incurred by Landlord by reason of any such lien or its discharge, and all such
sums properly paid by Landlord as permitted in this Section 4.7 shall be deemed
to be Additional Rent due and payable upon demand. No part of this Lease shall
be deemed or construed in any way as constituting the consent of or request by
Landlord to any contractor, subcontractor, laborer or materialman for the
performance of any labor or the furnishing of any materials to the Premises or
the Project, or any part thereof, or against the estates of Landlord or Tenant.
4.8 Entry for Repairs and Inspection. Tenant shall permit Landlord or
Landlord's agents or representatives to enter into and upon any part of the
Premises at all reasonable hours without notice (oral or written) to Tenant to
inspect same, make repairs, alterations or additions thereto in accordance with
the terms of this Lease or to exhibit the Premises (a) upon reasonable advance
notice, to prospective tenants during the last six (6) months of the Lease Term;
or (b) upon reasonable advance notice, to prospective purchasers or to others,
or for other reasonable purposes. If Landlord's access is for the purposes of
exhibiting the Premises to prospective tenants or purchasers, Landlord shall
provide Tenant with the opportunity to accompany Landlord's agents during such
exhibition. In the
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event of emergencies, Landlord shall use commercially reasonable efforts to
provide Tenant notice (oral or written) thereof prior to entering the Premises.
Except as otherwise expressly provided in this Lease, Tenant shall not be
entitled to any abatement or reduction of Rent or any other sums due under this
Lease by reason of such access afforded to Landlord. if representatives of
Tenant shall not be present to open and permit entry into the Premises at any
time when such entry by Landlord is necessary or permitted hereunder, Landlord,
its employees, contractors and agents may enter by means of a master key or key
card (or forcibly in the event of an emergency) without such entry constituting
an eviction of Tenant or termination of this Lease.
4.9 Assignment or Sublease.
4.9.1 Rights of Assignment and Sublease. Except with respect to an
assignment to a Tenant Affiliate as hereinafter provided, which shall not
require Landlord's consent, and except with prior written notice of at least ten
(10) business days and the written consent of Landlord, which consent Landlord
shall not unreasonably or arbitrarily withhold, condition or delay, Tenant shall
not voluntarily (i) assign or in any manner transfer this Lease or any estate or
interest therein, (ii) permit any assignment of this Lease or any estate or
interest therein by operation of law or otherwise, (iii) sublet the Premises or
any part thereof, (iv) grant any license, concession or other right of occupancy
of any portion of the Premises other than for services which are incidental to
office work (e.g., copying, vending machines, etc.), or (v) permit the use of
the Premises by any parties other than Tenant, its managers, agents, employees,
officers, licensees or invitees. If Tenant is a corporation, then any transfer
of the Lease from Tenant by merger, consolidation or dissolution or any change
in ownership or power to vote a majority of the voting stock in Tenant
outstanding on the date of this Lease shall not constitute an assignment for
purposes of this Section 4.9. If Tenant is a general or limited partnership, the
transfer of any partnership interest, or a change in the constitution of the
partnership by death, withdrawal or retirement of a partner, or interests
constituting a majority or the reallocation of partnership interests, in each
case provided that the partnership remains in existence, shall not constitute an
assignment for the purposes of this Section 4.9. Tenant shall not mortgage,
pledge or otherwise encumber its interest in this Lease or in the Premises.
Consent by Landlord to one or more assignments or sublettings shall not be a
waiver of Landlord's rights as to any subsequent assignments and sublettings.
Assignment of this Lease or subletting of all or any part of the Premises to an
affiliate or subsidiary of Tenant (a "Tenant Affiliate") will require that at
least ten (10) business days notice, as hereinafter described, be given to
Landlord, but consent or approval of Landlord shall not be required.
4.9.2 Matters Affecting Transfer. Any approved transfer shall be
expressly subject to the terms and conditions of this Lease. In the event of an
assignment or subletting, Tenant and any guarantors under this Lease shall
remain fully responsible and liable for the payment of Rent and for compliance
with all of Tenant's other obligations under this Lease and any guaranty
delivered under this Lease shall remain in effect. If an event of default occurs
following any approved transfer, Landlord, in addition to any other available
remedies, may collect directly from Tenant's assignee or sublessee all rents
becoming due to Tenant and apply such amount against any sums due to Landlord by
Tenant. Tenant authorizes and directs any assignee or sublessee to pay rent
directly to Landlord upon receipt of notice of default from Landlord. No direct
collection by Landlord from any assignee or sublessee shall constitute a
novation or a release of Tenant or any guarantor from the further performance of
its remaining obligations under this Lease, nor shall receipt by Landlord of
Rent from any assignee, sublessee or occupant of the Premises be a waiver of the
covenant in this Lease prohibiting assignment and subletting. If such default
occurs as set forth in this Section 4.9.2, Landlord is authorized and empowered,
on behalf of Tenant, to endorse the name of Tenant upon any check, draft or
other instrument payable to Tenant evidencing payment of Rent, or any part
thereof, and to receive and apply the proceeds as provided above.
4.9.3 Consent to Assignment or Sublease. If Tenant requests
Landlord's consent to an assignment of this Lease or subletting of all or a part
of the Premises, Tenant shall submit to Landlord, in writing, (i) the name of
the proposed assignee or sublessee, (ii) current financial statements, if any,
available to Tenant disclosing the financial condition of the proposed assignee
or subtenant, (iii) the nature of the business of the proposed assignee or
sublessee, and its proposed use of the Premises (any assignment or subletting
being subject to restrictions on use contained in this Lease or in other leases
of space served by the same elevator bank in the Building as the Premises,
violation of such restrictions by the proposed assignee or sublessee
constituting absolute grounds for Landlord's denial of the requested assignment
or subletting, such grounds not being the exclusive grounds for denial under
clause (iii)), and (iv) the proposed commencement date of the assignment or
subletting, together with a copy of the proposed assignment or sublease. Within
fifteen (15) days after its receipt of such notice, Landlord shall either
approve or disapprove such proposed assignment in writing. Landlord's failure to
notify Tenant within such fifteen (15) day period shall be deemed a denial of
such proposal. In the event of (a) any proposed assignment; (b) any proposed
sublease to an existing tenant of the Building; or (c) any proposed sublease
which is not a Minor Sublet as defined in this Lease, Landlord, at its option
and at its sole discretion, shall have the right to cancel this Lease in the
event of an assignment or sublease of the entire Premises or to terminate this
Lease with respect to that portion of the Premises proposed for subletting, if
less than the entire Premises, and to lease
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the Premises or any portion of the Premises to be assigned or sublet to the
proposed assignee or sublessee under the terms of its existing lease with
Landlord. Provided, however, that prior to exercising its right to terminate,
Landlord shall provide Tenant with ten (10) days prior written notice of its
intent to so terminate and Tenant shall have the right and opportunity to avoid
termination by withdrawing its request within such ten (10) day period. Landlord
reserves the right to withhold consent to any proposed assignment or sublease to
any third party other than a Tenant Affiliate or a Minor Sublet if the
creditworthiness of such third party is not comparable to Tenant's
creditworthiness at the time this Lease was executed.
4.9.4 Additional Limitations Relative to Assignment and Subletting.
Notwithstanding anything in this Lease to the contrary Tenant further agrees
that any assignment or sublet shall be subject to the following additional
limitations: (i) in no event may Tenant assign this Lease or sublet all or any
portion of the Premises to an existing tenant of the Building or of the
NationsBank Corporate Center, or any subtenant or assignee of such existing
tenant; (ii) in no event shall the proposed subtenant or assignee be a person or
entity with whom Landlord or its agent is negotiating and to or from whom
Landlord, or its agent, has given or received any written proposal within the
immediately preceding six (6) months period regarding a lease of space in the
Building or in the NationsBank Corporate Center; and (iii) Tenant shall not
publicly advertise the rate for which Tenant is willing to sublet the space; and
all public advertisements of the assignment of the Lease or sublet of the
Premises, or any portion thereof, shall be subject to prior approval in writing
by Landlord, such approval not to be unreasonably withheld or delayed. Said
public advertisements shall include, but not be limited to, the placement or
display of any signs or lettering on the exterior of the Premises, or on the
glass or any window or door of the Premises, or in the interior of the Premises
if it is visible from the exterior.
4.9.5 Effect of Assignment or Sublease. If Landlord consents to any
subletting by Tenant and subsequently any rents received by Tenant under such
sublease are in excess of the Rent payable by Tenant under this Lease, or any
additional consideration is paid to Tenant by the assignee under the assignment,
then Landlord shall be entitled to retain such excess, less the cost to Tenant,
amortized without interest over the primary term of the sublease (which term
shall not exceed the primary term of the Lease.) Cost to Tenant as referenced in
the immediately preceding sentence shall include only the reasonable, actual
cost of subtenant upfit and brokerage commissions incurred by Tenant. Landlord
shall be entitled to receive copies of paid invoices supporting such costs and
to demand a full accounting.
4.9.6 Assumption by Assignee. Each permitted assignee shall assume,
and be deemed to have assumed, this Lease and be and remain liable jointly and
severally with Tenant for all payments and for the due performance of all its
terms, covenants and conditions. No approved assignment shall be binding upon
Landlord unless Landlord shall receive an instrument in recordable form
containing a covenant of assumption by the assignee, but the failure or refusal
of an assignee to execute the same shall not release it from its liability as
set forth herein. Tenant agrees to pay Landlord's reasonable counsel fees not to
exceed One Thousand and No/100 Dollars ($1,000) per sublease or assignment in
connection with the review and approval of any proposed assignment or
subletting. In the event that the proposed assignee or sublessee is an existing
tenant of the Building, Landlord, at its option and its sole discretion, shall
have the right to cancel this Lease and lease the Premises or any portion of the
Premises to be assigned or sublet to the proposed assignee or sublessee under
the terms of its existing lease with Landlord.
