SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 26, 1997
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FIRSTCITY FINANCIAL CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 1-7614 76-0243729
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(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
6400 Imperial Drive, Waco, TX 76712
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (817) 751-1750
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
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On March 26, 1997, FirstCity Financial Corporation (the "Company") and
Harbor Financial Group, Inc. ("Harbor") executed a definitive merger agreement
(the "Agreement") pursuant to which Harbor will become a direct wholly-owned
subsidiary of the Company. A copy of the Agreement is attached hereto as Exhibit
2.1. A copy of the press release issued by the Company announcing execution of
the Agreement is attached hereto as Exhibit 20.1. A copy of selected financial
information of Harbor is attached hereto as Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
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(c) EXHIBITS
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2.1 Agreement and Plan of Merger, dated as of March 26, 1997, by and
among FirstCity Financial Corporation, HFGI Acquisition Corp. and
Harbor Financial Group, Inc.
20.1 Press Release of March 26, 1997.
99.1 Selected Financial Information of Harbor Financial Group, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRSTCITY FINANCIAL
CORPORATION
/s/ Gary H. Miller
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Name: Gary H. Miller
Title: Senior Vice President and
Chief Financial Officer
Date: April 1, 1997
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EXHIBITS
EXHIBIT
NUMBER Description
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2.1 Agreement and Plan of Merger, dated as of March 26, 1997, by and
among FirstCity Financial Corporation, HFGI Acquisition Corp. and
Harbor Financial Group, Inc.
20.1 Press Release of March 26, 1997.
99.1 Selected Financial Information of Harbor Financial Group, Inc.
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
MARCH 26, 1997
BY AND AMONG
FIRSTCITY FINANCIAL CORPORATION (PARENT)
HFGI ACQUISITION CORP. (MERGER SUB)
AND
HARBOR FINANCIAL GROUP, INC. (COMPANY)
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AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
PAGE
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ARTICLE I. DEFINITIONS.......................................................................................... 1
ARTICLE II. THE MERGER........................................................................................... 5
2.1 The Merger........................................................................................... 5
2.2 Effective Time....................................................................................... 5
2.3 Effects of the Merger................................................................................ 5
2.4 Conversion of Company Common Stock into Parent Common Stock.......................................... 5
2.5 Conversion of Merger Sub Common Stock................................................................ 6
2.6 Option Plans......................................................................................... 6
2.7 Certificate of Incorporation......................................................................... 6
2.8 Bylaws............................................................................................... 6
2.9 Directors and Officers............................................................................... 6
2.10 Fractional Shares.................................................................................... 7
ARTICLE III. EXCHANGE............................................................................................. 7
3.1 Exchange of Certificates............................................................................. 7
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................ 8
4.1 Corporate Organization............................................................................... 8
4.2 Capitalization....................................................................................... 8
4.3 Authority, No Violation.............................................................................. 9
4.4 Consents and Approvals............................................................................... 9
4.5 Financial Statements................................................................................. 10
4.6 Broker's Fees........................................................................................ 10
4.7 Absence of Certain Changes or Events................................................................. 10
4.8 Legal Proceedings.................................................................................... 11
4.9 Taxes and Tax Returns................................................................................ 11
4.10 Employees Benefit Plans, ERISA....................................................................... 12
4.11 [Intentionally Omitted].............................................................................. 13
4.12 [Intentionally Omitted].............................................................................. 13
4.13 Compliance with Applicable Law....................................................................... 13
4.14 Certain Contracts.................................................................................... 13
4.15 Undisclosed Liabilities.............................................................................. 14
4.16 [Intentionally Omitted].............................................................................. 14
4.17 [Intentionally Omitted].............................................................................. 14
4.18 Ownership of Property................................................................................ 14
4.19 Insurance............................................................................................ 14
4.20 Mortgage Banking Licenses and Qualifications......................................................... 14
4.21 [Intentionally Omitted].............................................................................. 15
4.22 Enforceability....................................................................................... 15
4.23 [Intentionally Omitted].............................................................................. 15
4.24 No Recourse.......................................................................................... 15
4.25 Mortgage Servicing Agreements........................................................................ 16
4.26 Compliance with Mortgage Banking Regulations......................................................... 16
4.27 Custodial Accounts................................................................................... 17
4.28 Inquiries............................................................................................ 18
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4.29 Advances............................................................................................. 18
4.30 Pool Certification................................................................................... 18
4.31 Environmental Protection............................................................................. 19
4.32 Intellectual Property................................................................................ 20
4.33 Servicing Sales...................................................................................... 20
4.34 [Intentionally Omitted].............................................................................. 20
4.35 [Intentionally Omitted].............................................................................. 20
4.36 [Intentionally Omitted].............................................................................. 20
4.37 [Intentionally Omitted].............................................................................. 20
4.38 Marketability of Mortgage Loans...................................................................... 20
4.39 Labor and Employment Matters......................................................................... 20
4.40 Questionable Transactions............................................................................ 21
4.41 Affiliated Party Transactions........................................................................ 21
4.42 Supplements and Amendments........................................................................... 21
4.43 Disclosure in Disclosure Schedule.................................................................... 22
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT............................................................. 22
5.1 Corporate Organization............................................................................... 22
5.2 Authority; No Violation.............................................................................. 22
5.3 Consents and Approvals............................................................................... 23
5.4 Financial Statements................................................................................. 23
5.5 SEC Reports.......................................................................................... 23
5.6 Broker's Fees........................................................................................ 24
ARTICLE VI. COVENANTS RELATING TO CONDUCT OF BUSINESS............................................................ 24
6.1 Covenants of the Company............................................................................. 24
6.2 Covenants of Parent.................................................................................. 26
ARTICLE VII. ADDITIONAL AGREEMENTS................................................................................ 27
7.1 Regulatory Matters................................................................................... 27
7.2 Access to Information................................................................................ 28
7.3 Stockholder Meetings................................................................................. 29
7.4 Legal Conditions to Merger........................................................................... 30
7.5 Additional Agreements................................................................................ 30
7.6 Advice of Changes.................................................................................... 30
7.7 Indemnification...................................................................................... 31
7.8 Letter of Accountants................................................................................ 31
7.9 Accounting Matters................................................................................... 31
ARTICLE VIII. CONDITIONS PRECEDENT................................................................................. 31
8.1 Conditions to Each Party's Obligation to Effect the Merger........................................... 31
8.2 Conditions to Obligations of Parent and Merger Sub................................................... 32
8.3 Conditions to Obligations of the Company............................................................. 33
ARTICLE IX. TERMINATION AND AMENDMENT............................................................................ 34
9.1 Termination.......................................................................................... 34
9.2 Effect of Termination. ............................................................................. 35
9.3 Amendment............................................................................................ 35
9.4 Extension; Waiver.................................................................................... 35
9.5 Termination Payment.................................................................................. 35
ARTICLE X. GENERAL PROVISIONS................................................................................... 35
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10.1 Closing.............................................................................................. 35
10.2 Nonsurvival of Representations, Warranties and Agreements............................................ 36
10.3 Expenses............................................................................................. 36
10.4 Notices.............................................................................................. 36
10.5 Interpretation....................................................................................... 36
10.6 Counterparts......................................................................................... 37
10.7 Entire Agreement..................................................................................... 37
10.8 Governing Law........................................................................................ 37
10.9 Enforcement of Agreement............................................................................. 37
10.10 Severability......................................................................................... 37
10.11 Publicity............................................................................................ 37
10.12 Assignment; Third Party Beneficiaries................................................................ 37
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of March 26, 1997, by
and among FirstCity Financial Corporation, a Delaware corporation ("Parent"),
HFGI Acquisition Corp., a Delaware corporation and a direct wholly-owned
subsidiary of Parent ("Merger Sub"), and Harbor Financial Group, Inc., a
Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of each of Parent, Merger Sub and
the Company have determined that it is in the best interests of their respective
companies and stockholders to consummate the business combination transaction
provided for herein (I) in which Merger Sub will, subject to the terms and
conditions set forth herein, merge (the "Merger") with and into the Company, and
(II) as a result of which the Company will become a direct wholly-owned
subsidiary of Parent;
WHEREAS, for accounting purposes, it is intended that the Merger
shall be accounted for as a "pooling- of-interests";
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended;
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe certain conditions to the Merger; and
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS.
For purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the terms defined in this
Article I have the meanings assigned to them in this Article I and include the
plural as well as the singular.
"ADVANCES" has the meaning as defined in Section 4.29 hereof.
"AVERAGE PRICE" has the meaning as defined in Section 2.10 hereof.
"CLOSING" has the meaning as defined in Section 10.1 hereof.
"CLOSING DATE" has the meaning as defined in Section 10.1 hereof.
"CUSTODIAL ACCOUNTS" has the meaning as defined in Section 4.27
hereof.
"DESIGNATED PROPERTY" has the meaning as defined in Section 4.31(d)
hereof.
"DGCL" has the meaning as defined in Section 2.1 hereof.
"DISCLOSURE SCHEDULE" has the meaning as defined in Section 4.2(b)
hereof.
"DISSENTING SHARES" has the meaning as defined in Section 2.4(d)
hereof.
"EFFECTIVE TIME" has the meaning as defined in Section 2.2 hereof.
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"ENCUMBRANCE" means any lien, pledge, security interest, claim,
charge, easement, limitation, commitment, restriction or encumbrance of any kind
or nature whatsoever.
"ENVIRONMENTAL LAWS" has the meaning as defined in Section 4.31(a)
hereof.
"ERISA" has the meaning as defined in Section 4.10(a) hereof.
"EXCHANGE ACT" has the meaning as defined in Section 5.5 hereof.
"FHA" means the Federal Housing Administration.
"FHA LOANS" means any Mortgage Loans which satisfy all applicable
rules and requirements to be insured by FHA and which are insured by FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FNMA" means the Federal National Mortgage Association.
"FORECLOSURE" means the acquisition of title to Collateral in a
foreclosure sale or pursuant to any other comparable procedure allowed under
applicable law or Regulation, including pending foreclosures where the first
step required under applicable Regulations to initiate a foreclosure proceeding
has been taken.
"GAAP" means generally accepted accounting principles as used in the
United States of America as in effect at the time any applicable financial
statements were prepared.
"GNMA" means the Government National Mortgage Association.
"GOVERNMENTAL ENTITY" has the meaning as defined in Section 4.4
hereof.
"HAZARDOUS MATERIAL" has the meaning as defined in Section 4.31(d)
hereof.
"HUD" means the United States Department of Housing and Urban
Development.
"INJUNCTION" has the meaning as defined in Section 8.1(c).
"INSURER" means a Person who insures or guarantees all or any
portion of the risk of loss upon borrower default on any of the Mortgage Loans,
including, without limitation, the FHA, the VA and any private mortgage insurer,
and providers of life, hazard, disability, title or other insurance with respect
to any of the Mortgage Loans or the Collateral.
"INVESTMENT LOANS" means any Mortgage Loans owned by the Company or
any of its Subsidiaries and held for investment including any Mortgage Loan
characterized on the books and records of the Company or any of its
Subsidiaries.
"INVESTOR" means any Person who owns a Mortgage Loan, or the
servicing rights or master servicing rights to a Mortgage Loan, subserviced,
serviced or master serviced by the Company or any Company Subsidiary pursuant to
a Mortgage Servicing Agreement.
"INVESTOR COMMITMENT" means the optional or mandatory commitment of
a Person to purchase a Mortgage Loan, a pipeline loan or a portion of a Mortgage
Loan or pipeline loan owned or to be acquired by the Company or any of its
Subsidiaries, or securities based on and backed by such Mortgage Loans or
pipeline loans.
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"LICENSES" has the meaning as defined in Section 4.20 hereof.
"LOAN DOCUMENTS" means the credit and closing packages, custodial
documents, escrow documents, and all other documents: (I) in the possession of
the Company or its Subsidiaries specifically pertaining to a Mortgage Loan, (II)
reasonably necessary for prudent servicing of a Mortgage Loan, or (III)
necessary to establish the eligibility of the Mortgage Loan for insurance by an
Insurer or sale to an Investor, in each case as required by applicable
Regulations.
"LOSS" means any liability, loss, cost, damage, penalty, fine,
obligation or expense of any kind whatsoever (including, without limitation,
reasonable attorneys', accountants', consultants' or experts' fees and
disbursements).
"MASTER SERVICED LOANS" means the Mortgage Loans master serviced by
the Company or one of its Subsidiaries for an Investor.
"MATERIAL ADVERSE EFFECT" has the meaning as defined in Section
4.1(a) hereof.
"MERGER" has the meaning as defined in the RECITALS hereto.
"MERGER SUB" has the meaning as defined in the RECITALS hereto.
"MORTGAGE LOAN" means any closed 1 to 4 family residential mortgage
loan (including all Warehouse Loans and Investment Loans) or commercial mortgage
loan, whether or not such mortgage loan is included in a securitized portfolio
or in the Mortgage Servicing Portfolio or Mortgage Subservicing Portfolio, as
evidenced by notes duly secured by mortgages or deeds of trust.
"MORTGAGE SERVICING AGREEMENTS" means all contracts or arrangements
(written or oral) between the Company or any of its Subsidiaries and an Investor
or Principal Servicer pursuant to which the Company or any of its Subsidiaries
subservices, services or master services Mortgage Loans for such Investor or
Principal Servicer.
"MORTGAGE SERVICING PORTFOLIO" means the portfolio of Mortgage Loans
serviced or master serviced by the Company or any of its subsidiaries pursuant
to Mortgage Servicing Agreements, together with all Warehouse Loans and
Investment Loans.
"MORTGAGE SUBSERVICING PORTFOLIO" means the portfolio of Mortgage
Loans subserviced by the Company or any of its subsidiaries pursuant to Mortgage
Servicing Agreements.
"OPTION PLANS" has the meaning as defined in Section 2.6 hereof.
"PARENT" has the meaning as defined in the RECITALS hereto.
"PARENT REPORTS" has the meaning as defined in Section 5.5 hereof.
"PERSON" means any individual, corporation, company, partnership
(limited or general), joint venture, association, trust or other entity.
"PLANS" has the meaning as defined in Section 4.10(a) hereof.
"POOL" means an aggregate of one or more Mortgage Loans that have
been pledged or granted to secure mortgage-backed securities or participation
certificates.
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"PRINCIPAL SERVICER" means the servicer set forth in a Mortgage
Servicing Agreement relating to a Mortgage Loan subserviced by the Company or
any of its Subsidiaries.
"PROXY STATEMENT" has the meaning as defined in Section 5.3 hereof.
"RECOURSE LOAN" has the meaning as defined in Section 4.24 hereof.
"REGISTRATION STATEMENT" has the meaning as defined in Section
7.1(a) hereof.
"REGULATIONS" means (I) Federal, state and local laws, rules and
regulations with respect to the origination, insuring, purchase, sale, pooling,
servicing, subservicing, master servicing or filing of claims in connection with
a Mortgage Loan, (II) the responsibilities and obligations set forth in any
agreement between the Company or any of its Subsidiaries and an Investor or
Insurer (including, without limitation, Mortgage Servicing Agreements and
selling and servicing Guides), (III) the laws, rules, regulations, guidelines,
handbooks and other requirements of an Investor, Agency, Insurer, public housing
program or Investor program with respect to the origination, insuring, purchase,
sale, pooling, servicing, subservicing, master servicing or filing of claims in
connection with a Mortgage Loan, and (IV) the terms and provisions of the Loan
Documents.
"REO" means any residential real property owned in fee simple by the
Company or any of its Subsidiaries as a result of a Foreclosure instituted in
the conduct of the Company's or any such Subsidiary's mortgage servicing
business (except for any such real property foreclosed upon by the Company or
one of its Subsidiaries on behalf of an Investor provided such real property is
not reflected on the books and records of the Company as REO).
"REQUISITE REGULATORY APPROVALS" has the meaning as defined in
Section 8.1(b) hereof.
"SEC" has the meaning as defined in Section 5.3 hereof.
"SECRETARY OF STATE" has the meaning as defined in Section 2.2
hereof.
"SECURITIES ACT" has the meaning as defined in Section 5.5 hereof.
