EXHIBIT B
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered
into as of November 7, 2000, by and among CALIFORNIA INVESTMENT FUND, LLC,
a California limited liability company (the "Buyer"), DCI ACQUISITION
CORPORATION, a Virginia corporation and a wholly-owned Subsidiary of the
Buyer (the "Transitory Subsidiary"), and DYNEX CAPITAL, INC., a Virginia
corporation (the "Target"). The Buyer, the Transitory Subsidiary, and the
Target are each referred to herein as a "Party" and are referred to
collectively herein as the "Parties."
This Agreement contemplates a transaction in which the Buyer will
acquire all of the outstanding capital stock of the Target for cash through
a reverse subsidiary merger of the Transitory Subsidiary with and into the
Target.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations,
warranties, and covenants herein contained, the Parties agree as follows:
SECTION 1. DEFINITIONS.
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"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Acquisition Transaction" has the meaning set forth in Section
5(m) below.
"Articles of Merger" has the meaning set forth in Section 2(c)
below.
"Buyer" has the meaning set forth in the preface above.
"Buyer Disclosure Schedule" has the meaning set forth in Section
4 below.
"Buyer Material Adverse Effect" has the meaning set forth in
Section 4(d) below.
"Buyer-owned Shares" means the 572,178 Target Common Shares owned
by the Buyer.
"Buyer-REIT" means the REIT Subsidiary or REIT Affiliate to be
formed by the Buyer for the purpose of acquiring the Excluded Target REIT
Assets.
"Certificate of Merger" has the meaning set forth in Section 2(d)
below.
"Certificates" has the meaning set forth in Section 2(e)(i)
below.
"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of the Target and its Subsidiaries other than
information that (i) is already generally available to the public, (ii) was
available to the Buyer, Transitory Subsidiary or their respective
Representatives or Affiliates on a non-confidential basis prior to its
disclosure by the Target or its Subsidiaries, or (iii) becomes available to
the Buyer, Transitory Subsidiary or their respective Representatives or
Affiliates on a non-confidential basis from a source other than the Target
or its Subsidiaries, provided, that such source is not known by such Person
to be prohibited from transmitting the information to such Person by a
contractual, legal, fiduciary or other obligation, or (iv) was or is
independently developed by the Buyer, Transitory Subsidiary or their
respective Representatives or Affiliates without the use of Confidential
Information of the Target or its Subsidiaries.
"Confidentiality Agreement" means that certain Confidentiality
Agreement dated April 6, 2000 between the Buyer and the Target.
"Confirmation" means a confirmation from each lender or equity
provider under a Financing Commitment that such commitment remains in full
force and effect and without material modification. A Confirmation may be
from a replacement lender or equity provider as long as the replacement
lender or equity provider is capable of financing the transactions
contemplated hereby.
"Definitive Financing Agreements" has the meaning set forth in
Section 5(e) below.
"Definitive Proxy Materials" means the proxy materials relating
to the Special Meeting which are mailed to the holders of Target Shares.
"DHI" means Dynex Holding, Inc., a Virginia corporation and an
Affiliate of the Target.
"DOJ" means the Antitrust Division of the United States
Department of Justice.
"Effective Time" has the meaning set forth in Section 2(d)(i)
below.
"Employee" shall mean each current, former, or retired employee,
officer, consultant, advisor, independent contractor, agent or director of
the Target or any of its Subsidiaries.
"End Date" has the meaning set forth in Section 7(a)(ii)(A)
below.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and all applicable rules and
regulations thereunder.
"ERISA Affiliate" shall mean each business or entity which is a
member of a "controlled group of corporations," under "common control" or a
member of an "affiliated service group" with the Target within the meaning
of Sections 414(b), (c) or (m) of the Code, or required to be aggregated
with the Target under Section 414(o) of the Code, or is under "common
control" with the Target, within the meaning of Section 4001(a)(14) of
ERISA.
"Escrow Agent" has the meaning set forth in Section 2(g) below.
"Escrow Agreement" has the meaning set forth in Section 2(g)
below.
"Escrow Amount" has the meaning set forth in Section 2(g) below.
"Escrowed Shares" has the meaning set forth in Section 2(g)
below.
"Excluded Target REIT Assets" has the meaning set forth in
Section 2(h) below.
"Financing Commitments" has the meaning set forth in Section 4(b)
below.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Governmental Entity" means any governmental or regulatory
authority, court, agency, commission or other governmental entity or any
securities exchange or other self-regulatory body, domestic or foreign.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Insurance Premium Cap" has the meaning set forth in Section
5(j)(i) below.
"IRS" means the United States Internal Revenue Service.
"Knowledge" means actual knowledge of a Person.
"Merger" has the meaning set forth in Section 2(a) below.
"Merger Consideration" means collectively the Target Common
Shares Merger Consideration, the Target Series A Share Merger
Consideration, the Target Series B Share Merger Consideration, and the
Target Series C Share Merger Consideration.
"Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect
to quantity and frequency), but in any event shall exclude any
extraordinary transaction.
"Party" has the meaning set forth in the preface above.
"Paying Agent" has the meaning set forth in Section 2(e) below.
"Payment Fund" has the meaning set forth in Section 2(e) below.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust,
a joint venture, an unincorporated organization, a group (as defined in the
Securities Exchange Act), an entity, or a Governmental Entity (or any
department, agency, or political subdivision thereof).
"Preferred Stock Charter Amendment" has the meaning set forth in
the definition of Requisite Stockholder Approval.
"Public Reports" has the meaning set forth in Section 3(e) below.
"Regulatory Law" has the meaning set forth in Section 5(c)(ii)(B)
below.
"REIT" has the meaning set forth in Section 3(p)(ix) below.
"Representatives" has the meaning set forth in Section 5(m)(i)
below.
"Requisite Stockholder Approval" means the affirmative vote in
favor of the Merger and the transactions contemplated hereby of the holders
of (i) two-thirds of the Target Common Shares and (ii) two-thirds of the
Target Series A Shares, the Target Series B Shares and the Target Series C
Shares, each voting as a separate class. Requisite Stockholder Approval
shall require that two-thirds of the Target Series A Shares, the Target
Series B Shares and the Target Series C Shares, each voting as a separate
class, approve an amendment to Target's charter documents, satisfactory to
Buyer, providing for the conversion of each such series of preferred stock
into the right to receive the Target Series A Merger Consideration, the
Target Series B Merger Consideration or the Target Series C Merger
Consideration, as applicable (the "Preferred Stock Charter Amendment")
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended and
the rules and regulations thereunder.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended and the rules and regulations thereunder.
"SEC Mail Date" has the meaning set forth in Section 5(c)(i)
below.
"Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialman's, and similar liens, or (b) liens for taxes not yet due and
payable or for taxes that the taxpayer is contesting in good faith through
appropriate proceedings.
"Shareholder Mail Date" has the meaning set forth in Section
5(c)(i) below.
"Special Meeting" has the meaning set forth in Section 5(c)(i)
below.
"Subsidiary" of a Person means any corporation, limited
partnership, general partnership, joint venture, limited liability company
or other legal entity of which such Person (either alone or through or
together with any other Subsidiary or Subsidiaries) is the general partner
or managing entity or of which 50% or more of the capital stock or other
equity interests the holders of which are generally entitled to vote for
the election of the board of directors or others performing similar
functions of such corporation or other legal entity is directly or
indirectly owned or controlled by such Person (either alone or through or
together with any other Subsidiary or Subsidiaries).
"Superior Proposal" has the meaning set forth in Section 5(l)
below.
"Surviving Corporation" has the meaning set forth in Section 2(a)
below.
"Takeover Proposal" has the meaning set forth in Section 5(m)
below.
"Target" has the meaning set forth in the preface above.
"Target Common Shares" means the Common Stock, $.01 par value per
share, of the Target.
"Target Common Share Merger Consideration" has the meaning set
forth in Section 2(d)(v) below.
"Target Disclosure Schedule" has the meaning set forth in Section
3 below.
"Target Employee Plans" has the meaning set forth in Section 3(h)
below.
"Target Equity Equivalent Security" means any subscriptions,
options, warrants, calls, commitments, agreements, conversion rights or
other rights of any character (contingent or otherwise) entitling any
Person to purchase or otherwise acquire from the Target or any of its
Subsidiaries at any time, or upon the happening of any stated event, any
shares of the capital stock of the Target.
"Target Material Adverse Effect" has the meaning set forth in
Section 3(a) below.
"Target Option" means any option, warrant or other instrument
convertible into Target Shares that is outstanding immediately prior to the
Effective Time, whether or not then exercisable, including without
limitation an option to purchase Target Common Shares granted under the
Target's 1992 Stock Incentive Plan.
"Target Permits" has the meaning set forth in Section 3(m) below.
"Target REIT" means collectively the Target and its REIT
Subsidiaries.
"Target SAR" means a stock appreciation right, phantom stock unit
or other similar right of the Target.
"Target Senior Notes" means the 7.875% Senior Notes due July 15,
2002, of the Target.
"Target Senior Notes Indenture" means that certain Indenture
dated as of July 14, 1997, as supplemented by that certain Officers'
Certificate of Thomas H. Potts and Lynn K. Geurin, dated July 14, 1997 and
by that certain Instrument of Resignation, Appointment and Acceptance dated
as of June 12, 2000, between the Target, Chase Bank of Texas, NA, and HSBC
Bank USA, providing for the issuance of the Target Senior Notes.
"Target Series A Shares" means the Series A 9.75% Cumulative
Convertible Preferred Stock, $.01 par value per share, of the Target.
"Target Series A Share Merger Consideration" has the meaning set
forth in Section 2(d)(v) below.
"Target Series B Shares" means the Series B 9.55% Cumulative
Convertible Preferred Stock, $.01 par value per share, of the Target.
"Target Series B Share Merger Consideration" has the meaning set
forth in Section 2(d)(v) below.
"Target Series C Shares" means the Series C 9.73% Cumulative
Convertible Preferred Stock, $.01 par value per share, of the Target.
"Target Series C Share Merger Consideration" has the meaning set
forth in Section 2(d)(v) below.
"Target Shares" means collectively the Target Common Shares, the
Target Series A Shares, the Target Series B Shares, and the Target Series C
Shares.
"Target Stockholder" means any Person who or which holds any
Target Shares.
"Target's Knowledge" means the Knowledge of Thomas H. Potts or
Stephen J. Benedetti.
"Tax" has the meaning set forth in Section 3(p)(xi) below.
"Tax Return" has the meaning set forth in Section 3(p)(xi) below.
"Transitory Subsidiary" has the meaning set forth in the preface
above.
"Virginia Corporation Law" means the Virginia Stock Corporation
Act, as amended.
SECTION 2. BASIC TRANSACTION.
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(a) The Merger. On and subject to the terms and conditions of
this Agreement, the Transitory Subsidiary will merge with and into the
Target (the "Merger") at the Effective Time. The Target shall be the
corporation surviving the Merger (the "Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Venable,
Baetjer and Howard, LLP, 2010 Corporate Ridge, Suite 400, McLean, Virginia
22102, commencing at 10:00 a.m. local time on the second business day
following the satisfaction or waiver of all conditions to the obligations
of the Parties to consummate the transactions contemplated hereby (other
than conditions with respect to actions the respective Parties will take at
the Closing itself) or such other date as the Parties may mutually
determine (the "Closing Date").
(c) Actions at the Closing. At the Closing, (i) the Target will
deliver to the Buyer and the Transitory Subsidiary the various
certificates, instruments, and documents referred to in Section 6(a) below,
(ii) the Buyer and the Transitory Subsidiary will deliver to the Target the
various certificates, instruments, and documents referred to in Section
6(b) below, (iii) the Target and the Transitory Subsidiary will file
Articles of Merger reasonably satisfactory to each of the Parties and
meeting the requirements of Sections 13.1-604 and 13.1-720, and any other
relevant provisions of Virginia Corporation Law (the "Articles of Merger")
with the Virginia State Corporation Commission, and all other filings or
recordings required under Virginia Corporation Law, including any plan of
merger, (iv) the Buyer will cause the Surviving Corporation to deliver the
Payment Fund to the Paying Agent in the manner provided below in Section
2(e), and (v) the Parties will comply with all other covenants and
obligations imposed upon it under the terms of the Agreement.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time
that the Virginia State Corporation Commissioner shall have issued a
"Certificate of Merger" pursuant to Section 13.1-720 of the Virginia
Corporation Law (the "Effective Time"). The Merger shall have the
effect set forth in Section 13.1-721 of the Virginia Corporation Law.