4.9.7 Termination of Rights. Except with respect to (a) an
assignment or a sublet to a Tenant Affiliate as provided in Section 4.9.1; or to
(b) an entity resulting from merger or acquisition of Tenant, but only if the
resulting entity shall have equal or greater financial strength as Tenant has on
the date of execution of this Lease, all expansion rights, rights of first
refusal, and renewal options, if any, granted to Tenant under this Lease and all
building naming rights of Tenant pursuant to Section 8.3, shall terminate
effective immediately upon assignment or sublet of this Lease or any portion
thereof, except for a Minor Sublet.
4.10 Subordination to Mortgage. Within a reasonable time after the
delivery of this Lease by Tenant to Landlord, Landlord shall provide to Tenant
an executed nondisturbance and attornment agreement from all lenders having an
interest in all or any portion of the Project as beneficiaries of any deeds of
trust on record as of the date of delivery of such Lease and from NationsBank
Corporation as Master Lessee. Should any such lender or beneficiary reasonably
condition such nondisturbance and attornment on an amendment to any provision(s)
of this Lease which do not conform to the preapproved form of Office Lease for
the Building, Tenant shall cooperate fully with Landlord in providing such
documentation as shall be reasonably required in order to procure the
nondisturbance and attornment. Subject to the condition precedent that Landlord
provide to Tenant a nondisturbance agreement in favor of Tenant from any ground
lessor, mortgagee, trustee or beneficiary, and subject to the consent of the
mortgagee, trustee or beneficiary under any prior mortgage or deed of trust
encumbering the Building, this Lease shall be subject and subordinate to any
mortgage or deed of trust which may now or hereafter encumber the Building and
to all renewals, modifications, consolidations, replacements and extensions
thereof. In confirmation of such subordination, however, Tenant shall
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at Landlord's request execute and deliver promptly any appropriate certificate
or instrument that Landlord may request, including the Subordination,
Nondisturbance and Attornment Agreement with such changes as any mortgagee,
trustee or the beneficiary under any mortgage or deed of trust encumbering the
Building may reasonably request. In the event of the enforcement by the
mortgagee, trustee or the beneficiary under any such mortgage or deed of trust
of the remedies provided by law or by such mortgage or deed of trust, Tenant
will automatically become the tenant of the new owner under all the terms of
this Lease. However, the new owner shall not be bound by (i) any payment of Rent
for more than one (1) month in advance except prepayments of Expenses pursuant
to any budget provided by Landlord to Tenant with respect thereto and
prepayments in the nature of security for the performance by Tenant of its
obligations under this Lease, or (ii) any amendment or modification of this
Lease made by Landlord and Tenant, which modification or amendment is made
without the prior written consent of the new owner or the mortgagee, trustee or
beneficiary through whom the owner derived its interest and the new owner shall
not be liable for any actions, omissions or obligations of any prior landlord,
including Landlord which are to be performed after the Commencement Date. Tenant
shall execute and deliver any instrument or instruments confirming the
attornment described above in such form as Landlord may request.
4.11 Estoppel Certificate. Landlord and Tenant shall, at any time and
from time to time, within ten (10) days following receipt of written request
from the other, execute, acknowledge and deliver a written statement certifying,
if true, that this Lease is in full force and effect and unmodified (or, if
modified, stating the nature of such modification), certifying the date to which
Rent has been paid, certifying whether or not, to the best knowledge of either
party, there are any uncured defaults by the other or specifying such defaults
if any are claimed, and certifying such other matters as may be reasonably
requested. Any such statement may be relied upon by a prospective purchaser or
mortgagee of all or any part of the Building or a prospective lender or acquirer
of Tenant, as the case may be. Failure by either party to deliver such statement
within said ten (10) day period shall constitute such party's certification that
this Lease is in full force and effect and unmodified, and that there are no
uncured defaults by the other.
4.12 Defaults by Landlord.
4.12.1 Landlord's Default. Breach of any covenant or agreement or
undertaking to be performed by Landlord under this Lease shall constitute a
default by Landlord hereunder. Notwithstanding the foregoing, Landlord shall not
be in default hereunder with respect to: (i) any obligation of Landlord to pay
money to Tenant hereunder unless Landlord has failed to pay such money to Tenant
within the applicable time period specified herein, and such failure continues
for a period of thirty (30) days after written notice from Tenant to Landlord;
and (ii) any other obligation of Landlord under this Lease, unless Landlord
fails to perform the obligation within thirty (30) days after Tenant has
delivered written notice thereof to Landlord; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
reasonably required for its performance, then Landlord shall not be in default
if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion. Said thirty (30) day
period shall be extended by the period of time during which Landlord is actually
prevented from performing such obligation as a result of Tenant delays or Force
Majeure delays, provided that Landlord is at all times diligently prosecuting
such performance to completion.
V.
INSURANCE
5.1 Casualty Insurance. During the Term, Landlord shall insure the
Building and the Project against loss or damage by fire, or other insurable
hazards and contingencies through all risk insurance (which sometimes may be
referenced in the insurance industry as special cause of loss insurance),
including fire and extended coverage, in amounts, coverages and with deductibles
as are commercially reasonable and as are in effect for Comparable Buildings.
Landlord shall not be obligated to insure any furniture, equipment, machinery,
goods or supplies which Tenant may bring or obtain upon the Premises or any
leasehold improvements which exceed in value, or quantity the Building standards
for doors, lighting, partition walls and floor covering which Tenant may
construct. If the premiums for any casualty insurance exceed the standard rates
because Tenant's operations result in increased premiums, then Tenant shall,
promptly upon receipt of appropriate invoices, reimburse Landlord for same.
Tenant shall maintain at its expense, in an amount equal to full replacement
cost, fire and extended coverage insurance on all leasehold improvements and on
all of its personal property, including removable trade fixtures, located in the
Premises plus such additional insurance as may be required to meet Tenant's
obligations under Section 5.2.2.
5.2 Liability Insurance.
5.2.1 Landlord's Obligation. During the Term, Landlord shall obtain
and keep in force comprehensive general liability insurance in amounts,
coverages and with deductibles as are
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commercially reasonable and as are in effect for Comparable Buildings (but not
less than Three Million Dollars ($3,000,000.00) combined single limit for bodily
injury and property damage).
5.2.2 Tenant's Obligation. During the Term, Tenant shall procure,
and shall maintain, at Tenant's sole cost and expense, general public liability
insurance against claims for personal and bodily injury, death or property
damage occurring upon, in or about the Premises with carriers and in amounts
reasonably satisfactory to Landlord (but not less than Three Million Dollars
($3,000,000.00) combined single limit for bodily injury and property damage).
5.3 Insurance Standards; Waiver of Subrogation.
5.3.1 All such policies and renewals thereof as are required in
Sections 5.1 through 5.2 shall name Landlord and Tenant as additional insureds.
All policies of insurance shall provide (i) that no material change or
cancellation of said policies shall be made without thirty (30) days' prior
written notice to Landlord and Tenant, and (ii) that the insurance company
issuing the same shall have waived any right of subrogation against Landlord or
Tenant. All policies of insurance which are secured by Landlord and Tenant as
required by this Lease shall include appropriate deductible amounts so that
insurance premiums therefor are commercially reasonable. Before Tenant's initial
entry into the Premises and thereafter at least thirty (30) days prior to the
expiration dates of said policy or policies, both Landlord and Tenant shall
provide each to the other copies of policies or certificates of insurance
evidencing all coverages required of Landlord or Tenant or either of them by
this Lease. Al1 the insurance required under this Lease shall be primary and
non-contributory, issued by companies which are rated at least A/X in Best's
Insurance Reports and authorized to do business in North Carolina. Insurance
requirements may be reasonably increased from time to time by Landlord in order
to protect its interest.
5.3.2 Neither Landlord nor Tenant shall be liable to the other or to
any insurance company (by way of subrogation or otherwise) insuring the other
party for any loss or damage to the Premises, the Building or other tangible
property of Landlord or Tenant, or any resulting loss of income, or losses under
worker's compensation laws and benefits, even though such loss or damage might
have been occasioned by the negligence of such party, its agents, employees,
invitees or contractors, if and to the extent that any such loss or damage is
required by this Lease to be covered by insurance benefiting the party suffering
such loss or damage or was covered by insurance pursuant to this Lease and
proceeds from insurance are collectible.
5.4 Other Tenants; Parking Garage. Landlord shall exercise commercially
reasonable efforts to assure that other tenants in the Building and the operator
of the Parking Garage will carry comprehensive general liability insurance at
commercially reasonable levels.
5.5 Indemnity for Insurance Coverage. Because the Landlord is required
to maintain casualty insurance pursuant to this Lease, and Tenant compensates
Landlord for such insurance as part of Tenant's Expenses, and because of the
existence of waivers of subrogation set forth in this Lease, Landlord shall
indemnify, defend and hold Tenant harmless from and against any indemnified
claims resulting in or arising from any damage to any property outside of the
Premises to the extent such indemnified claims are covered by such insurance, or
would have been covered by such insurance had Landlord obtained the same as
required by this Lease, even if resulting from the negligent acts or omissions
of Tenant or Tenant's agents, contractors, employees, subtenants, invitees or
licensees together with reasonable attorney's fees incurred in connection
therewith. Similarly, since Tenant must carry casualty insurance pursuant to
the Lease to cover its personal property within the Premises, Tenant shall
indemnify, defend and hold Landlord harmless from and against any indemnified
claims resulting in or arising from any damage to any property inside the
Premises, to the extent such indemnified claims are covered by such insurance,
or would have been covered by such insurance had Tenant obtained the same as
required under this Lease, even if resulting from the negligent acts or
omissions of Landlord or Landlord's agents, contractors, employees, assignees,
invitees or licensees together with reasonable attorney's fees incurred in
connection therewith.
5.6 No Release. Tenant's and Landlord's indemnification obligations in
this section shall survive the expiration or earlier termination of this Lease.
Tenant's and Landlord's covenants, agreements and indemnity obligations in this
Lease are not intended to and shall not relieve any insurance carrier of its
obligations under policies required to be carried by Landlord or Tenant,
respectively, pursuant to the provisions of this Lease.