"SERVICING RELEASED LOANS" has the meaning as defined in Section
4.24 hereof.
"SERVICING SALE LOAN" has the meaning as defined in Section 4.24
hereof.
"SERVICING RIGHTS" means the right to receive servicing fees and any
other income the servicer is entitled to receive arising from or connected to
the Mortgage Loans and the related obligations to (I) administer and collect
payments for the reduction of principal and interest, (II) pay taxes and
insurance premiums, (III) remit all amounts in accordance with any servicing
agreements, (IV) provide foreclosure services and full escrow administration,
and (V) perform such other obligations as may, from time to time, be imposed
under any Mortgage Servicing Agreement.
"SUBSIDIARY" when used with respect to any party, means any
corporation, partnership, joint venture or other association or organization,
whether incorporated or unincorporated, in which a party, directly or
indirectly, holds any equity or management interest or which is consolidated
with such party for financial reporting purposes. For purposes of this
Agreement, JMC Title Agency, Inc. and Harbor Financial Insurance Agency, Inc.
shall be considered Subsidiaries of the Company.
"SURVIVING CORPORATION" has the meaning as defined in Section 2.1
hereof.
"TAKEOVER PROPOSAL" has the meaning as defined in Section 6.1(e)
hereof.
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"TAX RETURN" has the meaning as defined in Section 4.9(c) hereof.
"TAXES" has the meaning as defined in Section 4.9(c) hereof.
"VA" means the Veteran's Administration.
"VA LOANS" means the Mortgage Loans which satisfy all applicable
rules and regulations to be guaranteed by the VA and which are guaranteed by the
VA.
"VA NO-BID" means a delinquent Mortgage Loan with respect to which
the VA has notified the Company or one of its Subsidiaries that it intends to
exercise its option to pay the amount guaranteed by the VA and relinquish all
rights in the collateral securing such Mortgage Loan to the Company or one of
its Subsidiaries.
"WAREHOUSE LINES" means the credit lines issued by financial
institutions for the purpose of financing Mortgage Loans held for sale to
Investors.
"WAREHOUSE LOANS" means the Mortgage Loans owned by the Company or
one of its Subsidiaries and held for sale (provided that no Mortgage Loan
characterized on the books and records of the Company as a warehouse loan that
meets the definition set forth herein for Investment Loans shall be considered
to be a Warehouse Loan).
ARTICLE II. THE MERGER.
2.1 THE MERGER. Subject to the terms and conditions of this
Agreement, in accordance with the Delaware General Corporation Law (the "DGCL"),
at the Effective Time (as defined in Section 2.2 hereof), Merger Sub shall merge
with and into the Company. The Company shall be the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") in the Merger, and
shall continue its corporate existence under the laws of the State of Delaware
as a direct wholly owned subsidiary of Parent or its successor. The name of the
Surviving Corporation shall continue to be "Harbor Financial Group, Inc." Upon
consummation of the Merger, the separate corporate existence of Merger Sub shall
terminate.
2.2 EFFECTIVE TIME. The Merger shall become effective as set forth
in the certificate of merger (the "Certificate of Merger") which shall be filed
with the Secretary of State of the State of Delaware (the "Secretary of State")
on the Closing Date (as defined in Section 10.1 hereof). The term "Effective
Time" shall be the date and time when the Merger becomes effective, as set forth
in the Certificate of Merger.
2.3 EFFECTS OF THE MERGER. At and after the Effective Time, the
Merger shall have the effects set forth in the DGCL.
2.4 CONVERSION OF COMPANY COMMON STOCK INTO PARENT COMMON STOCK.
(A) At the Effective Time, each share of the common stock, no par
value per share, of the Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time (other than shares of
Company Common Stock held in the Company's treasury) shall, by virtue of this
Agreement and without any action on the part of the holder thereof, be converted
into the right to receive that number (the "Conversion Number") of shares of
Parent's common stock, par value $0.01 per share (the "Parent Common Stock"),
computed in accordance with Section 2.4(b). The Conversion Number shall be
subject to equitable adjustment in the event of any stock split, stock dividend,
reverse stock split, or similar recapitalization. The aggregate number of shares
of Parent Common Stock to be received by the stockholders of the Company shall
be 1,581,000.
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(B) The Conversion Number shall be equal to the quotient obtained by
dividing (I) 1,581,000 by (II) the sum of (X) the number of shares of Company
Common Stock outstanding immediately prior to the Effective Time and (Y) the
number of shares of Company Common Stock issuable upon exercise in full of all
options and other rights to purchase or otherwise acquire Company Common Stock,
whether or not vested, which are outstanding immediately prior to the Effective
Time. The number of shares of Harbor Common Stock that are issuable as described
in clause (y) above shall exclude shares that presently are reserved for
issuance upon exercise of options that will be cancelled or terminated in
accordance with the applicable option plan and any option agreement relating to
such option, prior to the Effective Time.
(C) At the Effective Time, all shares of Company Common Stock that
are owned by the Company as treasury stock shall be canceled and shall cease to
exist and no Parent Common Stock or other consideration shall be delivered in
exchange therefor.
(D) For the purposes of this Agreement, "Dissenting Shares" shall
refer to those shares of Company Common Stock owned by stockholders (I) who,
pursuant to Section 262 of the DGCL, fully and completely perfect their right to
appraisal under the DGCL, (II) whose shares are not voted in favor of the
Merger, and (III) who comply with all other provisions of the DGCL regarding
appraisal. Notwithstanding anything in this Agreement to the contrary,
Dissenting Shares shall not be converted into the right to receive, or be
exchangeable for, Parent Common Stock and instead the holders thereof shall be
entitled to payment of the fair value of such Dissenting Shares in accordance
with the provisions of the DGCL; provided, however, that (X) if any holder of
Dissenting Shares shall subsequently withdraw his demand for appraisal, (Y) if,
after any holder or holders of Dissenting Shares fails to pursue any procedure
required under the DGCL, or (Z) if a court shall determine that a holder of
Dissenting Shares is not entitled to receive payment for such holder's shares,
then such holder or holders (as the case may be) shall not have the right to
receive payment of the fair value of such shares of Company Common Stock and
each of such shares of Company Common Stock shall thereupon be deemed to have
been converted into the right to receive, and to have become exchangeable for,
as of the Effective Time, Parent Common Stock in accordance with the terms of
this Agreement.
2.5 CONVERSION OF MERGER SUB COMMON STOCK. Each of the shares of the
common stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger, automatically and without any
action on the part of Parent, become and be converted into one share of Company
Common Stock.
2.6 OPTION PLANS. All options and other rights to purchase or
otherwise acquire Company Common Stock pursuant to the Option Plans shall be
exercised and the Option Plans terminated. "Option Plans" means: (A) the Stock
Option Agreement dated October 1, 1995, entered into by and between the Company,
Harbor Financial Mortgage Corporation and Frank L. Gentry; (B) the Stock Option
Agreement dated February 18, 1992, entered into by and between the Company,
Harbor Financial Mortgage Corporation and Debra M. Beausoleil.
2.7 CERTIFICATE OF INCORPORATION. Effective as of the Effective
Time, the Certificate of Incorporation of the Company, as in effect at the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable law.
2.8 BYLAWS. The Bylaws of the Company, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended in accordance with applicable law.
2.9 DIRECTORS AND OFFICERS. Ed Smith, Thomas A. Smith and Jereann
Chaney shall resign as directors and officers of the Company immediately prior
to the Effective Time. The remaining directors and officers of the Company
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified.
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2.10 FRACTIONAL SHARES. No certificate or script representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of certificates for shares of Company Common Stock, and such fractional
share interest will not entitle the owner thereof to vote or to any rights of a
stockholder of Parent. Notwithstanding any other provision of this Agreement,
each holder of shares of Company Common Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of
Parent Common Stock (after taking into account all certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Company Common Stock
multiplied by the Average Price. For purposes of this Agreement, "Average Price"
means the average closing price of Parent Common Stock during the ten (10)
trading days immediately prior to the Effective Time as quoted on the NASDAQ
NMS.
ARTICLE III. EXCHANGE.
3.1 EXCHANGE OF CERTIFICATES.
(A) At the Effective Time, each stockholder of the Company shall
deliver the certificates which represent the stockholders' shares of Company
Common Stock to Parent in exchange for a certificate representing the number of
shares of Parent Common Stock to which the stockholder is entitled pursuant to
this Agreement.
The shares of Parent Common Stock received by the stockholders of
the Company shall be subject to the restrictions on transfer set forth in the
Certificate of Incorporation of Parent related to Section 382 of the Internal
Revenue Code of 1986, as amended.
(B) After the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock which
were issued and outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates representing such shares are presented for
transfer, they shall be cancelled and exchanged for Parent Common Stock as
provided in Article II hereof.
(C) In the event any certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in such amount as Parent may direct as
indemnity against any claim that may be made against it with respect to such
certificate, Parent will issue in exchange for such lost, stolen or destroyed
certificate the Parent Common Stock deliverable in respect thereof pursuant to
this Agreement.
(D) The shares of Parent Common Stock will be available for resale
without restriction (I) immediately and without any limitation by those present
holders of Harbor Common Stock who are not Harbor affiliates and (II)
immediately after expiration of the "Restricted Period" (as defined in Section
8.1(d)) by the present holders of Harbor Common Stock who are Harbor affiliates
and who either (x) comply with the requirements of Rule 145(d)(1) in effecting
such resales or (y) effect such resales pursuant to the Registration Statement
described below. Parent shall use all reasonable efforts to insure that Rule 144
and Rule 145 shall at all times remain available for Harbor affiliates to resell
their shares of Parent Common Stock. The parties confirm that, since the Parent
Common Stock will be registered with the SEC in the Registration Statement and
distributed in a public offering, no shares of such Parent Common Stock will be
"restricted securities" within the meaning of Rule 144.
In addition to the foregoing, Parent shall (i) cause the
Registration Statement to include a resale prospectus (which may include the
Proxy Statement/Prospectus) intended to permit each stockholder of the Company
who may be or may be deemed to be an affiliate of Parent following the Closing
(the "Selling Stockholder") to sell, at such Selling Stockholder's election, all
or part of the shares of Parent Common Stock received by each such Selling
Stockholder without restriction under federal securities laws and (ii) prepare
and file with the SEC such amendments and post-effective amendments to the
Registration Statement as may be necessary to keep the Registration Statement
continuously effective, subject to the terms of the registration rights
agreement
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referred to in the next succeeding sentence. Between the date hereof and the
Effective Time, the Selling Stockholders and Parent will enter into a
registration rights agreement, on terms mutually satisfactory to them,
specifying the respective rights, duties and obligations of the parties with
respect thereto.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to Parent and Merger Sub
as follows:
4.1 CORPORATE ORGANIZATION.
(A) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Company has
the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature of
the business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified has not had and could
not reasonably be expected to have a Material Adverse Effect (as defined below)
on the Company. The Company has delivered to Parent true, complete and correct
copies of the Certificate of Incorporation and Bylaws of the Company.
As used in this Agreement the term "Material Adverse Effect" means,
with respect to Parent, the Company or the Surviving Corporation, as the case
may be, a material adverse effect on the business, properties, results of
operations or financial condition of such party and its Subsidiaries taken as a
whole. In determining whether a Material Adverse Effect has occurred, no adverse
fact, event or circumstance as to which such determination is being made shall
be considered to the extent that the financial effects thereof (I) have been
reserved or provided for in the financial statements, or (II) are covered by
insurance policies of the Company which are in force and which the Company and
Parent reasonably determine will provide full indemnification and reimbursement
to the Company in respect of such fact, event or circumstance. It is expressly
understood and agreed that (A) all financial effects of any such fact, event or
circumstance not covered by any such reserve or insurance and (B) all
nonfinancial effects of any such fact, event or circumstance shall be considered
in determining whether a Material Adverse Effect has occurred.
(B) Each of the Company's Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or the
location of the properties and assets owned or leased by it makes such licensing
or qualification necessary, except where the failure to be so licensed or
qualified has not had and could not reasonably be expected to have a Material
Adverse Effect on the Company. The Company has delivered to Parent true,
complete and correct copies of the articles of incorporation and bylaws or other
organizational documents of each of the Company's Subsidiaries.
4.2 CAPITALIZATION.
(A) The authorized capital stock of the Company consists of 500,000
shares of Company Common Stock, no par value per share. As of March 17, 1997,
there were 171,654 shares of Company Common Stock issued and outstanding and no
shares of Company Common Stock held in the Company's treasury. Except for 192
shares of Company Common Stock reserved for issuance pursuant to the Option
Plans, all of the issued and outstanding shares of Company Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights, with no personal liability attaching to the ownership
thereof. Except for the Option Plans, the Company does not have and is not bound
by any outstanding subscriptions, options, warrants, calls, commitments,
agreements, preemptive rights or other rights of any character calling for the
purchase or issuance of any shares of Company Common Stock or any other equity
security of the Company or
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any securities representing the right to purchase or otherwise receive any
shares of Company Common Stock or any other equity security of the Company.
(B) Section 4.2(b) of the Disclosure Schedule which is being
delivered to Parent concurrently herewith (the "Disclosure Schedule") sets forth
a true and correct list of all of the Company's Subsidiaries as of the date of
this Agreement. Except as set forth on Section 4.2(b) of the Disclosure
Schedule, the Company owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of the Company's Subsidiaries, free
and clear of all Encumbrances and security interests whatsoever, and all of such
shares are duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights, with no personal liability attaching to the
ownership thereof. Except as set forth in Section 4.2(b) of the Disclosure
Schedule, none of the Company's Subsidiaries has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments, agreements, preemptive
rights or other rights of any character calling for the purchase or issuance of
any shares of capital stock or any other equity security of such Subsidiary or
any securities representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of such Subsidiary.
4.3 AUTHORITY, NO VIOLATION.
(A) The Company has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the Company. The Board of Directors of the Company has
directed that this Agreement and the transactions contemplated hereby be
submitted to the Company's stockholders for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the holders of a
simple majority of the outstanding shares of Company Common Stock, no other
corporate proceedings on the part of the Company are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by the Company and (assuming
due authorization, execution and delivery by Parent and Merger Sub) constitutes
a valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally.
(B) Except as set forth in Section 4.3(b) of the Disclosure
Schedule, neither the execution and delivery of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby, nor
compliance by the Company with any of the terms or provisions hereof, will (I)
violate any provision of the Certificate of Incorporation or Bylaws of the
Company or the certificate of incorporation, bylaws or similar governing
documents of any of the Company's Subsidiaries or (II) assuming that the
consents and approvals referred to in Section 4.4 hereof are duly obtained, (Y)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to the Company or any of its Subsidiaries, or
any of their respective properties or assets, or (Z) violate, conflict with,
result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Encumbrance upon any of the respective properties
or assets of the Company or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the Company
or any of its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected.
4.4 CONSENTS AND APPROVALS. Except for (A) the approval of this
Agreement by the requisite vote of the stockholders of the Company, (B) the
filing of the Certificate of Merger with the Secretary of State pursuant to the
DGCL, (C) the approval of each of FNMA, FHLMC, GNMA, FHA, HUD and VA, and (D)
such filings, permits, authorizations or approvals as may be set forth in
Section 4.4 of the Disclosure Schedule, no consents or approvals of or filings
or registrations with any court, administrative agency or commission or other
governmental
9
<PAGE>
authority or instrumentality (each a "Governmental Entity") or consents,
authorizations or approvals of any third party (including under any Company
Contract) are necessary in connection with the execution and delivery by the
Company of this Agreement or the consummation by the Company of the transactions
contemplated hereby.