The Surviving Corporation may, at any time after the Effective Time,
take any action (including executing and delivering any document) in
the name and on behalf of either the Target or the Transitory
Subsidiary in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) Articles of Incorporation. The Articles of
Incorporation of the Surviving Corporation shall, at and as of the
Effective Time, read as did the Articles of Incorporation of the
Transitory Subsidiary immediately prior to the Effective Time.
(iii) Bylaws. The Bylaws of the Surviving Corporation shall,
at and as of the Effective Time, read as did the Bylaws of the
Transitory Subsidiary immediately prior to the Effective Time.
(iv) Directors and Officers. The directors and officers of
the Transitory Subsidiary shall become the directors and officers of
the Surviving Corporation at and as of the Effective Time (retaining
their respective positions and terms of office).
(v) Conversion of Target Shares. At and as of the Effective
Time, without any action on the part of the holders of Target Shares,
(A) each Target Common Share (other than any
Buyer-owned Shares) shall be converted into the right to receive an amount
(the "Target Common Share Merger Consideration") equal to $2.00 in cash
(without interest),
(B) each Target Series A Share shall be converted into
the right to receive an amount (the "Target Series A Share Merger
Consideration") equal to $12.07 in cash (without interest), less any
dividend declared or paid on such shares subsequent to the date hereof,
(C) each Target Series B Share shall be converted into
the right to receive an amount (the "Target Series B Share Merger
Consideration") equal to $12.32 in cash (without interest), less any
dividend declared or paid on such shares subsequent to the date hereof
(D) each Target Series C Share shall be converted into
the right to receive an amount (the "Target Series C Share Merger
Consideration") equal to $15.08 in cash (without interest), less any
dividend declared or paid on such shares subsequent to the date hereof and
(E) each Buyer-owned Share shall be cancelled and all
rights with respect thereto shall cease to exist and no consideration shall
be delivered in exchange therefor;
provided, however, that the Merger Consideration shall be subject to
proportional adjustment in the event of any stock split, stock
dividend, reverse stock split, or other change in the number of Target
Shares outstanding occurring between the date hereof and the date of
filing of the Articles of Merger. No Target Share shall be deemed to
be outstanding or to have any rights (monetary or otherwise) other
than those set forth above in this Section 2(d)(v) after the Effective
Time. All accrued dividends on the Target Shares shall be canceled at
the Effective Time.
(vi) Conversion of Capital Stock of the Transitory
Subsidiary. At and as of the Effective Time, each share of Common
Stock, $.01 par value per share, of the Transitory Subsidiary shall be
converted into one share of Common Stock, $.01 par value per share, of
the Surviving Corporation.
(vii) Termination of Dividend Reinvestment and Stock
Purchase Plan, Directors Stock Appreciation Rights Plan and 1992 Stock
Incentive Plan. Except as may otherwise be agreed to in writing by the
Buyer, the Transitory Subsidiary, and the Target, the Target covenants
that (A) its Dividend Reinvestment and Stock Purchase Plan, Directors
Stock Appreciation Rights Plan and its 1992 Stock Incentive Plan,
together with any similar plan, shall terminate as of the Effective
Time, (B) all Target Options and Target SARs shall be cancelled as of
the Effective Time for an aggregate amount not to exceed $265,000 in
cash and (C) it shall use best efforts to obtain all necessary
consents of the holders of the Target Options and Target SARs to the
cancellation of the Target Options and Target SARs as set forth in
this Section 2(d)(vii).
(e) Procedure for Payment.
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(i) Promptly after the Effective Time, (A) the Buyer will
cause the Surviving Corporation to furnish a bank or trust company
designated by the Buyer and reasonably acceptable to the Target (the
"Paying Agent") with cash sufficient for the Paying Agent to make
prompt payment of the Merger Consideration to all holders of
outstanding Target Shares (other than any Buyer-owned Shares), upon
the surrender of the Target Shares by the holder thereof to the Paying
Agent along with a properly executed letter of transmittal (the
"Payment Fund") and (B) the Buyer will cause the Paying Agent to mail
a letter of transmittal (with instructions for its use) in a form and
substance reasonably satisfactory to each of the Parties to each
record holder of outstanding Target Shares for the holder to use in
surrendering the certificates which represented his, her or its Target
Shares ("Certificates") against payment of the Merger Consideration.
Upon surrender of a Certificate to the Paying Agent together with such
letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may reasonably
be required by the Paying Agent, the holder of such Certificate shall
be entitled to receive in exchange therefor the amount of cash payable
for the Target Shares represented by such Certificate pursuant to
Section 2(d)(v). In the event of a transfer of ownership of Target
Shares which is not registered in the transfer records of the Target,
payment may be made with respect to such Target Shares to such a
transferee if the Certificate representing such Target Shares is
presented to the Paying Agent, accompanied by all documents required
to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. No interest will
accrue or be paid to the holder of any outstanding Target Shares.
(ii) The Buyer may cause the Paying Agent to invest the cash
included in the Payment Fund in one or more of the permitted
investments set forth in the agreement between the Payment Agent and
the Buyer, which agreement shall be in form and substance reasonably
satisfactory to each of the Parties; provided, however, that the terms
and conditions of the investments shall be such as to permit the
Paying Agent to make prompt payment of the Merger Consideration as
necessary. The Buyer may cause the Paying Agent to pay over to the
Surviving Corporation any net earnings with respect to the
investments, and the Buyer will cause the Surviving Corporation to
replace promptly any portion of the Payment Fund which the Paying
Agent loses through investments.
(iii) The Buyer may cause the Paying Agent to pay over to
the Surviving Corporation any portion of the Payment Fund (including
any earnings thereon) in excess of $100,000 remaining 60 days after
the Effective Time, and any or all of the Payment Fund (including any
earnings thereon) remaining 180 days after the Effective Time, and
after such 180-day period all former shareholders shall be entitled to
look to the Surviving Corporation (subject to abandoned property,
escheat, and other similar laws) as general creditors thereof with
respect to the cash payable upon surrender of their certificates.
(iv) The Buyer shall cause the Surviving Corporation to pay
all charges and expenses of the Paying Agent.
(f) Closing of Transfer Records. After the close of business on
the Closing Date, transfers of Target Shares outstanding prior to the
Effective Time shall not be made on the stock transfer books of the
Surviving Corporation. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be exchanged as provided
in Section 2(e).
(g) Escrow. Immediately following the execution of this
Agreement, the Buyer shall deliver to U.S. Trust Company (the "Escrow
Agent") certificates representing the Buyer-owned Shares (the "Escrowed
Shares"), together with duly executed instruments of transfer or assignment
in blank. Additionally, on or prior to the date that is thirty (30) days
from the date hereof (or on the first business day following such 30th day
if such 30th day is not a business day), and provided the Buyer has not
earlier terminated this Agreement pursuant to Section 7(a)(vi) hereof, the
Buyer shall deliver to the Escrow Agent $1,000,000 in immediately available
funds (such funds, together with any and all interest earned thereon,
together with the Escrowed Shares, the "Escrow Amount"). The Escrow Amount
shall be held and distributed as provided in the Escrow Agreement in the
form attached hereto as Exhibit A (the "Escrow Agreement") and subject to
terms and conditions of this Agreement.
(h) Transfer of Excluded Target REIT Assets to Buyer-REIT. Buyer
agrees to create, establish or enter into an arrangement with the
Buyer-REIT to which the Target will transfer the assets and associated
liabilities identified in Schedule 2(h) accompanying this Agreement (the
"Excluded Target REIT Assets") simultaneously with or, at the Buyer's
election, immediately prior to the Closing (but in any event, after
satisfaction of all Closing conditions). The Target's obligation to
transfer such assets and the Buyer's obligation to cause the Buyer-REIT to
assume such liabilities will terminate in the event the Closing does not
occur.
(i) Subsequent Actions. Without limiting the terms of Section
2(d)(i), if, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise
the Surviving Corporation's right, title or interest in, to or under any of
the rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger, or otherwise
to carry out the intent of this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in
the name and on behalf of either of the constituent corporations of the
Merger, all such deeds, bills of sale, assignments and assurances and to
take and do, in the name and on behalf of each of such corporations or
otherwise, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties, privileges, franchises or assets
in the Surviving Corporation or otherwise to carry out the intent of this
Agreement.
(j) Further Assurances. Each Party hereto shall execute and cause
to be delivered to each other Party hereto such instruments and other
documents, and shall take such other actions, as such other Party may
reasonably request (prior to, at or after the Closing) for the purpose of
carrying out or evidencing any of the transactions contemplated by this
Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF TARGET. The Target
represents and warrants to the Buyer and the Transitory Subsidiary that the
statements contained in this Section 3 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing
Date, except as set forth in the Target disclosure schedule accompanying
this Agreement (the "Target Disclosure Schedule"). The Target Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3.
(a) Organization, Qualification, and Corporate Power. Each of the
Target and its Subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Target and its Subsidiaries is duly authorized
to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required, except where the lack of
such qualification would not have or reasonably be expected to result in
any changes in or effects that in the aggregate together with all other
changes and effects (x) are materially adverse to the business, assets,
liabilities, results of operations or condition (financial or otherwise) of
the Target and its Subsidiaries taken as a whole, except, to the extent
resulting from (1) any changes in general United States economic
conditions, or (2) any changes affecting the mortgage industry in general
(including changes in interest rates), but not to the extent that the
changes disproportionately affect the Target, or (y) will prevent the
Target's consummating the transactions contemplated hereby or materially
delay the Target's ability to consummate the transactions contemplated
hereby (such changes and effects described in clauses (x) and (y), a
"Target Material Adverse Effect"). Each of the Target and its Subsidiaries
has full corporate power and authority to carry on the businesses in which
it is engaged and to own and use the properties owned and used by it.
(b) Capitalization. (i) The authorized capital stock of Target
consists of 100,000,000 shares of Target Common Stock, par value $.01 per
share, 1,552,000 shares of Preferred Series A Stock, par value $.01 per
share, 4,760,000 shares of Preferred Series B Stock, par value $.01 per
share, and 1,840,000 shares of Preferred Series C Stock, par value $.01 per
share. At the close of business on September 30, 2000, the issued and
outstanding capital stock of the Target consists of:
(A) 11,446,206 Target Common Shares;
(B) 1,309,061 Target Series A Shares;
(C) 1,912,434 Target Series B Shares; and
(D) 1,840,000 Target Series C Shares.
No shares of capital stock of the Target are held by any of the Target's
Subsidiaries.
(ii) All of the issued and outstanding Target Shares have
been duly authorized and are validly issued, fully paid, nonassessable
and free of preemptive rights. All of the outstanding shares of
capital stock and other equity securities of the Subsidiaries of
Target are owned, directly or indirectly, by the Target free and clear
of all liens, pledges, security interests, or other encumbrances.
(iii) Except for the right of the Target Series A Shares,
Target Series B Shares and Target Series C Shares to convert into
Target Common Shares under the Target's charter, there are no
outstanding or authorized options, warrants, purchase rights,
subscription rights, calls, agreements, conversion rights, exchange
rights, or other contracts or commitments (contingent or otherwise)
that could require the Target to issue, sell, transfer or otherwise
cause to become outstanding any of its capital stock or otherwise
entitle any Person to purchase or otherwise acquire from the Target or
any of its Subsidiaries at any time, or upon the happening of any
stated events any shares of capital stock or other equity stock of the
Target and its Subsidiaries. As of the date of this Agreement, there
are no outstanding obligations, contingent or otherwise, of the Target
or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any Target Shares or any Target Equity Equivalent Securities (except
in connection with the exercise, conversion or exchange of outstanding
Target Equity Equivalent Securities).