5.7 Casualty Damage. If the Premises shall be damaged by fire or other
casualty. Tenant shall give prompt written notice to Landlord. If the Building
or any part thereof or access thereto shall be so damaged or destroyed by fire
or other casualty that substantial alteration or reconstruction of the Building
and access thereto shall, in the good faith and reasonable determination of
Landlord's Architect, be required with such repair taking longer than one
hundred eighty (180) days (whether or not the Premises shall have been damaged
by such casualty), or in the event any mortgagee should require that the
insurance proceeds be applied to the payment of the mortgage debt, or in the
event of any material uninsured loss to the Building, or in the event of any
substantial damage to the Buildinq
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within the final two (2) years of the Term, Landlord may, at its option,
terminate the Lease by notifying Tenant in writing within thirty (30) days after
the date of such damage. In case the Premises shall be so damaged by fire or
other casualty that substantial alteration or reconstruction of the Building
shall, in the mutual good faith and reasonable determination of Landlord's
Architect, be required, Tenant shall have the right to terminate this Lease upon
thirty (30) days prior written notice to Landlord if Landlord (i) has not
completed, (ii) cannot complete or (iii) in the opinion of Landlord's Architect,
cannot reasonably be expected to complete substantially the making of any
required repairs and restorations within one hundred eighty (180) days from the
date of such damage or destruction. In addition, if any such damage or
destruction shall occur during the last two (2) Lease Years of the Term, Tenant,
at its option, may terminate this Lease by giving prior written notice to
Landlord within thirty (30) days after the events specified in clauses (i),
(ii), or (iii) above occur or become determinable. Rent shall abate and be
prorated as of the date such damage occurs and during any period of repair and
restoration to the extent the Premises or any material part thereof are rendered
unusable or access thereto is denied Tenant. If Landlord or Tenant does not thus
elect to terminate this Lease, Landlord shall commence and diligently proceed to
restore and repair the Building or the Project and the Premises to substantially
the same condition in which it was immediately prior to the happening of the
casualty except that Landlord's obligation to restore shall not exceed the scope
of Landlord's Work and the applicable Construction Allowance, both adjusted in
accordance with the Construction Cost Index published by Means for the Charlotte
metropolitan area, in originally constructing the Building. When the Landlord's
Work with respect to such reconstruction or restoration has been completed,
Landlord and Tenant shall complete the restoration of the Premises, including
the reconstruction of all leasehold improvements and the restoration of Tenant's
furniture and equipment. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from such damage or repair, except that Landlord shall allow Tenant a fair
diminution of Rent during the time and to the extent the Premises or any
material portion thereof are unfit for occupancy. If the casualty results from
the fault or gross negligence of Tenant or any of Tenant's agents, employees or
invitees, Rent shall not be diminished during the repair of such damage and
Tenant shall be liable to Landlord for the cost of the repair and restoration of
the Building to the extent such cost and expense is not covered by insurance
proceeds.
5.8 Additional Rights Regarding Restoration. If neither Tenant nor
Landlord has elected or has the right to terminate this Lease pursuant to
Section 5.7 above, and if Landlord shall not have substantially repaired or
restored the Project and Premises and access thereto (to the extent such items
are required to be repaired pursuant to Section 5.7) within the later of: (i)
the applicable time periods set forth in Section 5.7 after such damage or
destruction (which time periods shall be extended by the amount of any
construction delays caused by Force Majeure and/or Tenant delays); or (ii)
thirty (30) days after the time period that the parties mutually estimate would
be required to substantially complete such repairs pursuant to Section 5.7 above
(which time periods shall be extended by the amount of any construction delays
caused by Force Majeure and/or Tenant delays), then Tenant shall again have the
right to terminate this Lease by delivering written notice thereof to Landlord
within thirty (30) days thereafter, which termination shall be effective as of
the date Landlord receives such notice. However, such termination notice shall
have no force or effect if Landlord performs such substantial repairs at any
time within thirty (30) days after Landlord's receipt of Tenant's termination
notice. For purposes of this section, the Premises shall be deemed
"substantially" repaired or restored if the only items remaining to be repaired
or restored are "punch-list" items which Landlord shall promptly repair
thereafter. Unless Tenant or Landlord elects to terminate this Lease pursuant to
this Section 5.8, this Lease shall continue in full force and effect, except for
the abatement of Rent to the extent provided in Section 5.7 in this Lease.
5.9 Application of Insurance Proceeds. If this Lease is terminated by
reason of damage or destruction! each party shall be entitled to retain the
insurance proceeds awarded to such party by that party's insurer. If this Lease
is not terminated by reason of any such damage or destruction, then all
insurance proceeds payable by reason of damage or destruction to the Premises,
Tenant's Work or Alterations or to the Project or access thereto shall be
disbursed to the party making such repairs in a manner reasonably satisfactory
to Landlord, Tenant, any mortgagee or beneficiary under any mortgage or deed of
trust encumbering the Project, the Building, the Building or Premises for use in
reconstruction of the Project, Building, Building or Premises, or access
thereto. Upon completion of the repairs or reconstruction of such building, any
remaining insurance proceeds shall be paid to the parties whose policies
provided such proceeds. Except as otherwise expressly set forth in this Article
V, Landlord's obligations to repair or reconstruct under this section shall in
no event be dependent or contingent upon whether adequate insurance proceeds are
made available under the policies of insurance that Landlord is required to
maintain under this Lease, or when or how the damage or destruction occurs;
provided, however, that any cost not covered by Landlord's or Tenant's insurance
proceeds or by the insurance coverage Landlord or Tenant is obligated to
maintain under this Lease shall be borne by Tenant if caused by the gross
negligence or willful misconduct of Tenant.
5.10 Self-Insurance. Notwithstanding anything herein to the contrary, so
long as the Landlord is NationsBank, N.A., its affiliated entities, or a
successor to substantially all the assets of NationsBank, N.A., Landlord
reserves the right for itself, to self-insure against any risk required herein
to be insured or otherwise assumed by Landlord.
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5.11 Other Insurance. Landlord shall obtain (i) Worker's Compensation
and Employer's Liability insurance as required by law; and (ii) additional
rental income insurance ("Additional Rental Income Insurance") as an endorsement
to Landlord's all risk policy.
VI.
CONDEMNATION
6.1 Effect of Condemnation. If the whole or substantially the whole of
the Premises or access thereto should be taken for any public or quasi-public
use, under any statute or by right of eminent domain or otherwise or should
title to the Building or access thereto be taken or be sold by private purchase
in lieu of condemnation, then this Lease shall terminate as of (i) the date when
physical possession of the Premises is taken or access thereto is substantially
impaired-by the condemning authority; or (ii) the date that the Premises, or
access thereto is adversely affected by the taking and Tenant's use or enjoyment
of the Premises is substantially impaired. If less than the whole Building or
Premises is thus taken or sold, or in the event of a temporary taking of less
than two hundred seventy (270) days, Landlord (whether or not the Premises are
affected thereby) may not terminate this Lease but Tenant's Rent shall be abated
during the period of such partial taking and Landlord shall proceed with due
diligence to make all necessary repairs and alterations. If this Lease is not so
terminated upon any such taking or sale, Rent shall be reduced by an equitable
amount. Landlord shall restore the Building and the Premises to substantially
their former condition, and except to the extent Landlord is required to insure
Tenant's improvements to the Premises, such work shall not exceed the scope of
Landlord's Work and the applicable Construction Allowance, both adjusted in
accordance with the Construction Cost Index published by Means for the Charlotte
metropolitan area, in originally constructing the Building and the Premises.
6.2 Proceedings in Condemnation. Landlord and Tenant shall use their
best commercially practicable efforts to have the court in any proceeding in
connection with any taking pursuant to Section 6.1 allocate any award in the
manner specified in this Section 6.2. Tenant shall have the right to participate
in any such proceeding and to request that the court allocate any award in the
manner specified in this Section 6.2. Landlord shall be entitled to receive the
entire amount of any compensation awarded or paid upon any taking described in
or governed by Section 6.1, except that Tenant shall be entitled to the
following portions of such compensation or award: (i) all costs of relocating
Tenant's business (severance damages) and (ii) the value of Tenant's trade
fixtures taken and the portion of tenant improvements paid for by Tenant.
6.3 Notice of Execution. Immediately upon service of process or other
notice upon either party in connection with any appropriation, taking or
temporary taking relating to the Project, the Building, the Premises, or access
thereto, such party shall give written notice thereof to the other. Each party
agrees to execute and deliver to the other all instruments that may be required
to effectuate the provisions of this section. Each party reserves the right to
appear in any proceedings in connection with any taking or temporary taking.
VII.
TENANT'S DEFAULT
7.1 Default by Tenant. Each of the following events shall be deemed to
be an event of default by Tenant under this Lease, if such event continues for a
period of five (5) days after written notice thereof is delivered to Tenant (or
such longer cure period as may be specifically permitted by the applicable
subparagraph); provided, however, that no notice need be provided to Tenant if
Tenant has received a notice of default or noncompliance more than twice in the
immediately preceding twelve (12) month period:
(a) If Tenant shall fail (i) to pay any installment of Rent or any
other amount payable to Landlord hereunder as and when herein
provided, (ii) to obtain the insurance coverage required
hereunder or (iii) to comply with the provisions of Section 4.3
regarding Hazardous Materials.
(b) If Tenant or any Guarantor of Tenant's obligations under this
Lease shall become insolvent, or shall make a transfer in fraud
of creditors, or shall make an assignment for the benefit of
creditors.
(c) If Tenant, Tenant's Guarantor or any permitted sublessee or
assignee, shall (i) make an assignment for the benefit of
creditors, (ii) file or acquiesce in a petition in any court
(whether or not pursuant to any statute of the United States
or of any State) in any bankruptcy, reorganization, composition,
extension, arrangement or insolvency proceedings, (iii) make an
application in
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any such proceedings for or acquiesce in the appointment of a
trustee, receiver or similar officer for it or all or any
portion of its property, or (iv) have been a "debtor" in any
voluntary or involuntary bankruptcy proceeding on the date of
execution of this Lease without having disclosed the same to
Landlord in writing prior to such date.