4.5 FINANCIAL STATEMENTS. The Company has delivered to Parent true,
complete and correct copies of the consolidated balance sheets of the Company
and its Subsidiaries as of December 31, 1996, September 30, 1996, 1995 and 1994,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years ended, in each case (other than the
unaudited December 31, 1996, financial statements) accompanied by the audit
report of KPMG Peat Marwick LLP ("KPMG"), independent public accountants with
respect to the Company, except for the December 31, 1996 financial statements
which are unaudited. The consolidated balance sheets of the Company and its
Subsidiaries referred to above (the "Balance Sheets") fairly present the
consolidated financial position of the Company and its Subsidiaries as of the
dates thereof, and the other financial statements referred to in this Section
4.5 (including the related notes, where applicable) fairly present, the results
of the consolidated operations and consolidated financial position of the
Company and its Subsidiaries for the respective fiscal periods or as of the
respective dates therein set forth; each of such statements (including the
related notes, where applicable) comply, in all material respects, with
applicable accounting requirements and each of such statements (including the
related notes, where applicable) has been prepared in accordance with GAAP
consistently applied during the periods involved, except in each case as
indicated in such statements or in the notes thereto, provided that the December
31, 1996 financial statements do not contain footnotes and all the accruals
required by GAAP have not been made in the December 31, 1996 financial
statements.
4.6 BROKER'S FEES. Neither the Company nor any of the Company's
Subsidiaries nor any of their respective officers or directors has employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contemplated by this
Agreement, except that the Company has engaged, and will pay a fee or commission
to, S A Capital Group, Inc. ("SACG") in accordance with the terms of a letter
agreement dated November 14, 1996, between SACG and the Company, a true,
complete and correct copy of which has been previously made available by the
Company to Parent.
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(A) Except as may be set forth in Section 4.7(a) of the Disclosure
Schedule, since September 30, 1996, (I) there has been no change in the business
of the Company or any of its Subsidiaries, or any occurrence, development or
event of any nature, which has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company, and
(II) neither the Company nor any Subsidiary thereof has taken any action which
would have been prohibited by Section 6.1 hereof had it been in effect on the
date of such action.
(B) Except as set forth in Section 4.7(b) of the Disclosure
Schedule, since September 30, 1996, the Company and its Subsidiaries have
carried on their respective businesses in the ordinary and usual course
consistent with their past practices.
(C) Except as set forth in Section 4.7(c) of the Disclosure Schedule
or as specifically permitted by this Agreement, since September 30, 1996,
neither the Company nor any of its Subsidiaries has (I) except for normal
increases in the ordinary course of business consistent with past practice or
except as required by applicable law, increased the wages, salaries, rate of
compensation, pension, or other fringe benefits or perquisites payable to any
executive officer, employee, or director from the amount thereof in effect as of
September 30, 1996, or entered into any employment agreement, granted any
severance or termination pay, entered into any contract to make or grant any
severance or termination pay, or paid any bonus or (II) suffered any strike,
work stoppage, slow-down, or other labor disturbance.
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4.8 LEGAL PROCEEDINGS. Except as set forth in Section 4.8 of the
Disclosure Schedule, as of the date of this Agreement neither the Company nor
any of its Subsidiaries is a party to any, and there are no pending or, to the
best knowledge of the Company, threatened (I) governmental or regulatory
investigations of any nature regarding the Company or any of its Subsidiaries,
(II) legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature challenging the validity
or propriety of the transactions contemplated by this Agreement, (III)
derivative actions by any present or former stockholder of the Company, or (IV)
except to the extent that no Material Adverse Effect on the Company could
reasonably be expected, other legal, administrative, arbitral or other
proceedings, claims, actions, or government or regulatory investigations of any
nature against the Company or any of its Subsidiaries or against or otherwise
involving, directly or indirectly, any current or former officer, director,
employee or agent of the Company or any of its Subsidiaries (in connection with
such officer's, director's, employee's or agent's activities on behalf of the
Company or any of its Subsidiaries or that otherwise relate, directly or
indirectly, to the Company or any of its Subsidiaries or properties or the
securities or activities of any of them), including, without limitation, and any
matters involving the Company's securities, or under or alleging violation of
any applicable law respecting employment discrimination, equal opportunity,
affirmative action, workers' compensation, occupational safety and health
requirements, unemployment insurance and related matters, or relating to alleged
unfair labor practices (or the equivalent thereof under any applicable law) or
relating to the right and ability to originate, purchase and sell FHA Loans or
VA Loans, or to sell and service GNMA, FNMA and FHLMC mortgage loans and
mortgage-backed securities, nor does the Company know of any material basis for
any of the foregoing. Except as otherwise disclosed in Section 4.8 of the
Disclosure Schedule, as of the date of this Agreement there is no injunction,
order, judgment, decree, or regulatory restriction imposed upon the Company, any
of its Subsidiaries or the assets of the Company or any of its Subsidiaries.
Without limiting the foregoing, there are no pending, or to the best knowledge
of the Company, threatened, claims for damages or repurchase by any Investor
which have not been fully recorded and reserved for in the Balance Sheet.
4.9 TAXES AND TAX RETURNS.
(A) Except as may be reflected in Section 4.9 of the Disclosure
Schedule, each of the Company and its Subsidiaries has duly filed all federal,
state and local Tax Returns (as defined below) required to be filed by it on or
prior to the date of this Agreement (all such Tax Returns being accurate and
complete in all material respects) and has duly paid or otherwise made adequate
provision for all material Taxes (as defined below) with respect to all periods
and transactions occurring prior to Closing other than Taxes that are not yet
due or are being contested in good faith (and which are set forth in Section 4.9
of the Disclosure Schedule). Except as may be reflected in Section 4.9 of the
Disclosure Schedule, there are no material disputes pending, or claims asserted,
for Taxes with respect to the Company or any of its Subsidiaries, nor has the
Company or any of its Subsidiaries been requested to give any currently
effective waivers extending the statutory period of limitation applicable to any
Federal, state or local income Tax Return for any period. Except as reflected in
Section 4.9 of the Disclosure Schedule, the amounts withheld by the Company and
its Subsidiaries from their employees for all periods ending prior to the date
of this Agreement are in compliance in all material respects with the Tax
withholding provisions of applicable Federal, state and local laws. Except as
reflected in Section 4.9 of the Disclosure Schedule, there are no Tax liens upon
any property or assets of the Company or its Subsidiaries except liens for
current Taxes not yet due.
(B) Except as set forth in Section 4.9 of the Disclosure Schedule:
(I) neither Company nor any of its Subsidiaries is a party to any Tax sharing
agreement or has any continuing obligations under any prior Tax sharing
agreement; and (II) neither Company nor any of its Subsidiaries has been a
member of an affiliated group of corporations filing a U.S. federal consolidated
income Tax Return as to which Company was not the common parent.
(C) As used in this Agreement, the term "Tax" or "Taxes" means all
federal, state, county, local, and foreign income, excise, gross receipts, ad
valorem, profits, gains, property, sales, transfer, use, payroll, employment,
severance, withholding, duties, intangibles, franchise, and other taxes,
charges, levies or like
11
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assessments together with all penalties and additions to tax and interest
thereon, and the term "Tax Return" or "Tax Returns" means all reports,
estimates, declarations of estimated tax, information statements and returns
relating to or required to be filed in connection with any Tax, including
information returns with respect to transactions with third parties.
4.10 EMPLOYEES BENEFIT PLANS, ERISA.
(A) The Company has delivered to Parent true and complete copies of
all Plans (as defined below) to which the Company or any of its Subsidiaries is
a party and in which any current or former officer, director, employee or agent
of the Company or any of its Subsidiaries participates. All such Plans are
listed in Section 4.10(a) of the Disclosure Schedule. There are no Plans of the
Company or any of its Subsidiaries which are not evidenced by such written
documents. The term "Plan" shall include (I) any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), (II) any profit sharing, pension, deferred
compensation, bonus, stock option, stock purchase, severance, retainer,
consulting, "cafeteria" benefits under Section 125 of the Code, health, welfare
or incentive plan or agreement whether legally binding or not, including any
post-employment benefits, (III) any plan, agreement, contract, program,
arrangement, or policy providing for "fringe benefits" to its employees,
including but not limited to vacation, paid holidays, personal leave, employee
discount, educational benefit or similar programs.
(B) With respect to each Plan:
(I) it has been administered in accordance with its
terms and applicable laws and regulations, including ERISA and the Code;
(II) no action, claims (other than routine claims for
benefits made in the ordinary course of Plan administration for which Plan
administrative review procedures have not been exhausted) or investigation by
any Governmental Entity are pending or, to the best knowledge of the Company,
threatened or imminent against or with respect to the Plan, the Company or any
of its Subsidiaries which is participating (or who has participated) in any Plan
or any fiduciary of the Plan;
(III) it provides that it may be amended or terminated
at any time and, except for benefits protected under Section 411(d) of the Code
or any other applicable law and benefits listed in Section 4.10(b) of the
Disclosure Schedule, no Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of the Company or any Company Subsidiary beyond their
retirement or other termination of service, other than (w) coverage mandated by
applicable law, or (x) death benefits or retirement benefits under any "employee
pension plan," as that term is defined in Section 3(2) of ERISA;
(IV) neither the Company nor any Company Subsidiary has
any agreement, arrangement, commitments or understanding to create any
additional plan which would constitute a Plan or to increase the rate of benefit
accrual or contribution requirements under any of the Plans or to modify, change
or terminate in any respect any existing Plan; and
(V) none of the Plans is currently under investigation,
audit, or review by the Department of Labor, the Internal Revenue Service or any
other federal or state agency, and no violations of the Code or ERISA have been
alleged by any such agency with respect to such Plans.
(C) With respect to each Plan which is an employee benefit plan, as
defined under Section 3(3) of ERISA:
(I) no prohibited transaction (as defined in Section 406
of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has
occurred;
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(II) except as set forth in Section 4.10(c) of the
Disclosure Schedule, all reports, forms and other documents required to be filed
with any Governmental Entity or distributed to plan participants (including,
without limitation, summary plan descriptions, Forms 5500 and summary annual
reports) have been timely filed (if applicable) and distributed (if applicable)
and were accurate. The Company has delivered to Parent copies of all such
reports, forms and documents required to have been filed or distributed for the
preceding three years;
(D) Except as set forth in Section 4.10(d) of the Disclosure
Schedule, each Plan that is intended to qualify under Section 401(a) of the Code
and Section 501(a) of the Code and its related trust, if any, complies in form
and in operation with Section 401(a) and 501(a) of the Code and has been
determined by the Internal Revenue Service to so comply and nothing has since
occurred to cause the loss of the Plan's qualification.
(E) Neither the Company nor any of its Subsidiaries (I) has ever
maintained or made any contributions to, (II) has ever been a member of a
controlled group which has maintained or contributed to, or (III) has ever been
under common control with an employer that maintained or contributed to any
defined benefit pension plan subject to Title IV of ERISA, including a
multi-employer plan as defined in Section 3(37) of ERISA.
(F) All contributions to each Plan for all periods ending prior to
the Closing Date (including periods from the first day of the current plan year
to the date immediately preceding the Effective Time) will be made prior to the
Effective Time by the Company in accordance with past practice and the
recommended contribution in any applicable actuarial report.
(G) All insurance premiums have been paid in full, subject only to
normal retrospective adjustments in the ordinary course, with regard to the
Plans for policy years or other applicable policy periods ending before the
Effective Time and have been paid as required under the policies for policy
years or other applicable policy periods beginning on or before the Effective
Time and ending on or after the Effective Time.
(H) All expenses and liabilities relating to all of the Plans have
been, and will on the Effective Time be, fully and properly accrued on the
Company's or its Subsidiary's books and records and disclosed in accordance with
generally accepted accounting principles and in Plan financial statements.
4.11 [INTENTIONALLY OMITTED]
4.12 [INTENTIONALLY OMITTED]
4.13 COMPLIANCE WITH APPLICABLE LAW. Except as disclosed in Section
4.13 of the Disclosure Schedule, the Company and each of its Subsidiaries hold,
and have at all times held, all licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to all, and in all material respects have complied with and are not in
default in any respect under any, Regulation, applicable law, statute, order,
decree, injunction, rule, regulation, policy and/or guideline of any regulatory
agency relating to the Company or any of its Subsidiaries or any of their
respective properties, and neither the Company nor any of its Subsidiaries knows
of, or has received notice of, any material violations of the above.
4.14 CERTAIN CONTRACTS.
(A) Except as set forth in Section 4.14(a) of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to or bound
by any contract, arrangement, commitment or understanding (whether written or
oral) the performance of which would have a Material Adverse Effect on the
Company or any of its Subsidiaries. Each contract, arrangement, commitment or
understanding of the Company and its Subsidiaries is referred to herein as a
"Company Contract". Neither the Company nor any of its Subsidiaries knows of, or
has received notice of, any material violation of Company Contracts by any of
the other parties thereto.
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(B) Except as set forth in Section 4.14(b) of the Disclosure
Schedule, (I) each Company Contract is valid and binding and in full force and
effect, (II) the Company and each of its Subsidiaries have performed all
material obligations required to be performed by it to date under each Company
Contract, and (III) no event or condition exists which constitutes or, after
notice or lapse of time or both, would constitute, a material default on the
part of the Company or any of its Subsidiaries under any such Company Contract
or permit termination, modification or acceleration against the Company or the
Subsidiary which is a party to such Company Contract under the Company Contract
applicable to it; (IV) the Company or its Subsidiary which is a party to such
Company Contract has not repudiated or waived any material provision of any such
Company Contract; and (v) all amounts due and payable by the Company or any of
its Subsidiaries through the Closing Date have been or will be paid.
4.15 UNDISCLOSED LIABILITIES. Except (A) as set forth in Section
4.15 of the Disclosure Schedule and (B) for those liabilities that are fully
reflected or reserved against on the Balance Sheets, neither the Company nor any
of its Subsidiaries is subject to any liability of any nature whatsoever which
is required by GAAP to be disclosed in the financial statements (including the
related notes) of the Company and its Subsidiaries.
4.16 [INTENTIONALLY OMITTED].
4.17 [INTENTIONALLY OMITTED].
4.18 OWNERSHIP OF PROPERTY. The Company or one of its Subsidiaries,
as the case may be, has good and indefeasible title to or a valid leasehold
interest in all assets and properties, whether real or personal, tangible or
intangible, reflected in the Balance Sheets or acquired subsequent thereto
(except to the extent that such assets and properties have been disposed of
consistent with this Agreement since the date of the Balance Sheets), subject to
no Encumbrances, except (I) as set forth in Section 4.18 of the Disclosure
Schedule, (II) for statutory liens for amounts not yet delinquent or which are
being contested in good faith, (III) liens and encumbrances on, and rights of
redemptions with respect to, REO and (IV) such Encumbrances that do not in the
aggregate materially detract from the value or interfere in any material respect
with the use or operations of the assets and properties subject thereto. Except
as set forth in Section 4.18 of the Disclosure Schedule, as of the date of this
Agreement, the Company or one of its Subsidiaries, as the case may be, as lessee
has the right under valid and subsisting leases to occupy, use, possess and
control all property leased by any such party, as presently occupied, used,
possessed and controlled by any such party and all rents and other amounts
currently due thereunder have been paid; no waiver or indulgence or postponement
of any obligation thereunder has been granted by any lessor or sublessor; the
Company and its Subsidiaries have not entered into any sublease or assignment
with respect to its interest in any such lease; and none of the Company or any
of its Subsidiaries has received any notice that it has breached any term,
condition or covenant of any such lease. Neither the Company nor any of its
Subsidiaries owns any real property other than REO.
4.19 INSURANCE. The Company and its Subsidiaries are insured with
reputable insurers against such risks and in such amounts normally insured
against by companies of the same type and in the same line of business. All of
the insurance policies, binders or bonds maintained by the Company or any of its
Subsidiaries are in full force and effect; neither the Company nor any of its
Subsidiaries is in default thereunder; all claims thereunder have been filed in
due and timely fashion; and, except as set forth in Section 4.19(b) of the
Disclosure Schedule, all such policies, binders and bonds will remain in full
force and effect after the Effective Time, unaffected by the transactions
contemplated hereby.