(iv) There are no outstanding or authorized stock
appreciation, phantom stock units, profit participation, or similar
rights with respect to the Target or its Subsidiaries.
(v) The Target Disclosure Schedule sets forth the name and
jurisdiction of incorporation or organization of each Subsidiary of
the Target. Neither the Target nor any of its Subsidiaries owns
directly or indirectly any interest or investment (whether equity or
debt) in any Person.
(vi) As of the date of this Agreement, there are no bonds,
debentures, notes or other indebtedness issued and outstanding having
the right to vote together with Target's stockholders on any matter in
respect of which the Target's stockholders are entitled to vote.
(c) Authorization of Transaction. The Target has full corporate
power and authority to execute and deliver this Agreement and to perform
its obligations hereunder; provided, however, that the Target cannot
consummate the Merger unless and until it receives the Requisite
Stockholder Approval. This Agreement constitutes the valid and legally
binding obligation of the Target, enforceable in accordance with its terms
and conditions.
(d) Noncontravention. (i) Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) (1) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any Governmental Entity, or court to which any of the Target and its
Subsidiaries is subject, (2) violate or conflict with any provision of the
charter or bylaws of any of the Target or its Subsidiaries or (3) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, bond, note, mortgage, indenture, franchise or
other arrangement (with or without notice or any lapse of time) to which
any of the Target and its Subsidiaries is a party or by which it is bound
or to which any of its assets is subject (or result in the imposition of
any lien, claim or encumbrance upon any of its assets), except, in the case
of clauses (A) (1) and (A) (3) above only, where the violation, conflict,
breach, default, acceleration, termination, modification, cancellation,
failure to give notice, or lien, claim or encumbrance would not have, or
reasonably be expected to have, a Target Material Adverse Effect, or (B)
result in any obligation on the part of the Target or any of its
Subsidiaries (with or without notice or any lapse of time) to repurchase or
repay any debenture, bond, note or other indebtedness for borrowed money
(including, without limitation, the Target Senior Notes).
(ii) To the Target's Knowledge, and other than in connection
with the provisions of the Hart-Scott-Rodino Act, the Virginia
Corporation Law, the Securities Exchange Act, the Securities Act, and
any applicable federal or state securities laws, none of the Target or
any of its Subsidiaries needs to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any
Governmental Entity in order for the Parties to consummate the
transactions contemplated by this Agreement, except where the failure
to give notice, to file, or to obtain any authorization, consent, or
approval would not have, or reasonably be expected to have, a Target
Material Adverse Effect.
(e) Filings with the SEC. The Target has timely filed all forms,
reports, statements, schedules and other documents (including all annexes,
exhibits, schedules, amendments and supplements thereto) required to be
filed by it with the SEC since December 31, 1996, has delivered or made
available to the Buyer upon written request all forms, reports, statements,
schedules and other documents (except for preliminary materials) (including
all annexes, exhibits, schedules, amendments and supplements thereto) filed
by it with the SEC since December 31, 1996 (such forms, reports,
statements, schedules and documents filed by the Target with the SEC,
including any such forms, reports, statements, schedules and other
documents filed by the Target with the SEC after the date of this Agreement
and prior to the Closing Date, are referred to herein, collectively, as the
"Public Reports," and with respect to the Public Reports filed by the
Target after the date of this Agreement and prior to the Closing Date, will
deliver or make available to the Buyer upon Buyer's written request all of
such Public Reports in the form filed with the SEC. As of their respective
filing dates, the Public Reports (including all information incorporated
therein by reference) (i) complied as to form in all material respects with
the requirements of the Securities Act or the Securities Exchange Act, as
applicable, and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Each "material
contract" (as such term is defined in Item 601 (b)(10) of Regulation S-K of
the SEC) of the Target or any of its Subsidiaries and each non-competition
agreement or any other agreement or obligation of the Target or any of its
Subsidiaries that purports to limit in any respect the manner in which or
the localities in which, all or any substantial portion of the business of
the Target or any of its Subsidiaries would be conducted is disclosed in
the Public Reports filed prior to the date hereof.
(f) Brokers' Fees. Except for PaineWebber Incorporated pursuant
to an engagement letter, a true and complete copy of which has previously
been delivered to the Buyer, none of the Target or any of its Subsidiaries
has any liability or obligation to pay any fees or commissions to any
broker, finder, agent, investment banker, financial advisor or other person
with respect to the transactions contemplated by this Agreement.
(g) Disclosure. The Definitive Proxy Materials will comply as to
form with the requirements of the Securities Exchange Act in all material
respects. The Definitive Proxy Materials will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading; provided,
however, that the Target makes no representation or warranty with respect
to any information that the Buyer or the Transitory Subsidiary will supply
specifically for use in the Definitive Proxy Materials.
(h) Employee Benefits. Target Disclosure Schedule 3(h) contains a
true and complete list of each written bonus, vacation, deferred
compensation, pension, retirement, profit-sharing, thrift, savings,
employee stock ownership, stock bonus, stock purchase, restricted stock and
stock option plans, all employment or severance contracts, all medical,
dental, disability, health and life insurance plans, all other employee
benefit and fringe benefit plans, contracts or arrangements and any
applicable "change of control" or similar provisions in any plan, contract
or arrangement maintained or contributed to by the Target or any of its
Subsidiaries for the benefit of Employees or the beneficiaries of any
Employee (collectively, "Target Employee Plans"). Neither the Target nor
any of its Subsidiaries has any plan or commitment to establish or enter
into any new Target Employee Plan, or to modify or, except as contemplated
by this Agreement, to terminate any Target Employee Plan. The Target has
made available, or has caused to be made available, to the Buyer current,
accurate and complete copies of all documents embodying or relating to each
Target Employee Plan.
(i) To the Target's Knowledge, each of the Target and its
Subsidiaries has performed all obligations required to be performed by
it under each Target Employee Plan. Each Target Employee Plan has been
established and maintained in substantial accordance with its terms
and in substantial compliance with all applicable laws. Each Target
Employee Plan which is intended to be qualified under Section 401(a)
of the Code has received a favorable determination letter from the
Internal Revenue Service, and it is not aware of any circumstances
reasonably likely to result in the revocation or denial of any such
favorable determination letter. There is no litigation pending or, to
the Knowledge of the Target, threatened or anticipated (other than
routine claims for benefits) with respect to any Target Employee Plan
or by any Employee with respect to the Target or any of its
Subsidiaries. No Target Employee Plan is under audit or investigation
by the Internal Revenue Service, the Department of Labor, the PBGC or
other Governmental Entity, and to the Knowledge of the Target, no such
audit or investigation is threatened.
(ii) Neither the Target, any of its Subsidiaries, nor any
ERISA Affiliate presently sponsors, maintains, contributes to, nor is
the Target, any of its Subsidiaries or any ERISA Affiliate required to
contribute to, nor has the Target, any of its Subsidiaries nor any
ERISA Affiliate ever sponsored, maintained, contributed to, or been
required to contribute to, a "employee pension benefit plan" (within
the meaning of Section 3(2) of ERISA) which is subject to Title IV of
ERISA.
(iii) Neither the Target nor any of its Subsidiaries
maintains or contributes to any Target Employee Plan which provides,
or has any liability to provide, life insurance, medical, severance or
other employee welfare benefits to any Employee upon his retirement or
termination of employment, except as may be required by Section 4980B
of the Code and Sections 601 through 609 of ERISA.
(iv) The execution of, and performance of the transactions
contemplated by this Agreement will not (either individually, in the
aggregate or upon the occurrence of any additional or subsequent
events) (A) constitute an event that will or may result in any payment
(whether of severance pay or otherwise), acceleration of benefits,
forgiveness of indebtedness, vesting or distribution of benefits,
increase in benefits or obligation to fund benefits with respect to
any Employee, or (B) result in the triggering or imposition of any
restrictions or limitations on the right of the Buyer, the Target or
any of its Subsidiaries to amend or terminate any Target Employee
Plan. No payment or benefit which will or may be made by the Buyer,
the Target, or any of its Subsidiaries or any of their respective
Affiliates with respect to any Employee may be characterized as an
"excess parachute payment" within the meaning of Section 280G(b)(1) of
the Code which is contingent on the change in ownership of the Target
resulting from the Merger. No officer, director or Employee of the
Target or any of its Subsidiaries is entitled to any "sale bonus
payment," "retention payment," or any other payment or benefit in
connection with, or as a result of, the transactions contemplated by
this Agreement.
(v) To the Target's Knowledge, each of the Target and any of
its Subsidiaries is in compliance in all material respects with all
applicable laws (domestic and foreign) respecting employment,
employment practices, labor, terms and conditions of employment, wages
and hours, withholding taxes, unemployment compensation and Social
Security.
(i) Labor and Employment Matters. No work stoppage or labor
strike against the Target or any of its Subsidiaries by Employees is
pending or, to the Knowledge of the Target, threatened. Each of the Target
and its Subsidiaries (i) is not involved in or, to the Knowledge of the
Target, threatened with any labor dispute, grievance, or litigation
relating to labor matters and (ii) is not presently, nor has it been in the
past a party to, or bound by, any collective bargaining, union or similar
agreement, nor is any such agreement currently being negotiated by the
Target or any of its Subsidiaries. No Employees are currently or while
employed by the Target or any of its Subsidiaries have ever been
represented by any labor union with respect to their employment by Target
or its Subsidiaries and to the Knowledge of the Target, no activities the
purpose of which is to achieve such representation of all or some of such
Employees are threatened or ongoing.
(j) Articles of Incorporation and Bylaws of the Target. The
Target has furnished or otherwise made available to the Buyer a complete
and correct copy of the Target's Articles of Incorporation and Bylaws, in
each case as amended to the date of this Agreement. Such Articles of
Incorporation and Bylaws of the Target and all similar organizational
documents of Subsidiaries of the Target are in full force and effect. The
Target is not in violation of its Articles of Incorporation or Bylaws and,
except as would not, in the aggregate, have, or reasonably be expected to
have, a Target Material Adverse Effect, none of the Subsidiaries of the
Target is in violation of any similar organizational documents.
(k) Absence of Certain Changes. Except as disclosed in the Public
Reports filed prior to the date of this Agreement or as otherwise permitted
hereby, since June 30, 2000, (i) the Target and its Subsidiaries have
conducted their respective businesses in all material respects in the
Ordinary Course of Businesses and there have not been any changes, or any
other developments with respect to the Target or any of its Subsidiaries,
in each case whether or not in the Ordinary Course of Business, that, in
the aggregate with all other changes and developments, have had, or would
reasonably be expected to have, a Target Material Adverse Effect,
(excepting any ratings decline or similar action taken with respect to the
Target by any rating agency following the public announcement of the
execution of this Agreement), and (ii) there has not been (A) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) in respect of any Target Shares or
other equity securities, Target Equity Equivalent Securities or any other
securities convertible, exercisable or exchangeable for or into shares of
capital stock or other equity securities, of the Target or any of its
Subsidiaries, other than dividends and distributions by wholly owned
Subsidiaries of the Target; (B) any change by the Target to its accounting
policies, practices or methods; (C) other than in connection with the
exercise, exchange or conversion of Target Equity Equivalent Securities,
any repurchase, redemption or other acquisition of any shares of capital
stock or other equity securities or any securities convertible,
exchangeable or exercisable for or into shares of capital stock or other
equity securities, of the Target or any of its Subsidiaries; (D) except as
required by applicable law or pursuant to contractual obligations existing
as of June 30, 2000, (w) any execution, establishment, adoption or
amendment of, or acceleration of rights or benefits under, any agreement
relating to severance, any Target Employee Plan, any employment or
consulting agreement or any collective bargaining agreement, (x) any
increase in the compensation payable or to become payable to any officer,
director or employee of the Target or any of its Subsidiaries (except
increases permitted hereunder), (y) any grant of any severance or
termination paid to any officer or director of the Target, or (z) any grant
of any stock options or other equity related awards other than in the
ordinary course consistent with past practice; (E) any default (with or
without notice or any lapse of time) in the due performance or observance
of any term, covenant (financial or otherwise), representation, warranty or
agreement of the Target or its Subsidiaries under any agreement relating to
indebtedness for borrowed money (including, without limitation, the Target
Senior Notes Indenture); or (F) any agreement or commitment entered into
with respect to the foregoing.