(d) If any petition shall be filed against Tenant, Tenant's
Guarantor or any permitted sublessee or assignee (whether or
not pursuant to any statute of the United States or any State)
in any bankruptcy, reorganization, composition, extension,
arrangement or insolvency proceedings and such proceedings shall
not be dismissed, discontinued, or vacated within sixty (60)
days after such petition is filed.
(e) If in any proceedings, pursuant to the application of any party
other than Tenant or Tenant's Guarantor in which neither of them
acquiesce, a receiver, trustee or other similar officer shall be
appointed for Tenant or Tenant's Guarantor or for all or any
portion of the property of either and such receivership or
trusteeship shall not be set aside within sixty (60) days after
such appointment.
(f) If a receiver or Trustee shall be appointed for all of the
Premises or for all or substantially all of the assets of Tenant
or any Guarantor of Tenant's obligations under this Lease.
(g) Intentionally omitted.
(h) If Tenant shall create or suffer the creation of a lien upon
the Premises in violation of the provisions of Section 4.7.6
of this Lease.
(i) If Tenant shall refuse to take possession of the Premises
when Ready for Occupancy.
(j) If Tenant shall fail to commence promptly Tenant's Work in
the Premises as required in Section 2.1.1 hereof, or shall fail
to prosecute the same diligently to completion in accordance
with such Section 2.1.1.
(k) If Tenant shall be a corporation and shall fail to remain in
good standing in the state in which the Building is located or
the state of its incorporation, or shall, if a foreign
corporation, fail to qualify to transact business and/or
maintain a duly registered agent in the state in which the
Building is located.
(1) If any execution, levy, attachment, or other process of law
shall occur upon Tenant's fixtures or interest in the Premises.
(m) If Tenant shall fail to deliver an estoppel certificate to
Landlord within ten (10) days after Landlord's request therefor,
pursuant to the requirements of Section 4.1 1 hereof.
(n) If Tenant shall at any time be in breach or default in the
observance or performance of any of the other covenants and/or
agreements required to be performed and/or observed by Tenant
hereunder.
Provided, however, that if any default by Tenant for which a
time to cure is not specifically addressed in the preceding subparagraphs (b)
through (n), which default is curable but shall reasonably require more than ten
(10) days to cure, Tenant shall be afforded an additional time period to effect
such cure, not to exceed thirty (30) days or such additional time as shall be
reasonably required to complete the cure, provided Tenant commences to cure the
default within the initial ten (10) day period and diligently prosecutes the
same to completion.
Subparagraphs (c) and (d) above notwithstanding, bankruptcy,
receivership or other voluntary or involuntary liquidation or reorganization
proceedings brought by or against a permitted sublessee or assignee (other than
a Tenant Affiliate) shall not constitute a default of Tenant if and so long as
the agreement between Tenant and such permitted sublessee or assignee provides
that such proceedings are a default under the sublease or assignment, and Tenant
takes reasonable steps to enforce such provision of the sublease or assignment.
7.2 Landlord's Remedies. Upon the occurrence of any event of default and
the lapse of any grace or cure periods without cure thereof, Landlord shall have
the option to pursue any one or more of the following remedies upon notice to
Tenant:
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7.2.1 Termination. Terminate this Lease or terminate Tenant's
right to possession, and in either event, accelerate the present value at the
Contract Rate of all obligations owed by Tenant to Landlord under the Lease
together with interest at the Contract Rate from the date of acceleration until
payment and force Tenant to immediately surrender the Premises to Landlord.
Tenant agrees to pay to Landlord on demand the costs which Landlord may suffer
by reason of such termination. Immediately upon any termination Landlord shall
be entitled to recover from Tenant all outstanding and unpaid Rent as of the
date of such termination plus the present value at the Contract Rate of all
future rent due.
7.2.2 Possession. Enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be present, by force if
necessary (to the extent allowed by law), without terminating the Lease or being
liable for prosecution or any claim for damages, and, if Landlord so elects,
relet the Premises on such terms as Landlord may determine shall best mitigate
its damages and receive the rent therefor. Tenant agrees to pay to Landlord on
demand any deficiency that may arise by reason of such reletting.
7.2.3 Entry. Enter upon the Premises, by force if necessary (to the
extent allowed by law), without being liable for prosecution or any claim for
damages, and do whatever Tenant is obligated to do under the terms of this
Lease. Tenant agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in effecting compliance with Tenant's obligations.
7.2.4 Intentionally omitted.
7.3 Remedies Cumulative. Pursuit of any one or more of the remedies
provided in this Lease shall not preclude pursuit of any other remedies provided
hereunder or by law, which shall be cumulative, nor shall pursuit of any remedy
constitute a forfeiture or waiver of any Rent due or of any damages accruing to
Landlord by reason of the breach. Actions to collect amounts due Landlord may be
brought from time to time, on one or more occasions without the necessity of
Landlord's waiting until the expiration of the Term.
7.4 Cure Rights. Landlord may cure, at any time, without notice except
as otherwise herein provided, any default by Tenant under this Lease. Whenever
Landlord so elects, all unrecovered costs and expenses incurred by Landlord in
curing a default, including, without limitation, reasonable attorneys' fees,
together with interest on the amount of costs and expenses so incurred at the
Contract Rate, shall be paid by Tenant to Landlord on demand, and shall be
recoverable as Rent.
7.5 Rights Upon Possession. Upon the occurrence of an uncured event of
default by Tenant and exercise of Landlord's remedies hereunder, Landlord may
make such alterations, repairs, replacements and/or decorations in the Premises
as Landlord, in its commercially reasonable judgment, considers advisable and
necessary for reletting the Premises. Such undertakings shall not operate or be
construed to release Tenant from its liability. Except as may be required to
mitigate damages, Landlord shall in no event be liable in any way whatsoever for
failure in good faith to relet the Premises, or in the event that the Premises
are relet, for failure to collect the rent under such reletting. Subject to
Landlord's obligation to mitigate damages, the failure of Landlord to relet the
Premises or any part or parts thereof shall not release or affect Tenant's
liability for damages. In no event shall Tenant be entitled to any excess rent
obtained by reletting. In determining the amount of loss or damage which
Landlord may suffer by reason of termination of this Lease or the deficiency
arising by reason of any reletting of the Premises, Landlord shall be entitled
to recover, in addition to any other damages elsewhere provided in this Lease,
at law or in equity, such unrecovered reasonable expenses as Landlord may incur
in connection with reletting of the Premises (including, without limitation,
court costs, attorneys' fees and disbursements, brokerage expenses and expenses
for putting and keeping the Premises in good order or for preparing the same for
reletting as herein provided).
7.6 Prevailing Party; Venue. If either party places in the hands of an
attorney the enforcement of this Lease, or any part thereof, or the collection
of any Rent due or to become due hereunder, or recovery of the possession of the
Premises, or files suit upon the same, the nonprevailing (or defaulting) party
shall pay the other party's reasonable attorneys' fees (based upon normal hourly
rates in effect in the Uptown Charlotte area at the time of enforcement) and
court costs. The parties agree that any litigation concerning this Lease may be
brought before the Superior Court of North Carolina and that Mecklenburg County,
North Carolina shall be the proper venue for any such action.
VIII.
MISCELLANEOUS PROVISIONS
8.1 Force Majeure. Whenever a period of time is prescribed for the
taking of any action by Landlord or by Tenant, neither Landlord nor Tenant shall
be liable or responsible for, and there shall be excluded from the computation
of such period of time, any delays due to strikes, fire, earthquakes, floods,
acts of God, governmental regulations, shortages or delay of labor or materials,
war,
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governmental laws, regulations or restrictions, or any other cause whatsoever
beyond the control of Landlord or Tenant, as applicable (all of which are
sometimes referenced collectively in this Agreement as "Force Majeure")
excluding however the financial condition or the unavailability or cost of funds
of either party.
8.2 Sale of the Building. Landlord shall have the right to transfer and
assign, in whole or in part, all its rights and obligations hereunder, and in
the Building and leasehold improvements, and upon the transferee's assumption of
Landlord's obligations hereunder, no further liability or obligations shall
accrue against Landlord. Any and all covenants of Landlord contained in this
Lease shall be binding upon Landlord and its successors only with respect to
breaches occurring during its and their respective ownerships of Landlord's
interest hereunder.
8.3 Name of Building. Landlord agrees that during the Lease Term, for so
long as Tenant remains in possession and continuous occupancy of the Premises
pursuant to the terms of this Lease, and provided that Tenant has not assigned
or sublet all or any portion of the Premises, other than in a Minor Sublet, or
vacated or abandoned more than twenty percent (20%) of the Premises for a period
in excess of six (6) months, and further provided that Tenant is not in default
of this Lease beyond any applicable cure periods, Landlord shall name the
Building the "IJL Financial Center." Landlord and Tenant shall mutually agree
upon signage, which shall be designed by Landlord at Landlord's expense and
subject to Tenant's approval. Exhibit "M" attached hereto depicts the signage
package that has been agreed to between Landlord and Tenant, subject to
Landlord's approval of actual installation and further subject to applicable
governmental codes and regulations. Tenant shall cause the manufacturing of such
approved sign at Tenant's expense in strict compliance with the approved design,
and shall install same in a prominent location at street level on North Tryon
Street, such location to be subject to mutual agreement, and all elements of the
sign's design, location and installation to be subject to applicable
governmental rules, regulations and ordinances. Subject to the sign provisions
set out elsewhere in this Lease, Landlord shall have exclusive control over all
signs, graphics or other wall ornamentation or displays in the entrance lobby to
the Building and in all Common Areas. Under no circumstances shall Landlord have
any obligation to re-name the Building for any reason whatsoever unless Tenant
requests that Landlord recapture the Building naming rights because the name
"Interstate/Johnson Lane" is no longer in usage by Tenant and Landlord has
declined to consent to a change of Building name requested by Tenant, but in
such event, the new name of the Building shall be in the sole discretion of
Landlord. Should Landlord recapture the Building naming rights due to a request
by Tenant, or should Landlord, in its sole and absolute discretion, elect to
consent to a request by Tenant to a name change, Tenant shall bear all costs
associated therewith, including by way of example and not as a limitation, costs
of designing, fabricating and installing new Building signage (which shall be
reasonably comparable in size, type and quality to the Building signage in place
prior to the requested change) and changes in stationery of Landlord, Manager,
and all other affected Building tenants. Provided, further, that Landlord shall
provide a good faith estimate of the cost of such name change and Tenant shall
have ten (10) days from receipt of such estimate to retract its request for a
Landlord recapture of the name.