4.20 MORTGAGE BANKING LICENSES AND QUALIFICATIONS. The Company (to
the extent applicable) and each of its Subsidiaries engaged in the business of
originating or servicing loans (I) is qualified (A) by FHA as a mortgagee and
servicer for FHA Loans, (B) by the VA as a lender and servicer for VA Loans, (C)
by FNMA and FHLMC as a seller/servicer of first mortgages to FNMA and FHLMC and
(D) by GNMA as an authorized issuer and servicer of GNMA-guaranteed
mortgage-backed securities; and (II) has all other certifications,
authorizations, franchises, licenses, permits and other approvals (together with
the items set forth in Clause (i)
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above, the "Licenses") necessary to conduct its current mortgage banking
business, and is in good standing under all applicable federal, state and local
laws and regulations thereunder as a mortgage lender and servicer. Except as set
forth in Section 4.20 of the Disclosure Schedule, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will affect the validity of any License, and all such Licenses will
remain in full force and effect immediately after the Closing Date and the
consummation of the transactions contemplated hereby. The Company and each of
its Subsidiaries has complied in all material respects with all such Licenses,
and the Company knows of no threatened suspension, cancellation or invalidation
of, or penalties (including fines or refunds) under, any such License. Section
4.20 of the Disclosure Schedule sets forth a true and complete list of all
Licenses.
4.21 [INTENTIONALLY OMITTED].
4.22 ENFORCEABILITY. All Mortgage Loans are genuine, valid and
binding obligations of the borrowers thereunder, have been duly executed by a
borrower of legal capacity, are enforceable in accordance with their terms
(except as enforcement thereof may be limited by (I) bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity (whether applied in a proceeding in equity or at
law), (II) state laws requiring creditors to proceed against the collateral
before pursuing the borrower, and (III) state laws on deficiencies) and conform
in all material respects to all applicable Regulations. Neither the operation of
any of the terms of any Mortgage Loan, nor the exercise of any right thereunder,
has rendered or will render the related mortgage or note unenforceable, in whole
or in part, or subject it to any right of rescission, setoff, counterclaim or
defense, and, to the best knowledge of the Company, no such right of rescission,
setoff, counterclaim or defense has been asserted with respect thereto. The Loan
Documents were, in all material respects, in compliance with applicable
Regulations and Agency, Investor and Insurer requirements upon origination of
the underlying Mortgage Loan and are complete in all material respects. All
insertions in any Loan Documents were, in all material respects, correct when
made. All required adjustments for those Mortgage Loans that are adjustable rate
Mortgage Loans have been timely and properly made in accordance with the
underlying Loan Documents and all such adjustments are recorded accurately and
completely in the Loan Documents.
4.23 [INTENTIONALLY OMITTED].
4.24 NO RECOURSE. Except as reserved for in the financial statements
of the Company and its Subsidiaries and except with respect to VA No-Bids,
neither the Company nor any of its Subsidiaries is a party to: (I) any agreement
or arrangement with (or otherwise obligated to) any Person, including an
Investor or Insurer, to repurchase from any such Person (or effect any
substitution with respect to) any Mortgage Loan, mortgaged property serviced for
others, mortgage loan sold by the Company or any of its Subsidiaries with
servicing released ("Servicing Released Loans") or mortgage loan the Servicing
Rights with respect to which were sold on a bulk or flow basis by the Company or
any of its Subsidiaries ("Servicing Sale Loan") or (II) any agreement,
arrangement or understanding to reimburse, indemnify, effect a substitution,
"make whole" or hold harmless any Person or otherwise assume any liability with
respect to any Loss suffered or incurred as a result of any default under or the
foreclosure or sale of any Mortgage Loan, mortgaged property serviced for
others, Servicing Released Loans or Servicing Sale Loans, except with respect to
any of the Mortgage Loans, mortgaged property serviced for others, Servicing
Released Loans or Servicing Sale Loans, described in clause (i) or (ii) above,
insofar as (A) such obligation to repurchase, reimburse, indemnify, substitute,
"make whole," hold harmless or otherwise assume liability is (X) based upon a
breach by the Company or any of its Subsidiaries of a contractual
representation, warranty or undertaking, or the misfeasance or malfeasance of
the Company or any such Subsidiary, and not (Y) based solely upon the default
under or foreclosure or sale of any such Mortgage Loan, mortgaged property,
Servicing Released Loan or Servicing Sale Loan without regard to the occurrence
of any such breach, misfeasance or malfeasance or (B) the Company or any such
Subsidiary incurs expenses such as legal fees in excess of the reimbursement
limits, if any, set forth in the applicable Mortgage Servicing Agreement. For
purposes of this Agreement, the term "Recourse Loan" means, with the exception
of VA No-Bids, any Mortgage Loan, mortgaged property, Servicing Released Loan or
Servicing Sale Loans, including those items identified in Section 4.24 of the
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Disclosure Schedule, under which the Company or any Company Subsidiary bears the
risk of loss as described in the preceding sentence.
4.25 MORTGAGE SERVICING AGREEMENTS. Section 4.25 of the Disclosure
Schedule contains a list of all Mortgage Servicing Agreements to which the
Company or any of its Subsidiaries is a party as of the date hereof under which
the Company or any of its Subsidiaries services more than $1,000,000.00 of
Mortgage Loans. Section 4.25 of the Disclosure Schedule contains true and
complete summaries of the material terms of all oral Mortgage Servicing
Agreements to which the Company or any of its Subsidiaries is a party. The
Mortgage Servicing Agreements and the Regulations set forth all the terms and
conditions of the Company's and any of the Company's Subsidiaries' rights
against and obligations to the Agencies and Investors and, except as set forth
in Section 4.25 of the Disclosure Schedule, there are no written or oral
agreements that modify or amend any such Mortgage Servicing Agreement in any
material respect. All of the Mortgage Servicing Agreements are valid and binding
obligations of the Company or the applicable Company Subsidiary and, to the best
knowledge of the Company, all of the other parties thereto, are in full force
and effect, and are enforceable in accordance with their terms, except as
enforcement thereof may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally. Except as set
forth in Section 4.25 of the Disclosure Schedule, there is no material default
or breach under, or dispute regarding the material terms of, or to the best
knowledge of the Company, claim of material default or breach by any party under
any such Mortgage Servicing Agreement, and, to the best knowledge of the
Company, no event has occurred which with the passage of time or the giving of
notice or both would constitute a material default or breach by any party under
any such Mortgage Servicing Agreement or would permit termination, modification
or acceleration of any such Mortgage Servicing Agreement. To the Company's
knowledge, no dispute exists with any Investor regarding the nature of their
relationship with the Company and its Subsidiaries, the amount of remittances
between the parties or any other material tern of their agreement. There is no
pending or, to the best knowledge of the Company or any of its Subsidiaries that
is a party thereto, threatened, cancellation of any Mortgage Servicing
Agreement, and neither the Company nor any of its Subsidiaries has received any
notice to the effect that any Investor or Agency intends to cease doing business
with the Company or any of the Company's Subsidiaries. Except as set forth in
Section 4.25 of the Disclosure Schedule, no sanctions or penalties have been
imposed upon the Company or any of the Company's Subsidiaries, and no sanctions
or penalties are currently outstanding, under any Mortgage Servicing Agreement
or under any applicable Regulation.
4.26 COMPLIANCE WITH MORTGAGE BANKING REGULATIONS.
(A) Except as disclosed in Section 4.26(a) of the Disclosure
Schedule, the Company and each of its Subsidiaries engaged in the business of
originating or servicing loans and, with respect to each Mortgage Loan, each
prior servicer and originator of any such loan, has been and is (including
without limitation, with respect to (I) the ownership and operation of its
properties and (II) the documentation, underwriting, origination, purchase,
assumption, modification, sale, pooling and servicing of Mortgage Loans by the
Company and such Subsidiaries and such prior servicers and originators) in
compliance in all material respects with all Regulations, orders, writs,
decrees, injunctions and other requirements of any court or Governmental
Entities applicable to it, its properties and assets and its conduct of business
(including, without limitation, (X) the rules, regulations and requirements of
FHA, VA, FNMA, HUD, FHLMC and GNMA, (Y) any applicable local, state or federal
law or ordinance, and any regulations or orders issued thereunder, governing or,
pertaining to fair housing or unlawful discrimination in residential lending
(including without limitation anti-redlining, equal credit opportunity, and fair
credit reporting), truth-in-lending, real estate settlement procedures,
adjustable rate mortgages, adjustable rate mortgage disclosures or consumer
credit (including without limitation the federal Consumer Credit Protection Act,
the federal Truth-in-Lending Act and Regulation Z thereunder, the federal Real
Estate Settlement Procedures Act of 1974 and Regulation X thereunder, and the
federal Equal Credit Opportunity Act and Regulation B thereunder) or with
respect to the Flood Disaster Protection Act and (Z) all applicable usury and
interest limitations laws). Without limiting the generality of the foregoing,
except as set forth in Section 4.26(a) of the Disclosure Schedule, each of the
Company and its Subsidiaries has been and is in compliance in all material
respects with all servicer and other
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requirements of the FHA, VA, FNMA, FHLMC, GNMA, Investors and any Insurer
(including, without limitation, any applicable net worth requirements) which are
applicable to it, and all applicable underwriting standards of such Agencies,
Investors or Insurers, and each correspondent or broker from whom the Company or
any of its Subsidiaries has purchased FHA Loans or VA Loans had all FHA and VA
approvals necessary to enable it to take applications and close FHA Loans and/or
VA Loans.
(B) Except as set forth in Section 4.26(b) of the Disclosure
Schedule, the Company and each Company Subsidiary, as the case may be, has
timely filed, or will have timely filed by the Effective Time, all reports
required to be filed by any Agency, Investor or Insurer or by any federal, state
or municipal law, regulation or ordinance. Except as set forth in Section
4.26(b) of the Disclosure Schedule, neither the Company nor any of the Company's
Subsidiaries has done or failed to do, or has caused to be done or omitted to be
done, any act, the effect of which would operate to invalidate or materially
impair (I) any approvals of the FHA, VA, FNMA, FHLMC, GNMA, HUD or any Investor,
(II) any FHA insurance or commitment of the FHA to insure, (III) any VA
guarantee or commitment of the VA to guarantee, (IV) any private mortgage
insurance or commitment of any private mortgage insurer to insure, (V) any title
insurance policy, (VI) any hazard insurance policy, (VII) any flood insurance
policy required by the National Flood Insurance Act of 1968, as amended, (VIII)
any fidelity bond, direct surety bond, or errors and omissions insurance policy
required by HUD, GNMA, FNMA, FHA, FHLMC, VA or private mortgage insurers, (IX)
any surety or guaranty agreement or (X) any guaranty issued by GNMA to the
Company or any of the Company's Subsidiaries respecting mortgage-backed
securities issued or serviced by the Company or any of the Company's
Subsidiaries and other like guaranties.
(C) Except as set forth in Section 4.26(c) of the Disclosure
Schedule, no Agency, Investor or Insurer has (I) claimed that the Company or any
Company Subsidiary has violated or not complied with the applicable underwriting
standards with respect to mortgage loans sold by the Company or any of the
Company's Subsidiaries to an Investor or (II) imposed restrictions on the
activities (including commitment authority) of the Company or any of the
Company's Subsidiaries. To the best knowledge of the Company, as of the date of
this Agreement, except as set forth in Section 4.26(c) of the Disclosure
Schedule, there exist no facts or circumstances which would entitle an Investor
or other Person to demand repurchase of a Mortgage Loan, Servicing Released Loan
or Servicing Sale Loan or which would entitle an Insurer to demand
indemnification from the Company or any of the Company's Subsidiaries, to cancel
any mortgage insurance held for any such Subsidiary's benefit or to reduce any
mortgage insurance benefits payable to the Company or any such Subsidiary, or
would lead GNMA to require a letter of credit from the Company or any of the
Company's Subsidiaries.
4.27 CUSTODIAL ACCOUNTS. Each of the Company and its Subsidiaries so
required has full power and authority to maintain escrow accounts ("Custodial
Accounts") for certain of the Mortgage Loans, has established Custodial Accounts
for all escrow deposits relating to Servicing Rights, and is the lawful
fiduciary of all Custodial Accounts related to the Mortgage Loans. Such
Custodial Accounts comply in all material respects with (I) all applicable
Regulations (including without limitation Regulations governing the appropriate
identification of such accounts and the calculation of the amount of the monthly
payments for deposit into Custodial Accounts that mortgagors are required to
make) and (II) any terms of the Mortgage Loans (and Mortgage Servicing
Agreements) relating thereto, and all such Custodial Accounts have been
maintained in all material respects in accordance with usual and customary
industry practice. The Custodial Accounts contain the amounts shown in the
records of the Company or the appropriate Company Subsidiary, which amounts
represent all monies received or advanced by the Company or such Company
Subsidiary as required by the applicable Mortgage Servicing Agreements, less
amounts remitted by or on behalf of the Company or such Company Subsidiary
pursuant to applicable Mortgage Servicing Agreements, except for checks in
process. Except as to payments that are past due under the terms of the
applicable Loan Documents, all payments of principal and interest due and
payable on the Mortgage Loans and all Custodial Account deposits for taxes,
assessments, ground rents and fire or hazard insurance have been credited to,
and are on deposit in, the appropriate Custodial Accounts. The Custodial
Accounts do not have any material funding deficiency. Except as set forth in
Section 4.27 of the Disclosure Schedule, the escrow analysis with respect to
each Mortgage Loan has been completed for the most recent required date under
applicable Regulations. Notification to the mortgagor of all payment adjustments
resulting from such escrow analysis, annual
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statements of taxes and interest paid by the mortgagor and any other statement
required by all applicable Regulations has been mailed by the Company or its
appropriate Subsidiary or, to the Company's and such Subsidiary's knowledge, by
the applicable servicer with respect to Master Serviced Loans. To the extent
required by applicable Regulations, funds have been advanced by the Company or
its appropriate Subsidiary or each servicer, as applicable, to each Custodial
Account as necessary to timely make all scheduled escrow disbursements. As of
the date of this Agreement, except as required by applicable Regulations,
neither the Company nor any of its Subsidiaries is required to pay interest on
the Custodial Accounts. Subject to and in accordance with the applicable
requirements pertaining generally to the type, size or capitalization of
depository institutions qualified to hold such balances, of Investors, Insurers,
Agencies or other Governmental Entities having jurisdiction, the Company and
each of its Subsidiaries has the right and power to determine the financial
institution in which the Custodial Accounts are held.
4.28 INQUIRIES. Section 4.28 of the Disclosure Schedule contains a
true and correct listing of (A) all of the audits since January 1, 1993 of the
Company or any Subsidiary and (B) those investigations, complaints and inquiries
of the Company or any of its Subsidiary since January 1, 1993 by any Agency,
Investor or private mortgage insurer or HUD the result of which claimed a
material failure to comply with applicable Regulations and resulted in (I) a
repurchase of Mortgage Loans, Servicing Released Loans or related mortgage
properties by the Company or any of its Subsidiaries, (II) indemnification by
the Company or any of its Subsidiaries in connection with Mortgage Loans,
Servicing Released Loans or related mortgage properties, (III) rescission of an
insurance or guaranty contract or agreement or (IV) payment of a penalty to an
Agency, HUD, an Investor or Insurer. Except for customary ongoing quality
control reviews, no such audit or investigation is pending or, to the best
knowledge of the Company, threatened. The Company has made available to Parent
copies of all written reports, letters and materials received or sent by the
Company or its Subsidiaries in connection with the audits, investigations,
complaints and inquiries described above.
4.29 ADVANCES. Except as set forth in Section 4.29 of the Disclosure
Schedule, there are no pooling, participation, servicing or other agreements to
which the Company or any of its Subsidiaries is a party which obligate it to
make Advances with respect to defaulted or delinquent Mortgage Loans, other than
as provided in GNMA, FNMA or FHLMC pooling and servicing agreements. Any
Advances are valid and subsisting amounts owing to the Company or one of its
Subsidiaries, subject to the terms of the applicable Mortgage Servicing
Agreement, are carried on the books of the Company at values determined in
accordance with GAAP and are not subject to setoffs or claims of the account
debtor (other than those already accounted for) arising from acts or omissions
of the Company or any of its Subsidiaries nor, to the knowledge of the Company,
is any Investor insolvent or otherwise unable to repay any Advance as required
by the pertinent Mortgage Servicing Agreement. As used herein the term
"Advances" shall mean amounts that have been advanced by the Company or any of
its Subsidiaries in connection with servicing Mortgage Loans (including, without
limitation, principal, interest, taxes and insurance premiums) and which are
required or permitted to be paid by the Company or any of its Subsidiaries as
the servicer of Mortgage Loans pursuant to applicable Investor requirements and
the terms of the applicable Mortgage Servicing Agreements.