(l) Litigation; Liabilities. (i) Except as disclosed in the
Public Reports filed prior to the date of this Agreement, there are no
civil, criminal or administrative actions, suits, claims, proceedings, or
investigations pending or, to the Knowledge of the Target, threatened,
against the Target or any of its Subsidiaries or any of their respective
properties, except as would not, in the aggregate, have, or reasonably be
expected to have, a Target Material Adverse Effect.
(ii) Except as set forth in the Public Reports filed prior
to the date of this Agreement, neither the Target nor any of its
Subsidiaries has or is subject to any liabilities (absolute, accrued,
contingent or otherwise), except liabilities (A) adequately reflected
on the unaudited consolidated balance sheet of the Target and its
Subsidiaries (including any related notes thereto) as of June 30, 2000
included in the Target's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000, or (B) which, in the aggregate, would not have,
or reasonably be expected to have, a Target Material Adverse Effect.
(m) Permits. Except as disclosed in the Public Reports filed
prior to the date of this Agreement, the Target and its Subsidiaries hold
all permits, licenses, easements, rights-of-way, variances, exemptions,
consents, certificates, orders and approvals which are material to the
operation of the businesses of the Target and its Subsidiaries
(collectively, the "Target Permits"), except where the failure to hold such
Target Permits, in the aggregate, would not have, or reasonably be expected
to have, a Target Material Adverse Effect. The Target and its Subsidiaries
are in compliance with the terms of the Target Permits, except as described
in the Public Reports filed prior to the date hereof or where the failure
to so comply, in the aggregate, would not have, or reasonably be expected
to have, a Target Material Adverse Effect.
(n) Board Action; Statutory Rights; Vote Required. (i) Not less
than a majority of the Target's board of directors has approved this
Agreement and the transactions contemplated hereby and thereby, has
determined that each of the transactions contemplated hereby is in the best
interests of the Target and has resolved to recommend to its stockholders
that they vote in favor of the Merger.
(ii) Neither the Virginia Corporation Law nor any other
state takeover statute or regulation under the laws of the
Commonwealth of Virginia or any other state applies to the Merger,
this Agreement, or any of the transactions contemplated hereby or
thereby. No "fair price," "moratorium," "control share acquisition" or
other similar anti-takeover statute applicable to the Target will
prevent or otherwise delay the consummation of the transaction as
contemplated hereby.
(iii) Neither the Virginia Corporation Law nor any other
statute or regulation under the law of the Commonwealth of Virginia
(including, without limitation, Sections 13.1-730 and 13.1-737 of the
Virginia Corporation Law) provides any right of dissent or appraisal
to any holder of any Target Shares or any Target Equity Equivalent
Security which are issued and outstanding.
(iv) The Requisite Stockholder Approval is the only approval
of stockholders of the Target necessary to approve the Merger as
provided in this Agreement.
(v) Upon receipt of the Requisite Stockholder Approval,
pursuant to Section 13.1-721 of the Virginia Corporation Law, and as
set forth in the Articles of Merger, all of the Target Series A
Shares, Target Series B Shares and Target Series C Shares (including
all unpaid dividends with respect thereto) shall be canceled at the
Effective Time by operation of law without any further action by the
holders of such shares.
(o) Opinion of Financial Advisor. The board of directors of the
Target has received the written opinion of PaineWebber Incorporated, dated
as of or prior to the date of this Agreement, to the effect that, subject
to the qualifications and limitations contained therein, as of the date of
such opinion, the Merger Consideration is fair to the holders of each class
of Target Shares from a financial point of view.
(p) Taxes.
-----
(i) Each of the Target and its Subsidiaries has timely filed
all Tax Returns required to be filed by any of them and paid (or
established full and adequate reserves or accruals on the
financial statements filed in the Public Records for) all Taxes
required to be paid by any of them in respect of periods covered
by such Tax Returns (whether or not shown as due on any such Tax
Returns) or which are otherwise due and payable, and all such Tax
Returns are true, correct and complete, except for failures to
timely file, pay, or omissions or inaccuracies which would not
have a Target Material Adverse Effect.
(ii) No deficiencies for any Taxes have been proposed,
asserted or assessed in writing or, to the Knowledge of the
executive officers of the Target, orally, by any Taxing authority
against the Target or any of its Subsidiaries which if adversely
determined would have a Target Material Adverse Effect, and no
audit of any Tax Return of the Target or any of its Subsidiaries
is currently being conducted by any Taxing authority.
(iii) Except with respect to any claims for refunds, the
federal income Tax returns of the Target and each of its
Subsidiaries for all such periods ended on or before December 31,
1993 have been examined by and settled with the IRS, or the
applicable statute of limitations with respect to such years,
including extensions thereof, has expired. As of the date of this
Agreement, none of the Target or any of its Subsidiaries (A) has
requested any extension of time within which to file any material
federal income Tax return, which Tax return has not since been
filed and (B) has in effect any extension, outstanding waivers or
comparable consents with respect to any federal income Taxes or
federal income Tax Returns.
(iv) Copies of all federal Tax returns required to be filed
by the Target or any of its Subsidiaries (including any
predecessors) for each of the last three years, together with all
schedules and attachments thereto, have been delivered or made
available by the Target to the Buyer.
(v) None of the Target or any of its Subsidiaries (including
any predecessors) is a party to, is bound by, or has any
obligation under any Tax sharing or similar agreement.
(vi) None of the Target or any of its Subsidiaries (A) has
received a Tax ruling from any federal Taxing authority or
entered into a closing agreement with any federal Taxing
authority that would have a continuing material effect after the
Closing Date, (B) would be required to include in income for any
period after the Closing Date any adjustment pursuant to Section
481(a) of the Code by reason of a voluntary change in accounting
method initiated by it for any tax year, and, to the Knowledge of
the executive officers of the Target, the IRS has not proposed
any such adjustment or change in accounting method for any tax
year for which the statute of limitations remains open or (C)
would be required to include any amount in income after the
Closing Date pursuant to Section 453 of the Code as the result of
sales of assets before the Closing Date under the installment
method.
(vii) None of the Target or any of its Subsidiaries has
constituted a "distributing corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the
Code in the past 24 month period or in a distribution which could
otherwise constitute part of a "plan" or a series of "related
transactions" within the meaning of Section 355(e) of the Code.
(viii) Since December 31, 1999, the Target has incurred no
liability for any material Taxes under Sections 857(b), 860(c) or
4981 of the Code or IRS Notice 88-19 or Treasury Temporary
Regulation Section 1.337(d)-5T, including, without limitation,
any material Tax arising from a prohibited transaction described
in Section 857(b)(6) of the Code, and neither the Target nor any
of its Subsidiaries has incurred any material liability for Taxes
other than in the Ordinary Course of Business. To the Knowledge
of the Target, no event has occurred, and no condition or
circumstance exists, which presents a risk that any material Tax
described in the preceding sentence will be imposed on the Target
or any Target Subsidiary prior to the Effective Time.
(ix) The Target (A) for each taxable year beginning with the
taxable year ended on, and ending at the Effective Time, has been
and will be subject to taxation as a real estate investment trust
(a "REIT") within the meaning of the Code and has satisfied the
requirements to qualify as a REIT for such years, (B) has
operated, and intends to continue to operate, consistent with the
requirements for qualification and taxation as a REIT through the
Effective Time, (C) will maintain its qualification as a REIT
through the date of closing by making all necessary undertakings
that are consistent with the Code; and (D) has not taken or
omitted to take any action which could reasonably be expected to
result in a challenge to its status as a REIT, and no such
challenge is pending, or to the Target's Knowledge, threatened.
(x) Each Subsidiary of the Target (A) which is a partnership
or limited liability company or files Tax Returns as a
partnership for federal income tax purposes (i) has since its
formation or its acquisition by Target been, and continues to be,
classified for federal income tax purposes as a partnership or
disregarded entity and not as an association taxable as a
corporation, or a "publicly traded partnership" that is treated
as a corporation for federal income tax purposes; and (ii) has
not since its formation or its acquisition by the Target owned
any assets (including, without limitation, securities) that would
cause the Target to violate Section 856(c)(4) of the Code; or (B)
which is a corporation or treated as an association taxable as a
corporation has been since the date of its formation or
acquisition by Target, a qualified REIT subsidiary under Section
856(i) of the Code.
(xi) For the purpose of this Agreement, the term "Tax"
(including, with correlative meaning, the terms "Taxes",
"Taxing", and "Taxable") shall include all federal, state, local
and foreign income, profits, franchise, gross receipts, payroll,
sales, employment, use, property, gains, transfer, recording,
license, value-added, withholding, excise and other taxes, duties
or assessments of any nature whatsoever (whether payable directly
or by withholding), together with any and all estimated Tax
interest, penalties and additions to Tax imposed with respect to
such amounts and any obligations in respect thereof under any Tax
sharing, Tax allocation, Tax indemnity or similar agreement as
well as any obligations arising pursuant to Regulation 1.1502-6
promulgated under the Code or comparable state, local or foreign
provision. The term "Tax Return" shall mean any return,
declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
(q) Financial Statements; Accounting. Each of the consolidated
balance sheets of the Target and its Subsidiaries (including all related
notes) included in the financial statements contained in the Public Reports
(or incorporated therein by reference) present fairly, in all material
respects, the consolidated financial position of the Target and its
Subsidiaries as of the respective dates indicated, and each of the
consolidated statements of income, consolidated statements of cash flows
and consolidated statements of changes in stockholders' equity of the
Target and its Subsidiaries (including all related notes) contained in such
financial statements present fairly, in all material respects, the
consolidated results of operations, cash flows and changes in stockholders'
equity of the Target and its Subsidiaries for the respective periods
indicated, in each case in conformity with GAAP applied on a consistent
basis throughout the periods involved (except for changes in accounting
principles disclosed in the notes thereto) and the rules and regulations of
the SEC, except that unaudited interim financial statements are subject to
normal and recurring year-end adjustments and any other adjustments
described therein and do not include certain notes and other information
which may be required by GAAP but which are not required under the
Securities Exchange Act. The financial statements included in the Public
Reports are in all material respects in accordance with the books and
records of the Target and its Subsidiaries. There has been no change in the
accounting policies, practices or methods the Target and its Subsidiaries
since June 30, 2000.
(r) Intellectual Property. The Target and its Subsidiaries own
the entire right, title and interest in and to or have the right to use
(pursuant to valid and defensible license arrangements), all intellectual
property used or held for use in, or otherwise necessary for, the operation
of their respective businesses, except as would not, in the aggregate, have
or reasonably be expected to have a Target Material Adverse Effect. There
are no pending, or to the Knowledge of the Target, threatened proceedings
or litigation or other adverse claims affecting or relating to any such
intellectual property, nor, to the Knowledge of the Target, any reasonable
basis upon which a claim may be asserted by or against the Target for
infringement of any such intellectual property that, in the aggregate,
would reasonably be expected to have a Target Material Adverse Effect.
(s) Indebtedness for Borrowed Money. The Target Disclosure
Schedule sets forth a true and correct list of all agreements of the Target
and its Subsidiaries relating to indebtedness for borrowed money in excess
of $1,000,000. The Target is not, and at Closing will not be (and, in
either case, would not be upon the passage of time or but for the waiver by
or forbearance of any other Person), in default in the due performance or
observance of any term, covenant (financial or otherwise), representation,
warranty or agreement in any such agreement (including, without limitation,
the Target Senior Notes Indenture).