For so long as the Building Name is the IJL Financial Center, Landlord
shall not permit any Building tenant which does not have premises located on the
ground floor of the Building to have any signage on the exterior of the
Building. Additionally, no tenant except for Tenant or any entity which is owned
or controlled by Landlord, its parent company, affiliates or subsidiaries, shall
have the right to advertise on the Building exterior the name of any company
whose primary business is securities brokerage. However, Landlord may identify
the address of the Building on exterior signage, in addition to identifying the
name "IJL Financial Center."
8.4 Notices. All notices required under this Lease shall be in writing
unless expressly permitted otherwise. Any notice by either party to the other
shall be deemed to be duly given if either personally delivered with written
receipt to the respective addresses set forth below for each party or sent by
first-class mail, postage prepaid, return receipt requested, or by a nationally
recognized overnight courier service addressed as set forth below:
If to Tenant (for any Interstate/Johnson Lane
notice delivered prior Interstate Tower
to the Commencement P.O. Box 1012
Date): Charlotte, North Carolina 28201
Attn: Director of Facilities
If to Tenant (for any Interstate/Johnson Lane
notice delivered after IJL Financial Center
the Commencement Date): 201 N. Tryon Street
Charlotte, North Carolina 28202
Attn: Director of Facilities
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If to Landlord: Real Estate Services
Transamerica Square
401 N. Tryon Street
NC 1-021-06-05
Charlotte, North Carolina 28255
Attn: Headquarters Real Estate Asset Manager
Either party which desires to change the address as set forth above shall do so
by notice to the other party which complies with the requirements of this
Section 8.4.
8.5 No Waiver. Neither Landlord's nor Tenant's failure to enforce or
delay in exercising any of the provisions, rights or remedies in this Lease
shall be a waiver, nor in any way affect the validity of this Lease or any part
hereof, or their respective right thereafter to enforce each and every such
provision, right or remedy. No waiver of any breach of this Lease shall be held
to be a waiver of any other or subsequent breach. The receipt by Landlord of
Rent, or any other payment by or to Tenant at a time when the Rent or the
payment of any other sum due hereunder is in default, shall not be construed as
a waiver of such default. The receipt by Landlord of a lesser amount than the
Rent, or by Landlord or Tenant of any other sum due, shall not be construed to
be other than a payment on account which may be applied in such manner as such
party deems appropriate. Either Landlord or Tenant may accept any such payment
without prejudice to its right to recover the balance due or to pursue any other
remedies. No act or thing done by Landlord or its agents or employees during the
Term, including acceptance of keys or card keys, shall be deemed an acceptance
of a surrender of the Premises, and no agreement to accept such a surrender
shall be valid unless signed by Landlord.
8.6 Commissions. Landlord and Tenant hereby indemnify and hold each
other harmless against any loss, claim, expense or liability with respect to any
commissions or brokerage fees claimed on account of the execution and/or renewal
of this Lease due to any action of the indemnifying party. Landlord hereby
agrees to pay any commissions owed to Broker pursuant to separate agreement
between Landlord and Broker in connection with this Lease; provided, however,
that Broker's right to such commissions shall vest only upon full execution of
this Lease by both parties and no commission shall be due if, for any reason,
the lease transaction contemplated hereunder is not consummated. Landlord
acknowledges that Tenant is represented by Ben Trotter of The Harris Group. Any
commissions owing to Ben Trotter or The Harris Group shall be paid by Broker in
accordance with the terms of a separate agreement between Broker and The Harris
Group and shall not be a separate obligation of Landlord.
8.7 Rights of Light, View or Air. This Lease does not grant any rights
to light, view or air over adjacent property, and any diminution or shutting off
of light, view or air by any structure that may be erected adjacent to the
Building shall not affect this Lease or impose any obligation or liability upon
Landlord.
8.8 Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provisions to persons or circumstances other than those as to which it is
invalid or enforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and shall be enforceable to the extent permitted by
law.
8.9 Recordation. Landlord and Tenant agree not to record this Lease. At
Tenant's sole cost and expense, the parties shall prepare, execute and record a
memorandum hereof which shall include a summary of the following terms of this
Lease: the names and addresses of the parties; the Term rights of first refusal
and options, if any; a description of the Premises; and such easements as may be
required by this Lease.
8.10 Binding Effect. This Lease, including all exhibits attached hereto,
shall be binding upon and shall inure to the benefit of Landlord, its successors
and assigns, and Tenant, its successors, and to the extent assignment and
subletting may be approved by Landlord hereunder, Tenant's assigns and
sublessees. Each individual executing this Lease on behalf of the respective
parties represents and warrants that (s)he is duly authorized to execute and
deliver this Lease on behalf of said party in accordance with the duly adopted
resolution of the Board of Directors of said corporation or in accordance with
the pertinent partnership agreements and that this Lease is binding upon said
party in accordance with its terms.
8.11 Entire Agreement. The following lettered exhibits are attached
hereto and incorporated herein and made a part of this Lease for all purposes:
Exhibit A - Description of the Premises
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Exhibit B - Commencement Date and Construction of the Premises
Schedule 1 Landlord's Work
Schedule 2 Tenant's Work
Schedule 3 Tenant's Plans
Exhibit C - Cleaning Specifications
Exhibit D - Rules and Regulations
Exhibit E - Option to Expand
Exhibit F - Right of First Offer
Exhibit G - Renewal Term
Exhibit H - Services to be Provided by Landlord
Exhibit I - Tenant's Parking Rights and Charges
Exhibit J - Memorandum of Sublease
Exhibit K - Punch List
Exhibit L - Schedule of Controllable and Non-Controllable Expenses
Exhibit M - Signage
This Lease and the attached exhibits set forth all the covenants,
promises, agreements, conditions and understandings between Landlord and Tenant
concerning the Premises. Tenant agrees that Landlord and its agents made no
representations or promises with respect to the Premises, the Building, the
Project or property of which the same are part except as herein expressly set
forth. Tenant shall make no claim on account of any representations, whether
made by any renting agent, broker, officer or other representative of Landlord
or which may be contained in a circular, prospectus or advertisement related to
the Project or otherwise, unless the same is specifically set forth in this
Lease.
8.12 Amendments. Except as expressly provided herein, no subsequent
alteration, amendment, change or addition to this Lease shall be binding upon
Landlord or Tenant unless reduced to writing and signed by them.
8.13 Counterparts. This Lease may be executed in counterparts. Each
fully executed counterpart shall be an original and it shall not be necessary in
making proof of this Lease to produce or account for more than one such
counterpart.
8.14 Governing Law. This Lease is declared to be a North Carolina
contract, and all of the terms hereof shall be governed by, construed and
enforced according to the laws and judicial decisions of the State of North
Carolina.
8.15 Intentionally Omitted.
8.16 Base Building Plans and Specifications. Tenant has reviewed and
accepted Landlord's base Building plans and specifications affecting the
Premises prior to execution of this Lease. Material changes to the applicable
portions of the Premises that adversely affect Tenant's intended use of the
Premises or Tenant's plans and designs for the Premises shall be subject to
Tenant's prior approval, which shall not be unreasonably withheld. Landlord
represents and warrants to Tenant that, as of the Commencement Date, the
Project, to the extent constructed by Landlord or Landlord's contractor, has
been constructed substantially in compliance with the applicable requirements of
the base Building plans reviewed by Tenant pursuant to this Section 8.16 as well
as Tenant's final plans for the Premises and, to the best of Landlord's
knowledge, the Project, to the extent constructed by Landlord or Landlord's
contractor, has been constructed substantially in accordance with all applicable
laws in effect as of the date Landlord received its first Certificate of
Occupancy.
8.17 Move-In. Tenant shall be charged its proportionate share of any
costs for elevator operators if required during Tenant's move-in to the
Building. Tenant will have access to the freight elevators during construction
and move-in.
8.18 Equipment Access. Tenant shall be provided with reasonable access
to the equipment rooms, telephone rooms, condensers and other areas on the
floors of the Premises in which Tenant's equipment may be placed. Tenant agrees
that Tenant shall not be given access to the roof of the Building, except as
provided in Section 8.2.3.
26
<PAGE>
8.19 Limits on Certain Liabilities. Notwithstanding any other provision
of this Lease, neither Landlord nor Tenant nor any partner (including those
holding a partnership interest in Landlord or Tenant), director, officer, agent
or employee of Landlord or Tenant shall be liable for any indemnified claims
caused by or arising from the actions or omissions of other tenants in or about
the Building or Project, or caused by any public work. Tenant specifically
agrees to look solely to Landlord's equity in the Building for the recovery of
any judgment against Landlord and shall not be entitled to deduct the amount of
any such judgment from Rent. Landlord, or if Landlord is a partnership, its
partners, whether general or limited, or if Landlord is a corporation, its
directors, officers or shareholders, shall never be personally liable for any
such judgment. The terms and provisions of this Section 8.19 shall survive the
expiration or earlier termination of this Lease. Provided, however, that
NationsBank, N.A. shall indemnify Tenant against actual losses suffered by
Tenant, but not to exceed Two Million Dollars ($2,000,000.00), due to Tenant's
inability to locate suitable replacement premises, if (a) the Premises are not
delivered to Tenant as provided in Section 2.1.1 hereof within eight (8) months
of the full execution of this Lease; and (b) such failure to deliver is not due
to Tenant's fault or delay or to force majeure; such obligation of NationsBank,
N.A. to survive the termination of the Lease but not to be binding upon to any
lenders or beneficiaries of deeds of trust on the Building.