4.30 POOL CERTIFICATION. Each Mortgage Loan included in a Pool meets
all eligibility requirements for inclusion in such Pool, in accordance with all
applicable standards of eligibility for loan pooling. The Loan Documents for
each Mortgage Loan contain or will contain, within the period required by
applicable Investor Regulations, all items required by applicable Investor
Regulations for the certification of Pools by the appropriate Investor, and such
Pools will be in compliance with all applicable Investor requirements and
guidelines, within the period required by applicable Investor Regulations.
Except as otherwise noted in the documentation previously provided to Parent,
all Pools relating to the Mortgage Loans have been or will be, within the period
required by applicable Investor Regulations, certified, finally certified and
recertified (if required) in accordance with applicable Investor Regulations,
and the securities backed by such Pools have been issued on uniform documents,
promulgated in the applicable Investor guide without any material deviations
therefrom. All Pools relating to the Mortgage Loans are or will be, within the
period required by applicable Investor regulations, eligible for recertification
by the appropriate custodian, and the Company will be responsible for curing any
deficiencies that
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must be cured in order to obtain such recertification. The principal balance
outstanding and owing on the Mortgage Loans in each Pool equals or exceeds the
amount owing to the corresponding security holder of such Pool. To the extent
that any Pools relating to Mortgage Loans are not eligible for final
certification within the period required by applicable Investor regulations, the
Company shall promptly take such action as is necessary to cure such deficiency
and cause such Pools to be certified. No Mortgage Loan has been bought out of a
Pool without approval of the appropriate Investor. Each Mortgage Loan included
in a Pool satisfied the requirements of Section 3(a)(41)(A)(i) and (ii) of the
Exchange Act so that interests in such Pools constitute "mortgage related
securities" under Section 3(a)(41) of the Exchange Act.
4.31 ENVIRONMENTAL PROTECTION.
(A) COMPLIANCE WITH ENVIRONMENTAL LAWS. None of the Company, the
Company's Subsidiaries or, to the best of the Company's knowledge, any
Designated Property (as defined in Section 4.31(d) below) is or has been in
violation of any federal, state or local law, ordinance or regulation concerning
industrial hygiene or environmental conditions, including, but not limited to,
soil and groundwater conditions ("Environmental Laws").
(B) REPORTING REQUIREMENT. Neither the Company nor any of the
Company's Subsidiaries has reported any, or has had knowledge of any
circumstances giving rise to any reporting requirement under applicable
Environmental Laws as to any, spills or releases of any Hazardous Material with
respect to said Designated Properties, nor have the Company or any of its
Subsidiaries received any notices of spills or releases of Hazardous Materials
with respect thereto.
(C) PROCEEDINGS. There is no proceeding or investigation pending or,
to the best knowledge of the Company, threatened by any Governmental Entity or
other person with respect to the presence of Hazardous Material (as defined in
Section 4.31(d) below) on the Designated Properties or the migration thereof
from or to other property. Neither the Company nor any of its Subsidiaries has
ever been required by any Governmental Entity to treat, cleanup, or otherwise
dispose, remove or neutralize any Hazardous Material from or on any Designated
Property.
(D) HAZARDOUS MATERIALS. To the best of the Company's knowledge,
neither the Company nor any current or former Subsidiary of the Company (no
representation is made as to former Subsidiaries for the period of time after
they ceased to be Subsidiaries of the Company) has engaged in the generation,
use, manufacture, treatment, transportation, storage in tanks or otherwise, or
disposal of Hazardous Material on or from any Designated.Property. To the best
knowledge of the Company, no Person (other than the Company or any current or
former Subsidiary of the Company) has engaged in the generation, use,
manufacture, treatment, transportation, storage in tanks or otherwise, or
disposal of Hazardous Material on or from any Designated Property. To the best
of the Company's knowledge, no (I) presence, release, threatened release,
discharge, spillage or migration of Hazardous Material, (II) condition relating
to Hazardous Materials that has resulted or could result in any use, ownership
or transfer restriction, or (III) condition of actual or potential nuisance or
other condition relating to Hazardous Materials that could give rise to
liability has occurred on or from any Designated Property. To the best of the
Company's knowledge, no condition exists or has existed that would be reasonably
likely to give rise to any suit, claim, action, proceeding or investigation by
any Person or Governmental Entity against the Company, any of its Subsidiaries
or any Designated Property as a result of or in connection with any (A) of the
matters referred to in clause (i), (ii) or (iii) of the immediately preceding
sentence, (B) other activities involving Hazardous Material, (C) failure to
obtain any required permits or approvals of any Governmental Entity relating to
environmental matters, (D) violation of any terms or conditions of such permits,
or (E) other violation of applicable Environmental Laws. "Hazardous Material"
shall mean any substance, chemical, waste or other material which is listed,
defined or identified as hazardous, toxic or dangerous or otherwise regulated
under any applicable Environmental Law as of the Closing Date; as well as any
petroleum, petroleum product or byproduct, crude oil, natural gas, natural gas
liquids, liquefied natural gas, or synthetic gas usable for fuel, and "source,"
"special nuclear," and "byproduct" material as defined in the Atomic Energy Act
of 1954, 42 U.S.C. ss.ss. 2011 et. seq.; provided, however, that the term does
not include any substance, chemical, waste or other material contained
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in common household or residential waste. "Designated Property" shall mean any
real property (W) which the Company or any current Subsidiary of the Company now
owns or leases or owned or leased at any time prior to the date of this
Agreement, (X) which any former Subsidiary of the Company owned or leased at any
time when such former Subsidiary was a Subsidiary of the Company, (Y) in which
the Company or any current Subsidiary now holds or previously held any security
interest, mortgage or other lien or interest or (Z) in which any former
Subsidiary held a security interest, mortgage or other lien or interest at any
time when such former Subsidiary was a Subsidiary of the Company.
(E) CONDITION OF PROPERTY. To the best of the Company's knowledge,
there are no substances or conditions in or on the Designated Property which may
support a claim or cause of action under RCRA, CERCLA, or any other applicable
Environmental Law.
4.32 INTELLECTUAL PROPERTY. Section 4.32 of the Disclosure Schedule
sets forth a list of all trademarks, service marks, trademark and service mark
applications, trade names, copyrights and licenses presently owned or held by
the Company or any of its Subsidiaries. The Company and each of its Subsidiaries
has the right to use and continue to use such trademarks, service marks and
trade names in the operation of their businesses. Neither the Company nor any of
its Subsidiaries has received notice that it is infringing or violating any
patent, copyright, trademark, service mark, label filing or trade name owned or
otherwise held by any other party, nor has the Company or any of its
Subsidiaries used any confidential information or trade secrets owned or
otherwise held by any other party, unless a valid license for such use is held
by the Company or its Subsidiaries. Except as set forth in Section 4.32 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries is
engaging, nor has it been charged with engaging, in any kind of unfair or
unlawful competition.
4.33 SERVICING SALES. Except as set forth in Section 4.33 of the
Disclosure Schedule, to the best of the Company's knowledge, there is no breach
or violation of any representation, warranty, covenant or indemnity for which
the Company or any of its Subsidiaries is directly or indirectly liable, made or
given to any Investor or other Person in connection with the transfer of any
Servicing Released Loan or Servicing Sale Loan to such Investor or other person.
To the best of the Company's knowledge, each material representation and
warranty made by the Company or any of its Subsidiaries to any Person with
respect to any Servicing Released Loan or Servicing Sale Loan in connection with
the sale of such Servicing Released Loan or Servicing Sale Loan was and is
accurate and complete in all respects. Each Servicing Released Loan and
Servicing Sale Loan complied, at the time of sale, in all material respects with
all Regulations.
4.34 [INTENTIONALLY OMITTED].
4.35 [INTENTIONALLY OMITTED].
4.36 [INTENTIONALLY OMITTED].
4.37 [INTENTIONALLY OMITTED].
4.38 MARKETABILITY OF MORTGAGE LOANS. Except as set forth in Section
4.38 of the Disclosure Schedule, to the best knowledge of the Company, each
Mortgage Loan owned by the Company or any of its Subsidiaries is either a
Mortgage Loan which is or is eligible to be an FHA Loan or a VA Loan or which is
or is eligible to be sold to FNMA, to FHLMC or to a secondary market investor,
or is or will be in compliance with secondary mortgage market standards and
salable in the ordinary course of business.
4.39 LABOR AND EMPLOYMENT MATTERS. Except to the extent set forth in
Section 4.39 of the Disclosure Schedule:
(A) The Company and its Subsidiaries are and have been in compliance
in all material respects with all applicable laws of the United States or of any
state respecting employment and employment practices, terms
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and conditions of employment and wages and hours, including, without limitation,
the Immigration Reform and Control Act ("IRCA"), the Worker Adjustment and
Retraining Notification Act ("WARN"), any laws respecting employment
discrimination, disability rights or benefits, equal opportunity, plant closure
issues, affirmative action, workers' compensation, employee benefits, severance
payments, labor relations, employee leave issues, wage and hour standards,
occupational safety and health requirements and unemployment insurance and
related matters, and are not engaged in and have not engaged in any unfair labor
practice;
(B) There is no labor strike, dispute, slowdown or stoppage actually
pending or, to the best knowledge of the Company, threatened against or directly
affecting the Company or any of its Subsidiaries;
(C) No union representation question or union organizational
activity exists respecting the employees of the Company or any of its
Subsidiaries;
(D) No collective bargaining agreement exists which is binding on
the Company or any of its Subsidiaries nor has the Company or any of its
Subsidiaries been a party to any collective bargaining agreement within the last
10 years;
(E) Neither the Company nor any of its Subsidiaries is materially
delinquent in payments to any of its officers, directors, employees or agents
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed by them or amounts required to be reimbursed to such
officers, directors, employees or agents; and
(F) In the event of termination of the employment of any of said
officers, directors, employees or agents for any reason, neither the Surviving
Company, any of its Subsidiaries, nor Parent will, pursuant to any agreement or
by reason of anything done prior to the Closing Date by the Company or any of
its Subsidiaries or predecessors, be liable to any of said officers, directors,
employees or agents for so-called "severance pay" or any other benefits or
similar payments, including without limitation, postemployment health care
(other than pursuant to COBRA) or insurance benefits.
(G) Except as listed in Section 4.39 of the Disclosure Schedule, all
officers, directors, employees and consultants of the Company and its
Subsidiaries are employed at will.
4.40 QUESTIONABLE TRANSACTIONS. To the best knowledge of the
Company, no officer, director, employee, agent or other representative of the
Company or any of its Subsidiaries or any person acting on their behalf has
made, directly or indirectly, any bribes, kickbacks, or political contributions
with the Company or its Subsidiaries' funds, payments from the Company's or its
Subsidiaries' funds not recorded on the Company's or its Subsidiaries' books and
records, payments from the Company's or its Subsidiaries' funds to governmental
officials in their individual capacities or illegal payments from the Company's
or its Subsidiaries' funds to obtain or retain business either within the United
States or abroad.
4.41 AFFILIATED PARTY TRANSACTIONS. Except as set forth in Section
4.41 of the Disclosure Schedule, no officer, director or, to the best knowledge
of the Company, employee of the Company or any of its Subsidiaries or holder of
more than 5% of the Company Common Stock known to the Company, or any of their
respective family members or Affiliates (I) has any ownership interest directly
or indirectly, in any competitor, supplier or customer of the Company or any of
its Subsidiaries; (II) has any outstanding loan or other extension of credit to
or from the Company or any of its Subsidiaries; (III) is a party to, or has any
interest in, any contract or agreement with the Company or any of its
Subsidiaries; or (IV) has engaged in any transaction with the Company or any of
its Subsidiaries. The Company has delivered to Parent true, complete and correct
copies of each such written agreement described in clauses (ii) through (iv) of
the preceding sentence.
4.42 SUPPLEMENTS AND AMENDMENTS. All information delivered to Parent
as part of the Disclosure Schedule or any supplement or amendment thereof
pursuant to Section 7.9 is or will be true and correct as of the
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date when delivered. The parties acknowledge that the Disclosure Schedule in the
form attached to this Agreement on the date hereof is incomplete. The Company
shall supplement such Disclosure Schedule by delivering to Parent copies of any
missing portions of the Disclosure Schedule not later than April 15, 1997. If
Parent has not delivered written notice to the Company on or before April 22,
1997, that it objects thereto, the Disclosure Schedule shall thereupon be deemed
for all purposes of this Agreement to include such supplements. Parent shall
have the right to deliver such notice of objection only if (I) the information
included in such supplements has not prior to the date hereof been provided to
Parent and (II) by comparison to the information disclosed in the Disclosure
Schedule in the form annexed to this Agreement on the date hereof or to
information previously provided to Parent, Parent reasonably determines that the
facts, events and circumstances disclosed in such supplements constitute a
Material Adverse Effect or represent materially different facts, events or
circumstances than previously disclosed. No such attempted supplement to the
Disclosure Schedule shall become part of the Disclosure Schedule until all
objections have been resolved by written agreement between Parent and the
Company.
4.43 DISCLOSURE IN DISCLOSURE SCHEDULE. A disclosure made in or a
document attached to any section of the Disclosure Schedule shall be deemed to
be made in or attached to any other section of the Disclosure Schedule as to
which such disclosure or attachment is appropriate regardless of whether the
disclosure or document is actually made in or attached to such other section,
provided that it is reasonably apparent from the disclosure or attachment that
the disclosure or attachment is responsive to the provision of this Agreement
requiring that such disclosure or attachment be made in or attached to such
other section of the Disclosure Schedule.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT.
Parent hereby represents and warrants to the Company as follows:
5.1 CORPORATE ORGANIZATION.
(A) Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Parent has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified has not had and could
not reasonably be expected to have a Material Adverse Effect on Parent. The
Certificate of Incorporation and Bylaws of Parent, copies of which have
previously been made available to the Company, are true, complete and correct
copies of such documents as in effect as of the date of this Agreement.
(B) Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Merger Sub is a direct
wholly-owned Subsidiary of Parent.
(C) The certificate of incorporation and bylaws of Merger Sub,
copies of which have previously been made available to the Company, are true,
complete and correct copies of such documents as in effect as of the date of
this Agreement.
5.2 AUTHORITY; NO VIOLATION.
(A) Parent has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery, of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of Parent. The Board of Directors of Parent has directed that
this Agreement and the transactions contemplated hereby be submitted to Parent's
stockholders for approval at a meeting of such stockholders and,
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except for the adoption of this Agreement by the holders of a simple majority of
the outstanding shares of Parent Common Stock, no other corporate proceedings on
the part of Parent are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Parent and (assuming due authorization, execution and
delivery by the Company) constitutes a valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, except as enforcement
may be limited by general principles of equity whether applied in a court of law
or a court of equity and by bankruptcy, insolvency and similar law affecting
creditors' rights and remedies generally.
(B) Merger Sub has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of Merger Sub. This Agreement has been approved by the sole
stockholder of Merger Sub, and by the Board of Directors of Merger Sub, and no
other corporate proceedings on the part of Merger Sub are necessary to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Merger Sub and (assuming due
authorization, execution and delivery by the Company) constitutes a valid and
binding obligation of Merger Sub, enforceable against Merger Sub in accordance
with its terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
5.3 CONSENTS AND APPROVALS. Except for (A) the filing with the
Securities and Exchange Commission (the "SEC") of a proxy statement in
definitive form relating to the meeting of Parent's stockholders to be held in
connection with this Agreement and the transactions contemplated hereby (the
"Proxy Statement"), (B) the approval of this Agreement by the requisite vote of
the stockholders of Parent, (C) the filing of the Certificate of Merger with the
Secretary of State pursuant to the DGCL, and (D) such filings, permits,
authorizations or approvals as may be set forth in Section 5.3 of the Disclosure
Schedule, no consents or approvals of or filings or registrations with any
court, administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") or consents, authorizations or
approvals of any third party (including under any Company Contract) are
necessary in connection with the execution and delivery by Parent and Merger Sub
of this Agreement or the consummation by Parent and Merger Sub of the Merger and
the other transactions contemplated hereby, except for such third party consents
the failure of which to obtain could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent or materially
delay the consummation of the transactions contemplated hereby.