(t) Properties. Except as disclosed in the Public Reports, each
of the Target and its Subsidiaries (i) has good and marketable title to all
the properties and assets reflected in the latest audited balance sheet
included in the Public Reports as being owned by the Target or one of its
Subsidiaries or acquired after the date thereof which are, alone or in the
aggregate, material to the Target's business on a consolidated basis
(except properties sold or otherwise disposed of since the date thereof in
the Ordinary Course of Business), free and clear of (A) all Security
Interests except such imperfections or irregularities of title or other
Security Interests (other than real property mortgages or deeds of trust)
as do not materially affect the use of the properties or assets subject
thereto or affected thereby or otherwise materially impair the business
operations presently conducted at such properties, and (B) all real
property mortgages and deeds of trust, and (ii) is the lessee of all
leasehold estates reflected in the latest audited financial statements
included in the Public Reports or acquired after the date thereof which
are, alone or in the aggregate, material to its business on a consolidated
basis and is in possession of the properties purported to be leased
thereunder, and each such lease is valid without default thereunder by the
lessee, or, to the Target's Knowledge, the lessor.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER AND TRANSITORY
SUBSIDIARY. Each of the Buyer and the Transitory Subsidiary represents and
warrants to the Target that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout
this Section 4), except as set forth in the Buyer disclosure schedule
accompanying this Agreement (the "Buyer Disclosure Schedule"). The Buyer
Disclosure Schedule will be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Section 4.
(a) Organization. The Buyer is a limited liability company duly
organized, validly existing, and in good standing under the laws of the
State of California. The Transitory Subsidiary is a corporation duly
organized, validly existing, and in good standing under the laws of the
Commonwealth of Virginia.
(b) Financing. The Buyer has furnished to the Target correct and
complete copies of written commitments from a third party or third parties
(the "Financing Commitments") committing to provide the Buyer and the
Transitory Subsidiary with sufficient financing to consummate the Merger
according to the terms (and subject to the conditions) of such written
commitments.
(c) Authorization of Transaction. Each of the Buyer and the
Transitory Subsidiary has requisite power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of each of
the Buyer and the Transitory Subsidiary, enforceable in accordance with its
terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any Governmental Entity, or court to which either the Buyer or the
Transitory Subsidiary is subject, (ii) violate or conflict with any
provision of the charter or bylaws of either the Buyer or the Transitory
Subsidiary or (iii) conflict with, result in breach of, constitute a
default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, bond, note mortgage
indenture, franchise or other arrangement (with or without any notice or
lapse of time) to which either the Buyer or the Transitory Subsidiary is a
party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any lien, claim or encumbrance upon any of its
assets), except in the case of clauses (i) and (iii) above only, where the
violation, conflict, breach, default, acceleration, termination,
modification, cancellation, failure to give notice, or lien, claim or
encumbrance would not have, or reasonably be expected to result in any
changes in or effects that in the aggregate together with all other changes
and effects (x) will prevent the Buyer or the Transitory Subsidiary from
consummating the transactions contemplated hereby or materially delay the
Buyer's ability to consummate the transactions contemplated hereby or (y)
materially impair the Buyer's ability to perform its obligations under
Sections 2(c)(iv) or 2(e) (such changes and effects described in clauses
(x) and (y), a "Buyer Material Adverse Effect"). To the Knowledge of any
director or officer of the Buyer, and other than in connection with the
provisions of the Hart-Scott-Rodino Act, the Virginia Corporation Law, the
Securities Exchange Act, the Securities Act, and any applicable state
securities laws, neither the Buyer nor the Transitory Subsidiary needs to
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for
the Parties to consummate the transactions contemplated by this Agreement,
except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a Buyer Material Adverse
Effect.
(e) Brokers' Fees. Neither the Buyer nor the Transitory
Subsidiary has any liability or obligation to pay any fees or commissions
to any broker, finder, agent, investment banker, financial advisor or other
person with respect to the transactions contemplated by this Agreement for
which any of the Target or its Subsidiaries could become liable or
obligated.
(f) Escrowed Shares. The Buyer is the full legal and beneficial
owner of all of the Escrowed Shares and such shares are owned by the Buyer
free and clear of any lien, charge, security interest, restriction or
encumbrance whatsoever on such shares.
(g) Disclosure. None of the information that the Buyer or the
Transitory Subsidiary will supply specifically for use in the Definitive
Proxy Materials will contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they will be
made, not misleading.
(h) Funds. At Closing, Buyer will have adequate funds to pay the
Merger Consideration.
SECTION 5. COVENANTS. The Parties agree as follows with respect to the
period from and after the execution of this Agreement.
(a) General. Each of the Parties will use commercially reasonable
efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of
the closing conditions set forth in Section 6 below) as soon as practicable
after the date hereof.
(b) Notices and Consents. The Target will give any notices (and
will cause each of its Subsidiaries to give any notices) to third parties,
and will use commercially reasonable efforts to obtain (and will cause each
of its Subsidiaries to use commercially reasonable efforts to obtain) any
third party consents, waivers or licenses that the Buyer reasonably may
request in connection with the matters referred to herein.
(c) Regulatory Matters and Approvals. Each of the Parties will
(and the Target will cause each of its Subsidiaries to) give any notices
to, make any filings with, and use commercially reasonable efforts to
obtain any authorizations, consents, permits, orders, requisitions, tax
rulings, waivers, licenses and approvals of Governmental Entities in
connection with the matters referred to in Sections 3(d) and 4(d) above.
Without limiting the generality of the foregoing:
(i) Securities Exchange Act. The Target will, as soon as
practicable following the date of this Agreement, prepare and file
with the SEC preliminary proxy materials under the Securities Exchange
Act relating to the special meeting of its shareholders (the "Special
Meeting") to be called pursuant to Section 5(l) below in order that
the shareholders may consider and vote upon the adoption of this
Agreement and the approval of the Merger. The Target will use
commercially reasonable efforts to respond to the comments of the SEC
thereon and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary, proper, or
advisable. The Buyer will provide the Target with whatever information
and assistance in connection with the foregoing filing that the Target
reasonably may request and will supply the Buyer with copies of all
correspondence between the Target or any of its representatives, on
the one hand, and the SEC or its staff, on the other hand, with
respect to the proxy statement or the Merger. The Target shall give
the Buyer and its counsel (who shall provide any comments thereon as
soon as reasonably practicable) the opportunity to review the proxy
statement prior to its being filed with the SEC and shall give the
Buyer and its counsel (who shall provide any comments thereon as soon
as reasonably practicable) the opportunity to review all amendments
and supplements to the proxy statement and all responses to requests
for additional information and replies to comments prior to their
being filed with, or sent to, the SEC. The Target will provide to the
Buyer at least five days' prior notice of the date of mailing (the
"SEC Mail Date") of the preliminary proxy materials to the SEC and at
least five days' prior notice of the date of mailing (the "Shareholder
Mail Date") of the Definitive Proxy Materials to the Target's
shareholders, which Shareholder Mail Date shall be as soon as
practicable after preliminary proxy materials have been cleared by the
SEC but in no event shall be earlier than 33 days after the date
hereof.
(ii) Hart-Scott-Rodino Act. (A) Each of the Parties will
file (and the Target will cause each of its Subsidiaries to file) any
Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the DOJ or any
other Governmental Entity under the Hart-Scott-Rodino Act, will use
commercially reasonable best efforts to obtain (and the Target will
cause each of its Subsidiaries to use commercially reasonable efforts
to obtain) an early termination of the applicable waiting period, and
will make (and the Target will cause each of its Subsidiaries to make)
any further filings pursuant thereto that may be necessary, proper, or
advisable.
(B) In connection with the foregoing Section
5(c)(ii)(A), the Buyer and the Target and each of their respective
Subsidiaries shall use their commercially reasonable efforts to (i)
cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry,
including any proceeding initiated by a Party, (ii) promptly inform the
other Party of any communication received by such Party from, or given by
such Party to, the DOJ or any other Governmental Entity and of any material
communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions contemplated
hereby, and (iii) permit the other Party to review any communication given
by it to, and consult with each other in advance of any meeting or
conference with, the DOJ or any such other Governmental Entity or, in
connection with any proceeding by a private party, with any other Person,
and to the extent permitted by the DOJ or such other applicable
Governmental Entity or other Person, give the other Party the opportunity
to attend and participate in such meetings and conferences. For purposes of
this Agreement, "Regulatory Law" means the Sherman Act, as amended, the
Clayton Act, as amended, the Hart-Scott-Rodino Act, the Federal Trade
Commission Act, as amended, and all other federal, state and foreign
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines and other laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization
or restraint of trade or lessening of the competition.
(C) Subject to the terms and conditions of this
Agreement, in furtherance and not in limitation of the covenants of the
Parties contained in Sections 5(c)(ii)(A) and (B), if any administrative or
judicial action or proceeding, including any proceeding by a private party,
is instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Regulatory Law, each of
the Target and the Buyer shall cooperate in all respects with each other
and use its respective commercially reasonable efforts to contest and
resist any such action or proceeding and to have vacated, lifted, reversed
or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and that prohibits,
prevents or restricts consummation of the transactions contemplated by this
Agreement. Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Section 5(c)(ii) shall limit a Party's right to
terminate this Agreement pursuant to Section 7.
(D) If any objections are asserted with respect to the
transactions contemplated hereby under any Regulatory Law or if any suit is
instituted by any Governmental Entity or any private party challenging any
of the transactions contemplated hereby as violative of any Regulatory Law,
each of the Target and the Buyer shall use commercially reasonable efforts
to resolve any such objections or challenge as such Governmental Entity or
private party may have to such transactions under such Regulatory Law so as
to permit consummation of the transactions contemplated by this Agreement.
(E) Nothing in this Section 5(c)(ii) shall require the
Buyer or any of its Subsidiaries (including the Surviving Corporation after
the Closing) to sell, hold separate or otherwise dispose of or conduct
their business in a specified manner, or agree to sell, hold separate or
otherwise dispose of or conduct their business in a specified manner, or
permit the sale, holding separate or other disposition of, any assets of
the Buyer or its Subsidiaries (including the Surviving Corporation after
the Closing) or the conduct of their business in a specified manner,
whether as a condition to obtaining any approval from a Governmental Entity
or any other Person or for any other reason.
(d) No Poison Pill. The Target shall not adopt any shareholder
rights plan, "poison pill" or other plan or agreement prohibiting
shareholders from purchasing additional securities of the Target unless the
Buyer, the Transitory Subsidiary and their respective Subsidiaries and
Affiliates are exempted from such plan, pill or arrangement.
(e) Financing. The Buyer shall provide to the Target (i) at least
three days prior to the SEC Mail Date, a Confirmation dated as of a then
current date, if the SEC Mail Date is later than thirty days from the date
of this Agreement, (ii) at least three days prior to the Shareholder Mail
Date, either (x) copies of written binding commitments from a third party
or third parties committing to provide the Buyer and the Transitory
Subsidiary with sufficient financing to consummate the Merger according to
the terms (and without any conditions other than those conditions
customarily contained in such written binding commitments by such third
party or third parties) of such written commitments, or (y) definitive
agreements for sufficient financing to consummate the Merger (such
commitments or agreements described in clauses (x) and (y), the "Definitive
Financing Agreements"). On or prior to the date of the Special Meeting, the
Buyer will have sufficient financing in place to consummate the Merger.
(f) Target SARs and Target Options. Target shall take all
necessary action to cause all outstanding Target SARs and Target Options to
be purchased, terminated, cancelled or otherwise satisfied by payment to
the holders thereof of not more than $265,000 in the aggregate.