8.20 Status as Sublease. Both Landlord and Tenant hereby recognize and
acknowledge that Owner owns the Project of which the Building is a part and that
Landlord's interest in the Building is that of a sub-tenant under a master
sublease between Owner and NationsBank Corporation, and this Lease is, in fact,
a sub-sublease, under which Landlord is a sub-sublessor and Tenant is a
sub-sublessee. For purposes of identification and to facilitate the reading and
preparation of the instrument, the parties are referred to as "Landlord" and
"Tenant" and the instrument as "Lease".
Any rights or remedies provided to Tenant under this Lease can be
exercised only against Landlord and Tenant shall have no claim, right or remedy
against Owner or NationsBank Corporation, except for obligations accruing to
Owner or NationsBank Corporation if either such party becomes direct lessor to
Tenant due to cancellation of the master sublease between NationsBank
Corporation and NationsBank, N.A. or due to foreclosure or deed in lieu of
foreclosure, in the manner described in Section 4.10 hereof, after the date of
any such transfer or succession.
8.21 Renewal Option. Subject to the further provisions of this Lease,
Landlord grants to Tenant one option to renew for one consecutive period of five
(5) years on the terms and conditions contained in Exhibit G attached hereto.
8.22 Tenant's Existing Lease. As additional consideration for
Interstate/Johnson Lane, Inc. (hereafter "IJL") entering into this Lease,
NationsBank has agreed to sublease (subject to any approval rights of the owner
of the Interstate Tower Building) from IJL, IJL's existing space of
approximately 85,000 rentable square feet located in the Interstate Tower
Building at 121 West Trade Street in Charlotte, North Carolina for the remaining
term, which will expire on October 14, 2000, at a rate of $10.00 per square foot
per year, inclusive of common area charges, operating expenses, utilities and
taxes and any and all increases in Common Area charges, operating expenses,
utilities and taxes through the end of the remaining Term (i.e., the rate
payable by NationsBank shall not for any reason exceed Ten Dollars ($10.00) per
square foot per year during the remainder of IJL's initial lease term (through
October 14, 2000) at the Interstate Tower Building). Such sublease shall
commence on the date IJL delivers the Interstate Tower Building to NationsBank
in broom clean condition. IJL shall provide at least thirty (30) days prior
written notice of the intended delivery date. NationsBank's rent in the
subleased premises shall commence on the date which is sixty 160) days after the
date IJL delivers the subleased premises. At NationsBank's sole option (subject
to any approval rights of the owner of the Interstate Tower Building),
NationsBank may elect or cause Tenant to elect to exercise any renewal or
expansion rights under IJL's existing lease, but IJL shall have no financial
responsibility to NationsBank for any such extended or expanded lease rights,
and NationsBank agrees to indemnify Tenant against any financial obligations
which might accrue from and after October 14, 2000 based on the exercise of such
renewal rights if exercised on NationsBank's behalf and at NationsBank's
request. If Tenant reaches final agreement with the owner of the Interstate
Tower Building to an early termination, Tenant shall share equally with
NationsBank all buyout fees or similar payments or incentives received by
Tenant.
8.23 Receive-Only Earth Station Dishes. Subject to Landlord's approval
(which approval shall not be unreasonably withheld) of a location on the roof of
the Building or other mutually agreeable location, Landlord and Tenant agree to
enter into a communications facility site agreement for not more than three (3)
receive-only earth station dishes and related equipment, approved by Landlord
(which approval shall not be unreasonably withheld), for Tenant's internal use
only. Tenant shall not install any such dishes or related equipment until such
communications facility site agreement is fully executed by Landlord and Tenant.
As long as such receive-only dishes are used for Tenant's internal purposes only
and do not interfere with Landlord's ability to license or lease space on the
roof of the Building to third parties, there shall be no license fee or rent
payable by Tenant for such dishes and related equipment. Tenant acknowledges
that certain rights to a receive-only microwave dish have
27
<PAGE>
previously been granted to an existing Building tenant, and Tenant's dish must
be installed in such a manner so as to not create noise or interference with the
rights of the existing tenant or the installations previously installed or
currently planned on behalf of NationsBank as Building tenant.
8.24 Survival. The provisions of this Lease shall survive the expiration
or termination of this Lease.
8.25 Drafting. Landlord and Tenant acknowledge that this Lease was
negotiated at arms length and that no presumptions in favor of or against the
drafter shall apply to the interpretation of this Lease.
IN TESTIMONY WHEREOF, the parties, by authority duly given, have
executed this Lease as of the date set forth on the first page of this Lease.
ATTEST: LANDLORD:
By: /s/ ALLISON L. GILLAM NATIONSBANK, NATIONAL ASSOCIATION,
----------------------- a national banking association
its Asst. Secretary
By: /s/ ''SIGNATURE ILLEGIBLE''
------------------------------
Name: /s/ ''SIGNATURE ILLEGIBLE''
------------------------------
Title: Sr. Vice President
ATTEST: TENANT:
By: /s/ ''SIGNATURE ILLEGIBLE'' INTERSTATE/JOHNSON LANE, INC.,
------------------------------ a North Carolina corporation
its Asst. Secretary
By: /s/ ''SIGNATURE ILLEGIBLE''
------------------------------
Name: /s/ ''SIGNATURE ILLEGIBLE''
------------------------------
Title: Vice President & CFO
28
Exhibit 10(s)
SECOND AMENDMENT TO LEASE
-------------------------
This SECOND AMENDMENT TO LEASE is made and entered into this 1st day of
October, 1996 by and between RESURGENS PLAZA SOUTH ASSOCIATES, L.P., a Georgia
limited partnership (hereinafter "Landlord"), as successor in interest and title
to RESURGENS PLAZA SOUTH ASSOCIATES, a Georgia general and formerly the
Landlord, and INTERSTATE/JOHNSON LANE CORPORATION, a North Carolina Corporation
(hereinafter "Tenant").
WITNESSETH:
----------
WHEREAS, by that certain Lease dated January 25, 1990 by and between
Landlord's predecessor in interest and Tenant, there was leased to Tenant for a
Term commencing on or about August 1, 1990 and to end July 31, 1998, certain
office space located at Suite 1200 and Suite 2300, together containing
approximately 50,313 net rentable square feet, on the twelfth and twenty-third
floors of that certain building known as Resurgens Plaza South, 945 East Paces
Ferry Road, Atlanta, Georgia, (hereinafter the "Building"), all as described
therein and as now constituting "the Leased Premises," and
WHEREAS, by that certain First Amendment to Lease dated by and between
Landlord and Tenant (the "First Amendment"), modifications to the terms of the
original 1993 Lease were made as to parking arrangements for Tenant's employees
and the Rules and Regulations were supplemented, all upon the terms and
conditions set forth therein.
WHEREAS, Landlord and Tenant now mutually desire to further modify the
Lease to provide for extension of the Term thereof, for modification to and
adjustments of Rentals, for the provision by Landlord of Tenant Improvements,
and for other and related matters, all upon the terms and conditions set forth
hereinafter
<PAGE>
NOW THEREFORE, in consideration of the payment of Ten and No/100 Dollars
($10.00) in hand paid by Tenant to Landlord, the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby mutually acknowledged, the parties do now adopt hereto and
incorporate herein the foregoing recitals and do now further agree as follows:
(1) EXTENSION OF LEASE TERM The Term of the Lease is herewith extended
for a period of seven (7) years (the "Extended Term") commencing August 1, 1998
(the "New Commencement Date") and running to and through July 31, 2005 (the
"Expiration Date"). Paragraph 2 of the Lease is herewith modified and amended
accordingly.
(2) RENTALS. From and after the New Commencement Date, Tenant shall and
hereby agrees to pay Landlord in advance, without demand, deduction or set-off,
Annual Base Rental, subject to adjustment effective one (1) year next following
the New Commencement Date, in the sum of One Million One Hundred Nineteen
Thousand Four Hundred Sixty-Four and 25/100 Dollars ($1,119,464.25), in monthly
installments of Ninety-Three Thousand Two Hundred Eighty-Eight and 69/100
Dollars ($93,288.69) ("Monthly Base Rental"), due not later than the first day
of each calendar month beginning on the New Commencement Date and continuing
thereafter for the remainder of the Extended Term of the Lease. Tenant
recognizes that late payment of any rental will result in administrative and
other expense to Landlord, the extent of which would be extremely difficult to
ascertain and quantify. Therefore, in the event any payment of Monthly Base
Rental as herein and hereafter modified, and/or Additional Rental, remains
unpaid for five (5) days after notice that said amount is due, Tenant shall
pay to Landlord an additional charge in an amount of five percent (5%) of the
Base Rental and/or Additional Rental
2
<PAGE>
then due, not as a penalty but to liquidate the damages so occasioned to
Landlord and to reimburse Landlord for Landlord's additional cost in processing
such late payment, which amount shall be added to the Base Rental and/or
Additional Rental then due, and shall be immediately then due and payable.
Sub-paragraphs 3 (a) and (b) of the Lease are hereby deemed modified and
superseded accordingly
(3) ANNUAL RENTAL ADJUSTMENTS. (a) The Base Rental for each twelve (12)
month period subsequent to the completion of the First Year of the Extended Term
shall, as of August 1, 1999, be computed by increasing by one-half a number
obtained by multiplying the then current Monthly Base Rental (less any
adjustment provided for in sub-paragraph (3)(b) hereinbelow as to operating cost
increases), by a fraction whose numerator shall be the Consumer Price Index
("CPI") for all Urban Consumers (1982-84-=100) published by the United States
Department of Labor, Bureau of Labor Statistics (or by any similar or succeeding
agency), for the calendar month prior to the expiration of the first and each
successive lease year of the Extended Term, and whose denominator shall be the
CPI for the month of July, 1998, as to the first such adjustment, and for the
month of July of each successive year for all annual adjustments thereafter, the
resulting product thereof to be known as the "Adjusted Monthly Base Rental;"
provided that, in no event shall the Adjusted Monthly Base Rental be less than
the Monthly Base Rental stated in Paragraph 2 hereinabove. Landlord shall notify
Tenant annually in writing of the Adjusted Monthly Base Rental within sixty (60)
days subsequent to the date on which the increase in Monthly Base Rental is due,
and Tenant shall pay the Adjusted Monthly Base Rental to Landlord on the first
day of each calendar month thereafter for the following twelve (12) month period
or for those months remaining in that period after notification. Paragraph 3 of
the Lease is
3
<PAGE>
supplemented and modified accordingly.