5.4 FINANCIAL STATEMENTS. Parent has delivered to the Company true,
complete and correct copies of the consolidated balance sheets of Parent and its
Subsidiaries as of December 31, 1996, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years ended, in each case accompanied by the audit report of KPMG
Peat Marwick LLP, independent public accountants with respect to Parent. The
December 31, 1996, consolidated balance sheet of Parent (including the related
notes, where applicable) (the "Parent Balance Sheet") fairly presents the
consolidated financial position of Parent and its Subsidiaries as of the date
thereof, and the other financial statements referred to in this Section 5.4
(including the related notes, where applicable) fairly present the results of
the consolidated operations and consolidated financial position of Parent and
its Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth; each of such statements (including the related notes, where
applicable) comply, in all material respects, with applicable accounting
requirements and each of such statements (including the related notes, where
applicable) has been prepared in accordance with GAAP consistently applied
during the periods involved, except in each case as indicated in such statements
or in the notes thereto.
5.5 SEC REPORTS. Parent has previously made available to the Company
an accurate and complete copy of (A) each final registration statement,
prospectus, report, schedule and definitive proxy statement filed since July 2,
1995, by Parent with the SEC pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), or the Securities Exchange Act of 1934 (the "Exchange
Act") (the "Parent Reports"), and (B) attached as Section 5.5 of the Disclosure
Schedule an accurate and complete copy of all communications (other than those
described
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in clause (a) above) mailed by Parent to its stockholders since July 2, 1995,
and no such registration statement, prospectus, report, schedule, proxy
statement or communication contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, except that information as of a later date shall
be deemed to modify information as of an earlier date. Parent has timely filed
all Parent Reports and other documents required to be filed by it under the
Securities Act and the Exchange Act, and, as of their respective dates, all
Parent Reports complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
5.6 BROKER'S FEES. Neither Parent, Merger Sub nor any of Parent's
Subsidiaries, nor any of their respective officers or directors, has employed
any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with any of the transactions
contemplated by this Agreement.
ARTICLE VI. COVENANTS RELATING TO CONDUCT OF BUSINESS.
6.1 COVENANTS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
Parent, the Company and its Subsidiaries shall carry on their respective
businesses in the ordinary course consistent with past practice. The Company
will use its best efforts to (I) preserve its business organization and that of
its Subsidiaries intact, (II) consistent with this Agreement, keep available to
itself and Parent the present services of the employees of the Company and its
Subsidiaries and (III) preserve for itself and Parent the goodwill of the
customers of the Company and its Subsidiaries and others with whom business
relationships exist. Without limiting the generality of the foregoing, and
except as set forth in the Disclosure Schedule or as otherwise contemplated by
this Agreement or consented to in writing by Parent, the Company shall not, and
shall not permit any of its Subsidiaries to:
(A) solely in the case of the Company, declare or pay any dividends
on, or make other distributions in respect of, any of its capital stock;
(B) (I) split, combine or reclassify any shares of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or (II)
repurchase, redeem or otherwise acquire any shares of the capital stock of the
Company or any of its Subsidiaries, or any securities convertible into or
exercisable for any shares of the capital stock of the Company or any of its
Subsidiaries;
(C) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing, other than the issuance of Company Common Stock pursuant to stock
options granted pursuant to the Company Option Plans prior to the date of this
Agreement and listed in Section 4.2(a) of the Disclosure Schedule;
(D) amend its Certificate of Incorporation, Bylaws or other similar
governing documents;
(E) authorize or permit any of its officers, directors or employees
or any investment banker, financial advisor, attorney, accountant or other
representative or agent retained by it or any of its Subsidiaries to directly or
indirectly solicit, initiate or encourage or take any other action to facilitate
any inquiries relating to, or the making of any proposal which constitutes, or
which may reasonably be expected to lead to, a Takeover Proposal (as defined
below), or, except to the extent legally required for the discharge of the
fiduciary duties of the Board of Directors of the Company as reasonably
determined by the Board of Directors after consultation with the Company's
outside counsel, recommend or endorse any Takeover Proposal, or participate in
any discussions or negotiations, or provide any third party with any nonpublic
information, relating to any such inquiry or proposal or otherwise facilitate
any effort or attempt to make or implement a Takeover Proposal; provided,
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however, that the Company may communicate the factual aspects of any such
Takeover Proposal to its stockholders if, in the reasonable judgment of the
Company's Board of Directors after consultation with the Company's outside
counsel, such communication is required under applicable law. As used in this
Agreement, "Takeover Proposal" shall mean any tender or exchange offer, proposal
for a merger, consolidation or other business combination involving the Company
or any Subsidiary of the Company or any proposal or offer to acquire in any
manner a substantial equity interest in, or a substantial portion of the
assets/of, the Company or any Subsidiary of the Company other than the
transactions contemplated or permitted by this Agreement;
(F) make any capital expenditures other than amounts necessary in
the ordinary course of business and as necessary to maintain existing assets in
good repair;
(G) acquire or agree to acquire, by merging or consolidating with,
or by purchasing an equity interest in or a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire any assets, other than in connection with foreclosures, settlements in
lieu of foreclosure or troubled loan or debt restructurings in the ordinary
course of business, which would be material, individually or in the aggregate,
to the Company;
(H) take any action that is intended or may reasonably be expected
to result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect or in a violation of
any provision of this Agreement, except, in every case, as may be required by
applicable law;
(I) change its methods of accounting in effect at September 30,
1996, except as required by mandatory changes in GAAP as concurred in by the
Company's independent auditors;
(J) (I) except as required by applicable law or to maintain
qualification pursuant to the Code, adopt, amend, renew or terminate any Plan or
any agreement, arrangement, plan or policy between the Company or any Subsidiary
of the Company and one or more of its current or former directors, officers or
employees; or (II) increase in any manner the rate of compensation or fringe
benefits of any director, officer or employee or pay any benefit not required by
any plan or agreement as in effect as of the date of this Agreement (including,
without limitation, the granting of stock options, stock appreciation rights,
restricted stock, restricted stock units or performance units or shares); or
(III) enter into, modify or renew any contract, agreement, commitment or
arrangement providing for the payment to any director, officer or employee of
such party of compensation, severance or benefits contingent, or the terms of
which are materially altered, upon the occurrence of any of the transactions
contemplated by this Agreement; or (IV) enter into any employment, consulting,
non-competition, retirement, parachute or indemnification agreement with any
officer, director, employee or agent of the Company or any of its Subsidiaries;
(K) except as set forth in Section 6.1(k) of the Disclosure
Schedule, other than in the ordinary course of business consistent with past
practice, sell, lease, encumber, assign or otherwise dispose of, or agree to
sell, lease, encumber, assign or otherwise dispose of, or grant any mortgage or
security interest in, or make any pledge of, or permit any lien or encumbrance
to be placed on, any of its assets, properties or other rights or agreements;
provided, however, that, except as otherwise described in Section 6.1(k) of the
Disclosure Schedule, nothing contained herein shall permit the Company or any of
its Subsidiaries to sell or acquire Servicing Rights for more than
$10,000,000.00 of Mortgage Loans;
(L) other than in the ordinary course of business consistent with
past practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other individual, corporation or other entity;
(M) commit any act or omission which constitutes a material breach
or default by the Company or any of its Subsidiaries under any Company Contract;
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(N) create, renew, amend or terminate or give notice of a proposed
renewal,. amendment or termination of, any Company Contract except that the
Company may renew contracts, agreements, leases or licenses in the ordinary
course of business;
(O) fail to pay and discharge any of its obligations, bills or other
liabilities as they become due, except to the extent that any such party is
disputing the amounts thereof in good faith;
(P) except in response to competitive conditions in order to
preserve the value of its franchise or in compliance with Regulations,
materially alter or vary its methods or policies of (I) underwriting, pricing,
originating, warehousing, selling or servicing, or buying or selling rights to
service, mortgage loans, (II) hedging (which term includes buying futures and
forward commitments from financial institutions) its mortgage loan positions or
commitments, and (III) obtaining financing and credit;
(Q) terminate any Mortgage Servicing Agreement for more than
$1,000,000.00 of Mortgage Loans;
(R) enter into any new Mortgage Servicing Agreement with respect to
a Recourse Loan;
(S) cancel any indebtedness or waive or compromise any rights having
a value to the Company or any of its Subsidiaries of $50,000.00 or more, other
than in the ordinary course of business;
(T) terminate, cancel or amend any insurance coverage maintained by
the Company or any of its Subsidiaries with respect to the Company, any of its
Subsidiaries, any assets of the Company or any of its Subsidiaries which is not
replaced by an adequate amount of insurance coverage;
(U) settle pending or threatened litigation in an amount, for any
individual matter, exceeding $10,000.00;
(V) enter into any new mandatory Investor Commitments, except in the
ordinary course of business and in amounts and on terms consistent with past
practices;
(W) enter into any Investor Commitment with any Person that is not
an Investor as of the date of this Agreement, except in the ordinary course of
business and in amounts and on terms consistent with past practices;
(X) enter into any mandatory forward commitment with GNMA, FNMA or
FHLMC which will extend beyond the Closing Date without Parent's consent as to
the amount of such commitment based on consultation between Parent and the
Company with respect to the appropriate level of commitments to cover the
projected level of Mortgage Loan originations and pipeline loans based on the
business plans of the parties; or
(Y) agree to do any of the foregoing.
6.2 COVENANTS OF PARENT. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
the Company, Parent shall not, and shall not permit any of its Subsidiaries to,
take any action that is intended or may reasonably be expected to result in any
of its representations and warranties set forth in this Agreement being or
becoming untrue in any material respect, or in a violation of any provision of
this Agreement except, in every case, as may be required by applicable law.
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ARTICLE VII. ADDITIONAL AGREEMENTS.
7.1 REGULATORY MATTERS.
(A) Parent shall prepare and file with the SEC a registration
statement under the Securities Act relating to the Parent Common Stock to be
received by the Stockholders of the Company in exchange for the Company Common
Stock (the "Registration Statement"). Parent shall prepare and file with the SEC
a preliminary Proxy Statement.
Parent shall use its reasonable efforts, and the Company shall
cooperate with Parent, to have the Registration Statement declared effective by
the SEC as promptly as practicable and to keep the Registration Statement
effective as long as is necessary to consummate the Merger. Parent shall, as
promptly as practicable, provide copies of any written comments received from
the SEC with respect to the Registration Statement to the Company and advise the
Company of any verbal comments with respect to the Registration Statement
received from the SEC. Parent shall use reasonable efforts to obtain all
necessary state securities laws or "blue sky" permits, approvals and
registrations in connection with the issuance of Parent Common Stock pursuant to
the Merger. If at any time prior to the Effective Time, any event with respect
to Parent or any of its Subsidiaries or with respect to other information
supplied by Parent or for inclusion in the Registration Statement, shall occur
which is required to be described in an amendment of, or a supplement to, the
Registration Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. Parent shall advise the
Company, promptly after it receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment
thereto has been filed, the issuance of any stop order, the denial or suspension
of the qualification of the Parent Common Stock issuable pursuant to the Merger
for offering or sale in any jurisdiction or any request by the SEC for any
amendment or supplement to the Registration Statement or comments thereon and
responses thereto or requests by the SEC for additional information.
None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in the Registration Statement will,
at the time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act or at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
None of the information supplied or to be supplied by Parent for inclusion or
incorporation by reference in (I) the Registration Statement will, at the time
the Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
(II) the Proxy Statement in definitive form relating to the meeting of Parent's
stockholders to be held in connection with the Merger, as amended or
supplemented will, at the date such information is supplied to stockholders of
the Company, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement insofar as it relates to Parent or
Merger Sub or other information supplied by Parent for inclusion therein, will
comply as to form in all material respects with the provisions of the Securities
Act and the rules and regulations thereunder.
(B) Parent and the Company shall file any Notification and Report
Forms and related materials that they may be required to file with the Federal
Trade Commission and the Anti-Trust Division of the United States Department of
Justice under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as
amended, shall use their reasonable efforts to obtain an early termination of
the applicable waiting period, and shall make any further filings pursuant
thereto that may be necessary.
(C) The parties hereto shall cooperate with each other and use their
reasonable efforts to promptly prepare, execute and file all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and
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Governmental Entities which are necessary or advisable to consummate the
transactions contemplated by this Agreement. The parties hereto agree that they
will consult with each other with respect to the obtaining of all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities necessary or advisable to consummate the transactions contemplated by
this Agreement, and each party will keep the other apprised of the status of
matters relating to completion of the transactions contemplated herein.
(D) Parent and the Company shall, upon request, furnish each other
with all information concerning themselves, their Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement, or any other statement,
filing, notice or application made by or on behalf of Parent, the Company or any
of their respective Subsidiaries to any Governmental Entity in connection with
the Merger and the other transactions contemplated by this Agreement.
7.2 ACCESS TO INFORMATION.
(A) During the period from the date hereof to the Effective Time,
the Company and its Subsidiaries shall authorize and permit Parent and its
representatives, accountants and counsel to have full and complete access to all
of the properties, books, records, operating reports, audit reports, customer
accounts and records, any reports of Governmental Entities and responses
thereto, operating instructions and procedures (and all correspondence with
Governmental Entities), Tax Returns, Tax settlement letters, financial
statements and other financial information (including the work papers,
information pertaining to passed adjustments and other information supporting
such work papers used to audit the financial statements) and all other
information with respect to the business, affairs, financial condition, assets
and liabilities of the Company and its Subsidiaries, as Parent may from time to
time request, to make copies of such books, records and other documents and to
discuss the business affairs, condition (financial and otherwise), assets and
liabilities of the Company and its Subsidiaries, with such third persons,
including, without limitation, their directors, officers, employees, agents,
accountants, attorneys, customers and creditors, as Parent considers necessary
or appropriate for the purposes of familiarizing itself with the assets,
liabilities, Mortgage Loans and business and operations of the Company and its
Subsidiaries, determining compliance with any of the representations, warranties
and covenants of the Company set forth herein, and obtaining any necessary
orders, consents or approvals of the transactions contemplated by this
Agreement. In connection with such examination and access, Parent agrees to
observe any confidentiality agreements known to it between the Company or its
Subsidiaries and third parties related to such information. Parent shall also be
authorized and permitted to meet with the employees of the Company or any of its
Subsidiaries. The information and access contemplated by this Section 7.2(a)
shall be provided during normal business hours, upon reasonable written or oral
notice and in such manner as will not unreasonably interfere with the conduct of
the Company's or its Subsidiaries' businesses.
(B) During the period from the date hereof to the Effective Time,
Parent and its Subsidiaries shall authorize and permit the Company and its
representatives, accountants and counsel to have full and complete access to all
of the properties, books, records, operating reports, audit reports, customer
accounts and records, any reports of Governmental Entities and responses
thereto, operating instructions and procedures (and all correspondence with
Governmental Entities), Tax Returns, Tax settlement letters, financial
statements and other financial information (including the work papers,
information pertaining to passed adjustments and other information supporting
such work papers used to audit the financial statements) and all other
information with respect to the business, affairs, financial condition, assets
and liabilities of Parent and its Subsidiaries, as the Company may from time to
time request, to make copies of such books, records and other documents and to
discuss the business affairs, condition (financial and otherwise), assets and
liabilities of Parent and its Subsidiaries, with such third persons, including,
without limitation, their directors, officers, employees, agents, accountants,
attorneys, customers and creditors, as the Company considers necessary or
appropriate for the purposes of familiarizing itself with the assets,
liabilities, and business and operations of Parent and its Subsidiaries,
determining compliance with any of the representations, warranties and covenants
of Parent set forth herein, and obtaining any necessary orders, consents or
approvals of the transactions contemplated by this Agreement. In connection with
such examination and access, the Company agrees to observe any confidentiality
agreements
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known to it between Parent or its Subsidiaries and third parties related to such
information. The Company shall also be authorized and permitted to meet with the
employees of Parent or any of its Subsidiaries. The information and access
contemplated by this Section 7.2(b) shall be provided during normal business
hours, upon reasonable written or oral notice and in such manner as will not
unreasonably interfere with the conduct of Parent's or its Subsidiaries'
businesses.