(g) Operation of Business. The Target will not (and will not
cause or permit any of its Subsidiaries to) engage in any practice, take
any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, except as
expressly contemplated by this Agreement:
(i) none of the Target and its Subsidiaries will authorize
or effect any change in its charter or bylaws, other than amendments
of the bylaws as needed for the holders of the Target's preferred
stock to elect two additional directors as permitted by the Target's
charter;
(ii) none of the Target and its Subsidiaries will (A) grant
any stock appreciation rights, dividend equivalent right, options,
warrants, or other rights to purchase, exchange or obtain, or
otherwise acquire in respect of any of its capital stock, (B) issue,
sell, pledge or otherwise dispose of any of its capital stock (except
upon the conversion or exercise of the Target Options as otherwise
permitted herein) or (C) accelerate any right to exchange or acquire
any capital stock of the Target or its Subsidiaries;
(iii) none of the Target and its Subsidiaries will (A)
declare, set aside, or pay any dividend or distribution with respect
to its capital stock (whether in cash or in kind), or directly or
indirectly redeem, repurchase, or otherwise acquire any of its capital
stock or the capital stock of its Subsidiaries, provided, however, the
Target may declare and pay a dividend on its Target Series A Shares,
its Target Series B Shares and its Target Series C Shares in an
aggregate amount not to exceed $10,000,000, as long as the payment of
any such dividends are necessary in order for the Target to maintain
its status as a REIT or to avoid liability for any excise taxes
imposed under Section 4981 of the Code and as long as such declaration
and payment do not conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument,
bond, note, mortgage, indenture, franchise or other arrangement (with
or without notice or any lapse of time) to which any of the Target and
its Subsidiaries is a party or by which it is bound or to which any of
its assets is subject (or result in the imposition of any lien, claim
or encumbrance upon any of its assets), except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice, or lien, claim or encumbrance
would not have, or reasonably be expected to have, a Target Material
Adverse Effect, or (B) effect any stock split, reverse stock split,
subdivision, reclassification or similar transaction, or otherwise
change its capitalization as it exists on the date hereof;
(iv) none of the Target and its Subsidiaries will issue any
note, bond, or other debt security or create, incur, assume, or
guarantee any indebtedness for borrowed money or capitalized lease
obligation or otherwise become responsible (whether directly,
indirectly or otherwise) for the obligations of any other Person;
(v) none of the Target and its Subsidiaries will (A) impose
any Security Interest upon any of its assets or (B) sell, lease,
assign, transfer or otherwise dispose of (by merger or otherwise) any
of its property, business or assets except for (i) the disposition of
assets to the Buyer-REIT as contemplated by Section 2(h), (ii) the
sale of assets related to the tax-exempt bond position at a price to
be approved by the Buyer, such approval not to be unreasonably
withheld or delayed, (iii) the sale of the Target's pool of property
tax receivables secured by real property in Cuyahoga County, Ohio, at
a price to be approved by the Buyer, such approval not to be
unreasonably withheld or delayed, (iv) the sale of any of Target's
multifamily loans or participations at a yield not in excess of 3%
over the yield on the 10 year US Treasury security, (v) the sale by
the Target of approximately $65 million of automobile installment
contracts, subject to the related debt, to Greenwich Capital Financial
Products, Inc., and (vi) other asset sales for fair value in the
ordinary course of business provided that the proceeds of such other
asset sales do not exceed $500,000 in any single transaction or
$2,000,000 in the aggregate prior to the Effective Time;
(vi) except for funding obligations on existing construction
loans in an aggregate amount not to exceed $6,000,000 and except for
the purchase by the Target pursuant to that certain Tax Certificate
Sale/Purchase Agreement by and between Cuyahoga County, Ohio
Treasurer, as Seller, and GLS Capital-Cuyahoga, Inc., as Purchaser,
Dated as of September 1, 1998 of certain property tax receivables
located in and around Cuyahoga County, Ohio for an aggregate purchase
price not to exceed $6,000,000, none of the Target and its
Subsidiaries will (A) make any loan to any other Person other than
Target, Subsidiaries or DHI, (B) make any capital investment in, or
acquire the securities or assets of, any other Person other than
Target, Subsidiaries, DHI, or Subsidiaries of DHI, provided that in
connection with any such investment in or acquisition of any
Subsidiary of DHI (including in connection with any liquidation of
DHI) (x) no more than $200,000 shall be distributed to shareholders of
DHI other than the Target and (y) such Subsidiary of DHI shall become,
directly or indirectly, a wholly-owned Subsidiary of the Target whose
capital stock or assets are not and will not then become, directly or
indirectly, subject to any collateral pledge to any of the lenders of
the Target or any of its Subsidiaries, or (C) make any capital
expenditures in the aggregate for the Target and its Subsidiaries in
excess of $100,000;
(vii) none of the Target and its Subsidiaries will make any
change in employment terms for any of its directors, officers and
employees, other than (A) extension through the Effective Time of
employment retention agreements which are in effect as of the date of
this Agreement and (B) salary increases made in the Ordinary Course of
Business, not to exceed 10% in the aggregate or 20% for any particular
individual (or such greater amount which is approved in advance by the
Buyer, such approval not to be unreasonably withheld or delayed); and
(C) amending that certain Employment Agreement between Thomas H. Potts
and the Target dated as of September 30, 1994 to delete the provisions
of Sections 3(a)(iv) and 3(a)(v), provided that Thomas H. Potts shall
not have previously entered into an employment agreement with the
Buyer;
(viii) none of the Target or its Subsidiaries will enter
into or adopt or amend any severance plan or other contract or
commitment relating to severance, or enter into or adopt or amend any
commitment with any employee or any Target Employee Plan (including,
without limitation, the plans, programs, agreements and arrangements
referred to in Section 3(i)) other than any employment agreement
entered into with any employee of the Target who is hired to replace
an existing employee of the Target as of the date of this Agreement,
which agreement shall be approved by the Buyer (such approval not to
be unreasonably withheld or delayed);
(ix) none of the Target or its Subsidiaries will settle or
compromise any pending or threatened litigation without the Buyer's
consent (which consent will not be unreasonably withheld, delayed or
conditioned);
(x) none of the Target or any of its Subsidiaries shall
waive or amend any term or condition of any confidentiality or
"standstill" agreement to which the Target or any Subsidiary is a
party;
(xi) none of the Target or any of its Subsidiaries shall (A)
enter into any agreements that are material to the continued operation
of the Target or such Subsidiary, and which (x) could materially and
adversely effect the Target or such Subsidiary or (y) which could
reasonably be expected to have a material adverse effect in the
ability of the Parties to consummate the transaction contemplated by
this Agreement, or (B) amend any of the foregoing agreements as exist
on the date hereof;
(xii) none of the Target or any of its Subsidiaries shall
make any material changes in the type or amount of their insurance
coverages;
(xiii) none of the Target or any of its Subsidiaries shall,
except as may be required by law or GAAP or the rules and regulations
of the SEC and with prior written notice to the Buyer, change any
material accounting principals or practices used by the Target or its
Subsidiaries;
(xiv) none of the Target or any of its Subsidiaries shall
enter into any contracts involving any rate swap transaction, basis
swap, forward rate transaction, commodity swap, commodity option,
equity or equity index swap, equity or equity index option, bond
option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, currency swap
transaction, cross-currency rate swap transaction, currency option or
any other similar transaction (including any option with respect to
any of these transactions), or any combination of these transactions
(each a "Derivative" and collectively, "Derivatives"), except for
contracts approved by the Buyer (such consent not to be unreasonably
withheld);
(xv) none of the Target or any of its Subsidiaries shall
waive, relinquish, release or terminate any material right or claim,
including any such right or claim under any material contract;
(xvi) none of the Target or any of its Subsidiaries shall
apply for, consent to, or acquiesce in, the appointment of a trustee,
receiver, sequestrator or other custodian for any substantial part of
the property of the Target or any Subsidiary, or make a general
assignment for the benefit of creditors, or permit or suffer to exist
the commencement of any bankruptcy, reorganization, debt arrangement
or other case or proceeding under any bankruptcy or insolvency law, or
any dissolution, winding up or liquidation proceeding, in respect of
the Target or any Subsidiary;
(xvii) none of the Target or any of its Subsidiaries shall
take any action that would reasonably be expected to cause any Target
Shares to be delisted from NASDAQ or the New York Stock Exchange, as
applicable, prior to the completion of the Merger;
(xviii) none of the Target or its Subsidiaries will enter
into a "non-compete" or similar agreement;
(xix) the Target and each of its Subsidiaries shall conduct
its business in all material respects in the Ordinary Course of
Business consistent with this Agreement and use reasonable best
efforts to (x) preserve intact its business organization, (y) keep
available the services of its officers and employees and (z) maintain
its existing relations and goodwill with customers, suppliers,
regulators, creditors and all others having business dealings with it;
(xx) except as may be required by law, none of the Target or
any of its Subsidiaries shall make any material tax election, make or
change any method of accounting with respect to taxes, file any
amended tax returns or settle or compromise any material federal,
state, local or foreign tax liability;
(xxi) the Target intends to and will continue to maintain
its qualification as a REIT through the Closing Date by making all
necessary undertakings that are consistent with the Code;
(xxii) none of the Target and its Subsidiaries will commit
to any of the foregoing.
(h) Full Access. The Target will (and will cause each of its
Subsidiaries to) permit representatives of the Buyer to have full access at
all reasonable times, upon reasonable prior notice, and in a manner so as
not to interfere with the normal business operations of the Target and its
Subsidiaries, to all premises, properties, personnel, books, records
(including tax records), contracts, and documents of or pertaining to each
of the Target and its Subsidiaries. Each of the Buyer and the Transitory
Subsidiary will treat and hold as such any Confidential Information it
receives from any of the Target and its Subsidiaries in the course of the
reviews contemplated by this Section 5(h), will not use any of the
Confidential Information except in connection with this Agreement, and, if
this Agreement is terminated for any reason whatsoever, agrees to return to
the Target all tangible embodiments (and all copies) thereof which are in
its possession.
(i) Notice of Developments. Each Party will give prompt written
notice to the others of (i) any material adverse development causing a
breach of any of its own representations, warranties and covenants
contained herein or (ii) any event which could reasonably be expected to
cause such party to be unable to consummate the Merger or to preclude the
Closing of this Agreement. No disclosure by any Party pursuant to this
Section 5(i), however, shall be deemed to amend or supplement such Party's
disclosure schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
(j) Insurance and Indemnification.
-----------------------------
(i) The Buyer will provide each individual who served as a
director or officer of the Target or any of its Subsidiaries at any
time prior to the Effective Time with liability insurance with respect
to acts or failures to act prior to the Effective Time for a period of
six years after the Effective Time which liability insurance shall be
no less favorable in coverage and amount than any applicable insurance
in effect immediately prior to the Effective Time (other than to the
extent the available limit of any such insurance policy may be reduced
or exhausted by reason of the payment of claims thereunder relating to
such directors or officers of Target or any of its Subsidiaries);
provided, however, that in order to maintain or procure such coverage,
neither the Buyer nor the Surviving Corporation, as applicable, shall
be required to pay, in the aggregate, an annual premium in excess of
300% of the current annual premium paid by the Target for its existing
coverage (the "Insurance Premium Cap"); and provided, further, that if
equivalent coverage cannot be obtained, or can be obtained only by
paying an annual premium in excess of the Insurance Premium Cap, the
Buyer and the Surviving Corporation shall only be required to obtain
as much coverage as can be obtained by paying, in the aggregate, an
annual premium equal to the Insurance Premium Cap.
(ii) Except as permitted under Section 2(d)(ii) and (iii),
for a period of six years after the Effective Time, the Buyer will not
take any action to alter or impair any exculpatory or indemnification
provisions existing in the articles of incorporation or bylaws of the
Surviving Corporation (except as required by Virginia Corporation Law
or federal law) to the extent that such modifications are less
advantageous to any individual who served as a director or officer of
the Target or any of its Subsidiaries at any time prior to the
Effective Time than the exculpatory or indemnification provisions
contained in the articles of incorporation or bylaws of the Target as
of the date hereof.
(iii) If the Merger is consummated, the Buyer and Surviving
Corporation will indemnify each individual who served as a director or
officer of the Target or any of its Subsidiaries, or of DHI or any of
its Subsidiaries, at any time prior to the Effective Time from and
against any and all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes,
liens, losses, expenses, and fees, including all court costs and
reasonable attorneys' fees and expenses, resulting from, arising out
of, or caused by this Agreement or any of the transactions
contemplated herein.