(b) In addition, commencing on the first day of the first month
following the close of the first year of the Extended Term, the Landlord may
increase the Monthly Base Rental or Adjusted Monthly Base Rental, as the case
may be, by an amount equal to the difference between one-twelfth of Tenant's
proportionate share of the actual operating expenses of the Building for the
12-month period just ended in excess of $7.50/square foot of Net Rentable Area
in the Building.
Subparagraph (3)(f) of the Lease is modified accordingly.
(4) LANDLORD CONTRIBUTION TO TENANT IMPROVEMENTS. At its sole cost and expense,
Landlord shall re-carpet the Premises, matching specification of Tenant's
existing carpet (Legend's Pat Craft) using a carpet supplier and installer
chosen by Landlord. Landlord shall also repaint Premises prior to December 31,
1998. Further Landlord shall repaint the Premises during the 5th year Extended
Term, upon receipt of reasonable prior written notification from Tenant of its
desire therefor, and establishing a start date for such painting. Any further
improvements or refurbishment of the Lease Premises, in addition to the
foregoing, shall be performed at the sole cost and expense of Tenant. The
provisions of Special Stipulations ("Exhibit F") of the Lease entitled
"Architectural Allowance" are inapplicable hereto and, having been fulfilled
said Stipulation is now and hereafter declared abrogated, inoperative, null and
void.
(5) BROKER. Tenant represents and warrants that no broker, agent,
commission salesman, or other person, other than The Harris Group, has
represented Tenant in the negotiations for the procurement of this Second
Amendment and that no commission, fee or compensation of any kind is due and
payable in connection therewith to any said person or entity other than The
Harris Group. The payment of a commission shall be the sole responsibility of
4
<PAGE>
Landlord, under the terms of a separate agreement to be entered into by and
between Landlord and The Harris Group. Tenant and Landlord also acknowledge that
American Resurgens Management Corp. has acted as agent for Landlord in this
transaction and is to be compensated solely by Landlord for its services in
connection therewith in accordance with a separate agreement with Landlord.
American Resurgens Management Corp. has not acted as agent for Tenant in
connection with this transaction. The provision of Special Stipulations (Exhibit
"F") to the original Lease, having been fulfilled, are declared inapplicable to
this Second Amendment, and same are abrogated and made null, void and of no
effect.
(6) HEATING, VENTILATION & AIR CONDITIONING. Notwithstanding the
provisions of Paragraph 13 ("Service and Utilities") of the Lease, after-hours
heating, ventilating and air conditioning will be provided by Landlord to Tenant
upon prior reasonable request therefor, on a floor-by-floor basis, at a charge
of Seventy Five Dollars ($75.00) per hour, per floor. The provisions of said
Paragraph 13 of the Lease are hereby modified and amended accordingly.
(7) PARKING. Notwithstanding the provisions of Paragraph 26 ("Parking")
of the Lease, the monthly charge therefor, payable in advance, shall be at the
rate of Fifty-Five Dollars ($55.00) per space, per month throughout the Extended
Term. Paragraph 26 of the Lease is hereby amended and modified accordingly.
(8) FULL FORCE AND EFFECT. All of the terms, covenants and conditions of
the Lease and of the Exhibits thereto, except and to the extent as modified by
this Second Amendment To Lease, shall remain in full force and effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto by and through their duly authorized
officers have executed this Second Amendment to Lease under their hands and
seals the day and year first above written.
WITNESS/ATTEST:
/s/ (Signature illegible)
- - -----------------------------------
LANDLORD:
RESURGENS PLAZA SOUTH ASSOCIATES, L.P.,
A Georgia Limited Partnership
By: RESURGENS PLAZA SOUTH LTD., A
Georgia Limited Partnership
By: RESURGENS - AHE, L.P., A Georgia
Limited Partnership, its sole general partner
By: RESURGENS PLAZA- AHE, INC., A
Georgia Corporation, its sole general partner
~ '
By: /s/ James L. McMahan L.S.
-------------------------
(Printed Name): James L. McMahan
------------------
(Title): President
-------------------------
(CORPORATE SEAL)
(Signatures continued on next page)
6
<PAGE>
- - -------------------------------------------
APPROVED:
GENERAL ELECTRIC REAL ESTATE EQUITIES, INC.
By: /s/ (Signature illegible)
---------------------------------------
Its: /s/ Authorized Signatory
---------------------------------------
TENANT:
INTERSTATE/JOHNSON LANE
CORPORATION
A North Carolina Corporation
By: /s/ Edward C. Ruff L.S.
---------------------------------------
(Printed Name): Edward C. Ruff
---------------------------
(Title): Senior Managing Director &
-----------------------------------
Chief Financial Officer
(CORPORATE SEAL)
7
EXHIBIT 10(t)
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of October 27, 1998, between Wachovia
Corporation, a North Carolina corporation ("Grantee"), and Interstate/Johnson
Lane, Inc., a Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer are entering into an Agreement and Plan of
Merger (the "Merger Agreement");
WHEREAS, as a condition and an inducement to Grantee's entering into the
Merger Agreement, Issuer has agreed to grant Grantee the Option (as hereinafter
defined) on the terms and conditions set forth in this Agreement; and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement 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. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to an
aggregate of 1,289,382 fully paid and nonassessable shares of the common stock,
par value $0.20 per share, of Issuer ("Common Stock") at a price per share
equal to the last reported sale price per share of Common Stock as reported on
the New York Stock Exchange on October 28, 1998 (such price, as adjusted if
applicable, the "Option Price"); PROVIDED, FURTHER, 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 herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement and prior to the
termination of the Merger Agreement (other than pursuant to this Agreement and
other than pursuant to an event described in Section 5(a) hereof), the number
of shares of Common Stock subject to the Option shall be increased so that,
after such issuance, such number together with any shares of Common Stock
previously issued pursuant hereto, equals 19.9% of the number of shares of
Common Stock then issued and outstanding without giving effect to any shares
subject or issued pursuant to the Option. Nothing contained in this Section
l(b) or elsewhere in this Agreement shall be deemed to authorize Issuer to
issue shares in breach of any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event
(as hereinafter defined), PROVIDED that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2)
within three (3) months following such Subsequent Triggering Event (or such
later period as provided in Section 10). Each of the following shall be an
Exercise Termination Event: (i) the Effective Time of the Merger; (ii)
termination of the Merger Agreement in accordance with the provisions thereof
if such termination occurs prior to the occurrence of an Initial Triggering
Event except a termination by Grantee pursuant to Section 8.01(b) as a result
of a material willful breach by Grantor, or (iii) the passage of twelve (12)
months (or such longer period as provided in Section 10) after termination of
the Merger Agreement if such termination follows the occurrence of an Initial
Triggering Event or such termination is by Grantee pursuant to Section 8.01(b)
of the Merger Agreement as a result of a material willful breach by Grantor.
The term "Holder" shall mean the holder or holders of the Option.
Notwithstanding anything to the contrary contained herein, (i) the Option may
not be exercised at any time when Grantee shall be in material breach of any of
its 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 (ii) this Agreement shall automatically terminate upon the proper
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 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:
(i) Issuer or any subsidiary or group of subsidiaries that is, or would
on an aggregate basis constitute, a Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission
B-1
<PAGE>
(the "SEC")) (each such subsidiary or group of subsidiaries, an "Issuer
Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) 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
(the "1934 Act"), and the rules and regulations thereunder) other than
Grantee or any of its Subsidiaries (each a "Grantee Subsidiary") 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 as contemplated by the Merger Agreement. For
purposes of this Agreement, (a) "Acquisition Transaction" shall mean (x) a
merger or consolidation, or any similar transaction, involving Issuer or
any Issuer Subsidiary (other than mergers, consolidations or similar
transactions involving solely Issuer and/or one or more wholly-owned
Subsidiaries of the Issuer, PROVIDED, any such transaction is not entered
into in violation of the terms of the Merger Agreement), (y) a purchase,
lease or other acquisition of all or any substantial part of the assets or
deposits of Issuer or any Issuer Subsidiary, or (z) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 20% or more of the voting power of
Issuer or any Issuer Subsidiary and (b) "Subsidiary" shall have the meaning
set forth in Rule 12b-2 under the 1934 Act;
(ii) Any person other than the Grantee or any Grantee Subsidiary shall
have acquired beneficial ownership or the right to acquire beneficial
ownership of 20% 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, and the rules
and regulations thereunder);
(iii) The shareholders of Issuer shall have voted and failed to approve
the Merger Agreement and 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 canceled in violation of the Merger Agreement 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 canceled in violation of the Merger
Agreement, prior to such termination), it shall have been publicly
announced that any person (other than Grantee or any of its Subsidiaries)
shall have made, or disclosed an intention to make, a bona fide proposal to
engage in an Acquisition Transaction;
(iv) The Issuer Board shall have withdrawn or modified (or publicly
announced its intention to withdraw or modify) in any manner adverse in any
respect to Grantee its recommendation that the shareholders of Issuer
approve the transactions contemplated by the Merger Agreement, or Issuer or
any Issuer Subsidiary shall have authorized, recommended, 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; or
(v) Any person other than Grantee or any Grantee Subsidiary shall have
made a bona fide proposal to Issuer or its shareholders to engage in an
Acquisition Transaction and such proposal shall have been publicly
announced.
(c) The term "Subsequent Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 30% or more of the then outstanding
Common Stock;
(ii) The occurrence of the Initial Triggering Event described in clause
(i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) of the second sentence thereof shall be 30%; or
(iii) The failure of a shareholder or shareholders in the aggregate
holding in excess of 15% of the Company's outstanding Common Stock to
comply with the terms of his, her or its Shareholder Agreement (as defined
in the Merger Agreement).