(C) All information furnished by the Company to Parent or its
representatives pursuant hereto shall be treated as the sole property of the
Company and, if the Merger shall not occur, Parent and its representatives shall
return to the Company all of such written information and all documents, notes,
summaries or other materials containing, reflecting or referring to, or derived
from, such information. Parent shall, and shall use its best efforts to cause
its representatives to, keep confidential all such information. The obligation
to keep such information confidential shall continue for five years from the
date the proposed Merger is abandoned and shall not apply to (I) any information
which (X) was already in Parent's possession prior to the disclosure thereof by
the Company; (Y) was then generally known to the public; or (Z) was disclosed to
Parent by a third party not bound by an obligation of confidentiality or (II)
disclosures made as required by law. Parent shall give the Company prompt notice
prior to making any such disclosure so that the Company may seek a protective
order or other appropriate remedy prior to such disclosure. It is further agreed
that, if in the absence of a protective order or the receipt of a waiver
hereunder Parent is nonetheless, in the opinion of its counsel, compelled to
disclose information concerning the Company to any tribunal or governmental body
or agency or else stand liable for contempt or suffer other censure or penalty,
Parent may disclose such information to such tribunal or governmental body or
agency without liability hereunder.
(D) All information furnished by Parent to the Company or its
representatives pursuant hereto shall be treated as the sole property of Parent
and, if the Merger shall not occur, the Company and its representatives shall
return to Parent all of such written information and all documents, notes,
summaries or other materials containing, reflecting or referring to, or derived
from, such information. The Company shall, and shall use its best efforts to
cause its representatives to, keep confidential all such information. The
obligation to keep such information confidential shall continue for five years
from the date the proposed Merger is abandoned and shall not apply to (I) any
information which (X) was already in the Company's possession prior to the
disclosure thereof by Parent; (Y) was then generally known to the public; or (Z)
was disclosed to the Company by a third party not bound by an obligation of
confidentiality or (II) disclosures made as required by law. The Company shall
give Parent prompt notice prior to making any such disclosure so that Parent may
seek a protective order or other appropriate remedy prior to such disclosure. It
is further agreed that, if in the absence of a protective order or the receipt
of a waiver hereunder the Company is nonetheless, in the opinion of its counsel,
compelled to disclose information concerning Parent to any tribunal or
governmental body or agency or else stand liable for contempt or suffer other
censure or penalty, the Company may disclose such information to such tribunal
or governmental body or agency without liability hereunder.
7.3 STOCKHOLDER MEETINGS.
(A) The Company shall take all steps necessary to obtain approval of
this Agreement by its stockholders. The Company will, through its Board of
Directors, except to the extent legally required for the discharge of the
fiduciary duties of such board as reasonably determined by the Board after
consultation with the Company's outside counsel, recommend to its stockholders
approval of this Agreement and the transactions contemplated hereby and such
other matters as may be submitted to its stockholders in connection with this
Agreement, and shall use its best efforts to obtain such stockholder approvals.
The Company and Parent shall coordinate and cooperate with respect to the
foregoing matters.
(B) Parent shall take all steps necessary to duly call, give notice
of, convene and hold a meeting of its stockholders to be held as soon as is
reasonably practicable for the purpose of voting upon the approval of this
Agreement. Parent will, through its Board of Directors, except to the extent
legally required for the discharge of the fiduciary duties of such board as
reasonably determined by the Board after consultation with Parent's outside
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counsel, recommend to its stockholders approval of this Agreement and the
transactions contemplated hereby and such other matters as may be submitted to
its stockholders in connection with this Agreement, and shall use its best
efforts (including, without limitation, soliciting proxies for such approvals)
to obtain such stockholder approvals. Parent and the Company shall coordinate
and cooperate with respect to the foregoing matters.
7.4 LEGAL CONDITIONS TO MERGER. Subject to the terms and conditions
of this Agreement, each of Parent and the Company shall, and shall cause its
Subsidiaries to, use their reasonable efforts (I) to take, or cause to be taken,
all actions necessary, proper or advisable to consummate the transactions
contemplated by this Agreement including, without limitation, using their
respective reasonable efforts to lift or rescind any injunction or restraining
order or other order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby and to cause any of the
conditions to closing hereunder which are to be satisfied by such party to be so
satisfied, and (II) to obtain (and to cooperate with the other party to obtain)
any consent, authorization, order or approval of, or any exemption by, any
Governmental Entity and any other third party which is necessary or advisable to
be obtained by the Company or Parent or any of their respective Subsidiaries in
connection with the Merger and the other transactions contemplated by this
Agreement.
7.5 ADDITIONAL AGREEMENTS. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of any of the
parties to the Merger or any of the Company's Subsidiaries as contemplated
hereby, the proper officers and directors of each party to this Agreement and
their respective Subsidiaries shall take all such necessary action as may be
reasonably requested by, and at the sole expense of, Parent.
7.6 ADVICE OF CHANGES.
(A) The Company shall promptly advise Parent of any change,
occurrence or event which has had, or could reasonably be expected to have, a
Material Adverse Effect on the Company or which it believes would or would be,
reasonably likely to cause or constitute a material breach of any of the
Company's representations, warranties or covenants contained herein. The Company
will promptly notify Parent of any material change in the normal course of
business or in the operation of the properties of the Company or any of its
Subsidiaries and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the institution
or the threat of material litigation involving the Company or any of its
Subsidiaries, and will keep Parent fully informed of such events. From time to
time prior to the Effective Time, the Company will promptly supplement or amend
the Disclosure Schedule delivered in connection with the execution of this
Agreement to reflect any matter which, if existing, occurring or known at the
date of this Agreement, would have been required to be set forth or described in
such Disclosure Schedule or which is necessary to correct any information in
such Disclosure Schedule which has been rendered inaccurate thereby. No
supplement or amendment to such Disclosure Schedule shall have any effect for
the purpose of determining satisfaction of the conditions set forth in Article
VIII hereof, or the compliance by the Company with the covenants set forth
herein.
(B) Parent shall promptly advise the Company of any change,
occurrence or event which has had, or could reasonably be expected to have, a
Material Adverse Effect on Parent or which it believes would or would be,
reasonably likely to cause or constitute a material breach of any of Parent's
representations, warranties or covenants contained herein. Parent will promptly
notify the Company of any material change in the normal course of business or in
the operation of the properties of Parent or any of its Subsidiaries and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the threat
of material litigation involving Parent or any of its Subsidiaries, and will
keep the Company fully informed of such events. From time to time prior to the
Effective Time, Parent will promptly supplement or amend the Disclosure Schedule
delivered in connection with the execution of this Agreement to reflect any
matter which, if existing, occurring or known at the date of this Agreement,
would have been required to be set forth or described in such Disclosure
Schedule or which is necessary to correct any
30
<PAGE>
information in such Disclosure Schedule which has been rendered inaccurate
thereby. No supplement or amendment to such Disclosure Schedule shall have any
effect for the purpose of determining satisfaction of the conditions set forth
in Article VIII hereof, or the compliance by Parent with the covenants set forth
herein.
7.7 INDEMNIFICATION. Parent and Merger Sub agree that all rights to
indemnification and/or exculpation from liability existing in favor of the
present directors, officers and employees of the Company (solely in their
capacities as such) or present directors of the Company serving or who served at
the Company's request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, as provided in the Company's certificate of incorporation or bylaws
(each as in effect on the date hereof) with respect to matters occurring prior
to the Effective Time shall survive the Merger and shall continue in full force
and effect and without modification (other than modifications which would
enlarge the indemnification rights) for a period of not less than the statutes
of limitations applicable to such matters, and Parent agrees to cause the
Surviving Corporation to comply fully with its obligations hereunder and
thereunder.
7.8 LETTER OF ACCOUNTANTS. Parent and the Company shall use
reasonable efforts to cause KPMG, Parent's independent public accountants, to
deliver to Parent, a letter to the effect that pooling-of-interests accounting
is appropriate for the Merger if it is closed and consummated in accordance with
this Agreement.
7.9 ACCOUNTING MATTERS. Neither Parent, the Company nor any of their
respective affiliates shall take or agree to take any action or fail to take any
action that would prevent Parent from accounting for the business combination to
be effected by the Merger as a pooling-of-interests under GAAP. Without
limitation of the foregoing, each party agrees that neither it nor its
affiliates will, and it will direct its accountants not to, discuss with or make
any written presentations to the SEC concerning the application of
pooling-of-interests accounting, unless such party has provided to the other
party a reasonable opportunity to participate fully in any such discussion or
presentation. Each party shall promptly notify the other parties if at any time
such party has knowledge of any fact or circumstance which causes such party to
believe that KPMG will not be able to deliver the letter referred to in Section
7.8.
ARTICLE VIII. CONDITIONS PRECEDENT.
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(A) STOCKHOLDER APPROVALS. This Agreement shall have been approved
and adopted by the affirmative vote of the holders of at least a simple majority
the outstanding shares of Company Common Stock entitled to vote thereon. This
Agreement shall have been approved and adopted by the affirmative vote of the
holders of at least a simple majority the outstanding shares of Parent Common
Stock entitled to vote thereon.
(B) OTHER APPROVALS. All approvals of Governmental Entities required
in connection with the transactions contemplated hereby shall have been obtained
and shall remain in full force and effect, and all notices required to be filed
with any Governmental Entity in connection with the transactions contemplated
hereby shall have been filed, and all notice periods and waiting periods
required by law in respect thereof shall have expired or been terminated (all
such approvals and the expiration of all such waiting periods being referred to
herein as the "Requisite Regulatory Approvals").
(C) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction
or decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Merger or any of the other transactions contemplated by this Agreement shall be
in effect. No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits, restricts or makes illegal consummation of the Merger.
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<PAGE>
(D) POOLING-OF-INTERESTS ACCOUNTING TREATMENT. The Merger shall
qualify for pooling-of-interests accounting treatment. Each officer, director
and direct or indirect owner of more than 10% of the shares of Company Common
Stock who receives shares of Parent Company Stock pursuant to this Agreement
shall have entered into an agreement with Parent prohibiting the sale of any
shares of Parent Company Stock received by them until such time as financial
results of the Surviving Corporation covering at least 30 days of post-merger
combined operations have been published (the "Restricted Period").
8.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The
obligation of Parent and Merger Sub to effect the Merger is also subject to the
satisfaction or waiver by Parent at or prior to the Effective Time of the
following conditions:
(A) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date; provided,
however, that for purposes of determining the satisfaction of the condition
contained in this Section 8.2(a), such representations and warranties shall be
deemed to be true and correct in all material respects unless the failure or
failures of such representations and warranties to be so true and correct, in
the aggregate, has had or could reasonably be expected to have a Material
Adverse Effect on the Company.
(B) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date.
(C) BURDENSOME CONDITIONS. All material conditions and requirements
prescribed by applicable law and by the Requisite Regulatory Approvals to be
satisfied by the Closing Date shall have been satisfied, and no Requisite
Regulatory Approval shall have imposed any condition or requirement that is or
would have become applicable to Parent or any Affiliate of Parent (including the
Surviving Corporation or any of its Subsidiaries) after the Closing Date which
Parent in its reasonable judgment determines would be materially burdensome upon
the conduct of the business of Parent or any of its Affiliates or the business
of the Company and its Subsidiaries, as such businesses have been conducted
prior to the Closing Date.
(D) LITIGATION RE TRANSACTION. There shall be no pending or
threatened actions or proceedings by any Governmental Entity (or determinations
by any Governmental Entity) challenging or in any manner seeking to restrict or
prohibit the transactions contemplated hereby.
(E) CONSENTS. The Company and Parent shall have received: (I) all
consents required from all Agencies in connection with the transactions
contemplated hereby, in form and substance reasonably satisfactory to Parent;
(II) such other consents required from any Investor or other Person (other than
an Agency); and (III) all other consents, approvals, waivers and other actions
required from any Person in connection with any Company Contracts or otherwise
shall have been obtained in form and substance reasonably satisfactory to
Parent, except where the failure to obtain such consents, approvals, and waivers
and to take such other actions, has not had and could not reasonably be expected
to have a Material Adverse Effect on the Surviving Corporation or its
Subsidiaries following the Closing Date. The Company shall have properly filed
all notices with such Agencies, Investors and Persons which are required as a
result of the transactions contemplated hereby.
(F) LEGAL OPINIONS. Parent shall have received the opinion of
Bracewell & Patterson, L.L.P., counsel to the Company, dated the Closing Date,
in form and substance customary for transactions of this type and satisfactory
to Parent. Such counsel may rely upon the certificates of officers and directors
of the Company and of public officials and on opinions of other counsel,
reasonably acceptable to Parent, provided a copy of any such reliance opinion
shall be attached as an exhibit to the opinion of such counsel. In rendering
such opinion,
32
<PAGE>
such counsel may rely upon local or special counsel or upon representations
contained in certificates and this Agreement.
(G) DISSENTERS. The aggregate number of shares of Company Common
Stock whose holders have perfected their rights to be Dissenting Shares shall be
fewer than 1,000.
(H) MATERIAL ADVERSE EFFECT ON THE COMPANY. Since the date hereof
through the Closing Date, no Material Adverse Effect with respect to the Company
and its Subsidiaries shall have occurred.
(I) OFFICERS' CERTIFICATE. Parent shall have received a certificate
dated as of the Closing Date and signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company as to the
satisfaction of the conditions set forth in Sections 8.2(a), (b), (d), (e), (f)
and (h) hereof. Parent shall also have received a certificate dated as of the
Closing Date and signed on behalf of the Company by the Chief Executive Officer
and the Chief Financial Officer of the Company certifying that a true, complete
and correct copy of the most recent quarterly financial statement of the Company
is attached. Parent shall be reasonably satisfied as to the reserves set forth
in such financial statement.
(J) NON-COMPETITION AND EMPLOYMENT AGREEMENTS. Richard J. Gillen
shall have entered into a mutually agreeable employment agreement with the
Company.
(K) ASSIGNMENT OF OPTIONS. Richard J. Gillen shall have assigned to
the Company, or its designee, his options to acquire 100% of the issued and
outstanding shares of JMC Title Agency, Inc. and Harbor Financial Insurance
Agency, Inc.
8.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date; provided, however,
that for purposes of determining the satisfaction of the condition contained in
this Section 8.3(a), such representations and warranties shall be deemed to be
true and correct in all material respects unless the failure or failures of such
representations and warranties to be so true and correct, in the aggregate, has
had or could reasonably be expected to have a Material Adverse Effect on Parent.
(B) PERFORMANCE OF OBLIGATIONS OF PARENT. Parent and Merger Sub
shall have each performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date.
(C) NO PENDING GOVERNMENTAL ACTIONS. No proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending.
(D) LEGAL OPINION. The Company shall have received the opinion of
Vander Woude & Istre, P.C., counsel to Parent, dated the Closing Date, in form
and substance customary in transactions of this type and satisfactory to
Company. Such counsel may rely upon the certificates of officers and directors
of Parent and Merger Sub and of public officials, and on opinions of local
counsel, reasonably acceptable to the Company, provided a copy of any such
reliance opinion shall be attached as an exhibit to the opinion of such counsel.
In rendering such opinion, such counsel may rely upon local or special counsel
or upon representations contained in certificates and this Agreement.
33
<PAGE>
(E) OFFICERS' CERTIFICATE. The Company shall have received a
certificate dated as of the Closing Date and signed on behalf of Parent by the
Chief Operating Officer or Chief Financial Officer of Parent as to the
satisfaction of the conditions set forth in Sections 8.3(a), (b), (c) and (f)
hereof.
(F) MATERIAL ADVERSE EFFECT ON PARENT. Since the date hereof through
the Closing Date, no Material Adverse Effect with respect to Parent and its
Subsidiaries shall have occurred.
(G) DIRECTORSHIPS. Parent shall have nominated up to two (2) persons
designated by the Company and approved by the Nominating Committee of the Board
of Directors of Parent to serve on the Board of Directors of Parent.
(H) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceeding seeking a stop order.