(k) Non-Interference. The Buyer and the Transitory Subsidiary
will not (and will not cause or permit any of their respective Affiliates
to) solicit, entice or otherwise induce any employee of the Target or any
of its Affiliates to leave the employ of the Target for any reason
whatsoever, and not to otherwise interfere with any contractual or business
relationship between the Target and any of its employees or between a
Target's Affiliate and any of such Affiliate's employees; provided,
however, that the Buyer and the Transitory Subsidiary shall not be
prohibited from employing any such person who first solicits the Buyer or
Transitory Subsidiary on his or her own initiative, and, provided, further,
this Agreement shall not prohibit any advertisement or general solicitation
(or employment as a result thereof) that is not specifically targeted at
such persons.
(l) Target Stockholder Approval. The Target shall (i) call the
Special Meeting in accordance with applicable law and its Articles of
Incorporation and its Bylaws for the purpose of voting upon the Merger and
obtaining the Requisite Stockholder Approval (provided that the Shareholder
Mail Date shall in no event shall be earlier than 33 days after the date
hereof), (ii) hold the Special Meeting as soon as practicable following the
date of this Agreement, and (iii) subject to the next sentence, recommend
to its stockholders the approval of the Merger and use its reasonable best
efforts to obtain the approvals by its stockholders of the Merger, this
Agreement and the transactions contemplated hereby. Nothing contained in
this Section 5(l) or Section 5(m) shall require the board of directors of
the Target to make any recommendation or to refrain from making any
recommendation with respect to a Superior Proposal, which the board of
directors, after considering such matters as it deems relevant and after
consulting with its outside counsel, determines in good faith would be
reasonably likely to result in a breach of its fiduciary duties to
stockholders under applicable law as long as the Target has complied with
its obligations set forth in Section 5(m) in all material respects.
For purposes of this Agreement, a "Superior Proposal" means any
bona fide written Takeover Proposal if the proposal is on terms which the
board of directors of the Target determines in its good faith judgment
(after consulting with a financial advisor of nationally recognized
reputation and such other matters as the board of directors of the Target
deems relevant) is reasonably likely to be consummated and to be more
favorable to the Target's stockholders than the Merger. The Target shall
promptly inform the Buyer of the Target's receipt of any Superior Proposal.
(m) Non-Solicitation.
----------------
(i) The Target shall not, and, shall not permit its
Subsidiaries to, or authorize any of its officers, directors,
employees, agents, accountants, counsel, investment bankers, financial
advisors and other representatives ("Representatives") to, (A)
directly or indirectly, initiate, solicit or encourage, or take any
action to facilitate the making of any Takeover Proposal (as defined
below), or (B) directly or indirectly engage in negotiations or
provide any Confidential Information or data to any person making a
Takeover Proposal. Notwithstanding the foregoing, prior to the date of
approval of the Merger and this Agreement by the stockholders of the
Target, the Target shall be permitted to respond to a Takeover
Proposal (by furnishing information and access to a third party or by
participating in discussions and negotiations with a third party) if,
and only if, (x) the board of directors of the Target determines in
good faith, after consulting with a financial advisor of nationally
recognized standing, that the Takeover Proposal is reasonably likely
to result in a Superior Proposal, (y) the board of directors of the
Target determines, after consulting with its outside counsel, that
failure to so respond would be reasonably likely to result in a breach
of fiduciary duties to stockholders under applicable law and (z) the
party making the Takeover Proposal executes a confidentiality
agreement.
(ii) The Target shall promptly advise the Buyer orally and
in writing of any Takeover Proposal or any inquiry with respect to or
that could reasonably be expected to lead to any Takeover Proposal,
the identity of the Person making any such Takeover Proposal or
inquiry and the material terms of any such Takeover Proposal or
inquiry.
(iii) The Target shall immediately cease and cause to be
terminated all existing discussions and negotiations, if any, with any
other Persons conducted heretofore with respect to any Takeover
Proposal.
For purposes of this Agreement, a "Takeover Proposal" with
respect to the Target, as applicable, means any inquiry, proposal or
offer from any Person relating to (A) any direct or indirect
acquisition or purchase of a business that constitutes 20% or more of
the net revenues, net income or net assets of the Target and its
Subsidiaries, taken as a whole, or 20% or more of any class of equity
securities of the Target or any of its Subsidiaries, (B) any tender
offer or exchange offer that if consummated would result in any Person
beneficially owning 20% or more of any class of equity securities of
the Target or any of its Subsidiaries, or (C) any merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Target or any of its
Subsidiaries that constitutes 20% or more of the net revenues, net
income or net assets of the Target or any of its Subsidiaries, as
applicable, and its Subsidiaries taken as a whole, in each case other
than the transactions contemplated by this Agreement. Each of the
transactions referred to in clauses (A) - (C) of the foregoing
definition of Takeover Proposal, other than the transactions
contemplated by this Agreement and transactions permitted under
Section 5(g), is referred to herein as an "Acquisition Transaction."
(n) Benefit Plans. As soon as practicable following the date
hereof, the Target shall file, or shall cause to be filed, any and all
required reports and other documents required to be filed with the IRS
and/or the Department of Labor for any and all welfare benefit plans listed
on Target Disclosure Schedule 3(h) with respect to 1996-1999 reporting
years (and for such prior reporting years to the extent the failure to do
so would have a Target Material Adverse Effect), and shall take, or cause
to be taken, all such action as may be necessary pursuant to the Department
of Labor's Voluntary Compliance Program for Delinquent Plan Filers to
comply with its annual reporting obligations under Title I of ERISA with
respect to such plans for 1996-1999 reporting years (and for such prior
reporting years to the extent the failure to do so would have a Material
Adverse Effect).
SECTION 6. CONDITIONS TO OBLIGATION TO CLOSE.
---------------------------------
(a) Conditions to Obligation of the Buyer and the Transitory
Subsidiary. The obligation of each of the Buyer and the Transitory
Subsidiary to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) this Agreement and the Merger shall have received the
Requisite Stockholder Approval;
(ii) Target shall have transferred the Excluded Target REIT
Assets to the Buyer-REIT;
(iii) to the extent DHI has not been liquidated prior to the
Closing in accordance with the terms of Section 5(g)(vi) hereof, the
purchase by the Buyer or an Affiliate of the Buyer of all of the
outstanding common stock of DHI at a purchase price equal to the book
value of DHI less amounts due from its common shareholders, which
purchase price approximates $120,000 as of the date of this Agreement
(and shall not be materially different at Closing), on terms and
conditions mutually satisfactory to the Parties to such transaction;
but under all circumstances for a price not greater than $200,000;
(iv) the representations and warranties of the Target in
this Agreement not qualified by materiality shall be true and correct
in all material respects and if qualified by materiality shall be true
and correct in all respects, in each case as though made on the
Closing Date;
(v) the Target shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(vi) no statute, rule, regulation or other law and no order,
decree, stipulation, injunction or charge shall have been enacted,
issued, promulgated, entered or issued by any Governmental Entity
which is in effect and has the effect of making the consummation of
the Merger illegal, materially restricts, prevents or prohibits
consummation of any of the transactions contemplated hereby or would
materially impair the ability of the Buyer to own the outstanding
shares of the Surviving Corporation or operate its or the businesses
of the Surviving Corporation, or any of the Surviving Corporation's
Subsidiaries following the Effective Time, nor shall any proceeding by
any Governmental Entity seeking any of the foregoing be pending or
threatened;
(vii) the Target shall have purchased, terminated, or
otherwise satisfied all outstanding Target SARs and Target Options by
payment to the holders thereof of an aggregate purchase price not to
exceed $265,000;
(viii) the Target shall have delivered to the Buyer and the
Transitory Subsidiary a certificate to the effect that each of the
conditions specified above in Section 6(a)(i)-(vii) is satisfied in
all respects;
(ix) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of Governmental Entities
necessary for the consummation of the transactions contemplated hereby
(including, without limitation, those set forth in Sections 3(d) and
4(d) above) without the imposition of any material terms, conditions,
restrictions or limitations;
(x) the Buyer, the Transitory Subsidiary and the Buyer-REIT
shall have obtained the financing they will require in order to
consummate the Merger on terms and conditions reasonably acceptable to
the Buyer;
(xi) the Buyer shall have received an opinion dated as of
the Closing Date of Venable, Baetjer and Howard, LLP in form and
substance reasonably satisfactory to the Buyer, regarding the
qualification of the Target as a REIT under the Code;
(xii) on or prior to the date thirty (30) days from the date
of this Agreement (or on the first business day following such 30th
day if such 30th day is not a business day), the Buyer shall have
received from the holders of ninety (90%) of the outstanding principal
amount of the Target Senior Notes any consent to the Merger or this
Agreement, or any waiver of any terms of the Target Senior Note
Indenture or the Target Senior Notes, as the Buyer shall deem
necessary or advisable, which consent or waiver shall be in form and
substance reasonably satisfactory to the Buyer;
(xiii) the Preferred Stock Charter Amendment shall have been
properly filed and be in full force and effect; and
(xiv) no condition shall exist which constitutes a default
in, or which but for the lapse of time or the waiver by or forbearance
of any Party or Parties thereto would constitute a default in, the
performance or observance of any term, covenant (financial or
otherwise), representation, warranty or agreement in any agreement of
the Target relating to indebtedness for borrowed money (including,
without limitation, the Target Senior Notes Indenture or any Target
Senior Notes).
The Buyer and the Transitory Subsidiary may waive any condition specified
in this Section 6(a) if they execute a writing so stating at or prior to
the Closing.
(b) Conditions to Obligation of the Target. The obligation of the
Target to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the Buyer shall have accepted the transfer of the
Excluded Target REIT Assets to the Buyer-REIT;
(ii) the representations and warranties of the Buyer if not
qualified by materiality shall be true and correct in all material
respects and if qualified by materiality shall be true and correct in
all respects, in each case as though made on the Closing Date;
(iii) each of the Buyer and the Transitory Subsidiary shall
have performed and complied with all of its covenants hereunder in all
material respects through the Closing;
(iv) no statute, rule, regulation or other law and no order,
decree, stipulation, injunction or charge shall have been enacted,
issued, promulgated, entered or issued by any Governmental Entity
which is in effect and has the effect of making the consummation of
the Merger illegal, materially restricts, prevents or prohibits
consummation of any of the transactions contemplated hereby, nor shall
any proceeding by any Governmental Entity seeking any of the foregoing
be pending or threatened;
(v) to the extent DHI has not been liquidated prior to the
Closing in accordance with the terms of Section 5(g)(vi) hereof, the
Buyer or an Affiliate of the Buyer shall have accepted the purchase by
the Buyer or an Affiliate of the Buyer of all of the outstanding
common stock of DHI at a purchase price equal to the book value of DHI
less amounts due from its common shareholders, which purchase price
approximates $120,000 as of the date of this Agreement (and shall not
be materially different at Closing), on terms and conditions mutually
satisfactory to the Parties to such transaction; but under all
circumstances for a price not greater than $200,000, such purchase
agreement to include insurance and indemnification provisions similar
to Section 5(j) above;
(vi) this Agreement and the Merger shall have received the
Requisite Stockholder Approval; and
(vii) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated and the Parties shall have received all
other authorizations, consents, and approvals of Governmental Entities
necessary for the consummation of the transactions contemplated hereby
(including, without limitation, those set forth in Sections 3(d) and
4(d) above) without the imposition of any terms, conditions,
restrictions or limitations.
The Target may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
SECTION 7 TERMINATION.