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), 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 (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 10 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 Board of
Governors of the Federal Reserve System (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
B-2
<PAGE>
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 subsection (e) of this Section 2, the
Holder shall (i) 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
(ii) 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 subsection (f) of this Section 2, 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 should be
exercised in part only, a new Option evidencing the rights of the Holder
thereof to purchase the balance of the shares purchasable hereunder.
(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 , 199 , 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: (i) 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; (ii) 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
opinion of counsel to the Holder; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) 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 subsection (e) of this Section 2 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 preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock;
(ii) 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; (iii) 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, under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), or the Change in Bank Control Act
of 1978, as amended, 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 (iv) promptly to take all action provided
herein to protect the rights of the Holder against dilution.
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
B-3
<PAGE>
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. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, 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 provided in this Section 5.
(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 a percentage of the number of shares of
Common Stock then issued and outstanding equal to the percentage of such shares
into which it was exercisable immediately before such transaction.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price 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 a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within twelve (12) 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 90 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 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, HOWEVER, 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, HOWEVER, 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 (12) month period referred to in the first sentence of this section
shall be increased to twenty-four (24) 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
B-4
<PAGE>
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 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 between the occurrence of a Repurchase Event (as
defined below) and the 90th day after such occurrence (i) 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
the amount by which (A) the market/offer price (as defined below) exceeds (B)
the Option Price, multiplied by the number of shares for which this Option may
then be exercised and (ii) 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 closing 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.
(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 and regulation
from so delivering.
(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, HOWEVER, that if Issuer at any time after delivery of a notice of
repurchase pursuant to paragraph (b) of this Section 7 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 best efforts to obtain (and to take
all action necessary 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 (i) 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 (ii) 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 subsection (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:
(i) 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
B-5
<PAGE>
(ii) the consummation of any Acquisition Transaction described in Section
2(b)(i) hereof, except that the percentage referred to in clause (z) shall
be 50%.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) 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, (ii) 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
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 (iii) to sell or otherwise
transfer all or a substantial part of its or any Issuer Subsidiary's assets or
deposits 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, represent the
right to acquire what the Holder would have received had it exercised such
Option prior to such transaction.
(b) Issuer shall not enter into any transaction described in subsection
(a) of this Section 8 unless the proper provision referenced therein is
provided for.
9. The time periods for exercise of certain rights under Sections 2, 6, 7,
11 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights (for so long as the Holder
or 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 (provided that such extension shall not be longer than six months or
the time at which any required approvals have been denied); and (ii) to the
extent necessary to avoid liability under Section 16(b) of the 1934 Act by
reason of such exercise.
10. Issuer hereby represents and warrants to Grantee as follows:
(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 consummation of the
transactions contemplated hereby 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
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time 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,
encumbrance and security interests and not subject to any preemptive rights.
11. 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; PROVIDED,
HOWEVER, 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 (i) a widely dispersed public distribution, (ii) a private
placement in which no one party acquires the right to purchase in excess of 2%
of the voting shares of Issuer, (iii) an assignment to a single party (E.G., a
broker or investment banker) for the purpose of conducting a widely dispersed
public distribution on Grantee's behalf or (iv) any other manner approved by
the Federal Reserve Board.
12. 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.
B-6
<PAGE>
13. (a)(i) Notwithstanding any other provision of this Agreement, in no
event shall the Grantee's Total Profit (as hereinafter defined) exceed $12
million and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (a) reduce the number of shares of Common Stock subject
to this Option, (b) deliver to Issuer for cancellation Option Shares previously
purchased by Grantee, (c) pay cash to Issuer, or (d) do any combination
thereof, so that Grantee's actually realized Total Profit shall not exceed $12
million after taking into account the foregoing actions.
(ii) Notwithstanding any other provision of this Agreement, this Option
may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined below) of more than
$12 million, PROVIDED that nothing in this sentence shall restrict any
exercise of the Option permitted hereby on any subsequent date.
(iii) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount received by Grantee
pursuant to Issuer's repurchase of the Option (or any portion thereof)
pursuant to Section 7, (ii) (x) the amount received by Grantee pursuant to
Issuer's repurchase of Option Shares pursuant to Section 7, less (y) the
Grantee's purchase price for such Option Shares, (iii) (x) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any
other securities into which such Option Shares are converted or exchanged)
to any unaffiliated party, less (y) the Grantee's purchase price of such
Option Shares, (iv) any amounts received by Grantee on the transfer of the
Option (or any portion thereof) to any unaffiliated party, and (v) any
amount equivalent to the foregoing with respect to the Substitute Option.
(iv) As used herein, the term "Notional Total Profit" with respect to any
number of shares as to which Grantee may propose to exercise this Option
shall be the Total Profit determined as of the date of such proposed
exercise assuming that this Option were exercised on such date for such
number of shares and assuming that such shares, together with all other
Option Shares held by Grantee and its affiliates as of such date, were sold
for cash at the closing market price for the Common Stock as of the close
of business on the preceding trading day (less customary brokerage
commissions).
(b)(i) Grantee may, at any time between the occurrence of a Repurchase
Event and the 90th day after such occurrence (or such later period as provided
in Section 9), relinquish the Option (together with any Option Shares issued to
and then owned by Grantee) to Issuer in exchange for a cash fee equal to the
Surrender Price; PROVIDED, HOWEVER, that Grantee may not exercise its rights
pursuant to this Section 13(b) if Issuer has repurchased the Option (or any
portion thereof) or any Option Shares pursuant to Section 7. The "Surrender
Price" shall be equal to $10.0 million (i) plus, if applicable, Grantee's
purchase price with respect to any Option Shares and (ii) minus, if applicable,
the sum of (1) the excess of (A) the net cash amounts, if any, received by
Grantee pursuant to the arms' length sale of Option Shares (or any other
securities into which such Option Shares were converted or exchanged) to any
unaffiliated party, over (B) Grantee's purchase price of such Option Shares,
and (2) the net cash amounts, if any, received by Grantee pursuant to an arms'
length sale of any portion of the Option sold.
(ii) Grantee may exercise its right to relinquish the Option and any
Option Shares pursuant to this Section 13(b) by surrendering 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 relinquish the Option and Option Shares, if any, in
accordance with the provisions of this Section 13(b) and (ii) the Surrender
Price. The Surrender Price shall be payable in immediately available funds
on or before the second business day following receipt of such notice by
Issuer.
(iii) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, 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, the portion of the Surrender Price that it is no longer
prohibited from paying, within five 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 paragraph (b) of
this Section 13 is prohibited under applicable law or regulation, or as a
consequence of administrative policy, from paying to Grantee the Surrender
Price in full, (i) Issuer shall (A) use its best efforts to obtain (and to
take all action necessary 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 five 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, as well as 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 to Issuer and,
upon delivery of such notice of revocation, the Exercise Termination Date
shall be extended to a date six months from the date on which the Exercise
Termination Date would have occurred if not for the provisions
B-7
<PAGE>
of this Section 13(b), (during which period Grantee may exercise any of its
rights hereunder, including any and all rights pursuant to this Section
13).
14. 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.
15. 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 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 l(a) hereof (as adjusted pursuant to Section
l(b) or 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.
16. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
17. This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina, without regard to the conflict of law
principles thereof (except to the extent that mandatory provisions of Federal
law are applicable).
18. 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.
19. 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.
20. 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 with 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 except as assignees, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
21. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
B-8
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
INTERSTATE/JOHNSON LANE, INC.
By: /s/ JAMES H. MORGAN
----------------------------------
Name: James H. Morgan
Title: Chairman/Chief Executive
Officer
WACHOVIA CORPORATION
By: /s/ G. JOSEPH PRENDERGAST
----------------------------------
Name: G. Joseph Prendergast
Title: Senior Executive Vice
President
B-9
EXHIBIT 21
<PAGE>
Exhibit 21
INTERSTATE/JOHNSON LANE, INC.
List of Subsidiaries
September 30, 1998
Percentage of
State in voting
which securities
Name Incorporated owned
---- ------------ ------------
Interstate/Johnson Lane Corporation North Carolina 100%
ISC Realty Corporation North Carolina 100
IJL Capital Management, Inc. North Carolina 100
ISC Futures Corporation North Carolina 100
The Johnson, Lane, Space, Smith
Corporation Georgia 100
IJL Financial, Inc. North Carolina 100
IJL Holdings, Inc. North Carolina 100
EXHIBIT 23
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Interstate/Johnson Lane, Inc. on Form S-8 (File No. 333-65203) and Form S-4
(File No. 333-68823) of our report dated October 30, 1998, on our audits of the
consolidated financial statements and financial statement schedule of
Interstate/Johnson Lane, Inc. as of September 30, 1998 and 1997, and for each
of the three years in the period ended September 30, 1998, which report is
included in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
December 23, 1998
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 34,307
<RECEIVABLES> 390,706
<SECURITIES-RESALE> 42,372
<SECURITIES-BORROWED> 4,319
<INSTRUMENTS-OWNED> 108,720
<PP&E> 12,653
<TOTAL-ASSETS> 652,291
<SHORT-TERM> 18,855
<PAYABLES> 330,340
<REPOS-SOLD> 55,061
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 41,787
<LONG-TERM> 34,295
0
0
<COMMON> 1,433
<OTHER-SE> 102,127
<TOTAL-LIABILITY-AND-EQUITY> 652,291
<TRADING-REVENUE> 5,870
<INTEREST-DIVIDENDS> 38,507
<COMMISSIONS> 192,292
<INVESTMENT-BANKING-REVENUES> 10,026
<FEE-REVENUE> 21,435
<INTEREST-EXPENSE> 21,584
<COMPENSATION> 176,127
<INCOME-PRETAX> 23,197
<INCOME-PRE-EXTRAORDINARY> 23,197
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,739
<EPS-PRIMARY> 2.47
<EPS-DILUTED> 2.16
</TABLE>