(I) TAX LEGAL OPINION. The Company shall have received an opinion
from Bracewell & Patterson, L.L.P., dated the Effective Time, to the effect that
(I) the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code; (II) the
Company will be a party to the reorganization within the meaning of Section
368(b) of the Code; (III) no gain or loss will be recognized by the Company as a
result of the Merger; and (IV) no gain or loss will be recognized by any
stockholder of the Company as a result of the Merger with respect to Company
Common Stock converted solely into Parent Common Stock. In rendering such
opinion, such counsel may rely upon local or special counsel or upon
representations contained in certificates and this Agreement.
ARTICLE IX. TERMINATION AND AMENDMENT.
9.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the matters presented
in connection with the Merger by the stockholders of the Company:
(A) by mutual consent of Parent and the Company in a written
instrument; or
(B) by either Parent or the Company upon written notice to the other
party (I) 90 days after the date on which any request or application for a
Requisite Regulatory Approval shall have been denied or withdrawn at the request
or recommendation of the Governmental Entity which must grant such Requisite
Regulatory Approval, unless within the 90-day period following such denial or
withdrawal a petition for rehearing or an amended application has been filed
with the applicable Governmental Entity, provided, however, that no party shall
have the right to terminate this Agreement pursuant to this Section 9.1(b)(i) if
such denial or request or recommendation for withdrawal shall be due to the
failure of the party seeking to terminate this Agreement to perform or observe
the covenants and agreements of such party set forth herein or (II) if any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the consummation of any
of the transactions contemplated by this Agreement; or
(C) by either Parent or the Company if the Merger shall not have
been consummated on or before July 1, 1997, unless the failure of the Closing to
occur by such date shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe the covenants and agreements of such party
set forth herein; or
(D) by either Parent or the Company (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if any approval of the stockholders of
Parent or the Company required for the consummation of the Merger shall not have
been obtained; or
34
<PAGE>
(E) by either Parent or the Company (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material breach
of any of the representations or warranties set forth in this Agreement on the
part of the other party, which breach is not cured within thirty (30) days
following written notice to the party committing such breach, or which breach,
by its nature, cannot be cured prior to the Closing, and which breach,
individually or together with other such breaches, has had or could reasonably
be expected to have a Material Adverse Effect on the breaching party; or
(F) by either Parent or the Company (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material breach
of any of the covenants or agreements set forth in this Agreement on the part of
the other party, which breach shall not have been cured within thirty (30) days
following receipt by the breaching party of written notice of such breach from
the other party hereto.
9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company as provided in Section 9.1, this
Agreement shall forthwith become void and have no effect except (A) Sections
7.2(c), 7.2(d), 9.2 and 10.4 through 10.12, shall survive any termination of
this Agreement, and (B) notwithstanding anything to the contrary contained in
this Agreement, no party shall be relieved of or released from any liabilities
or damages arising out of its breach of any provision of this Agreement.
9.3 AMENDMENT. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the stockholders of the
Company; provided, however, that after any approval of the transactions
contemplated by this Agreement by the Company's stockholders, there may not be,
without further approval of such stockholders, any amendment of this Agreement
which reduces the amount or changes the form of the consideration to be
delivered to the Company's stockholders hereunder other than as contemplated by
this Agreement. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may (A) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (B) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (C) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party, but such extension or waiver or
failure to insist on strict compliance with an obligation, covenant, agreement
or condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
9.5 TERMINATION PAYMENT. If this Agreement is terminated by either
Parent or the Company pursuant to Section 9.1(e) or (f) or because the
conditions precedent to the obligations of Parent or the Company set forth in
Section 8.2 or 8.3 have not been satisfied or waived (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein), then the terminating
party shall be entitled to the sum of $100,000.00 as reimbursement for its time,
effort and expense in pursuing the transactions contemplated by this Agreement
and the other party shall promptly pay such sum by wire transfer of immediately
available funds to such account as the terminating party shall designate.
ARTICLE X. GENERAL PROVISIONS.
10.1 CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") will take place at 10:00 a.m. on a
date to be specified by the parties, which shall be as soon as practicable after
the satisfaction or waiver (subject to applicable law) of the latest to occur of
the conditions set
35
<PAGE>
forth in Article VIII hereof (the "Closing Date"), unless another time or date
is agreed to in writing by the parties hereto.
10.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None
of the representations, warranties, covenants and agreements in this Agreement
or in any instrument delivered pursuant to this Agreement shall survive the
Effective Time, except for those covenants and agreements contained herein and
therein which by their terms apply in whole or in part after the Effective Time.
10.3 EXPENSES. Except as otherwise set forth herein, or required for
pooling of interests accounting treatment, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expense.
10.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(with confirmation), mailed by registered or certified mail (return receipt
requested) or delivered by an express courier (with confirmation) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(A) if to Parent or Merger Sub, to:
FirstCity Financial Corporation
P.O. Box 8216
Waco, Texas 76714-8216
Attention: Matt Landry, Jr.
with a copy to:
Vander Woude & Istre, P.C.
510 N. Valley Mills Drive, Suite 308
Waco, Texas 76710
Attention: F. John Istre, III
and
(B) if to the Company, to:
Harbor Financial Group, Inc.
340 North Sam Houston Parkway East
Suite 100
Houston, Texas 77060
Attention: Richard J. Gillen, President
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Attention: Rick L. Wittenbraker
10.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in
36
<PAGE>
any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". Whenever the words "to
the Company's knowledge", "to the best of the Company's knowledge", or words to
similar effect are used in this Agreement, the Company's knowledge shall be
deemed to include the knowledge of its Subsidiaries.
10.6 COUNTERPARTS. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties hereto and
delivered to the other parties hereto, it being understood that all parties need
not sign the same counterpart.
10.7 ENTIRE AGREEMENT. This Agreement (including the documents and
the instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties hereto with respect to the subject matter hereof.
10.8 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law.
10.9 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in the
last sentence of Section 7.2(c) and in Section 7.2(d) of this Agreement were not
performed in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the last sentence of Section 7.2(c) and
Section 7.2(d) of this Agreement and to enforce specifically the terms and
provisions thereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
10.10 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.11 PUBLICITY. Except as otherwise required by law or the rules of
the National Association of Securities Dealers, so long as this Agreement is in
effect, neither Parent nor the Company shall, or shall permit any of its
Subsidiaries to, issue or cause the publication of any press release or other
public announcement with respect to, or otherwise make any public statement
concerning, the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld.
10.12 ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. Except as otherwise
specifically provided herein (it being acknowledged that certain provisions are
expressly intended to benefit the Company's stockholders, directors, officers
and employees), this Agreement (including the documents and instruments referred
to herein) is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
[END OF PAGE]
37
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have endorsed
this Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.
COMPANY:
HARBOR FINANCIAL GROUP, INC.
By: /s/ Richard J. Gillen
-------------------------
Name: Richard J. Gillen
Title: Chairman, President & CEO
PARENT:
FIRSTCITY FINANCIAL CORPORATION
By: /s/ Matt Landry
--------------------------
Name: Matt Landry
Title: Executive Vice President
MERGER SUB:
HFGI ACQUISITION CORP.
By: /s/ Matt Landry
--------------------------
Name: Matt Landry
Title: Executive Vice President
38
N E W S R E L E A S E
FIRSTCITY
FINANCIAL CORPORATION
Suzy W. Taylor
P.O. Box 105
Houston, Texas 77001
(713) 652-1810
FIRSTCITY FINANCIAL AND HARBOR FINANCIAL GROUP
SIGN DEFINITIVE AGREEMENT TO MERGE
WACO, TEXAS, MARCH 26, 1997...FirstyCity Financial Corporation and Harbor
Financial Group, Inc. jointly announced today the execution of the definitive
agreement to merge the two companies. Under the terms of the agreement,
FirstCity will issue 1,581,000 shares of its common stock in exchange for 100%
of the outstanding capital stock of Harbor.
The transaction is subject to approval of both companies' shareholders.
FirstCity shareholders will be asked to vote on the merger at its annual
shareholder meeting scheduled for May 15, 1997. The transaction is also subject
to certain regulatory approvals and governmental consents. It is anticipated
that the transaction will close before mid year. Upon completion of the merger,
which will be treated as a pooling of interests, Harbor will operate as a
wholly-owned subsidiary of FirstCity Financial.
Harbor is the parent of Houston-based Harbor Financial Mortgage
Corporation, and Dallas-based New America Financial, Inc. which are mortgage
banking concerns with 680 employees in 42 locations nationwide. The companies
originate and service residential loans, home improvement loans and commercial
mortgages for a variety of agency and private investors. The company also
provides consulting services through Hamilton, Carter, Smith & Company, an
industry-leading consulting firm.
FirstCity Financial Corporation, is a financial services company engaged
in value investing through special asset acquisition, management and
disposition, as well as consumer lending. Its common(FCFC) and special
preferred(FCFCP) stocks are listed on the NASDAQ National Market System.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, September 30,
-------------------- --------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- -------- --------- -------- -------- --------
(amounts in thousands except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Income:
Loan servicing ....................... $ 3,481 $ 1,772 $ 10,079 $ 6,508 $ 7,479 $ 6,956 $ 4,451
Gain on sale of mortgage loans, net .. 5,746 3,923 19,523 8,292 3,199 2,997 2,070
Warehouse
interest income ................. 3,367 2,275 12,320 5,453 4,428 3,059 2,088
interest expense ................ (2,833) (1,230) (9,096) (3,098) (1,755) (877) (615)
-------- -------- -------- -------- -------- -------- --------
Net Warehouse Interest Income ........ 534 1,045 3,224 2,355 2,673 2,182 1,473
Gain on sale of servicing rights, net. 0 842 2,641 2,011 694 607 646
Other ................................ 503 273 2,153 1,276 2,617 2,995 2,369
-------- -------- -------- -------- -------- -------- --------
10,264 7,855 37,620 20,442 16,662 15,737 11,009
-------- -------- -------- -------- -------- -------- --------
Expenses:
Salaries, commissions and employee
benefits ............................. 5,204 3,091 16,105 8,673 7,454 6,559 5,021
Amortization of mortgage servicing
rights and deferred excess servicing
fees ................................. 1,539 827 4,091 3,823 2,891 2,233 968
Communication ............................. 1,045 604 3,304 1,592 1,404 1,111 927
Data processing and equipment ............. 714 403 2,060 1,459 1,420 1,052 710
Office occupancy .......................... 564 379 1,743 1,325 1,056 740 609
Interest .................................. 361 218 1,004 945 1,646 1,044 948
Foreclosure provisions and related
expenses ............................. 68 29 140 206 74 176 305
Other ..................................... 1,230 577 3,185 1,644 1,649 1,832 1,289
-------- -------- -------- -------- -------- -------- --------
10,725 6,128 31,632 19,667 17,594 14,747 10,777
-------- -------- -------- -------- -------- -------- --------
Income before income taxes, extra-
ordinary items and cumulative
effect of change in accounting
principle ............................ (461) 1,727 5,988 775 (932) 990 232
Income tax expense/(benefit) ................... (169) 587 2,264 264 (350) 395 71
Income tax expense - tax effect of net
operating loss carryforward ............... -- -- -- -- -- -- 79
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary items and
cumulative effect of a change in
accounting principle ...................... (292) 1,140 3,724 511 (582) 595 82
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
Three Months Ended Year Ended
December 31, September 30,
------------------------ -------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- -------- --------- ---------- --------- ----------
(amounts in thousands except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Extraordinary items:
Gain from payment of debt, net of tax .. -- -- -- -- -- -- 1,339
Credit from utilization of net operating
loss carryforward ................. -- -- -- -- -- -- 769
Cumulative effect of a change in tax method . -- -- -- -- -- 20 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net earnings ...................... $ (292) $ 1,140 $ 3,724 $ 511 $ (582) 615 $ 2,190
=========== =========== =========== =========== =========== =========== ===========
Earnings (loss) per share ................... $ (1.74) $ 6.80 $ 22.22 $ 3.05 $ (3.47) $ 3.67 $ 13.07
Operating Data:
Loan servicing portfolio ............... $ 4,252,753 1,628,299 3,947,028 1,448,395 1,435,372 1,666,440 1,418,130
Volume of loans originated (including
purchased) ........................ $ 529,912 312,664 1,763,654 727,950 428,950 361,318 289,313
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30,
--------------------- ----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets
- ------
Cash and cash equivalents ........................ $ 5,554 $ 4,953 $ 5,004 $ 5,844 $ 1,154 $ 1,976 $ 2,394
Mortgage loans held for sale, net ................ 134,971 119,647 134,348 103,775 36,085 36,542 38,531
Mortgage loans held for investment, net .......... 1,015 22 1,097 23 488 864 933
Construction loans receivable .................... 9,912 2,839 8,816 1,446 -- -- --
Receivable for escrow, foreclosure, and
other advances, less allowance for
losses ...................................... 15,861 2,525 10,320 2,129 2,096 1,206 1,016
Property and equipment, less
accumulated depreciation .................... 2,197 1,349 2,121 1,270 1,325 896 984
Mortgage servicing rights and deferred
excess servicing fees, net .................. 39,864 14,646 33,517 12,902 10,465 13,229 13,341
Accrued interest, other receivables, and
other assets ................................ 6,147 3,277 5,355 2,773 1,917 2,361 1,931
-------- -------- -------- -------- -------- -------- --------
Total assets ..................................... $215,521 $149,258 $200,578 $130,162 $ 53,530 $ 57,074 $ 59,130
======== ======== ======== ======== ======== ======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities:
Notespayable to banks:
Warehouse lines of credit
collateralized by mortgage loans
held for sale:
Master residential warehouse
line of credit .................... $129,092 $115,481 $119,942 $ 99,041 $ 30,868 $ 29,205 $ 37,744
Subline of master residential
warehouse line .................... 37 2,172 49 577 0 4,873 1,416
Other lines of credit .................. 11,169 2,846 17,975 4,164 4,732 1,543 0
-------- -------- -------- -------- -------- -------- --------
140,298 120,499 137,966 103,782 35,600 35,621 39,160
Collateralized by foreclosed real
estate held for sale:
Subline of master residential
warehouse line .................... 413 40 291 40 22 26 145
Other lines of credit .................. 999 0 576 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
1,412 40 867 40 22 26 145
Subline of master residential
warehouse line collateralized by
receivables for escrow, foreclosure,
and other assets ............................ 16,951 2,707 10,662 2,171 2,236 1,758 843
Long-term debt collateralized by
substantially all of the Harbor's
assets ...................................... 20,000 9,350 20,000 6,500 7,887 12,030 12,536
-------- -------- -------- -------- -------- -------- --------
178,661 132,596 169,495 115,993 45,745 49,435 52,684
Accounts payable and accrued expenses ................. 4,857 1,463 6,623 1,251 724 1,409 887
Other liabilities ..................................... 19,284 6,601 11,269 6,044 1,019 1,611 1,703
Deferred tax liability, net ........................... 2,432 337 2,602 337 87 400 71
-------- -------- -------- -------- -------- -------- --------
Total liabilities ..................................... 205,234 140,997 189,989 123,625 47,575 52,855 55,345
-------- -------- -------- -------- -------- -------- --------
Shareholders' equity:
Common stock, no par value, 500,000
shares authorized ........................... 6,473 6,262 6,262 6,187 6,187 4,199 4,199
Common stock subscribed .......................... 126 -- 338 149 142 -- 90
Additional paid-in-capital ....................... 76 116 76 116 104 41 --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, September 30,
-------------------- ---------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- -------- --------- -------- -------- --------
(amounts in thousands except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Retained earnings .................. 3,680 1,976 3,972 248 (263) 319 (296)
Treasury stock ..................... (68) (93) (59) (163) (215) (340) (118)
Stock Subscription Receivable ...... (90)
--------- --------- --------- --------- --------- --------- ---------
Total shareholders' equity .............. 10,287 8,261 10,589 6,537 5,955 4,219 3,785
Commitments and contingencies............
--------- --------- --------- --------- --------- --------- ---------
$ 215,521 $ 149,258 $ 200,578 $ 130,162 $ 53,530 $ 57,074 $ 59,130
========= ========= ========= ========= ========= ========= =========
</TABLE>