-----------
(a) Termination of Agreement. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time
(notwithstanding the obtaining of the Requisite Stockholder Approval):
(i) by mutual written consent of the Target and the Buyer;
(ii) by either the Target or the Buyer;
(A) if the Merger has not been consummated by (1)
January 31, 2001 if the Target's preliminary proxy materials are not
reviewed by the SEC, or (2) February 28, 2001 if the Target's preliminary
proxy materials are reviewed by the SEC (such date as described in clauses
(1) and (2), the "End Date"); provided, however, that the right to
terminate this Agreement under this Section 7(a)(ii)(A) shall not be
available to any Party whose failure to fulfill in any material respect any
obligation under this Agreement has caused or resulted in the failure of
the Effective Time to occur on or before the End Date; further, provided,
however, if the Target's Proxy Materials are not filed with the SEC by
November 30, 2000, (the "Target SEC Filing Date"), the End Date shall be
extended by a day for each day subsequent to the Target SEC Filing Date as
to which it takes the Target to file its preliminary proxy materials; or
(B) if the Requisite Stockholder Approval shall not
have been obtained by reason of the failure to obtain the required vote at
a duly held meeting of stockholders or any adjournment thereof;
(iii) by either the Target or the Buyer, if there shall be
any statute, law, rule or regulation that makes consummation of the
Merger illegal or otherwise prohibited or if any judgment, injunction,
order or decree enjoining the Buyer or the Target from consummating
the Merger is entered and such judgment, injunction, order or decree
shall become final and nonappealable;
(iv) by the Buyer, if the board of directors of the Target
shall have failed to recommend or withdrawn or modified or changed in
a manner adverse to Buyer its approval or recommendation of this
Agreement or the Merger, whether or not permitted by the terms hereof,
or shall have failed to call and hold the Special Meeting in
accordance with Section 5(1), or shall have recommended a Superior
Proposal (or the board of directors of the Target shall have resolved
to do any of the foregoing);
(v) by the Buyer, if the Closing shall not have occurred by
reason of the failure of the condition precedent under Section 6(a)(x)
hereof;
(vi) by the Buyer, on or before the date that is thirty (30)
days from the date of this Agreement (or on the first business day
following such 30th day if such 30th day is not a business day), if
the condition precedent under Section 6(a)(xii) hereof shall not have
been satisfied;
(vii) by either the Buyer or the Target, if there shall have
been a breach by the other of any of its representations, warranties,
covenants or obligations contained in this Agreement, which breach
would result in the failure to satisfy one or more of the conditions
set forth in Section 6(a) (iv) or (v) (in the case of a breach by the
Target) or Section 6(b) (ii) or (iii) (in the case of a breach by the
Buyer, including, without limitation, breach of the covenants set
forth in Section 5(e)).
The Party desiring to terminate this Agreement pursuant to clause
(ii), (iii), (iv), (v), (vi) or (vii) of this Section 7(a) shall give
written notice of such termination to the other Party in accordance
with Section 8(h), specifying the provision hereof pursuant to which
such termination is effected.
(b) Termination Fee. If:
---------------
(i) The Buyer shall terminate this Agreement pursuant
to Section 7(a)(iv); or
(ii) (x) either the Target or the Buyer shall terminate
this Agreement pursuant to Section 7(a)(ii)(B), (y) prior to the Special
Meeting a Superior Proposal relating to the Target has been made to the
Target or to the stockholders of the Target by any Person and (z) within 6
months after the termination of this Agreement, the Target consummates a
transaction relating to any Superior Proposal or enters into a definitive
agreement with respect to any Superior Proposal (provided that the Target
ultimately consummates a transaction relating to such Superior Proposal);
or
(iii) the Buyer shall terminate this Agreement pursuant
to Section 7(a)(vii),
then in any case as described in clause (i), (ii), or
(iii), the Target shall pay to the Buyer (by wire transfer of immediately
available funds) an amount equal to $2,000,000 (not later than three (3)
business days after the date of termination of this Agreement in the case
of clauses (i) or (iii) and not later than the date of consummation of such
transaction in the case of clause (ii)); provided, however, that the amount
payable to the Buyer under Section 7(b)(ii) resulting from a termination of
this Agreement pursuant to Section 7(a)(ii)(B) shall be reduced to
$1,500,000 if the Superior Proposal referred to in Section 7(b)(ii)(y) has
been made prior to the earlier of (x) the date the Buyer has obtained the
consent or waiver (as applicable) described in Section 6(a)(xii) or (y) the
date that is thirty days from the date of this Agreement (or on the first
business day following such 30th day if such 30th day is not a business
day); and provided further, that no amount shall be payable to the Buyer
under Section 7(b)(iii) if (A) this Agreement has been terminated by the
Buyer pursuant to Section 7(a)(vii), (B) such termination is based on a
failure of any representation or warranty at Section 3(d), 3(k) or 3(s) to
continue to be true and correct, or true and correct in all material
respects (as applicable), as though such representations and warranties
were made on the Closing Date, and (C) such failure results solely from any
breach occurring after the date hereof relating to any maturity or
termination date under that certain 5/98 Senior Secured Credit Agreement
dated as of May 29, 1998 by and between the Target and Chase Bank of Texas
as Agent and Lender, and other Lenders, as amended, restated, or
supplemented prior to the date hereof or that certain Master Repurchase
Agreement dated as of April 7, 2000 between Lehman Brothers, Inc., Lehman
Commercial Paper, Inc. and the Target, as amended, restated, or
supplemented prior to the date hereof; and provided further that except as
set forth in this Section 7(b), the Target shall have no liability for any
breach of its representations, warranties, covenants, or obligations
contained in this Agreement.
(c) Forfeiture. (i) If the Buyer shall terminate this Agreement
pursuant to Section 7(a)(v), or if the Target shall terminate this
Agreement pursuant to Section 7(a)(vii), the Escrow Amount shall be
transferred, assigned, and delivered to the Target as liquidated damages
(and not as a penalty) in accordance with the terms, and subject to the
limitations and restrictions, of the Escrow Agreement, without payment of
consideration by the Target, and the Buyer and the Transitory Subsidiary
shall have no further liability for any breach of any of its
representations, warranties, covenants or obligations contained in this
Agreement, including without limitation breach of any of the covenants set
forth in Section 5(e). Until any forfeiture of the Escrowed Shares by the
Buyer to the Target pursuant to the Escrow Agreement as a result of the
termination of this Agreement by the Buyer pursuant to Section 7(a)(v), or
by the Target pursuant to Section 7(a)(vii), the Buyer shall have the right
to vote the Escrowed Shares and shall be entitled to receive all dividends
and distributions payable in respect of the Escrowed Shares.
(ii) If the Buyer shall terminate this Agreement pursuant to
Section 7(a)(vi), then (A) within three business days thereof, the Target
will select any or all loans or participations described on Schedule
7(c)(ii) attached hereto and "put" those loans or participations by written
notice to the Buyer and Buyer agrees to purchase such loans or
participations for cash within 10 business days following such notice, or
(B) if the Buyer so elects, in lieu of Buyer's obligations under clause
(A), Buyer shall forfeit the Escrowed Shares to the Target as liquidated
damages (and not as a penalty) in accordance with the terms, and subject to
the limitations and restrictions of, the Escrow Agreement, without payment
of consideration by the Target, and the Buyer and the Transitory Subsidiary
shall have no further liability for any breach of its representations,
warranties, covenants, or obligations contained in this Agreement,
including, without limitation, the breach of the covenants set forth in
Section 5(e). The purchase price for such loans or participations shall be
equal to an amount determined by discounting each principal and interest
payment due on each such loan or participation each month over the life of
such loan or participation at a rate equal to 2.50% plus the rate of
interest applicable to the 10 year US Treasury security (determined at the
close of business on the business day immediately preceding the date of the
"put" notice from the Target to the Buyer), divided by 12. Such purchase
shall be made without any representations or warranties by the Target
relating to such loans or participations, other than that Target has all
the right, title and interest in such loans or participations and that such
loans or participations are being sold free and clear of any liens.
(d) Effect of Termination. If this Agreement is terminated pursuant to
Section 7(a), this Agreement shall become void and of no effect with no
liability on the part of any Party hereto, except that (i) the agreements
contained in Section 7(b), in Section 7(c), and this Section 7(d) hereof
and in the Confidentiality Agreement, shall survive the termination hereof.
The parties hereto expressly acknowledge and agree that, in light of the
difficulty of accurately determining actual damages in circumstances where
the termination fee is payable in accordance with Section 7(b) or the
Escrow Amount is forfeited in accordance with Section 7(c), the right to
receive such termination fee or the Escrow Amount constitutes a reasonable
estimate of the damages that will be suffered by reason of any such
termination of this Agreement and shall be in full and complete
satisfaction of any and all damages arising as a result of the foregoing.
SECTION 8. MISCELLANEOUS.
-------------
(a) Survival. None of the representations, warranties, and
covenants of the Parties (other than the provisions in Section 2 above
concerning payment of the Merger Consideration, the provisions of Section
5(j) above concerning insurance and indemnification, the provisions of
Section 5(k) concerning non-interference, the provisions of Sections 7(b),
(c) and (d) and this Section 8(a)) will survive the Effective Time or the
termination of this Agreement pursuant to Section 7.
(b) Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of the other
Parties; provided, however, that any Party may make any public disclosure
it believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which case
the disclosing Party will use commercially reasonable efforts to advise the
other Party prior to making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that (i)
the provisions in Section 2 above concerning payment of the Merger
Consideration are intended for the benefit of the Target Stockholders and
(ii) the provisions in Section 5(j) above concerning insurance and
indemnification are intended for the benefit of the individuals specified
therein and their respective legal representatives.
(d) Entire Agreement. This Agreement (including the documents
referred to herein), together with the Confidentiality Agreement,
constitutes the entire agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject
matter hereof.
(e) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either
this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other Parties.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
<TABLE>
<CAPTION>
If to the Target: Copy to:
---------------- -------
<S> <C>
Dynex Capital, Inc. Elizabeth R. Hughes, Esq.
Attn: Thomas H. Potts Venable, Baetjer and Howard, LLP
President 1800 Mercantile Bank & Trust Building
4551 Cox Road, Suite 300 Two Hopkins Plaza
Glen Allen, Virginia 23060 Baltimore, Maryland 21201
Facsimile No. (804) 217-5860 Facsimile No. (410) 244-7742
If to the Buyer: Copy to:
--------------- -------
California Investment Fund, LLC Stephen Fraidin, Esq.
Attn: Michael R. Kelly Fried, Frank, Harris, Shriver & Jacobson
Managing Member One New York Plaza
550 West C Street New York, New York 10004
10th Floor Facsimile No. (212) 859-4000
San Diego, California 92101
Facsimile No. (619) 687-5010
If to the Transitory Subsidiary: Copy to:
------------------------------- -------
DCI Acquisition Company Stephen Fraidin, Esq.
c/o California Investment Fund, LLC Fried, Frank, Harris, Shriver & Jacobson
Attn: Michael R. Kelly One New York Plaza
Managing Member New York, New York 10004
550 West C Street Facsimile No. (212) 859-4000
10th Floor
San Diego, California 92101
Facsimile No. (619) 687-5010
</TABLE>
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, overnight
courier, messenger service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it actually is
received by the intended recipient. Any Party may change the address to
which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Parties notice in the
manner herein set forth.
(i) Governing Law; Jurisdiction. This Agreement shall be governed
by and construed in accordance with the domestic laws of the Commonwealth
of Virginia without giving effect to any choice or conflict of law
provision or rule (whether of the Commonwealth of Virginia or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the Commonwealth of Virginia. Each Party to this
Agreement hereby irrevocably agrees that any legal action or proceeding
arising out of or relating to this Agreement or any agreements or
transactions contemplated hereby may be brought in the state or federal
courts of Virginia and hereby expressly submits to the exclusive personal
jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts
are an inconvenient forum.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
all of the Parties; provided, however, that any amendment effected
subsequent to shareholder approval will be subject to the restrictions
contained in the Virginia Corporation Law. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
(l) Expenses. Subject to Section 7(b), 7(c) and 7(d) above, each
of the Parties will bear its own costs and expenses (including legal fees
and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the
context otherwise requires. The word "including" shall mean including
without limitation.
(n) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
BUYER:
CALIFORNIA INVESTMENT FUND, LLC,
a California limited liability company
By: /s/ Michael R. Kelly
------------------------------------
Its:
-----------------------------------
TRANSITORY SUBSIDIARY:
DCI ACQUISITION CORPORATION,
a Virginia corporation
By: /s/ Michael R. Kelly
------------------------------------
Its:
-----------------------------------
TARGET:
DYNEX CAPITAL, INC.,
a Virginia corporation
By: /s/ Thomas H. Potts
------------------------------------
Its: President
-----------------------------------
